2021 (12) TMI 1284 - AT - Income Tax

Tribunal Upholds Income Addition for Share Valuation Dispute

The Tribunal upheld the addition of Rs. 20,00,000 to the total income of the assessee company under section 56(2)(viib) of the Income Tax Act, 1961. The ... Addition u/s 56(2)(viib) - difference between the fair market value (FMV) of the shares and the value actually received - HELD THAT:- FMV of the shares as on 15/07/2013 should have been determined on the basis of balance sheet drawn up on 31/03/2012 instead of 31/03/2013 cannot be accepted not being either fair or proper. Moreover, the definition of 'balance sheet' given in Clause (b) of Rule 11U for the purpose of sub-rule (2) of Rule 11UA contemplates the balance sheet of the company as drawn up on the valuation date which has been audited by the auditor of the company clearly suggests or indicates that the balance sheet referred to therein need not be available on the date of valuation simply because the balance sheet as drawn up on the valuation date and audited by the auditor of the company cannot be practically available as on the date of valuation itself. We are, therefore, of the considered view that the balance sheet drawn up as on 31/03/2013 was rightly taken by the Assessing Officer as well as the ld. CIT(A) for the determination of the FMV of the shares sold by the assessee on 15/07/2013 as per Clause (b) of Rule 11U for the purpose of sub-rule (2) of Rule 11UA being the balance sheet drawn up immediately preceding the valuation date. In that view of the matter, we uphold the impugned order of the ld. CIT(A) on this issue and dismiss this appeal of the assessee. Issues:1. Addition of Rs. 20,00,000 under section 56(2)(viib) of the Income Tax Act, 1961 based on the fair market value of shares.Analysis:The appeal before the Appellate Tribunal ITAT Kolkata involved a dispute regarding the addition of Rs. 20,00,000 to the total income of the assessee company under section 56(2)(viib) of the Income Tax Act, 1961. The issue revolved around the difference between the fair market value (FMV) of shares and the actual value received by the assessee company upon issuance of 10,00,000 equity shares at Rs. 10 per share. The Assessing Officer determined the FMV at Rs. 8 per share based on Rule 11UA of the Income Tax Rules, resulting in the addition of Rs. 20,00,000 to the total income of the assessee. The assessee challenged this addition before the ld. CIT(A), arguing that the valuation should have been based on the balance sheet as of 31/03/2012, the last available balance sheet at the time of share allotment on 15/07/2013.The ld. CIT(A) upheld the addition of Rs. 20,00,000, emphasizing that the valuation of unquoted shares should be based on the date of transfer or allotment, which in this case was 15/07/2013. The balance sheet as of 31/03/2013 was considered appropriate for valuation, despite being audited after the share allotment date. The Tribunal agreed with this reasoning, stating that the balance sheet immediately preceding the valuation date should be used for determining the FMV of shares, as per Rule 11UA read with Rule 11U. The Tribunal rejected the argument that the balance sheet as of 31/03/2012 should have been used for valuation, concluding that the balance sheet as of 31/03/2013 was correctly applied by the Assessing Officer and the ld. CIT(A).Therefore, the Tribunal dismissed the appeal of the assessee, upholding the addition of Rs. 20,00,000 based on the FMV of shares calculated using the balance sheet as of 31/03/2013, the date immediately preceding the share allotment date of 15/07/2013. The decision was based on the interpretation of Rule 11UA and Rule 11U, emphasizing the importance of using the balance sheet closest to the valuation date for determining the fair market value of shares.