2023 (6) TMI 814 - AT - Income Tax

Tribunal upholds deletion of addition under Income Tax Act, citing shares purchased above Fair Market Value.

The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s decision to delete the addition of Rs. 24,01,57,001 under Section 56(2)(viia) of the ... Addition u/s 56(2)(viia) - difference in valuation of shares as per book value and the value adopted as per DCF Method - CIT(A) while deleting the above addition held that provision of Section 56(2)(viia) are not applicable to the transaction of purchase of shares by the assessee particularly when the purchase price is higher than FMV shares - HELD THAT:- A combined reading of the provisions of section 56(2)(viia) and the Memorandum explaining the provisions shows that the provision of section 56(2)(viia) would be attracted in the case of a recipient firm or company which receives the shares of a company without any consideration or for a consideration which is less than the aggregate fair market value of the shares by an amount exceeding fifty thousand rupees. In the case in hand the assessee has admittedly purchased shares and CCCPS of Ansal Township from IIRF India Realty II Ltd and IFIN Realty Trust @Rs. 2777/- as against the book value / FMV of Rs. 815.59. A.O. held that since the difference cannot be added in the hands of the seller i.e. IIRF India Realty II Ltd, therefore, the addition has to be made in the hands of the assessee. Provisions of section 56(2)(viia) are not attracted to the Assessee - Appeal filed by the Revenue is dismissed. Issues Involved:1. Applicability of Section 56(2)(viia) of the Income Tax Act, 1961.2. Valuation of shares and compliance with RBI and FEMA regulations.Summary:Issue 1: Applicability of Section 56(2)(viia) of the Income Tax Act, 1961The Revenue challenged the CIT(A)'s decision to delete the addition of Rs. 24,01,57,001/- made under Section 56(2)(viia) of the Income Tax Act, 1961. The Assessing Officer (A.O.) had added this amount on the grounds that the Fair Market Value (FMV) of the shares purchased by the assessee was Rs. 815.59 per share, whereas the assessee paid Rs. 2,777 per share. The CIT(A) deleted the addition, stating that Section 56(2)(viia) is not applicable as the shares were purchased at a price higher than the FMV. The Tribunal upheld the CIT(A)'s decision, emphasizing that Section 56(2)(viia) applies when shares are received for a consideration less than the FMV, which was not the case here.Issue 2: Valuation of Shares and Compliance with RBI and FEMA RegulationsThe Department argued that the assessee violated RBI and FEMA regulations by purchasing shares at a price higher than the FMV without proper valuation verification. The CIT(A) found that the transaction was commercially expedient and that the purchase price was less than what was agreed upon in previous agreements. The Tribunal agreed with the CIT(A), noting that the provisions of Section 56(2)(viia) were not applicable as the transaction was at a higher price than the FMV, and thus, there was no tax evasion.Conclusion:The Tribunal dismissed the Revenue's appeal, confirming that the provisions of Section 56(2)(viia) were not attracted in this case, and upheld the CIT(A)'s decision to delete the addition of Rs. 24,01,57,001/-.Order Pronounced:Order pronounced in the open court on 16/06/2023.