PCIT Vs Sanjay Chandra (Delhi High Court)
The appeal before the Delhi High Court arose from an order of the Income Tax Appellate Tribunal dated 8 November 2019, whereby the Tribunal deleted an addition of ₹646,80,72,998 made under Section 56(2)(vii)(c) of the Income-tax Act, 1961. The Revenue sought condonation of a 625-day delay in re-filing the appeal, which was allowed. On merits, the Revenue proposed multiple questions of law contending that the Tribunal erred in deleting the addition relating to the alleged difference between the fair market value (FMV) of shares and the consideration paid, asserting that valuation should have been guided by a transaction price of ₹179.73 per share paid by a third party for underlying assets, and alleging failure to apply principles relating to human probabilities and colourable devices.
The Tribunal had found that the shares acquired were purchased at ₹10 per share, which was below both book value and FMV because the companies had negative value due to substantial losses. The Assessing Officer’s valuation was based solely on the premium paid in a separate transaction involving underlying assets, a reasoning the Tribunal rejected. It held that valuation, if undertaken, must be in accordance with Section 56(2)(vii)(c) read with Rule 11UA of the Income Tax Rules, 1962, and that the market value of the shares was negative and far below the consideration paid. The Tribunal also noted that these factual findings were not rebutted by the Revenue.
