2023 (1) TMI 1033 - AT - Income Tax

Addition made u/s 56(2)(viib) - excess consideration received on allotment of shares - CIT(A) issued notice for enhancement u/s 251(2) as allotment of shares to the promoter director of the assessee company on which excess share consideration of Rs. 59 per share was also charged by the assessee was not considered while invoking the provisions of section 56(2)(viib) - fair market value of the shares arrived on the basis of the valuation report by using the DCF method was Rs.341 per share - HELD THAT - Out of the 5 individuals to whom the shares were allotted by the assessee, one person viz. Mr. Mark Anthony De Boer, was a non-resident and therefore both the AO as well as CIT(A) accepted that provision of section 56(2)(viib) of the Act is not applicable in respect of shares allotted to a non-resident. In respect of the other 4 individuals to whom shares allotted by the assessee in excess of the price determined by the valuation report were held to be covered within the ambit of section 56(2)(viib) of the Act. As per the provisions of section 56(2)(viib) in the case of a company, in which the public is not substantially interested, receipts from any person being a resident as a consideration for the issue of shares in excess of the face market value of such shares is to be considered as the income of the assessee under the head income from other sources . Since there is no material available on record that the assessee has disputed the valuation of shares at Rs.341 per share vide valuation report dated 15/09/2012, therefore, we find no infirmity in the impugned order directing the disallowance being the excess consideration received by the assessee over and above the fair market value of the shares. As a result, grounds raised by the assessee are dismissed.

Summary

Issues:
Challenge to order under section 250 of the Income Tax Act for assessment year 2013-14. Dispute over addition under section 56(2)(viib) of the Act for excess consideration on share allotment.

Analysis:
1. The appeal was filed challenging the order dated 12/09/2019 under section 250 of the Income Tax Act for the assessment year 2013-14. The appellant did not appear for the hearing, leading to an ex-parte disposal of the appeal after hearing the Departmental Representative.

2. The appellant raised grounds against the addition made under section 56(2)(viib) of the Act due to excess consideration received on share allotment. The appellant's main business activity involved various educational and promotional activities. The Assessing Officer made an addition of Rs. 25,96,000 under section 56(2)(viib) as the shares were allotted at a price higher than the fair market value.

3. In further appeal, it was noted that shares were allotted to the promoter director at a higher value, not considered initially. The CIT(A) enhanced the income by Rs. 59,14,750 under section 56(2)(viib) for issuing shares above fair market value. The CIT(A) held that the provision applied to certain individuals but not to a non-resident shareholder.

4. During the hearing, the Departmental Representative supported the CIT(A)'s decision, emphasizing the excess consideration received. The shares were allotted at Rs.400 each, including a premium of Rs.390, to various individuals. The fair market value per share was determined at Rs.341.

5. The Tribunal found no dispute on the fair market value determined by the valuation report. The provision of section 56(2)(viib) applied to shares issued above the valuation price to residents, not to non-residents. The order directing the disallowance of Rs. 59,14,750 as excess consideration was upheld due to lack of dispute on the valuation.

6. Consequently, the appeal by the assessee was dismissed, affirming the impugned order's decision on the excess consideration received on share allotment.