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2023 (12) TMI 645 - AT - Income TaxAddition u/s 56(2)(viib) - excess share premium recorded by the assessee - Revenue has controverted the action of the CIT(A) on the touchstone of Section 56(2)(viib) of the Act towards allotment of equity shares to the subscriber KV Aromatics Pvt. Ltd. which is the existing shareholder, holding 51% of the equity share of the assessee-company - CIT(A) deleted addition - HELD THAT - The effect of issues of shares to holding company at a premium has been examined by the Co-ordinate Bench of Tribunal in the case of BLP Vayu (Projects-1) Pvt. Ltd. 2023 (6) TMI 209 - ITAT DELHI essentially observed that where the allotment has been made to existing shareholders, the deeming provisions of Section 56(2)(viib) would not ordinarily be applicable. This apart, the assessee, in the instant case, has also dislodged the observation of the AO that the net worth at the time of issuance of shares were in negative by adducing valuation report. As per the valuation report, the FMV has been determined at Rs. 14.815 per share which is at par with the FMV at which shares have been issued to the holding company. Thus the premium charged is supportable by the valuation report and the premium charged is quite negligible and charged to existing shareholder. Thus effectively, the benefit if any arising to the company in turn benefits to the subscriber having pre-existing right in the company. Thus, in our view, the conclusion drawn by the CIT(A) cannot be faulted either on facts or in law. Revenue appeal dismissed.
Issues Involved:
1. Deletion of addition under Section 56(2)(viib) on account of excess share premium. 2. Deletion of addition under Section 68 on account of unexplained cash credit in terms of unsecured loans. Summary: Issue 1: Deletion of Addition under Section 56(2)(viib) on Account of Excess Share Premium The Revenue contested the deletion of an addition of Rs. 2,63,00,000/- made by the AO under Section 56(2)(viib) due to excess share premium recorded by the assessee. The AO had recomputed the Fair Market Value (FMV) of the equity shares at a negative figure and invoked Section 56(2)(viib), leading to the addition. The CIT(A) deleted the addition, noting that the premium was minimal and collected from the holding company, KV Aromatics Pvt. Ltd., which held 51% of the assessee-company's shares. The CIT(A) emphasized that the valuation was done as per the Discounted Cash Flow (DCF) method, supported by an independent auditor's report. The Tribunal upheld the CIT(A)'s decision, affirming that the premium charged was supported by the valuation report and was in accordance with the law. The Tribunal referenced various case laws, including the Hon'ble ITAT Delhi's decision in the case of Cinestaan Entertainment Pvt. Ltd., which underscored that the AO cannot change the method of valuation or reject a valid valuation by a competent person. Issue 2: Deletion of Addition under Section 68 on Account of Unexplained Cash Credit in Terms of Unsecured Loans The Revenue also challenged the deletion of an addition of Rs. 77,20,700/- made by the AO under Section 68 due to unexplained cash credit in terms of unsecured loans. The Tribunal considered the submissions and documents presented by both sides and upheld the CIT(A)'s decision. The Tribunal found that the CIT(A) had correctly evaluated the evidence and legal provisions, leading to the deletion of the addition. Conclusion: The Tribunal dismissed the Revenue's appeal, endorsing the CIT(A)'s reasoning and decision. The Tribunal concluded that the additions made by the AO under Sections 56(2)(viib) and 68 were not sustainable either on facts or in law. The appeal of the Revenue was dismissed, and the order was pronounced in the open Court on 13/12/2023.
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