Case Law Details
KBC India Private Limited Vs ITO (ITAT Delhi)
The ITAT Delhi considered an appeal against the order of the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC) for Assessment Year 2017-18 concerning an addition made under Section 56(2)(viib) of the Income-tax Act, 1961. The assessee submitted that the issue had already been decided in its favour by a coordinate bench of the Tribunal in its own case and sought similar relief. The Revenue relied on the orders of the lower authorities.
The Tribunal noted that the dispute was not regarding the genuineness of the transaction involving the allotment of shares by the assessee to its holding company. The only issue was the determination of the fair market value (FMV) of the shares and the applicability of Section 56(2)(viib). The assessee, a wholly owned subsidiary, had allotted 10,000 equity shares of face value ₹100 each to its holding company at ₹1,500 per share, including a share premium of ₹1,400 per share.
Referring to its earlier order, the Tribunal observed that Section 56(2)(viib) is an anti-abuse provision introduced to regulate the introduction of unaccounted money through share premium. It held that the transaction was between a holding company and its wholly owned subsidiary, with no outsider or third party deriving any benefit. In such circumstances, the Tribunal had earlier concluded that no addition under Section 56(2)(viib) was warranted.
The Tribunal further examined the determination of FMV. It noted that the assessee had obtained a valuation report from a registered valuer using the Net Asset Value method. The valuation considered land owned by the assessee by adopting the State Government’s circle rate and determined the land value at ₹26.75 crore, which was lower than the applicable circle rate of ₹50.40 crore. The Commissioner (Appeals) had rejected this valuation primarily on the ground that it exceeded the book value of the land.
The Tribunal held that the book value of land cannot be equated with its fair market value. Since the registered valuer had adopted a value based on the State Government’s circle rate, which itself was lower than the applicable circle rate, there was no justification for rejecting the valuation. It also observed that the Explanation to Section 56(2)(viib) permits determination of FMV either under Rule 11UA or on the basis of the value of the company’s assets, including intangible assets, whichever is higher. The assessee had substantiated the value of its land on the date of issue of shares, and the valuation was therefore acceptable.
Following the coordinate bench’s earlier decision in the assessee’s own case, the Tribunal held that the FMV adopted by the assessee was valid, deleted the addition made under Section 56(2)(viib), and allowed the appeal.
FULL TEXT OF THE ORDER OF ITAT DELHI
1. The assessee has filed appeal against the order of the Learned Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi [“Ld. CIT(A)”, for short]dated 10.11.2025 for the Assessment Year 2017-18.
2. At the outset of hearing, ld. AR of the assessee submitted that the issue i.e. addition under section 56 (2)(viib) of the Income-tax Act, 1961 (for short ‘the Act’) is squarely covered in assessee’s own case by the decision of ITAT, Delhi Bench in ITA No.9710/Del/2019 order dated 02.11.2022 in favor of the assessee. Accordingly, he pleaded to allow the appeal.
3. On the other hand, ld. DR of the Revenue relied on the orders of the authorities below.
4. Considered the rival submissions and material placed on record. We find that the issue involved under consideration is squarely covered by the decision of coordinate Bench in ITA No.9710/Del/2019 (supra). For the sake of brevity, the relevant findings of the aforesaid order is reproduced as under :-
“8. I have considered rival submissions in the light of the decisions relied upon and perused the materials on record. On a reading of the assessment order as well as the order of learned first appellate authority, it is very much clear that the genuineness of the transaction relating to sale of shares by the assessee to its holding company has not been doubted.
