Difference Between Purchase Price and FMV u/s 56(2)(viia) Requires Fresh Verification of Asset Realizable Value: ITAT Remits Matter [Read Order]

The Delhi Bench of the Income Tax AppellateTribunal (ITAT) set aside orders confirming additions under Section 56(2)(viia) and remitted the matter for de-novo adjudication and observed that the actual realizable value of underlying assets is a critical factor in determining Fair Market Value (FMV).

Brawny Nivesh Pvt. Ltd. (assessee) filed its return for Assessment Year 2015-16, which was selected for "Limited Scrutiny" primarily due to a large increase in investments in unlisted equities.

During the assessment, the Assessing Officer (AO) noted that the assessee purchased shares of Gain E Commerce Pvt. Ltd. and Kanti Commercial Pvt. Ltd. at prices significantly lower than the FMV calculated by the AO using the Net Asset Value (NAV) method.

The AO made additions of ₹8,25,000 and ₹20,39,400 under Section 56(2)(viia), representing the difference between the purchase consideration and the computed FMV. Aggrieved by the additions, the assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)].

The assessee argued that the AO's valuation was incorrect because it failed to account for assets shown in the balance sheets of the target companies that had no realizable value. The assessee claimed deductions of approximately ₹4.55 crores for Gain E-Commerce and ₹139.52 crores for Kanti Commercial based on a Chartered Accountant's valuation report.

The CIT(A) dismissed the appeal and held that the assessee failed to provide a "reliable and robust" basis for the valuation and that the AO’s NAV method was justified in the absence of a qualified valuer’s report being discharged by the onus of the assessee.

The two-member bench comprising Mahavir Singh (Vice President) and Brajesh Kumar Singh (Accountant Member) observed that the assessee's valuation formula specifically excluded assets with no realizable value to arrive at a lower FMV.

The tribunal observed that neither the AO nor the CIT(A) had actually verified the assessee’s claim regarding the non-realizability of these specific assets. It held that a summary rejection of the Chartered Accountant’s report without factual verification was unsustainable in law.

The Bench concluded that the matter required deeper factual verification. It set aside the previous orders and restored the issue to the AO for a de-novo decision, instructing the authority to verify the realizable value of the assets as claimed by the assessee. The appeal of the assessee was partly allowed for statistical purposes.

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