Go Fashion (India) Ltd. Vs PCIT (ITAT Chennai)
Conclusion: The difference in the fair market value and the issue price of compulsory convertible preference shares was only 0.65%, therefore as per Rule 11UA issue price was deemed to be fair market value and hence no scope for addition required to be made u/s. 56(2)(viib).
Held: Assessee-company had issued compulsory convertible preference shares raising Rs. 100 crore under a private equity investment made by ICICI Venture through India Advantage Fund S4-I. The shares were issued for Rs. 416.69 per share, while the Fair Market Value ( FMV ) of the shares was determined to be Rs. 414 per share. During the assessment process, AO accepted the valuation of shares and made no addition under Section 56(2)(viib) for the difference in issue price and FMV of the shares. The Principal Commissioner of Income Tax ( PCIT ) found that AO did not make any additions regarding the differences and issued a revision order under Section 263, contending that AO’s order was erroneous and prejudicial to the interest of the Revenue because of insufficient inquiry into the valuation difference. Assessee challenged the PCIT’s revision order arguing that Rule 11UA permits a 10% variation between the issue price and FMV and the difference was just 0.65% in their case. Therefore, no addition was required under Section 56(2)(viib). It was held that ITAT, Delhi Bench in ITAT No.8389/Delhi/2019 in the case of Sakshi Fincap Ltd. dated 16.04.2024 had held that the amendment brought in Rule 11UA was introduced to mitigate hardship faced by taxpayers by the unintended invocation of section 56(2)(viib) r/w Rule 11UA and therefore, the same was a curative amendment. The difference in the fair market value and the issue price of compulsory convertible preference shares was only 0.65%, therefore as per Rule 11UA issue price was deemed to be fair market value and hence no scope for addition required to be made u/s. 56(2)(viib). In order to invoke Section 263 the twin condition of erroneous and prejudicial to the interest of Revenue were to be satisfied. In the present case, the second condition that order was prejudicial to interest of revenue was not being satisfied. Therefore, the order passed by AO was not prejudicial to the interest of revenue.
