A B Propmart Pvt. Ltd. Vs ITO (ITAT Delhi)
No Tax on Share Premium Within Group: ITAT Delhi Deletes ₹8.19 Cr Addition, Says 56(2)(viib) Not for Holding–Subsidiary Deals
Assessee-company issued shares at a premium of ₹5,056 per share, receiving ₹8.64 crores from its 100% holding company. Assessee justified the premium using the Net Asset Value method under Rule 11UA, supported by a valuer’s report valuing its main land asset at ₹13 crores. AO ignored this valuation and relied on an earlier erroneous report showing a value of only ₹274 per share, and made an addition of ₹8.19 crores u/s 56(2)(viib). The CIT(A) confirmed the addition.
Before the Tribunal, Assessee argued that section 56(2)(viib) does not apply to transactions between a subsidiary & its holding company since no real income arises & there is no tax abuse. Tribunal agreed, relying on the BLP Vayu (Project-1) decision & held that the deeming fiction of section 56(2)(viib) cannot apply within the same group.
Further, even on facts, the DVO had valued the land at ₹20.75 crores—much higher than Assessee’s own valuation-proving that the share premium was well supported. As per the Delhi High Court in Cinestaan Entertainment, once a recognized valuation method is adopted, the AO cannot substitute his own value without proving error.
