Case Law Details
Bharat Elevators & Engineers Private Limited Vs ITO (ITAT Kolkata)
There are two limbs in Section 56(2)(viib) of the Act. As per explanation to Section 56(2)(viib) of the Act, the first limb is valuation to be made as per the prescribed method. In fact, the method for valuation of shares is prescribed under Rule 11UA of the Income-tax Rules, 1962. The second limb is the valuation of the company based on value on the date of issue including its assets. Assets include intangible assets such as goodwill, knowhow, patents, copyrights, trademarks, licences, franchises, etc. The Assessing Officer has not taken into consideration the second limb in explanation to Section 56(2)(viib) of the Act. The second limb provides that when valuation was made by the company, if the Assessing Officer is not satisfied about the valuation, he has to call for material from the assessee how the valuation was made by the assessee-company. Satisfaction of the Assessing Officer as referred in explanation to Section 56(2)(viib) of the Act would be judicial satisfaction of the Assessing Officer. Judicial satisfaction means the Assessing Officer has to take into consideration the well established method of valuation of shares including the assets as explained in Explanation 2 to Section 56(2)(viib) of the Act. It cannot be arbitrary. The Assessing Officer has to take note of the judicial and established principles in arriving at his satisfaction. In this case, the Assessing Officer has not found any specific fault in rejecting or not satisfying with the valuation made by the assessee. When the Assessing Officer has not found any defect or error in the valuation of shares by the assessee company, it may not be necessary to apply the method of valuation prescribed under Rule 11UA of the I.T. Rules. Therefore, this Tribunal is unable to uphold the valuation made by the Assessing Officer under Rule 11UA of the Income-tax Rules, 1962.
In view of the above we delete the addition made by the AO u/s 56(2)(vii)(b) of the Act and confirmed by the Ld. CIT(A).
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee is directed against the order of Ld. Commissioner of Income Tax (Appeals)-2, Kolkata dated 25.11.2019 and the solitary issue involved therein relates to the addition of Rs. 8,25,000/- made by the AO and confirmed by the Ld. CIT(A) u/s 56(2)(vii)(b) of the Income Tax Act, 1961.
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