2025 (3) TMI 39 - AT - Income Tax

Addition u/s 56(2)(viib) - equity shares were allotted to the existing shareholders - excess amount (as excess shares premium) received on account of rounded off difference @ Rs. 0.09 Paisa on allotment of 1.00 crore equity share - AR submitted that shares were allotted to the existing shareholders in their existing share holding ratio and the shareholding allotment of the aforesaid shareholders remained the same HELD THAT - We find material substance in the submission advanced on behalf of the assessee and there is strong ground exist to interfere with the order passed by the Ld. CIT(A) and accordingly the order passed by the Ld. CIT(A) not sustainable in eyes of law and addition in question deserves to be deleted. Decided in favour of assessee.

Summary

The issues presented and considered in the judgment are as follows:1. Whether the provisions of section 56(2)(viib) are applicable when equity shares are allotted to existing shareholders.2. Whether the addition made by the Assessing Officer on account of excess share premium received on allotment of equity shares is justified.3. Whether the CBDT notification introducing a safe harbor of 10% variation in value affects the applicability of section 56(2)(viib).Issue-wise detailed analysis:The Court considered the arguments presented by both parties. The Appellant argued that the provisions of section 56(2)(viib) should not apply as the shares were allotted to existing shareholders, and the difference in value was minimal. The Appellant also relied on a Co-ordinate Bench decision to support their position. The Respondent, on the other hand, supported the orders of the lower authorities, stating that the provisions of section 56(2)(viib) were correctly applied due to the premium charged on the shares.The Court analyzed the relevant legal framework and precedents, including the provisions of section 56(2)(viib) of the Income Tax Act and the CBDT notification introducing a safe harbor of 10% variation in value. The Court also considered the Co-ordinate Bench decisions cited by both parties.The Court interpreted and reasoned that the deeming provisions of section 56(2)(viib) may not apply when shares are allotted to existing shareholders, as per the Co-ordinate Bench decision cited by the Appellant. The Court found that the premium charged on the shares was supported by a valuation report and that the purpose of the deeming provision was not achieved in this case.Key evidence and findings included the valuation report supporting the premium charged on the shares and the shareholding structure of the company. The Court found that the addition made by the Assessing Officer was not justified based on the evidence presented.The Court applied the law to the facts by considering the specific circumstances of the case, including the share allotment to existing shareholders and the valuation of the shares. The Court also considered the impact of the CBDT notification introducing a safe harbor of 10% variation in value.Competing arguments were presented by both parties, with the Appellant arguing against the applicability of section 56(2)(viib) and the Respondent supporting the lower authorities' orders.The Court concluded that the order of the Commissioner of Income Tax (Appeal) was not sustainable in law and that the addition in question deserved to be deleted. The Court allowed the appeal of the assessee based on the established principles of law and the arguments presented.Significant holdings:The Court held that the deeming provisions of section 56(2)(viib) may not apply when shares are allotted to existing shareholders. The Court also emphasized the importance of supporting premium charges with a valuation report and considered the impact of the CBDT notification introducing a safe harbor of 10% variation in value.In conclusion, the Court allowed the appeal of the assessee and ordered the deletion of the addition made by the Assessing Officer. The Court pronounced the order in open court on 27.02.2025.