2023 (7) TMI 163 - AT - Income Tax

Addition u/s 56(2)(viia)(ii) - determination of fair market value of shares - Method of valuation - Addition towards difference between FMV and actual amount paid for purchase of shares - CIT(A) deleted the additions - HELD THAT - As gone through the remand report submitted by the AO on the valuation of fair market value as per Rule 11UA(1) of the Rules. We find that in the remand report, other than supporting the assessment, AO has not commented at all on the determination of fair market value as per book value prescribed u/r 11UA(1) of the I.T. Rules. No error or infirmity was pointed out by the AO in the said valuation report. Since the valuation report is based on the method prescribed under the I.T. Rules and since the same has determined the fair market value at Minus 340.56, CIT(A) has rightly followed the same while deleting the addition, which calls for no interference. Decided against revenue.

Summary

Issues involved:
The judgment involves the deletion of an addition u/s 56(2)(viia)(ii) of the Income Tax Act, 1961 amounting to Rs. 64,20,99,900.

Assessment of Addition u/s 56(2)(viia)(ii):
The Revenue appealed against the deletion of the addition made by the Assessing Officer under section 56(2)(viia)(ii) of the Income Tax Act, 1961. The assessee had purchased shares at a premium value and the Assessing Officer calculated the fair market value of the shares, resulting in the addition of Rs. 64,20,99,900. The assessee contended that the fair market value calculated as per the IT Rules was in negative, thus no addition should be made. The CIT(A) admitted the valuation report and, based on a remand report, deleted the addition. The Revenue argued that the Assessing Officer relied on the valuation report submitted by the assessee and made the addition accordingly. However, the assessee maintained that the valuation report was not in accordance with Rule 11UA(1) of the IT Rules. The Tribunal examined the orders and the remand report but found that the Assessing Officer did not comment on the fair market value determination as per the IT Rules in the remand report. As the valuation report was based on the method prescribed under the IT Rules and determined the fair market value as negative, the CIT(A) rightly deleted the addition. Therefore, the appeal by the Revenue was dismissed.

Conclusion:
The Appellate Tribunal upheld the decision of the CIT(A) to delete the addition u/s 56(2)(viia)(ii) of the Income Tax Act, 1961, amounting to Rs. 64,20,99,900, as the valuation report was in line with the IT Rules and determined the fair market value as negative.