Case Law Details
ITO Vs Solitaire BTN Solar Pvt Limited (ITAT Delhi)
The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of ITO Vs Solitaire BTN Solar Pvt Limited has significant implications for the interpretation of Section 56(2)(viib) of the Income Tax Act, 1961.
Detailed Analysis: The case revolves around Solitaire BTN Solar Pvt Limited, engaged in energy and infrastructure development, which issued 1,00,000 Optional Convertible Preference Shares (OCPS) to its 100% holding company, Hindustan Clean Energy Ltd. The Assessing Officer (AO) had disputed the premium of Rs. 9,90,00,000/- received on these shares, valuing them at Rs. 639.17 per OCPS instead of the declared Rs. 1,000/-. This led to an addition of Rs. 3,60,83,000/- under Section 56(2)(viib) of the Act, which taxes excessive premium on shares issued over their fair market value (FMV).
Solitaire BTN Solar Pvt Limited contested this addition before the CIT(A), arguing that the premium was justifiable as it reflected the true value of the company. They presented a valuation report supporting the FMV and highlighted that the shares were issued to their holding company, where no unlawful gain was sought.
The CIT(A) ruled in favor of Solitaire BTN Solar Pvt Limited, emphasizing that Section 56(2)(viib) did not apply to transactions between a company and its 100% holding company. The decision cited various precedents and legal interpretations, underscoring that the deeming provisions of the Act were not intended to tax transactions that did not involve external parties or lead to unlawful gains.
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