Share premium valuation under section 56(2)(viib) remanded for fresh verification of land character and fair market value.

Addition under section 56(2)(viib) based on alleged excess share premium could not be conclusively sustained because the valuation of the assessee's land and its character as diverted industrial land had not been properly verified. The record showed insufficient examination of the factual basis for the fair market value adopted in relation to the shares issued at premium. The matter was therefore remanded for fresh adjudication, with liberty to verify the conversion claim and, if necessary, determine fair market value with reference to the District Valuation Officer.

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Issues: Whether the addition made under section 56(2)(viib) of the Income-tax Act, 1961 on account of alleged excess share premium was sustainable in view of the dispute regarding valuation and character of the land, and whether the matter required fresh verification.

Analysis: The addition rested substantially on the valuation adopted for the land owned by the assessee and its impact on the fair market value of the shares issued at premium. The assessee asserted that the land had been converted from agricultural use to diverted land for industrial purpose, and that the valuation adopted by the lower authorities did not correctly appreciate this factual position. The record showed that the nature of the land and the basis of its valuation had not been examined with sufficient clarity at the assessment stage. In these circumstances, the factual foundation for determining the share premium and the resultant addition required reconsideration. The proper course was to restore the matter to the Assessing Officer for fresh adjudication, with liberty to verify the conversion claim and, if necessary, determine the fair market value by reference to the District Valuation Officer.

Conclusion: The addition was not finally sustained and the matter was remanded to the Assessing Officer for fresh verification, with the assessee obtaining relief in respect of the disputed grounds.

Ratio Decidendi: Where an addition under section 56(2)(viib) depends on the valuation and character of underlying assets, and the factual basis for such valuation has not been properly verified, the matter may be set aside for fresh examination rather than conclusively sustaining the addition.

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