2024 (2) TMI 535 - AT - Income Tax

Additions u/s 56(2)(viib) - treat the share premium to be excessive consideration over FMV - consideration received by the assessee towards premium on issue of equity shares represents the FMV or exceeds the FMV? - CIT(A) found force in the plea of the assessee and accepted that deeming provisions of Section 56(2)(viib) is wholly inapplicable in the facts of the present case - HELD THAT - As the figures adopted for the purposes of valuation as per book value or NAV method, are corroborated by the audited financial statement filed by the assessee. Besides, there is no requirement in law to furnish valuation report from independent valuer for the purposes of determination of valuation under Rule 11UA(a) of the Rules. We observe that the book value of assets and liabilities adopted for the purposes of NAV method of valuation is in consonance with last audited balance-sheet items as on 31.03.2016 whereas the allotment has been stated to be made in November, 2016 during the Financial Year 2016-17 relevant to Assessment Year 2017-18. AO misdirected himself in law on seeking valuation report which requirement do not emanate from the law codified in this regard. The phraseology of clause (a) to sub-rule (2) of Rule 11UA read with Explanation (a) to Section 56(2)(viib) do not thrust the requirement of Valuation Report for substantiation of valuation under NAV method. Thus conclusion of facts arrived at by the CIT(A) and the primary facts on which such conclusion is based bears a direct nexus. The CIT(A), in our view, has applied its mind to the relevant consideration while determining the issue. The audited balance-sheet testifies the FMV. We thus see no perceptible reason to deviate from the findings of the CIT(A). Appeal of the Revenue is dismissed.

Summary

Issues:
The judgment involves the challenge of the Revenue against the order of the Commissioner of Income Tax (Appeals) regarding the addition of share premium exceeding Fair Market Value (FMV) under Section 56(2)(viib) of the Income Tax Act, 1961 for Assessment Year 2017-18.

Details of the Judgment:

Issue 1: Challenge of Reversal of Additions
The assessee challenged the reversal of additions on account of share premium exceeding FMV under Section 56(2)(viib) of the Act. The Assessing Officer invoked the provisions of Section 56(2)(viib) due to the absence of a valuation report of Chartered Accountant. The CIT(A) accepted the assessee's method of determining FMV under Rule 11UA(2) and held that the deeming provisions of Section 56(2)(viib) were inapplicable. The CIT(A) reversed the additions made by the AO.

Issue 2: Appeal Before the Tribunal
The Revenue appealed before the Tribunal against the relief granted by the CIT(A). The Revenue argued that the assessee should have corroborated the intrinsic value of equity shares issued at a premium. The assessee contended that no valuation report was required for determining the FMV under Rule 11UA(2)(a) and that the FMV was based on the book value of assets and liabilities.

Issue 3: Tribunal's Decision
The Tribunal considered the documents and case laws presented. It determined whether the consideration received as premium on equity shares represented FMV or exceeded it, and if the deeming provisions of Section 56(2)(viib) applied. The Tribunal noted that the FMV was determined based on the book value of assets and liabilities as per Rule 11UA(2)(a) and that no separate valuation report was needed. The Tribunal found that the CIT(A) had correctly applied the law and facts, dismissing the Revenue's appeal.

In conclusion, the Tribunal upheld the CIT(A)'s decision, emphasizing that the FMV was determined in accordance with the law and the audited balance-sheet. The appeal of the Revenue was dismissed, and the order was pronounced on 08/02/2024.