Addition u/s 56(2)(viib) sustained as method for FMV of equity shares not as per rule 11UA

ITO Vs Quark Enterprises Private Limited (ITAT Hyderabad)

ITAT Hyderabad held that addition under section 56(2)(viib) of the Income Tax Act sustained as method adopted for determination of FMV of equity shares by the assessee is not as per method prescribed under rule 11UA of Income Tax Rules.

Facts- During the course of assessment proceedings the AO, on verification of the financials observed from the balance sheet that the assessee company has received share premium to the extent of Rs.23,98,74,430/- during the financial year under consideration. In order to verify the same and examine the applicability of section 56(2)(viib) of the IT Act, he asked the assessee to provide the details of parties from whom share premium was received along with details of the mode of receipt and to explain why the provisions of section 56(2)(viib) of the Act should not be applied.

Put verification, AO held that the assessee is eligible to receive a premium Rs.0.305/ – per share only whereas the assessee received an amount of Rs.190/ – per share as “Premium” which is Rs.189.695/ – (Rs.190-0.305) higher than eligible premium as calculated. Hence, he treated the excess premium of Rs.189.695/ – per share as “Income from other sources” and made addition of Rs.23,94,89,308/- to the total income of the assessee.

CIT(A) allowed the appeal of the assessee. Being aggrieved, revenue has preferred the present appeal.

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