Section 56(2)(viib) addition: Excess consideration on share allotments treated as income; one non-resident allottee excluded

ITAT, Mumbai upheld an addition under section 56(2)(viib) where four resident allottees paid excess consideration over the DCF-based fair market value of Rs.341 per share; one non-resident allottee was excluded from the provision. The Tribunal found no dispute on the valuation report and treated the excess receipt (Rs.59 per share) as income from other sources for the closely held company. The assessment and appellate orders were sustained and the assessee's grounds were dismissed.

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Issues:
Challenge to order under section 250 of the Income Tax Act for assessment year 2013-14. Dispute over addition under section 56(2)(viib) of the Act for excess consideration on share allotment.

Analysis:
1. The appeal was filed challenging the order dated 12/09/2019 under section 250 of the Income Tax Act for the assessment year 2013-14. The appellant did not appear for the hearing, leading to an ex-parte disposal of the appeal after hearing the Departmental Representative.

2. The appellant raised grounds against the addition made under section 56(2)(viib) of the Act due to excess consideration received on share allotment. The appellant's main business activity involved various educational and promotional activities. The Assessing Officer made an addition of Rs. 25,96,000 under section 56(2)(viib) as the shares were allotted at a price higher than the fair market value.

3. In further appeal, it was noted that shares were allotted to the promoter director at a higher value, not considered initially. The CIT(A) enhanced the income by Rs. 59,14,750 under section 56(2)(viib) for issuing shares above fair market value. The CIT(A) held that the provision applied to certain individuals but not to a non-resident shareholder.

4. During the hearing, the Departmental Representative supported the CIT(A)'s decision, emphasizing the excess consideration received. The shares were allotted at Rs.400 each, including a premium of Rs.390, to various individuals. The fair market value per share was determined at Rs.341.

5. The Tribunal found no dispute on the fair market value determined by the valuation report. The provision of section 56(2)(viib) applied to shares issued above the valuation price to residents, not to non-residents. The order directing the disallowance of Rs. 59,14,750 as excess consideration was upheld due to lack of dispute on the valuation.

6. Consequently, the appeal by the assessee was dismissed, affirming the impugned order's decision on the excess consideration received on share allotment.

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