No Section 56(2)(viib) Addition Required for Discrepancy of less than 10%

Introduction

In a significant ruling, the Income Tax Appellate Tribunal (ITAT) Delhi addressed the appeal filed by Sakshi Fincap Pvt. Ltd. against the order passed by the Commissioner of Income Tax (Appeals)-XXV, New Delhi, dated August 23, 2019. The appeal focused on the addition of ₹50,77,334/- made by the Assessing Officer (AO) under Section 56(2)(viib) of the Income Tax Act, 1961, due to a difference in the valuation of shares. This article delves into the intricate details of the case, the arguments presented, and the Tribunal’s final decision.

Detailed Analysis

Background of the Case

Sakshi Fincap Pvt. Ltd. issued 1,58,66,670 equity shares at ₹15 per share (including a premium of ₹5 per share) on March 16, 2015, to three entities: Jenson Drugs Pvt. Ltd., Sakshi Pharmaceuticals Pvt. Ltd., and Sakshi Developers Pvt. Ltd. The valuation certificate provided by the company’s Chartered Accountant (CA) valued the shares at ₹14.77 per share, justifying the issue price of ₹15 per share. However, the AO computed the fair market value at ₹14.68 per share and added ₹50,77,334/- under Section 56(2)(viib), citing the difference in valuation.

Grounds of Appeal

The primary grounds of appeal raised by Sakshi Fincap Pvt. Ltd. were:

1. The addition was erroneous both in law and on facts.

2. The rejection of the CA’s valuation report was unjustified.

3. The valuation difference calculated by the AO was minor (2.1%).

4. The introduction of a safe harbor rule by the CBDT, allowing for a 10% variation, should apply retrospectively, making the addition unsustainable.

Tribunal’s Consideration