International Oncology Services Private Limited Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi allowed the assessee’s appeal for Assessment Year (AY) 2013-14, deleting both the addition made under Section 56(2)(viib) of the Income Tax Act, 1961 and the disallowance of legal and professional expenses under Section 37(1).
The assessee, a private limited company engaged in providing medical and surgical services, operated its flagship Oncology Centre at Fortis Noida Hospital. During the relevant assessment year, it issued 20,75,264 equity shares at ₹292.45 per share, including a premium of ₹282.45, and received share application money of ₹18,99,69,197 from a venture capital fund, resident and non-resident investors.
During scrutiny assessment, the Assessing Officer (AO) sought the fair market value (FMV) of the shares under Section 56(2)(viib) read with Rule 11UA. The assessee furnished a valuation report determining the FMV at ₹285.88 per share. The AO initially proposed an addition based on a difference between the issue price and the valuation. The assessee explained that all shares were issued at a uniform price to venture capital investors, residents, and non-residents due to a commercial understanding that shares would not be issued to any other investor at a lower price than that offered to the venture capital investor. The assessee also submitted supporting documents, including the valuation certificate, details of share allotments, RBI approvals, statutory filings, board resolutions, ledgers of legal and professional expenses, and related invoices. However, the AO adopted the FMV at ₹285.88 per share and made an addition of ₹27,10,657 under Section 56(2)(viib) in respect of shares allotted to the resident shareholder. The AO also disallowed ₹15,50,000 claimed as legal and professional charges under Section 37(1). The Commissioner of Income Tax (Appeals) upheld both the addition and the disallowance.
