Section 56(2)(viib) addition deleted where shares sold later at higher price; no evidence of unaccounted funds

ITAT, Delhi (AT) deleted an addition under section 56(2)(viib) made for alleged excess share premium. The tribunal held that where the same shares were subsequently sold in the next financial year at a substantially higher price to a non-resident following due diligence, and there was no evidence of unaccounted money, the AO's addition was unjustified. Relying on precedent and legislative intent behind s.56(2)(viib), the appeal was allowed in favour of the assessee.

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Issues:
Assessment of excess share premium under section 56(2)(viib) of the Income Tax Act, 1961.

Detailed Analysis:

1. Factual Background and Assessment Process:
The appeal pertains to the assessment year 2014-15 where the assessee, engaged in the business of setting up advanced machines for cancer treatment, filed its return showing a loss. The assessing officer (AO) observed a difference in share premium received, treating it as income under section 56(2)(viib) of the Act. The CIT(A) upheld this addition, leading to the appeal before the ITAT.

2. Arguments by Assessee:
The assessee contended that the share premium was clean money, supported by the sale of shares to a foreign buyer at a higher rate. The assessee emphasized the genuineness of the share premium, citing specific transactions and valuations. Additionally, the assessee argued that the AO failed to provide a valid substitute valuation method before taxing the share premium.

3. Revenue's Position:
The Department relied on the lower authorities' orders, supporting the addition of excess share premium as per the AO's assessment.

4. ITAT's Decision:
After considering the arguments and case laws cited, the ITAT analyzed the legislative intent behind section 56(2)(viib) inserted by the Finance Act 2012. The ITAT emphasized the need for judicial satisfaction by the AO regarding the valuation of shares, including intangible assets. Referring to a previous ITAT decision, the ITAT concluded that the addition made by the AO was unjustified, especially considering the subsequent sale of shares at a higher price to a foreign buyer.

5. Conclusion:
Based on the principles derived from the legislative intent and previous decisions, the ITAT allowed the appeal, deleting the addition made by the AO under section 56(2)(viib) of the Act. The ITAT's decision highlighted the importance of proper valuation methods and the absence of unaccounted money in the share premium received by the assessee.

In summary, the ITAT ruled in favor of the assessee, overturning the addition of excess share premium made by the AO, emphasizing the importance of proper valuation and the absence of unaccounted money in the transaction.

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