Valuation u/s 56(2)(vii)(c) of Income Tax Must Be Confined to Shares Actually acquired by Assessee: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, dismissed Revenue's appeals and upheld the deletion of additions made under Section 56(2)(vii)(c) on account of alleged acquisition of shares below their fair market value.

The assessee, Kanchan Markhedkar, had acquired shares of holding companies at face value. During assessment proceedings, the Assessing Officer observed that through such acquisitions, the assessee and her family members had indirectly acquired shares of underlying companies at a value significantly lower than their fair market value.

Taking the view that the arrangement was a colourable device, the Assessing Officer determined valuation with reference to the underlying companies instead of the holding companies and made additions under Section 56(2)(vii)(c).

However, the CIT(A)deleted the additions. Aggrieved, the Revenue preferred appeals before the Tribunal.

Before the Tribunal, the Revenue contended that the assessee had effectively acquired control over the underlying companies through intermediary entities.

The assessee contended that valuation under Rule 11UA was required to be undertaken with reference to the shares actually purchased and not on the basis of indirect holdings in underlying companies.

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The Tribunal comprising Amit Shukla (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) observed that the assessee had acquired shares of the holding companies and not shares of the underlying companies. It noted that the additions were made by adopting a valuation based on indirect holdings rather than the property actually acquired by the assessee. The Tribunal held that for the purpose of Section 56(2)(vii)(c), the property received by the assessee was the shares of the holding companies and therefore valuation had to be confined to such shares alone.

Accordingly, the Tribunal found no infirmity in the orders of the CIT(A) deleting the additions made under Section 56(2)(vii)(c).

The Revenue's appeals were dismissed.

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