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Judgment
PER MAHAVIR SINGH, VP :
This appeal filed by the assessee emanates from the order of the Ld. Commissioner of Income Tax (Appeals) ([CIT(A)]/National Faceless Appeal Centre (NFAC) in appeal no. NFAC/2021-22/10323527 dated 19.3.2026 arising from the assessment order passed by the Assessing Officer dated 7.3.2024 under Section 143(3) r.w.s. 144B of the Income Tax Act (‘the Act’ in short) for AY 2022-23.
The only issue in this appeal of the assessee is as regards the order of the CIT(A) confirming the action of the AO in making addition u/s. 56(2)(viib) of the Act being difference between the issue price and valuation price of shares calculated as per Rule 11UA(2) ignoring that the issue price and valuation price, differential is less than 10%. For this, assessee has raised following ground no. 1 :
“The Ld. CIT(A) is wrong in confirming the addition of Rs. 19,14,250/- made by the AO under Section 56(2)(viib) on account of difference between the issue price and valuation price of share calculated as per Rule 11UA(2) by ignoring the provision of Rule 11UA(4), which provides that if the issue price does not exceed the valuation price by more than 10 per cent, such issue price shall be deemed to be the Fair Market Value (FMV) of share. In the present case, the difference between the issue price (Rs. 405) and the valuation price (Rs. 389.5) is only 3.98 percent i.e. within the prescribed limit of 10 per cent, so the addition made of Rs. 19,14,250/- u/s. 56(2)(viib) is liable to be deleted in view of Rule 11UA(4).
Brief facts of the case are that the Assessee company is engaged in manufacture and sale of electrical appliances such as fans, geysers etc. at Delhi, Haryana and H.P. and filed e-return of income on 10.10.2022 declaring total income of Rs. 6,85,39,280/-. The return was processed under section 143(1) of the Income Tax Act, 1961 on 16.3.2023 determining total income of Rs. 64,14,69,190/-. Thereafter, the assessee moved rectification application u/s. 154 of the Act and rectification order u/s. 154 was passed on 5.6.20023 by CPC at a total income of Rs. 64,14,69,190/- Later on, the case was selected for scrutiny on following CASS selection parameters:
Large share premium received during the year.
ii) Large difference in the closing stock shown in balance sheet and trading and manufacturing account of current year as per return of income.
iii) High liabilities as compared to low income / receipts.
iv) Mismatch in expenditure of personal nature reported in Audit Report and ITR.
Accordingly, notice u/s. 143(2) was issued and duly served upon the assessee on 2.6.2023, thereafter notices u/s. 142(1) were issued from time to time. During the course of assessment proceedings, notice u/s. 143(2) and 142(1) were issued, calling for requisite details. In response, the assessee furnished submissions and documents from time to time. Upon verification, most of the issues were accepted by the AO. However, with regard to the issue of share premium, the AO observed that during the year under consideration, the assessee had issued 1,23,500 shares at a price of Rs. 405 per share (face value of Rs. 100 and share premium of Rs. 305) to its existing shareholders, some of whom were directors or promoters of the company, by adjusting against their unsecured loans. The AO further computed the fair market value of the shares at Rs. 389.50 per share in accordance with Rule 11UA of the Act. Accordingly, the AO noted that the assessee had received excess consideration of Rs. 15.50 per share. The total excess consideration over and above the permissible limit under section 56(2)(viib) was thus computed at Rs. 19,14,250/- (Rs. 15.50 x 1,23,500 shares). Thereafter, the AO issued a show cause notice to the assessee requiring it to explain, with supporting documentary evidence, as to why the excess consideration received on issuance of shares, being in excess of the FMV determined under Rule 11UA, should not be brought to tax under section 56(2)(viib) of the Act. In response, the assessee furnished its submissions. However, it failed to provide any cogent justification as to why the FMV determined under Rule 11UA should not be adopted in its case. Further, no valuation report was submitted in support of the value adopted by the assessee. Subsequently, an opportunity of personal hearing through video conferencing was granted by the AO on 28.2.2024 and during the said hearing, the assessee reiterated the submissions already made in response to the show cause notice. Therefore, in the absence of any valuation report or satisfactory explanation from the assessee, the AO completed the assessment u/s. 143(3) read with section 144B of the Act on 7.3.2024, determining the total income at Rs. 64,33,83,440/-. Against the aforesaid addition, the assessee preferred the appeal before the Ld. CIT(A), who vide his impugned order has affirmed the action of the AO. Aggrieved, assessee is in appeal before us.
At the time of hearing, Ld. AR has submitted that the addition of Rs. 19,14,250/- made by the AO under Section 56(2)(viib) on account of difference between the issue price and valuation price of share calculated as per Rule 11UA(2) by ignoring the provision of Rule 11UA(4), which provides that if the issue price does not exceed the valuation price by more than 10 per cent, such issue price shall be deemed to be the Fair Market Value (FMV) of share. He further submitted that in the present case, the difference between the issue price (Rs. 405) and the valuation price (Rs. 389.5) is only 3.98 percent i.e. within the prescribed limit of 10 per cent, so the addition made of Rs. 19,14,250/- u/s. 56(2)(viib) is liable to be deleted in view of Rule 11UA(4). He further submitted that the issue in dispute is squarely covered by the decision of this Tribunal in the case of Sakshi Fincap (P) Ltd. vs. ITO [2024] 161 Taxmann.com 520 (Delhi-Tribunal) dated 16.4.2024. He further submitted that CBDT in order to mitigate the hardship faced from the un-intended consequences of Section 56(2)(viib) read with rule 11UA, via notification 81/2023 dated 25.8.2023 has introduced a safe harbor of 10% variation in value.
Ld. DR relied upon the orders of the authorities below.
We have carefully considered the rival submissions and perused the material on record. We note that in the present case, the difference between the issue price (Rs. 405) and the valuation price (Rs. 389.5) is only 3.98 percent i.e. within the prescribed limit of 10 per cent. We further note that the Coordinate Bench of this Tribunal has dealt the identical issue in the case of Sakshi Fincap (P) Ltd. vs. ITO [2024] 161 Taxmann.com 520 (Delhi-Tribunal) dated 16.4.2024 wherein, the Tribunal by referring the CBDT Notification 81/2003 dated 25.8.2023 has observed that it is evident that where the difference between the issue price and value adopted by the AO is 10 per cent or less, in such cases issue price will be deemed to be the fair value of shares for the purpose of Rule 11UA. In the instant case, the issue price is Rs. 15 per share and the value adopted by the AO is Rs. 14.68 per share, hence, the difference between the issue price and value adopted by the AO is Rs. 0.32 i.e. 2.21 per cent which is less than the safe habor of 10 per cent variation in value introduced by CBDT notification 81/20023 dated 25.8.2023. Hence, in view of above mentioned submission and curative amendment introduced by the CBDT notification 81/2023 dated 25.8.2023, addition under section 56(2)(viib) read with Rule 11UA is unsustainable. In view of above and respectfully following the above precedent, the addition in dispute in the instant case is liable to the deleted, hence, the same is deleted.
In the result, the appeal of the assessee is allowed.