ITAT allows appeal against revision order directing fresh assessment for share premium valuation under section 56(2)(viib)

ITAT Delhi allowed the assessee's appeal against Pr.CIT's revision order u/s 263 directing fresh assessment for determining FMV of shares issued at premium under section 56(2)(viib). The tribunal held that since substantial shares were allotted to existing shareholders at Rs. 40 premium based on independent valuation, section 56(2)(viib) was inapplicable as no income accrued to existing shareholders. The AO's order was neither erroneous nor prejudicial to revenue interest, failing to meet jurisdictional requirements of section 263. The revisional order was cancelled and AO's original order restored.

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Issues involved:
The appeal was filed against the revisional order of the Principal Commissioner of Income Tax-2, New Delhi under Section 263 of the Income Tax Act, 1961, regarding the assessment order passed by the Assessing Officer (AO) for A.Y. 2015-16.

Details of the Judgment:

1. Issue 1 - Challenge to Revisional Action:
The assessee challenged the revisional action of the Principal Commissioner, alleging that the AO did not properly examine the Fair Market Value (FMV) of shares issued, as required by Rule 11U / Rule 11UA of the Income Tax Rules, 1962. The revisional order alleged that the AO accepted the valuation report without considering all perspectives related to Section 56(2)(viib) of the Act.

2. Issue 2 - Show Cause Notice and Assessment:
The assessment order under Section 143(3) for A.Y. 2015-16 was deemed erroneous by the Principal Commissioner, who issued a Show Cause Notice (SCN) under Section 263. The notice highlighted the failure to determine the FMV of shares issued at a premium, as required by Rule 11U and Rule 11UA of the IT Rules, 1962.

3. Issue 3 - Counter to Show Cause Notice:
The assessee filed a counter to the Show Cause Notice, challenging the allegation that the AO did not consider the rules for determining FMV. The AO had allotted shares at a premium based on a valuation report, and the revisional action was deemed unjustified.

4. Issue 4 - Tribunal's Decision:
The Tribunal considered the facts and observed that most shares were allotted to existing shareholders, making the application of Section 56(2)(viib) irrelevant in this case. Referring to a previous decision, the Tribunal concluded that the AO's actions were not erroneous or prejudicial to revenue. The revisional action was deemed unjustified, and the appeal of the assessee was allowed.

In conclusion, the Tribunal found merit in the plea of the assessee, canceled the revisional order, and restored the order of the AO.

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