2020 (1) TMI 1022 - AT - Income Tax

Addition u/s 56(2)(vii) on account of alleged excess share premium - difference between the share premium received in excess of valuation as determined under Rule 11UA - prescribed method being DCF followed - HELD THAT - As relying on M/S LALITHAA JEWELLERY MART PVT. LTD. VERSUS THE ASSISTANT COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 1 (4) CHENNAI. 2019 (8) TMI 400 - ITAT CHENNAI and legislative intent behind insertion of section 56(2)(viib) I hold that addition made by AO on account of alleged excess share premium is unjustified when those very shares are sold in next financial year at much higher amount after proper due diligence that to a non resident buyer and further there is no case of unaccounted money being brought in garb of stated share premium hence addition made u/s 56(2)(vii) of the Act is hereby deleted. - Decided in favour of assessee.

Summary

Issues:
Assessment of excess share premium under section 56(2)(viib) of the Income Tax Act, 1961.

Detailed Analysis:

1. Factual Background and Assessment Process:
The appeal pertains to the assessment year 2014-15 where the assessee, engaged in the business of setting up advanced machines for cancer treatment, filed its return showing a loss. The assessing officer (AO) observed a difference in share premium received, treating it as income under section 56(2)(viib) of the Act. The CIT(A) upheld this addition, leading to the appeal before the ITAT.

2. Arguments by Assessee:
The assessee contended that the share premium was clean money, supported by the sale of shares to a foreign buyer at a higher rate. The assessee emphasized the genuineness of the share premium, citing specific transactions and valuations. Additionally, the assessee argued that the AO failed to provide a valid substitute valuation method before taxing the share premium.

3. Revenue's Position:
The Department relied on the lower authorities' orders, supporting the addition of excess share premium as per the AO's assessment.

4. ITAT's Decision:
After considering the arguments and case laws cited, the ITAT analyzed the legislative intent behind section 56(2)(viib) inserted by the Finance Act 2012. The ITAT emphasized the need for judicial satisfaction by the AO regarding the valuation of shares, including intangible assets. Referring to a previous ITAT decision, the ITAT concluded that the addition made by the AO was unjustified, especially considering the subsequent sale of shares at a higher price to a foreign buyer.

5. Conclusion:
Based on the principles derived from the legislative intent and previous decisions, the ITAT allowed the appeal, deleting the addition made by the AO under section 56(2)(viib) of the Act. The ITAT's decision highlighted the importance of proper valuation methods and the absence of unaccounted money in the share premium received by the assessee.

In summary, the ITAT ruled in favor of the assessee, overturning the addition of excess share premium made by the AO, emphasizing the importance of proper valuation and the absence of unaccounted money in the transaction.