AO discriminated against Indian entities while accepting same DCF valuation method for non-resident company under section 56

The ITAT Surat ruled on three key issues. First, regarding share premium addition under section 56, the tribunal found discrimination by the AO who accepted fair market value of Rs. 431.65 per share for non-resident Dubai company but rejected similar premium for Indian entities using the same DCF method. The addition was deleted as the valuation followed Income Tax Rules. Second, on excess depreciation claim for plant and machinery, the tribunal noted insufficient evidence of production commencement in August 2012 and remitted the matter back to AO for fresh examination with proper documentary evidence. Third, the assessment time limit challenge was dismissed as the one-year delay for information exchange was excludable, making the order timely.

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Issues Involved:
1. Addition towards share premium.
2. Disallowance of claim of depreciation.
3. Time limit for assessment under section 153 of the Income Tax Act.

Summary:

Issue 1: Addition towards Share Premium
The first issue pertains to the addition of Rs. 14,18,234 on account of share premium. The assessee, a limited company, issued 255,108 equity shares at a face value of Rs. 10 per share with a premium of Rs. 440 per share. The fair market value, as per the Discounted Cash Flow Method (DCFM), was Rs. 431.65 per share. The Assessing Officer (AO) noted that the premium exceeded the fair market value by Rs. 18.35 per share and issued a show cause notice. The assessee argued that the provision of section 56(viib) of the Income Tax Act does not apply as one of the investors is a foreign company. The AO accepted this for the foreign investor but applied the provision to Indian residents, resulting in the addition. The National Faceless Appeal Centre (NFAC) confirmed the AO's decision. However, the Tribunal noted that the premium was calculated as per DCFM and deleted the addition of Rs. 14,18,234, allowing the assessee's appeal on this ground.

Issue 2: Disallowance of Claim of Depreciation
The second issue involves the disallowance of Rs. 44,39,156 claimed as depreciation. The AO observed that the assessee's assets were put to use from February 2013, entitling them to half the depreciation rate. The assessee argued that the plant was ready by August 2012 and used for trial production. The AO, however, found no evidence of production before March 2013 and disallowed the excess depreciation. The NFAC upheld this decision. The Tribunal, considering the lack of evidence for production before March 2013, remitted the issue back to the AO for re-examination, giving the assessee another opportunity to present evidence.

Issue 3: Time Limit for Assessment under Section 153
The third issue concerns the time limit for assessment under section 153 of the Act. The assessee claimed that the assessment order dated 30.12.2016 was time-barred as it should have been passed by 31.03.2015. The Tribunal noted that the case was referred for information exchange, extending the time limit by one year, making the assessment order timely. Thus, the Tribunal dismissed the assessee's appeal on this ground.

Conclusion:
The Tribunal allowed the appeal partly, deleting the addition towards share premium and remitting the depreciation issue back to the AO, while dismissing the time limit issue. The order was pronounced on 30/01/2024.

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