Aadinath India Pvt. Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the assessee’s appeal against the order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, relating to Assessment Year 2014-15. The dispute concerned an addition of ₹55,55,056 made under Section 56(2)(viib) of the Income Tax Act on account of the issue of shares at a premium.
The assessee, engaged in the business of trading welding rods, air compressors, lubricating oils, bearings, and machinery parts, had issued 100,001 equity shares of face value ₹10 each at a premium of ₹115 per share to an existing shareholder. During assessment, the Assessing Officer (AO) computed the fair market value (FMV) of the shares at ₹69.45 per share using the Net Asset Value (NAV) method under Rule 11UA(2) and held that the premium exceeded the FMV, resulting in the impugned addition under Section 56(2)(viib).
The assessee contended that the FMV had been determined at ₹136 per share by considering the market value of its assets, including goodwill, on the date of allotment. The valuation was supported by reports of registered valuers dated 30.11.2016. Since the shares were issued at ₹125 per share, which was below the computed FMV, the assessee argued that no addition could be made. It further relied on Explanation (a) to Section 56(2)(viib), submitting that where the FMV determined under its valuation was higher than the value computed under the prescribed method, the higher valuation should be adopted. The assessee also argued that the share application money had been received in earlier assessment years and only the allotment of shares took place during the relevant year, making Section 56(2)(viib) inapplicable.
