2023 (11) TMI 851 - AT - Income Tax

Addition u/s 56(2)(viib) - share premium received from non-resident - projections in the valuation were not found to be relist by AO - AO held that assessee was not entitled to use discounted cash flow method at the time of first issue of shares for the purposes of section 56 and valuation report recommended the valuation of shares at Rs. 250.19 per share when it issued 57,910 shares. But the assessee used this valuation report for entire number of shares - HELD THAT - Tribunal in M/S CLEARVIEW HEALTHCARE PVT. LTD. VERSUS ITO, WARD 6 (2) , NEW DELHI 2020 (1) TMI 1022 - ITAT DELHI has concluded addition made by Assessing Officer 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. Upon careful consideration, we find that the order of the Ld. CIT(A) was an ex-parte order. Moreover, the case law now referred was not put up before the authorities below. Hence, in the interest of justice, we remit this issue to the file of the Assessing Officer. The Assessing Officer shall examine the issue afresh in the light of our observation hereinabove duly verifying the factual veracity of the assessee s submission. Appeal of the assessee stands allowed for statistical purposes.

Summary

Issues Involved:
1. Confirmation of addition made under section 56(2)(viib) of the Income Tax Act.

Summary of the Judgment:
The appeal was filed against the order of the Ld. CIT(A) confirming the addition made under section 56(2)(viib) of the Income Tax Act for the Assessment Year 2013-14. The main contention was regarding the valuation of shares issued by the assessee and the applicability of the said provision.

The assessee issued shares at a premium, and the valuation of shares was a key point of contention. The Assessing Officer noted discrepancies in the valuation report submitted by the assessee. The valuation method used by the assessee was questioned, as the discounted cash flow method was not allowed at the time of the first issue of shares. The Assessing Officer also raised concerns about the projections in the valuation report not being realistic, considering the financial status of the company.

The Assessing Officer held that while the share premium received from a non-resident was not covered under section 56(2)(viib), the shares issued to a resident company were subject to the provision. The non-discrimination clause in international agreements was deemed not applicable to provisions of the IT Act. The timing of the allotment of shares and the applicability of section 56(2)(viib) were crucial considerations.

The Ld. CIT(A) upheld the addition made by the Assessing Officer, emphasizing the applicability of section 56(2)(viib) to shares issued after a certain date, irrespective of when the money was received. The unrealistic nature of the valuation report was also highlighted in the decision.

In a separate judgment, the Tribunal referred to a previous case where a similar addition was deleted based on subsequent share sales at higher values. Considering this precedent, the Tribunal remitted the issue back to the Assessing Officer for further examination in the interest of justice.

Ultimately, the appeal of the assessee was allowed for statistical purposes, and the case was remitted to the Assessing Officer for a fresh examination based on the observations made by the Tribunal.