2024 (5) TMI 1232 - AT - Income Tax

Addition u/s 56(2)(viib) read with rule 11UA (1)(c)(b) - difference in valuation of shares - applicability of the amendment introduced by CBDT notification 81/2023 dated 25.08.2023 - HELD THAT - As per notification 81/2023 dated 25.08.2023 it is evident that where the difference between the issue price and value adopted by the AO is 10% or less, in such cases issue price will be deemed to be the fair value of shares for the purpose of Rule 11UA of the Income Tax Rules, 1962. In the present case the issue price is Rs. 15 per share and the value adopted by the AO is Rs. 14.68/per share, hence the difference between the issue price and value adopted by AO is Rs. 0.32 i.e. 2.21% (0.32/15) which is less the then the safe harbor of 10% variation in value introduced by CBDT notification 81/2023 dated 25.08.2023. Hence, in view of above mentioned submission and curative amendment introduced by CBDT notification 81/2023 dated 25.08.2023, addition u/s 56(2)(viib) read with Rule 11UA is unsustainable. Scope of amendment - The amendment brought in Rule 11UA of the Act was introduced to mitigate the hardship faced by taxpayers by the un-intended invocation of Section 56(2)(vlib) read with rule 11UA and therefore the same is a curative amendment. Thus where an amendment which is inserted to remedy unintended consequences and to make the proviso workable, an amendment which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. Hence, in view of above mentioned submissions and judicial pronouncements curative amendment in Rule 11UA of the Income Tax Rules, 1962 introduced by CBDT notification 81/2023 dated 25.08.2023 will apply retrospectively and consequently, the addition of Rs. 50,77,334 u/s 56(2)(viib) read with rule 11UA is unsustainable as the difference between issue price and value adopted by AO is 2.1% i.e. less than 10%. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Confirmation of addition u/s 56(2)(viib) on account of difference in valuation of shares.
2. Rejection of valuation report submitted by the assessee.
3. Calculation method under section 56(2)(viib).
4. Presumption and assumption basis for addition.
5. Admission of additional grounds of appeal regarding CBDT notification 81/2023.

Summary:

Issue 1: Confirmation of Addition u/s 56(2)(viib)
The assessee contested the confirmation of an addition of Rs. 50,77,334/- made by the AO due to a difference in the valuation of shares invoking section 56(2)(viib) read with rule 110 & 11 UA of the Income Tax Rules, 1962. The AO computed the fair market value of the shares at Rs. 14.68 per share, whereas the assessee had valued them at Rs. 15 per share.

Issue 2: Rejection of Valuation Report
The assessee argued that the CIT(A) erred in rejecting the valuation report submitted by the Chartered Accountant, which valued the shares at Rs. 14.77 per share, rounded to Rs. 15 per share. The CIT(A) upheld the AO's valuation, resulting in the disputed addition.

Issue 3: Calculation Method under Section 56(2)(viib)
The assessee contended that the addition was incorrectly calculated as per the method given under section 56(2)(viib). The Tribunal noted that the difference between the values adopted by the assessee and the AO was only 2%, which is minimal.

Issue 4: Presumption and Assumption Basis for Addition
The assessee claimed that the CIT(A) confirmed the addition based on surmises without any adverse evidence, relying solely on presumption and assumption.

Issue 5: Admission of Additional Grounds of Appeal
The Tribunal admitted the additional grounds of appeal concerning CBDT notification 81/2023, which introduced a safe harbor of 10% variation in value. The Tribunal referenced the Hon'ble Apex Court's judgment in National Thermal Power Co. Ltd. Vs CIT, allowing the consideration of new grounds if they are necessary for correctly assessing the tax liability.

Judgment:
The Tribunal found that the difference between the issue price (Rs. 15 per share) and the value adopted by the AO (Rs. 14.68 per share) was 2.21%, which is less than the 10% safe harbor introduced by CBDT notification 81/2023. The Tribunal held that the addition of Rs. 50,77,334/- u/s 56(2)(viib) read with Rule 11UA was unsustainable. The Tribunal also noted that the amendment introduced by CBDT notification 81/2023 is curative and should be applied retrospectively, referencing the Hon'ble Apex Court's judgment in Allied Motors Private Limited Vs. CIT.

Conclusion:
The appeal of the assessee was allowed, and the addition of Rs. 50,77,334/- u/s 56(2)(viib) was deleted. The Tribunal pronounced the order in the open court on 16/04/2024.