9. The dispute between the assessee and the Revenue is only with regard to determination of FMV of the shares and the applicability of section 56(2)(viib) of the Act. Undisputedly, the assessee is an wholly owned subsidiary of M/s. Puran Associates Pvt. Ltd. and in the year under consideration, the assessee had allotted 10,000 equity shares to its holding company at a sale price of Rs.1,500/- per shares having face value of Rs.100 per share. In other words, the assessee has charged share premium of Rs.1,400/-over and above the face value of each share. As rightly contended by learned counsel appearing for the assessee, on a careful analysis of the speech of Hon’ble Finance Minister while introducing Finance Bill, 2012, section 56(2)(viib) is an antiabuse provision introduced to the statute to check and regulate introduction of unaccounted money through share premium.
10. In the facts of the present appeal, the transaction relating to allotment of shares is between a holding company and its wholly owned subsidiary. Therefore, no outsider is benefited through such transaction. When the assessee-company has been promoted by the holding company, infusion of additional fund through share premium can only benefit either the holding company or the subsidiary and no third party is involved. In such a scenario, logically, no addition can be made under section 56(2)(viib) of the Act. For arriving at such conclusion, I draw support from the decisions of the Tribunal in the case of ACIT Vs. Y. Venkannachaudhary (supra) and Vaani Estates Pvt. Ltd. Vs. ITO (supra).
10. Even otherwise also, it requires consideration, whether the FMV of the shares allotted by the assessee can be taken at Rs.1,500/- per share as per the assessee or Rs.1082 per share as determined by the Assessing Officer. Undisputedly, the assessee has got the FMV of the shares valued through a registered valuer. As per the said valuation report, the registered valuer has applied the Net Asset Value method by considering the value of land at Delhi admeasuring 5.35 acres owned by the assessee. Applying the circle rate declared by the State Government, as on 31.03.2016, the registered valuer has determined the FMV of the land at Rs.26.75 crores as against the value of land as per the circle rate of Rs.50.40 crores. However, learned Commissioner (Appeals) has upheld the valuation made by the Assessing Officer primarily on the reasoning that the value of land determined by registered valuer at Rs.26.75 crores is much higher compared to the book value of land shown at Rs.16.88 crores.
11. In my view, book value of land cannot be equated to FMV of the land. When it is a proven fact that the value of land adopted by the registered value is based on circle rate of the State Government, rather much lower than the circle rate, there is no reason why such valuation should not be accepted. The reasoning of learned Commissioner (Appeals) while rejecting the valuation of land, in my view, is unacceptable when the fact that the circle rate of the land is much higher remains uncontroverted.
12. On a reading of Explanation to section 56(2)(viib) of the Act, it is very much clear that the FMV of shares shall be either the value determined under rule 11UA or based on the value of its assets, including, intangible assets on the date of issue of shares, whichever is higher. So the assessee can determine the FMV by adopting either of the two methods as provided under the Statute.
The expression “substantiated by the company to the satisfaction of the Assessing Officer” as used in clause (a)(ii) of Explanation to section 52(b)(viib) does not speak of any subjective satisfaction but has to be considered objectively, keeping in view the value of the assets on the date of issue of shares. In the facts of the present case, the assessee has proved that the value of the asset, i.e., the land at Delhi as per circle rate is more than Rs.26.75 crores determined by the registered valuer. That being the factual position emerging on record, allotment of shares at Rs.1,500/- per share must be considered to be the FMV on the date of sale and not high and excessive compared to the FMV. It is relevant to observe, the assessee had entered into similar transaction with its holding company in assessment year 2014-15 wherein, shares having face value of Rs.100 per share were allotted to the holding company for a premium of Rs.1799 per share. While considering the issue relating to similar addition made by the Assessing Officer under section 56(2)(viib) of the Act, learned first appellate authority has deleted the addition taking note of the fact that the value of land held by the assessee as per the circle rate is Rs.42 crores. Thus, on overall consideration of facts and materials on record, I do not find any reason to sustain the addition of Rs.41,70,000/-. Accordingly, the addition is deleted.
12. In the result, the appeal is allowed.”
5. Respectfully following the aforesaid coordinate Bench order in assessee’s own case, we allow the appeal filed by the assessee.
6. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on this 24th day of June, 2026
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