2024 (8) TMI 545 - AT - Income Tax

Excess payment of interest - interest expenditure on account of loan received - HELD THAT - Amount disallowed was the TDS deducted and paid by the assessee in respect of said loan. The CIT(A) after examining the issue deleted the addition. No document controverting findings of the CIT(A) are brought on record by the Revenue. We find no infirmity in findings of the CIT(A) on this issue. Hence, the same are upheld. Ergo, ground no. 1 of Revenue s appeal is rejected. Addition u/s. 56(2)(viib) - AO held that there is flaw in the method of valuation adopted by the assessee and applied NAV method for valuation of shares and computed the valuation of shares at Rs. 7426/- per share - HELD THAT - A bare perusal of provisions of section 56(2)(viib) would show that, if shares are issued on a rate exceeding the face value of such shares and the aggregate consideration received on such shares exceeds the market value of the shares, the amount that exceeds market value shall be chargeable to tax under the head Income from other sources . In the instant case, the assessee had issued shares having face value of Rs. 10/- per share at a premium of Rs. 4262.31 per share as against the market value of shares determined by the AO adopting NAV method Rs. 7426/- per share. Thus, the provisions of section 56(2)(viib) of the Act are not attracted in the present case. The AO disputed valuation of shares under DCF method which is one of the approved methods under Rule 11U and 11UA of the Income Tax Rules, 1962 and recomputed the value of equity shares following NAV method. Though the AO cannot tinker with the valuation report unless it is fundamentally flawed, without going further into merits of valuation, even, if the market value of shares as determined by AO is accepted the provisions of section 56(2)(viib) of the Act are not attracted as the assessee had issued shares at a rate lesser than the market value determined by the AO. We find no error in findings of the CIT(A) in deleting the addition. Thus, ground no. 2 of appeal by the Revenue is dismissed, being devoid of any merit.

Summary

Issues:
1. Condonation of delay in filing the appeal by the Revenue.
2. Disallowance of interest expenditure and addition under section 56(2)(viib) of the Act.

Condonation of Delay in Filing the Appeal:
The appeal by the Revenue was 14 days late, and the Assessing Officer sought condonation of the delay, which was granted by the tribunal. The delay was considered unintentional and for valid reasons, leading to the appeal being admitted for hearing on merits.

Disallowance of Interest Expenditure:
The Revenue challenged the deletion of disallowance of Rs. 3,95,014/- on account of proportionate interest expenditure. The department argued that the excess interest claimed was not justified, but the assessee contended that the interest claimed was for TDS portion only, which was allowed by the CIT(A) after detailed examination. The tribunal upheld the CIT(A)'s decision, stating that no contrary evidence was presented by the Revenue.

Addition under Section 56(2)(viib) of the Act:
Regarding the addition of Rs. 25,09,76,959/- under section 56(2)(viib) of the Act, the tribunal analyzed the valuation of shares issued by the assessee. The AO used the Net Asset Value (NAV) method to determine the share value, while the assessee followed the Discounted Cash Flow (DCF) method. The tribunal held that the shares were issued at a rate lower than the market value determined by the AO, hence the provisions of section 56(2)(viib) were not applicable. The tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition.

In conclusion, the tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on both grounds related to the disallowance of interest expenditure and the addition under section 56(2)(viib) of the Act. The judgment was pronounced on August 8, 2024, in an open court session.