ACIT Vs Diligent Media Corporation Limited (ITAT Mumbai)
Share Premium Can’t Be Taxed U/s 68 Merely Because AO Finds It Excessive: Mumbai ITAT
The Mumbai ITAT upheld the deletion of a massive addition of ₹112.52 crore made under Section 68 towards share premium received by Diligent Media Corporation Ltd., holding that for AY 2011-12, the Assessing Officer could not invoke Section 68 merely because he believed the share premium charged was excessive or unsupported by the intrinsic value of the shares.
The assessee had issued shares to its holding company, Mediavest India Pvt. Ltd., at a premium based on a valuation report prepared under the Discounted Cash Flow (DCF) method. The Assessing Officer doubted the valuation, questioned the commercial rationale for charging a substantial premium despite the company being loss-making, and treated the entire share premium as unexplained cash credit under Section 68.
The Tribunal noted that there was no dispute regarding the identity of the investor, the movement of funds through banking channels, or the source of funds available with the investor company. The Assessing Officer himself had recorded that the investor had received substantial funds from its holding company and financial institutions. Once the assessee established the identity, genuineness and creditworthiness of the subscriber, the requirements of Section 68 stood satisfied.
Relying heavily on the Bombay High Court decision in SLS Energy Pvt. Ltd. and the Tribunal ruling in Aadhaar Wholesale Trading & Distribution Ltd., the ITAT held that prior to the introduction of Section 56(2)(viib) and the amended provisions relating to taxation of excess share premium, the Assessing Officer had no authority to tax share premium merely because he considered the valuation excessive. Questions relating to valuation and fair market value may be relevant under Section 56(2)(viib), but not for invoking Section 68 in AY 2011-12.
The Tribunal therefore upheld the CIT(A)’s order deleting the addition of ₹112.52 crore, dismissed the Revenue’s appeal, and treated the assessee’s cross-objection challenging the reopening as academic.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
