2024 (9) TMI 785 - AT - Income Tax

ITAT overturns revision order on share premium valuation under Section 56(2)(viib) after inadequate examination

Manidhari Oils Pvt. Ltd. Versus ITO Ward-17 (1) New Delhi

ITAT Delhi allowed the assessee's appeal against CIT's revision order u/s 263. CIT directed AO to recompute income by adding difference in share valuation ... Revision u/s 263 - CIT directed AO to compute the income of the assessee by adding difference valuation of shares u/s 56(2)(viib) - CIT held that valuation report submitted by the assessee was not found in assessment folders - AR contended that the valuation report produced by the Assessee must have been misplaced by the Department, for which the assessee cannot be put to hardship for the same. HELD THAT:- The valuation has been done on the basis of balance sheet as on 30/06/2013 i.e. book value as on 30/06/2013 which is not on the other method i.e. discounted free cash flow method. AO had got himself satisfied with the premium of Rs. 310 per share charged by the Assessee on allotment of shares to family members and the entire amount was received by the Assessee in the month of October, 2013 and also allotment was done thereafter. Therefore, there was no reason for the AO to doubt the quantum of premium charge at Rs. 310 per share on allotment of share to family members. Assessee has also produced the Valuation Report before the Ld. PCIT. PCIT neither verified the said Valuation Report produced by the Assessee nor found any fault in the method/manner adopted in the Valuation Report and without giving any reasoning set aside the assessment order. When the Ld. PCIT makes allegation that the Assessee has not produced the Valuation Report before the AO, which has been disputed by the Assessee, nothing prohibited the PCIT from looking into the Valuation Report produced by the Assessee before him and give finding thereupon. Without even examining the Valuation Report and without even finding fault in the method of valuation adopted by the Assessee the PCIT erroneously invoked provision of Section 263 - Appeal filed by the Assessee is allowed. Issues:1. Validity of the order passed by the Principal Commissioner of Income Tax under section 263 of the Income Tax Act, 1961.2. Correctness of the assessment order passed by the Assessing Officer under section 143(3) of the Act.3. Applicability of section 56(2)(viib) regarding valuation of shares and charging of premium.4. Adequacy of documentation and submission of valuation report by the assessee.Analysis:Issue 1:The appeal was filed by the assessee against the order of the Principal Commissioner of Income Tax-6, New Delhi, passed under section 263 of the Income Tax Act, 1961. The assessee contended that the order was bad from factual and legal angles, arguing that the assessment order was passed after considering the valuation of shares and justifying the premium charged. The assessee further argued that the show cause notice leading to the order was based on an incorrect appreciation of facts. The Tribunal quashed the order, stating that the PCIT failed to appreciate crucial details provided by the assessee, including the valuation report submitted to the Assessing Officer.Issue 2:The correctness of the assessment order passed by the Assessing Officer under section 143(3) of the Act was challenged by the Principal Commissioner, who found it to be erroneous and prejudicial to the revenue's interest. The PCIT directed the AO to add a specific amount on account of the difference in the valuation of shares under section 56(2)(viib) of the Act. The Tribunal, after hearing both parties, observed that the AO had not demanded the valuation report during the assessment proceedings and that the PCIT's decision lacked proper scrutiny of the valuation report submitted by the assessee.Issue 3:The controversy revolved around the applicability of section 56(2)(viib) concerning the valuation of shares and charging of premium. The assessee argued that the premium charged was not in excess of the fair market value of the shares, as determined by an independent Chartered Accountant based on the company's assets and liabilities. The Tribunal noted that the AO had accepted the valuation report and closed the assessment proceedings without raising any concerns regarding the premium charged. The PCIT's decision to set aside the assessment order was deemed erroneous due to the lack of proper examination of the valuation report.Issue 4:The adequacy of documentation and submission of the valuation report by the assessee was a crucial aspect of the case. The assessee contended that the valuation report was provided to the AO during the assessment proceedings, which the AO found satisfactory. The Tribunal highlighted that the PCIT did not verify the valuation report submitted by the assessee and set aside the assessment order without proper examination of the evidence presented. The Tribunal ultimately quashed the PCIT's order, emphasizing the importance of considering all relevant documentation before invoking section 263 of the Act.In conclusion, the Tribunal allowed the appeal filed by the assessee, emphasizing the necessity of thorough examination and consideration of all relevant facts and documents before making decisions under the Income Tax Act.