2023 (1) TMI 533 - AT - Income Tax

Addition made u/s 56(2)(viib) - excess premium allegedly received by the assessee, made on the ground that the assessee company did not have financial worth or capacity to issue shares at premium of Rs.100.90 per shares - HELD THAT - CIT(A) has given valid reason for rejecting both the valuations of the shares at Rs.1137.27 per share and at Rs.122.64 per share, pointing out that valuation at Rs.1137.22 per share, done on the basis of discounted cash flow method was based on projected profits of the assessee for the subsequent year which projections did not have any solid basis. There is nothing before us to counter this finding of the ld.CIT(A). Therefore, his order rejecting the valuation of shares at Rs.1137.27 per share is found to be in order, and upheld. With regard to the rejection of valuation of shares at Rs.122.64 per share, the ld.CIT(A) found that though the valuation was done on the basis of book value, the land was valued after indexation ,which he noted was not as per the prescribed method. There is nothing before us to controvert this finding of the ld.CIT(A). Therefore, even rejection of the valuation done by the assessee at Rs.122.64 per share calls for no interference. No merit in the grounds raised by the assessee against order of the ld.CIT(A) upholding the addition made under section 56(2)(viib) - Decided against assessee.

Summary

Issues:
Appeal against order passed by CIT(A) under section 250(6) of the Income Tax Act, 1961 for Assessment Year 2014-15.

Issue 1: Valuation of Shares under section 56(2)(viib) of the Act
The issue in the present appeal pertains to the addition made to the income of the assessee under section 56(2)(viib) of the Act, concerning the excess premium allegedly received by the assessee. The assessee had issued shares at a premium of Rs.100.90 per share, leading to an addition of Rs.83,25,900. The AO ignored various valuations submitted by the assessee and added the entire share premium, stating that the company did not have the financial capacity to issue shares at such a high premium. The CIT(A) accepted a lower valuation of shares at Rs.95.18 per share, leading to an upheld addition of Rs.12,98,550. The appellant challenged this decision before the ITAT.

Analysis:
The ITAT reviewed the CIT(A)'s order and found it to be well-reasoned. The CIT(A) had validly rejected the valuations submitted by the assessee at Rs.1137.27 per share and Rs.122.64 per share. The valuation at Rs.1137.27 per share was based on projected profits without a solid basis, leading to its rejection. The valuation at Rs.122.64 per share, based on book value with land value after indexation, was also rejected as it did not follow the prescribed method. The ITAT upheld the CIT(A)'s decision, concluding that there was no merit in the grounds raised by the assessee against the addition made under section 56(2)(viib) of the Act. Consequently, the appeal of the assessee was dismissed.

Conclusion:
The ITAT upheld the CIT(A)'s decision regarding the valuation of shares under section 56(2)(viib) of the Act, leading to the dismissal of the appeal filed by the assessee against the addition made to their income. The judgment emphasized the importance of adhering to prescribed valuation methods and solid bases for projections in determining share valuations for tax purposes.