2023 (10) TMI 918 - AT - Income Tax

Addition u/s. 56(2)(viib) - excess consideration received against issue of shares exceeding the fair market value of shares - case of the assessee company was selected for limited scrutiny for verifying the applicability of Section 56(2)(viib) as regards the large share premium received during the year under consideration - HELD THAT - Addition made u/s. 56(2)(viib) which, as stated by the Ld. AR and, rightly so, is primarily based on the valuation of the land at Village Karanja, Bhilai. Although it is the claim of the Ld. AR that the land under consideration had been converted into diverted land, i.e., non-agricultural land for industrial usage (Dal Mill), which fact he had tried to justify by referring to the valuation report of the government approved valuer, but the said factual position had not been appreciated by the A.O while framing the assessment. The matter in all fairness requires to be revisited by the A.O who shall, in the course of set-aside proceedings, verify the aforesaid claim of the assessee, i.e., as to whether or not the 1.82 hectares of land which was originally purchased by it at Village Karanja, Bhilai on 18.06.2013 as an agricultural land, had thereafter, been converted by diversion letter dated 09.05.2014 into land for an industrial purpose (Dal Mill.). If the claim of the assessee company is found to be in order, then the A.O. shall determine the FMV of the said land by making reference to the District Valuation Officer (DVO). Maintainability of the claim of the assessee, that as per government guidelines (Rule 7), the value of the agricultural land at Vill. Karanja, Bhilai, as per the said rule, was to be subjected to a multiple factor of 2.5 for arriving at the value of the land in case the same is converted into diverted land shall also be looked into by the lower authorities in the course of the set-aside proceedings. Set aside the order of the CIT(Appeals) and restore the matter to the file of the A.O. for fresh adjudication. Grounds of appeal raised by the assessee company are allowed for statistical purposes in terms of the aforesaid observations.

Summary

Issues Involved:
1. Addition of Rs. 38,31,080/- under Section 56(2)(viib) for excess consideration received against the issue of shares.
2. Calculation of the fair market value (FMV) of shares at Rs. 13/- per share instead of Rs. 24/- per share.
3. Adoption of the value of land at Rs. 70 lakhs per hectare instead of Rs. 70 lakhs per acre.

Summary:

Issue 1: Addition under Section 56(2)(viib)
The assessee company challenged the addition of Rs. 38,31,080/- made by the AO under Section 56(2)(viib) for allegedly receiving excess consideration against the issue of shares exceeding the FMV. The assessee argued that the addition was arbitrary, contrary to evidence, and unjustified. The AO observed that the assessee issued 348,280 shares at a premium of Rs. 14/- per share based on the revaluation of agricultural land converted to industrial land. However, the AO rejected the valuation report, stating it was not supported by data from the Sub-register office or any DLC/Circle Rate. Consequently, the AO proposed an addition of Rs. 48,75,920/- under Section 56(2)(viib).

Issue 2: Calculation of FMV of Shares
The AO calculated the FMV of shares at Rs. 13/- per share instead of Rs. 24/- per share, leading to the addition of Rs. 38,31,080/-. The assessee contended that the AO erred in calculating the FMV by multiplying the rate per acre with the area in hectares instead of acres. The CIT(A) upheld the AO's calculation, finding no infirmity in the addition made under Section 56(2)(viib).

Issue 3: Adoption of Land Value
The AO adopted the value of land at Rs. 70 lakhs per hectare instead of Rs. 70 lakhs per acre, leading to a lower valuation of shares. The assessee argued that the AO's calculation was incorrect and that the FMV of shares should be Rs. 24/- per share based on the correct land valuation. The CIT(A) found the AO's valuation to be in line with market rates prescribed by the government and rejected the assessee's appeal.

Conclusion:
The Tribunal found that the AO did not appreciate the factual position regarding the conversion of agricultural land to industrial land. The matter requires revisiting by the AO to verify the assessee's claim and determine the FMV of the land by making reference to the District Valuation Officer (DVO). The Tribunal set aside the CIT(A)'s order and restored the matter to the AO for fresh adjudication, allowing the assessee's grounds of appeal for statistical purposes. The general ground of appeal was dismissed as not pressed. The appeal was allowed for statistical purposes in terms of the Tribunal's observations.