2021 (7) TMI 1442 - AT - Income Tax

Addition u/s 68 - non-genuine/unexplained share capital/share premium - as alleged assessee company received share premium of Rs. 90 per share from related persons - CIT (A) deleted the addition on the grounds that once Rule 11UA has been notified by the CBDT, the rule would be applicable for the entire assessment year and not for the transactions done after 29.11.2012 - as submitted that the amounts have been received as loans initially which were subsequently converted into share capital HELD THAT - The amounts have utilized for purchase of land and if the cost of the land is taken into consideration, the share premium would stands substantiated. It was argued that even otherwise as on 06.03.2013, the date on which the share capital has been received in the books of the company, the valuation under Rule 11UA as per the DCF method is acceptable valuation method for the purpose of clause (viib) of Section 56(2). The valuation report submitted to the CIT (A) as additional evidence has been accepted by the revenue and no inconsistencies in the valuation report has been brought out by the revenue. Since, the source of the amounts received has not been the issue before us, since the valuation report as per the DCF method is an acceptable method prescribed under Rule 11UA in relation to Section 56(2)(viib) and since the valuation report has been found to be in order by the revenue authorities, we hereby decline to interfere with the order of the ld. CIT (A). Decided against revenue.

Summary

Issues involved:
Appeal against deletion of addition under section 68 of the Income Tax Act, 1961 for non-genuine/unexplained share capital/share premium.

Analysis:
The appeal before the Appellate Tribunal ITAT DELHI was filed by the revenue challenging the order of the ld. CIT (A)-I, New Delhi dated 22.03.2017. The primary issue raised by the revenue was the deletion of addition of Rs. 4,08,06,000/- made under section 68 of the Income Tax Act, 1961, concerning non-genuine/unexplained share capital/share premium.

The assessee company, incorporated on 05.03.2012, received share premium of Rs. 90 per share from related persons amounting to Rs. 4,08,60,000/-. The Assessing Officer raised concerns regarding the valuation of the share premium received, as the assessee failed to submit a valuation report under Rule 11UA and did not justify the share premium in accordance with the provisions of Section 56(2) r.w.s. 2(14) of the Income Tax Act, 1961. The AO calculated the book value using the NAV basis formula under Rule 11UA, emphasizing that the amendment to Rule 11UA applied from the notification date of 29.11.2012, thereby impacting the valuation method applicable to the assessee.

However, the ld. CIT (A) reversed the addition, stating that Rule 11UA, once notified by the CBDT, applied for the entire assessment year, not just for transactions post the notification date. The assessee argued that the amounts initially received as loans were later converted into share capital, with the funds utilized for land purchase, thereby justifying the share premium. The assessee contended that as of 06.03.2013, the date of share capital receipt, the valuation under Rule 11UA using the DCF method was an acceptable valuation method for Section 56(2)(viib).

During the proceedings, it was highlighted that the source of the received amounts was not in dispute, and the DCF method valuation report was deemed acceptable under Rule 11UA for Section 56(2)(viib). The revenue authorities accepted the valuation report without identifying any inconsistencies. Consequently, the Tribunal declined to interfere with the ld. CIT (A)'s decision, leading to the dismissal of the revenue's appeal.

In conclusion, the Tribunal upheld the decision to delete the addition under section 68, emphasizing the acceptance of the valuation report under the DCF method as per Rule 11UA for the purpose of Section 56(2)(viib), ultimately resulting in the dismissal of the revenue's appeal.