2019 (2) TMI 1470 - AT - Income Tax

Tribunal orders reassessment of share premium justification under Rule 11U & 11UA

The Tribunal directed the Assessing Officer to reexamine the justification of share premium in accordance with Rule 11U and 11UA, giving the appellant a ... Addition u/s. 56 (2) (viib) - allotment of shares less then fair market value - Valuation of share premium received- Limited Scrutiny selection as Large share premium received during the year and Low income in comparison to high loans/ advances/ investment in shares - HELD THAT:- It is true that the provision refers to consideration for issue of shares received in any previous year and it is equally true that ₹ 4.03 crores was received in A. Y. 2012-13 and ₹ 40 lacs was received in A. Y. 2013-14 but the fact of the matter is that the entire share allotment was done during the year under consideration, therefore, it cannot be said that the assessee was not liable to justify it share premium supported by the valuation report as mentioned under Rule 11 U and 11 UA. The valuation report which was the counsel sought to file before us should have been filed before the AO so that the same can be examined within the purview of rules 11 U and 11 UA. We restore this issue to the files of the Assessing Officer. The assessee is directed to justify the share premium as per provisions of law and as per Rule 11 U and 11 UA of the IT Rules. As mentioned elsewhere the part of the share application was received in earlier assessment years but since in those assessment years shares were not allotted, therefore, the share premium could not have been examined by the Assessing Officer u/s 56 (2) (viib). Since the entire transaction has crystallized during the year under consideration which also includes the share premium of ₹ 790 per share needs to be examined during the year under consideration only. AO is directed to examine the justification of share premium as per the procedure prescribed under Rule 11 U and 11 UA of the IT Rules and decide the issue afresh after giving a reasonable opportunity of being heard to the assessee. - Decided in favour of assessee for statistical purpose. Issues:Challenging correctness of order of CIT(A)-2, New Delhi dated 16.07.2018 pertaining to A. Y. 2015-16; Confirming addition of Rs. 6.32 crores made u/s. 56 (2) (viib) of the Act.Analysis:1. The appellant challenged the correctness of the order of the CIT(A)-2, New Delhi, regarding the addition of Rs. 6.32 crores made under section 56(2)(viib) of the Income Tax Act for AY 2015-16.2. The Assessing Officer selected the appellant's return for limited scrutiny due to large share premium received during the year and low income compared to high loans/advances/investment in shares.3. The appellant contended that section 56(2)(viib) was not applicable as the provisions were inserted w.e.f. 01.04.2013 and justified the share premium by providing a valuation report.4. The Assessing Officer observed that the share capital and premium increased only in the relevant year, and the appellant failed to justify the premium with proper documentation or calculation as per Rule 11UA.5. The appellant's reply was deemed untenable as no effort was made to justify the premium with the company's workings in succeeding years, and the valuation report provided was not in compliance with Rule 11UA.6. An addition of Rs. 6.32 crores was made by the Assessing Officer, which was upheld by the CIT(A) despite the appellant's challenge.7. The appellant argued that only Rs. 1.79 crores were received as share application money for the year under consideration and that the provisions of section 56(2)(viib) were inapplicable due to the valuation report provided.8. The DR supported the Assessing Officer's findings, emphasizing the applicability of section 56(2)(viib) for the year under consideration where shares were allotted on premium.9. After considering the arguments, it was noted that the entire share allotment was done during the year under consideration, requiring justification of share premium as per Rule 11U and 11UA.10. The Tribunal directed the Assessing Officer to reexamine the justification of share premium in accordance with Rule 11U and 11UA, giving the appellant a reasonable opportunity to be heard.11. The issue of share premium was restored to the Assessing Officer's files for proper examination as per the prescribed procedures, considering the crystallization of the transaction during the relevant assessment year.12. The appeal was treated as allowed for statistical purposes, and the stay petition became unnecessary following the decision on the appeal.