2021 (7) TMI 1464 - AT - Income Tax

Addition u/s 56(2)(viib) - valuation report submitted by the assessee was found to have an error in the valuation method, leading to the incorrect valuation of shares - consideration received by such issuing Company in excess of the FMV, to the extent it exceeds the face value of such shall be liable to tax - HELD THAT - We notice that the additional evidence furnished by the assessee before the AO is in the nature of Corrigendum issued by the Valuer, who was constrained to issue the same as there was an error in the original valuation report. The corrigendum issued same shall form part of original valuation report. In our view, the same should not be treated as additional evidence, as observed by Ld CIT(A). Hence, in our view, there is no reason to reject the corrigendum. Accordingly, we admit the corrigendum furnished by the assessee before the Ld CIT(A), since the same has been issued to correct the error in arriving at the fair market value of shares issued by the assessee. Accordingly, the original report and corrigendum shall constitute full report and the same has to be examined by the AO. Accordingly, we set aside the order passed by CIT (A) and restore the same for examination of the AO with the direction to take into account full report. Appeal filed by the assessee is treated as allowed for statistical purposes.

Summary

Issues:
1. Addition of Rs. 16.20 crores under sec. 56(2)(viib) of the Income-tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of Rs. 16.20 crores under sec. 56(2)(viib) of the Income-tax Act, 1961
The appeal was against the order passed by Ld CIT(A)-3, Bengaluru concerning the assessment year 2015-16, specifically challenging the addition of Rs. 16.20 crores made by the AO under sec. 56(2)(viib) of the Act. The assessee, a company engaged in the manufacture and sale of beverages, had allotted shares at a premium to another company. The AO examined the transaction under sec. 56(2)(viib) which requires shares to be issued at Fair Market Value (FMV) to avoid tax liability on the excess consideration received. The valuation report submitted by the assessee was found to have an error in the valuation method, leading to the incorrect valuation of shares.

The assessee later submitted a corrigendum issued by the valuer to rectify the error in the original valuation report. However, the Ld CIT(A) refused to admit this corrigendum as additional evidence, upholding the AO's decision. Upon appeal, the ITAT found that the corrigendum was essential to correct the valuation error and should be considered part of the original report. The ITAT admitted the corrigendum, directing the AO to examine the full report, including the corrigendum, to determine the fair market value of the shares accurately. Consequently, the ITAT set aside the CIT(A)'s order and allowed the appeal for statistical purposes.

In conclusion, the ITAT's decision focused on the admissibility of the corrigendum as part of the original valuation report to rectify the error in the valuation method. By admitting the corrigendum, the ITAT directed a reexamination of the valuation by the AO, emphasizing the importance of accurate valuation under sec. 56(2)(viib) to determine the tax liability on excess consideration received for shares issued above Fair Market Value.