No addition warranted u/s 56(2)(viib) of Income Tax Act as difference between issue Price and Value Adopt by AO is Minuscule [Read Order]

The two member bench of Delhi Income Tax Appellate Tribunal ( ITAT ) held that no addition warranted under Section 56(2)(viib) of the Income Tax Act, 1961 as difference between issue price and value adopted by the Assessing Officer is minuscule. 

The Assessee, Sakshi Fincap Pvt. Ltd. received an amount of Rs. 23,80,00,050/- on account of issue of 1,58,66 ,670 equity shares issued at the rate o f 15/- (including premium o f Rs. 5/-) on 16.03 .2015.

The assessee submitted that as per valuation certificate issued by Chartered Accountant in accordance to Rule 11UA of the rules, value has been arrived at Rs.14.77 per share and suggested value was Rs. 15 per share . Accordingly, assessee allotted above shares at value of Rs. 15 per share.

Contrarily, the Assessing Officer computed the fair market value o f the share at Rs. 14 .68 per share and made the addition of Rs . 50 ,77,334/- under Section  56(2)(viib) on account of difference in value .

Aggrieved, the assessee filed an appeal before the CIT(A) who confirmed the addition.Accordingly the assessee filed appeal before the tribunal.

During the adjudication Aman Garg, the counsel for assessee  submitted that  the value adopted by the assessee is Rs. 15/- share whereas the AO has computed the value o f Rs . 14.68/- share and the difference between the value adopted assessee and computed by the AO is 2% .

Thus no addition is warranted under Section  56(2)(viib) of the  Income Tax Act as the difference between the two values is minuscule.

Vivek Vardan, Counsel for Revenue supported the order of lower authorities

It was observed that where the difference between the issue price and value adopted by the AO is 10% or less, in such cases issue price will be deemed to be the fair value of shares for the purpose of Rule 11UA of the Income Tax Rules, 1962.

In the present case the issue price is Rs.15 per share and the value adopted by the AO is Rs.14 .68/per share, hence the difference between the issue price and value adopted by AO is Rs.0.32 i.e. 2.21% (0.32/15) which is less the then the safe harbor o f 10% variation in value introduced by CBDT notification 81/2023 dated 25 .08.2023.

After reviewing the facts the ITAT bench of C. N. Prasad (Judicial Member) and Dr. B. R. R. Kumar (Accountant Member)  held that the addition o f Rs.50 ,77,334 under Section 56(2)(viib) read with rule 11UA is unsustainable as the difference between issue price and value adopted by AO is 2.1% i.e . less than 10% .

To Read the full text of the Order CLICK HERE

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