Share premium taxation and section 68 additions fail where valuation evidence and identity documents are on record.

Share premium received in financial years 2006-07 and 2007-08 could not be taxed under section 56(2)(viib) because that provision applied only from 01.04.2013, making it inapplicable to the year of receipt. The assessee's discounted cash flow valuation was also not displaced by any prescribed Rule 11UA(2) method, so the premium could not be treated as nil on that basis. On the alternative issue, the record contained names, PAN, bank statements, income-tax returns and FIRC details, and no section 68 addition had been made by the Assessing Officer; the appellate authority's later invocation of section 68 without prior notice was inconsistent with section 251(2). The addition was therefore unsustainable under either provision.

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Issues: Whether the addition made on account of share premium was sustainable under section 56(2)(viib) of the Income-tax Act, 1961, and alternatively under section 68 of the Income-tax Act, 1961.

Analysis: The share application money was received in financial years 2006-07 and 2007-08, whereas section 56(2)(viib) was inserted with effect from 01.04.2013. The provision, therefore, did not apply to the year of receipt of the consideration. The assessee had also adopted the discounted cash flow method for valuation, and the Revenue did not follow any prescribed method under Rule 11UA(2) of the Income-tax Rules, 1962 while treating the premium as nil. On the alternative reasoning under section 68, the record showed that the assessee had furnished names, PAN, bank statements, income-tax returns and FIRC details, and no addition had been made by the Assessing Officer under section 68. The later invocation of section 68 by the appellate authority, without prior notice, was also inconsistent with section 251(2) of the Income-tax Act, 1961.

Conclusion: The addition was not sustainable either under section 56(2)(viib) or under section 68, and the assessee succeeded on the core issue.

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