ITO Vs Appealing Infrastructure Pvt. Ltd. (ITAT Delhi)
Material Facts
The Revenue appealed against the order of the Commissioner of Income Tax (Appeals) dated 07.12.2018 deleting an addition of ₹1,63,35,000 made by the Assessing Officer (AO) under Section 56(2)(viib) of the Income-tax Act, 1961. The assessee, engaged in construction activities, had filed its return declaring nil income. During the relevant year, it allotted 16,510 optionally convertible preference shares of face value ₹10 each at a premium of ₹990 per share to three investors. The share application money of ₹1.65 crore had been received in Financial Year 2010-11, whereas the shares were allotted during the year under consideration. The assessee submitted a valuation report dated 20.03.2015 prepared under Rule 11UA valuing the shares at ₹1,000 per share. The AO rejected the valuation on the ground that the company’s net worth was negative and treated the premium of ₹1,63,35,000 as income under Section 56(2)(viib).
Procedural History
The CIT(A) deleted the addition, holding that the consideration for the shares had been received in Financial Year 2010-11, whereas Section 56(2)(viib), effective from 01.04.2013, was not applicable to that receipt. The Revenue challenged this order before the Income Tax Appellate Tribunal.
Legal Issues
The Tribunal considered:
- Whether Section 56(2)(viib) applied in the year of allotment of shares where the share application money had been received in Financial Year 2010-11.
- Whether the Assessing Officer was entitled to reject the valuation report furnished by the assessee under Rule 11UA and adopt a different method of valuation.
Relevant Statutory Provisions
- Section 56(2)(viib) of the Income-tax Act, 1961.
- Rule 11UA of the Income-tax Rules 2026.
- Section 42 of the Companies Act, 2013
Parties’ Submissions
