2022 (6) TMI 291 - AT - Income Tax

Tribunal affirms CIT(A)'s decisions, dismisses revenue's appeal on Section 56(2)(viib) valuation, fair market value.

The tribunal upheld the Ld.CIT(A)'s decisions on all grounds, dismissing the revenue's appeal. It was held that Section 56(2)(viib) applies in the year of ... Addition u/s 56(2)(viib) r.w. Rule 11UA - assessee had issued 6% non-cumulative preference shares at issue price of ₹.1000/- per share which includes premium of ₹.900/- per share - assessee has converted the OFCDs into non-cumulative preference share - HELD THAT:- CIT(A) has addressed this issue in detail and held, the section 56(2)(viib)of the Act is clear that the words used in the section are “where a company, not being a company in which the public are substantially interested, receives in any previous year”. Therefore, the words used are receives. He decided the issue in favour of the assessee. In our view, the “receives” means not only issue of shares but also receipts of share consideration during the same assessment year. One cannot interpret the law merely on the basis of issue of shares or from receipt of consideration, it has to be issue of shares and receipt of consideration during the same assessment year. It is needless to say that issue of shares includes allotment of shares. In our considered view, Ld.CIT(A) has discussed this issue elaborately in his order and we do not find any reason to interfere with the findings of the Ld.CIT(A). Accordingly, ground raised by the revenue is dismissed. Admissibility of additional evidences and valuation of shares at market value - We observe that revenue has filed the ground that it does not fall under exemption clause mentioned in Rule 46A of I.T. Rules. In this regard, we observe that the Ld.CIT(A) has dealt with the issue in detail before admitting the additional evidences by relying on various decisions. In our view, the issue raised by the revenue in grounds of appeal and the same issue was also raised by the Assessing Officer in his remand report and Ld.CIT(A) has addressed the issue in detail before admitting the additional evidences. We observe from the above findings of the Ld.CIT(A) that he has clearly explained the provisions of section 250 of the Act and he accepted the valuation report considering the fact that the report constitute the very root cause of the additions made by the Assessing Officer and also he has applied his power conferred on him u/s. 250(4) of the Act. Therefore, we are inclined to accept the finding of the Ld.CIT(A) on admitting the additional evidences for the purpose of taking the issue in hand. It is needless to say that Ld CIT(A) has coterminous power to accept or reject the additional evidence filed before him. In the result, Ground No. 2 and 3 raised by the revenue are dismissed. Issues Involved:1. Applicability of Section 56(2)(viib) in the year of receipt of consideration versus the year of issuance of shares.2. Admissibility of additional evidence in the form of a valuation report from a Chartered Accountant.3. Determination of the fair market value of shares and the discrepancies in the valuation reports submitted by the assessee.Issue-wise Detailed Analysis:1. Applicability of Section 56(2)(viib):The primary issue revolved around whether Section 56(2)(viib) applies in the year of receipt of consideration or the year of issuance of shares. The Assessing Officer (AO) contended that Section 56(2)(viib) applies to the issuance of shares, irrespective of when the consideration was received. The AO argued that the provision deals with the issue of shares and not the receipt of funds, relying on the jurisdictional ITAT decision in Sudhir Menon HUF vs ACIT.The assessee argued that Section 56(2)(viib) should only apply in the year the consideration was received, as the language of the section indicates. The assessee also cited scrutiny assessments for previous years where the receipt/payment of OFCDs was accepted. The Ld.CIT(A) agreed with the assessee, stating that the provision would be attracted in the year of receipt of consideration due to the language used in the section and supported by Rule 11U(j), which defines the 'valuation date' as the date on which the property or consideration is received.The tribunal upheld the Ld.CIT(A)’s decision, agreeing that 'receives' means both the issue of shares and the receipt of consideration during the same assessment year. The tribunal found no reason to interfere with the Ld.CIT(A)’s findings.2. Admissibility of Additional Evidence:The second issue concerned the admissibility of additional evidence, specifically a valuation report from a Chartered Accountant (CA), which the assessee submitted during the appellate proceedings. The AO objected, claiming that the assessee was given ample opportunity to submit the valuation report during the assessment but failed to do so.The assessee rebutted, explaining that the valuation report could not be submitted earlier due to time constraints and that the report was essential for addressing the AO’s concerns about the share premium. The Ld.CIT(A) admitted the additional evidence, invoking Section 250(4) of the Act, which empowers the CIT(A) to call for any such information/documents to ensure principles of natural justice are followed.The tribunal agreed with the Ld.CIT(A)’s decision to admit the additional evidence, emphasizing that the valuation report constituted the root cause of the additions made by the AO.3. Determination of Fair Market Value:The third issue was whether the valuation of shares was at fair market value, considering the discrepancies pointed out in the valuation reports submitted by the assessee. The AO rejected the valuation reports, arguing that the DCF method used was not supported by actual figures and that the NAV method incorrectly valued inventory at market value instead of book value.The assessee argued that the DCF method inherently involves estimates and that the valuation was based on reasonable information and independent technical reports. The assessee also provided alternative valuation reports to substantiate the fair market value of the shares.The Ld.CIT(A) accepted the valuation provided by the assessee, noting that the valuation methods were correctly applied and supported by realistic assumptions. The tribunal upheld the Ld.CIT(A)’s findings, agreeing that the valuation reports were admissible and the fair market value was correctly determined.Conclusion:The tribunal dismissed the revenue’s appeal, upholding the Ld.CIT(A)’s decisions on all grounds. The tribunal agreed that Section 56(2)(viib) applies in the year of receipt of consideration, the additional evidence was rightly admitted, and the fair market value of the shares was correctly determined.