ITO Vs Gold Souk Finance Private Limited (ITAT Delhi)
The ITAT Delhi dismissed the Revenue’s appeal and upheld the deletion of addition made u/s 56(2)(iia), holding that fair market value of shares has to be computed strictly in accordance with Rule 11UA, and the Assessing Officer cannot substitute it with arbitrary mark-ups to underlying assets.
The Tribunal noted that the AO had enhanced the value of shares by applying 100% to 150% mark-up on the work-in-progress / inventory and immovable properties of investee companies, merely on the assumption that such assets are “appreciating in nature”. This approach was held to be wholly unsustainable in law.
The ITAT observed that the assessee had furnished valuation reports as per Rule 11UA, and these were also placed before the AO during remand proceedings, nullifying the Revenue’s objection under Rule 46A. The AO had full opportunity to examine the valuation, and therefore the procedural objection was rejected.
On merits, the Tribunal approved the CIT(A)’s reliance on settled law that only book values as prescribed under Rule 11UA can be considered, and no notional or estimated appreciation of assets is permissible for computing FMV under section 56(2)(iia).
The Revenue failed to demonstrate how the CIT(A)’s legal finding was erroneous. Consequently, the Tribunal held that the AO’s valuation based on arbitrary enhancement had no statutory backing, and the addition was rightly deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal is preferred by the Revenue against the order dated 28.10.2024 of the Ld. National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. ‘FAA’) in DIN & Order No : ITBA/NFAC/S/250/2024-25/1069998832(1)arising out of the order dated 30.12.2017 u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) passed by the ITO, Ward-12(4) for AY: 2015-16.
