TaxTMI 
TaxTMI 
2026 (7) TMI 478
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.... 1.1. That the CIT(A) erred in passing the impugned order without properly appreciating the facts of the case and the relevant legal provisions applicable thereto, and in complete ignorance of the provisions of Income Tax Act, 1961 ('the Act') by grossly violating the provisions of natural justice by passing the impugned order without even providing any opportunity of personal hearing. Re: Addition of share premium under section 56(2)(viib) of the Act 2. That the CIT(A) erred on facts and circumstances of the case and in law in confirming the addition of Rs. 15,05,58,000 made by the assessing officer under section 56(2)(viib) of the Act without properly appreciating the facts of the present case and the applicable legal provisions. 2.1 That the CIT(A)/ AO erred in not appreciating that the provisions of section 56(2)(viib) of the Act as well as Rule 11UA of the Income Tax Rules, 1962 ('the Rules') were not even applicable to the facts of the instant case inasmuch the shares were issued/ allotted in financial year 2011-12 and not in the year under consideration, and the aforesaid provisions were not even in existence on the date of i....
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....) method adopted by the assessee merely on the basis of variance between the projected revenues and actual revenue without even appreciating the explanations submitted by the assessee. 3.3. That the CIT(A)/ AO grossly erred on facts and in law in alleging that the assessee had not carried out any business during the year under consideration without appreciating that the assessee was in the process of setting-up textile processing unit which has yielded substantial revenue and profits in the subsequent years. 3.4. That the CIT(A)/ AO grossly erred on facts and in law in not appreciating that the assessing officer is not permitted to change the method of valuation adopted by the assessee and can only re-compute the fair market value of shares as per the method adopted by the assessee - which has completely been ignored by the CIT(A)/ AO in the present case. 3.5. That the CIT(A) erred on facts and in law in not appreciating that the fair market value of shares computed by applying Discounted Cash Flow method which is statutorily recognized under Rule 11UA(2) for the purposes of section 56(2)(viib) of the Act and duly supported by valuation report, was much h....
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....e facts in brief is that the assessee is a private Limited company, engaged in the textile business and is in the process of setting up a Textile Processing Plant at Village Khair in Aligarh-UP. The Assessee, for AY 2014-15, filed return of income on 19.09.2014, declaring income of Rs. 43,12,250/-, which was subsequently revised on 02.12.2014, declaring the same income. 4. The facts of the issue involved is that the assessee, as on 26-03- 2012, issued and allotted 21,82,000 equity shares of Rs. 10/- each at a premium of Rs. 100/- per share to its promoters. During financial year 2011-12, the assessee received first call of Rs. 2/- per share at a premium of Rs. 8/- per share at the time of allotment of the said shares. Further, the assessee, during the previous year under consideration, made two calls on the aforesaid shares of (i) Rs. 25/- per share, comprising of face value of Rs. 2/- per share and a premium of Rs. 23/- per share, and (ii) Rs. 50 per share, comprising of face value of Rs. 4/- per share and premium of Rs. 46/- per share. Thus, the assessee, received a sum of Rs. 1,30,92,000/- towards share capital and Rs. 15,05,58,000/- towards share premium during the relevant ....
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....had to be examined in the year of the Allotment of Shares and relied on i) PCIT V Minda Sm Technocast (P) Ltd [2023] 155 taxmann.com 548 (Delhi). ii) Cimex Land and Housing (P) Ltd V ITO 104 Taxmann.com 240. iii) India Today Online Pvt Ltd V ITO 104 taxmann.com 385 (Delhi-Trib iv)ITO v. Appealing Infrastructure (P.) Ltd. [2023] 152 taxmann.com 385 (Delhi - Trib.) 8. The Ld AR made another argument that assessment of the assessee for the A.Y.2012-13 and for A.Y.2013-14 when the shares of Rs. 10/- each were first allotted at a premium of Rs. 100/- was made under section 143(3) and the said allotment of shares was duly verified by the said Assessing Officer and no adverse inference was drawn in the said assessment by the then assessing officer. 9. The ld AR made yet another argument that the Sec.56(2)(viib) of I.T.Act mandates about the determination of Fair Market Value (F.M.V) of shares using NAV method or DCF method. Section 56(2)(viib) provide an option to the assessee to opt for a method of choice and the assessee adopted DCF method. On the basis of Techno Economic feasibility made by M/s Dun & Bradstreet of M/s Dun & Bradstreet India, M/....
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....h reads as under: 56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- ********* (viib)"Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares. Provided that this clause shall not apply where the consideration for issue of shares is received- i) by a venture capital undertaking from a venture capital company or a venture capital fund; or ii) By a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- i) as may be determined in accordance with such method as may be prescribed; or ii) as may be substantiated by th....
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.... did not follow the said valuation and issued the shares only at a premium of Rs. 100/- 17. We note that the AO nowhere found an error in the methodology of the preparation of the Techno Economic Viability Report. We find that the judicial precedents proscribe the assessing officer to determine a particular method for determining the value of shares. It is the prerogative of the assessee to opt for particular method; either DCF or NAV. The hon'ble Delhi High Court in Principal Chief Commissioner of Income-tax-1 Vs A.H. Multisoft (P.) Ltd. [2025] 175 taxmann.com 46 (Delhi) held that where assessee adopted DCF method for determining FMV of shares issued by it, which was one of the methods that could be adopted by assessee under rule 11UA(2)(b) for determining FMV of unquoted equity shares, FMV determined by assessee was to be accepted. Similarly, in Principal Commissioner of Income-tax, Central V Waterline Hotels (P.) Ltd.[2025] 172 taxmann.com 820 (Karnataka), the hon'ble Karnataka High Court held that where fair market value of shares was arrived at by assessee-company by adopting DCF method which was one of statutorily designated methods in terms of rule 11UA(2) of Income-tax R....