×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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The captioned appeal has been filed at the instance of the assessee against the order of the Commissioner of Income Tax (Appeals)-6, Ahmedabad, (‘CIT(A)’ in short), dated 20.09.2017 arising in the assessment order dated 28.12.2016 passed by the Assessing Officer (AO) under s. 143(3) of the Income Tax Act, 1961(the Act) concerning AY 2014-15.
2. The solitary ground of appeal of the assessee seeks to impugn the action of the CIT(A) in confirming an addition of Rs.2,04,82,560/- to the returned income by invoking the provisions of Section 56(2)(viib) of the Act.
3. Briefly stated, the assessee, a Private Limited Company, filed its return of income for AY 2013-14 in question declaring total income of Rs.Nil. In the course of scrutiny assessment, the AO inter alia noticed from the verification of the balance sheet of the assessee that the assessee has issued 1016000 shares having face value of Rs.10/- at a premium of Rs.23/-. The AO made inquiries with respect to the Fair Market Value (FMV) of the shares allotted having regard to the provisions of Section 56(2)(viib) of the Act for the purposes of ascertaining the correctness of premium charged. The assessee in response, submitted before the AO that the company holds certain parcels of land at Padra Dist. Vadodara and at GIDC, Dahej Dist. Bharuch, Gujarat, the FMV of which is substantially higher on the date of allotment of shares and consequently the premium charged of Rs.23/- per share is quite commensurate that the FMV of shares allotted as contemplated in Explanation below Section 56(2)(viib) of the Act. The AO however disputed the FMV of fresh allotment of shares sought to be demonstrated by the assessee. The AO eventually applied the prescribed method of valuation as stipulated in Rule 11UA of the IT Rules to determine the FMV of the shares. For this purpose, the AO adopted the book value of the assets and liabilities including land as at 31.03.2013 and determined the FMV of fresh allotment at Rs.12.84 per share in place of 33 per share adopted by the assessee. The AO accordingly held that the assessee has received an excess amount of Rs.2,04,82,560/- on issue of shares qua the FMV as per Rule 11UA of IT Rules and added the same as ‘income from other sources’ in the hands of the assessee with reference to Section 56(2)(viib) of the Act.
4. Aggrieved by the dispute raised towards FMV of shares contemplated under s.56(2)(viib) of the Act, the assessee preferred appeal before the CIT(A). The CIT(A) however also did not perceive any merit in the case made out by the assessee towards justification of FMV of shares at Rs.33/- per share. The CIT(A) confirmed the action of the AO inter alia on following grounds:
“(a) No accounting entry has been passed in respect of the difference between the Fair Market Value (FMV) of the immovable property at the relevant point of time (based on jantri price) and its corresponding actual costs as reflected in the books of account;
(b) Since the premium charged was less than what was required to be charged, if based on the jantri price of one of the underlying immovable properties, there is arbitrariness in deciding the price of the share at a lower amount of Rs.33/-, including the premium of Rs.23/-per share;
(c) Since the Appellant initially acquired an immovable property in village Padra for setting up its plant and thereafter acquired another land at village Dahej in view of it not being in a position to complete the legal formalities vis-a-vis the first property, there is an element of adhocism in the actions of the Appellant;
(d) The FMV of the share, as calculated by the Appellant, was not substantiated by it to the satisfaction of the AO.”
5. The CIT(A) alleged adhocism in the action of the assessee and further alleged arbitrariness in the determination of basis of the value of land as suited to the assessee. The CIT(A) consequently justified the basis adopted by the AO for rejection of the FMV determined by the assessee and approved the determination of FMV on the basis of book value of assets and liabilities under Rule 11UA of the Rules.
6. Further aggrieved by the denial of relief, the assessee preferred appeal before the Tribunal.
6.1 The learned AR for the assessee submitted at the outset that the action of the Revenue authorities is based on the mis-appreciation of facts and mis-conception towards position of law. To begin with, the learned AR pointed out that the assessee company was originally