Aadinath India Pvt. Ltd. vs DCIT

PER MANISH AGARWAL, AM :

The present appeal is filed by assessee against the order dated 30.07.2021 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of the assessment order dated 26.12.2016 passed u/s 143(3) of the Act pertaining to Assessment Year 2014-15.

Brief facts of the case are that the assessee is a company, engaged in the business of trading of welding rods and air compressors, lubricating oils, bearings and other machinery parts. The return of income was e-filed on 24.10.2018 and the case was selected under CASS for scrutiny and notice u/s 143(2) was issued on 15.09.2015. Thereafter, various notices were issued from time to time. During the year under appeal, assessee has issued 100001 equity shares of face value INR 10/- each to M/s Ramgarh Leisure & Entertainment Pvt. Ltd. at a premium of INR 115/- per share. The AO asked the assessee about the basis for issue of shares at a premium of INR 115/- per share as according to the AO, the Fair Market Value (“FMV”) of share under NAV method comes to INR 69.45 and accordingly, INR 59.45 per share was charged in excess to the FMV, therefore, the AO proposed the addition for the same u/s 56(2)(viib) of the Act. In reply, assessee submitted that FMV was computed as per market value of the assets as on the date of allotment and further valued the goodwill of the company and accordingly, per share price was computed at INR 136/- per share as against which the shares were issued at INR 125/- per share including premium of INR 115/- per share. However, the AO has not accepted the submissions of the assessee and rejected the FMV taken by the assessee and substituted the FMV at INR 69.45 per share and accordingly, the differential amount of INR 55,55,056/- was treated as income u/s 56(2)(viib) of the Act.

Against the said order, the assessee filed an appeal before Ld. CIT(A) who re-affirmed the observations made by the AO in summary manner without stating as to how the was valuation done by the AO after rejecting the FMV computed by the assessee and uphold the addition made by the AO.

Since all the Grounds of appeal raised by the assessee are with respect to the addition made u/s 56(2)(viib) of the Act, therefore, they are taken together for consideration.

Before us, Ld.AR reiterated the arguments as made before the lower authorities and submits that the assessee in terms of section 56(2)(viib) of the Act has computed the FMV as on the date of allotment of shares where the immovable properties were taken at FMV based on the report of registered valuer dated 30.11.2016, placed at pages 26 to 35 of the Paper Book. Further the assessee has taken the FMV of goodwill which was valued at 88,67,183/- as per the Valuation Report dated 30.11.2016, placed at pages 36 to 37 of the Paper Book. Accordingly, the assessee has computed the FMV of its shares as on the date of allotment at INR 136/- per share as against which the shares were allotted at INR 125/- per share at a premium of the 115/- per share. Ld.AR submits that as per Explanation (a) to section u/s 56(2)(viib) of the Act, the FMV of the shares is to be computed as per clause (i) & (ii) and the higher value is to be taken. Ld.AR submits that since FMV taken by the assessee as on the date of allotment of shares was higher and the Ao has failed to point out any defect in such valuation, therefore, no addition could be made u/s 56(2)(viib) of the Act.

Ld.AR alternatively submits that funds were received in preceding AYs and during the year under appeal, only shares were allotted that too to the existing shareholders therefore, even otherwise, the provision of section u/s 56(2)(viib) of the Act are not applicable which refers the amount received in any previsions year and therefore, the amount received in earlier years cannot be held as income of the assessee in the year under appeal. Ld. AR thus, requested that even in this score also, no addition is required to be made u/s 56(2)(viib) of the Act. He prayed accordingly.

Per contra, Ld. Sr. DR vehemently supported the lower authorities and submits that the AO has computed the FMV based on NAV method prescribed under the Rule 11UA(2) of the Income Tax Rules ,192 and therefore, the AO has rightly made the addition which deserves to be uphold. She prayed accordingly.

Heard the contentions of both parties at length and perused the material available on record. The solitary issue before us is with respect to whether FMV computed by the assessee at INR 125/- per share is to be taken as FMV for the purpose of section 56(2)(viib) of the Act or the FMV computed by the AO at INR 69.45 based on NAV method is to be taken as FMV for the issue of shares. In the instant case, the assessee has made the valuation of its shares as on the date of allotment by taking the FMV of its assets as on that date and further valued intangible assets in the shape of goodwill. In support of such valuations, assessee placed the copies of Valuation Reports dated 30.11.2016 from the registered valuers which are placed at pages 26 to 37 of the Paper Book. It was the claim of the assessee that since the FMV determined in accordance with the prescribed method i.e. NAV method applied by the AO is lower than the FMV computed by the assessee and no error / deficiency was pointed out by the AO in the same, thus, as per Explanation (a) to section 56(2)(viib), valuation done by the assessee of FMV its shares, being higher, as on the date of allotment should be taken as FMV for issue of shares, and thus, no addition could be made u/s 565(2)(viib) of the Act.

Further, undisputedly, shares were subscribed by the existing shareholders. The Co-ordinate Bench of Delhi Tribunal in Anchal Property in ITA No.5139/Del/2025 order dated 08.04.2026 by placing reliance on the judgement of the Co-ordinate Bench in the case of Suri Agro Fresh Pvt. Ltd. in ITA No.1572/Del/2024 vide order dated 27.02.2025 has held that the provisions of section 56(2)(viib) are not arbitrarily applicable to the shares allotted to the existing of shareholders. The relevant observations of the coordinate bench are as under:

In view of the aforesaid discussion and by respectfully following the aforesaid judgements of the coordinate bench, we are of the considered opinion that in the instant case, FMV computed by the assessee as on the date of allotment of shares is higher than the FMV computed by the AO as per prescribed method i.e. NAV method and further the shares were allotted to the existing shareholders where funds were received in preceding AYs and no fresh funds were received during the year under appeal, we find no reason for making addition u/s 56(2)(viib) of the Act. Accordingly, the addition made of INR 55,55,056/- is hereby, deleted. All Grounds of appeal raised by the assessee are hence, allowed.

In the result, the appeal of the assessee is allowed.