2022 (9) TMI 696 - AT - Income Tax

Addition u/s 56 (2)(viia) - applicability of Rule 11 UA - FMV determined by the AO - assessee has received 90,000 shares of Bhawani Portfolio Limited @ rate of Rs. 1000/- per share which was found to be less than fair market value by the AO on the basis of NAV as per Audited Financial Filed - HELD THAT - FMV of shares as worked out, applying the Rule 11UA is as per the approved method and book value is as per the cost to the appellant, both cannot be considered simultaneously, Further, the working of shares cannot to be said to the incorrect and nothing has been brought on record by appellant to justify that the working is not as per Rules, therefore, the AO has taken the FMV, correctly, as per Rules and this argument is not tenable. BPPL has gone Into winding up - Scope of Subsequent development - Subsequent development that value of such shares become nil, cannot be considered nor this was stated in assessment proceedings. Further, if there was no real value of these shares, the receiving of 90,000 shares of BPPL against allotment of shares of other companies is not justified, Therefore, this argument of the appellant has no force and deserves to be rejected. Shares have been allotted at a premium, therefore the provisions of section 56(2)(viib) will be applicable and not the provisions of section 56(2)(vila) - This argument of appellant is also not tenable due to the reason that the shares have been transferred for inadequate consideration and FMV, as worked out In accordance with Rule 11UA is higher than the consideration received. Therefore, the provisions of section 56(2)(viia) is duly applicable In the case of appellant. As contention of the appellant is not found acceptable and no interference is made in the decision by AG and addition is confirmed herewith. - Decided against assessee.

Summary

Issues:
Challenge to addition under section 56(2)(viia) of the Act.

Analysis:
The appeal was filed against the CIT(A)'s order upholding the addition of Rs. 1,81,91,344 made by the Assessing Officer under section 56(2)(viia) of the Income Tax Act. The assessee received 90,000 shares of Bhawani Portfolio Limited at a rate of Rs. 1000 per share, which was deemed to be less than the fair market value by the AO. The AO calculated the fair market value at Rs. 1202 per share based on the Net Asset Value (NAV) as per the Audited Financial Filed, resulting in the addition of Rs. 1,81,91,344.

The CIT(A) rejected the assessee's argument that no addition was required if the fair market value determined by the AO was considered as income, as the value of the shares allotted would automatically be affected. The CIT(A) emphasized that the fair market value of shares should be determined just before the transfer of shares, not after, and that the value as per Rule 11UA was correctly applied by the AO. The CIT(A) also dismissed the argument that the real value of the shares was nil due to subsequent developments, stating that the value remained Rs. 1202 as per Rule 11UA for the relevant period.

Additionally, the appellant's contention that section 56(2)(viib) should apply instead of section 56(2)(viia) due to the shares being allotted at a premium was rejected by the CIT(A). The CIT(A) concluded that the provisions of section 56(2)(viia) were applicable as the fair market value determined under Rule 11UA was higher than the consideration received.

The CIT(A) also distinguished various cases cited by the appellant, stating that they were not directly applicable to the current matter. After careful consideration, the ITAT Delhi upheld the CIT(A)'s decision, finding no error or infirmity in the findings. The appeal was dismissed, confirming the addition of Rs. 1,81,91,344.

In conclusion, the ITAT Delhi found no grounds for interference in the CIT(A)'s decision and dismissed the appeal, upholding the addition under section 56(2)(viia) of the Income Tax Act.