Back
2025 Supreme(Online)(ITAT) 5419
INCOME TAX APPELLATE TRIBUNAL (CHANDIGARH BENCH)
SHRI. LALIET KUMAR, JM, SHRI. MANOJ KUMAR AGGARWAL, AM
TRIVENI KNITS PRIVATE LIMITED LUDHIANA – Appellant
Versus
ITO WARD 1 (3) LUDHIANA – Respondent
Income Tax Appeal No. 246/Chd/2024
For the Appellants/Petitioners: Shri Rajesh Mehru, CA, Shri Dev Mehru, CA
For the Respondents: Dr. Ranjit Kaur, Addl. CIT, Sr. DR
The court emphasized that share valuations must be based on reliable financial data and established methodologies, rejecting unsupported premium claims.
Headnote:(A) Income Tax Act, 1961 - Section 56(2)(viib) - Appeal against addition on account of excess share premium received - The Assessee contended that the share allotment was not for new funds but in consideration for business takeover - The Assessing Officer rejected the DCF-based valuation, applying the NAV method instead due to unrealistically projected profits and methodological flaws. (Paras 11-22)
(B) Judicial Precedent - Valuation methodologies must adhere to substantiated data, particularly when asserting share premiums - The lack of audited financial baselines raises substantial questions regarding the integrity of valuation assertions. (Paras 11-22)
Facts of the case:
The Assessee incorporated to take over a partnership firm and allotted shares at a premium shortly after, leading to scrutiny under income tax provisions for fair market value. The AO found the valuation method highly questionable.
Findings of Court:
The Tribunal upheld the AO's rejection of the DCF method due to unsupported projections, endorsing the NAV method as more appropriate given the facts.
Issues: The core issue involved the accuracy of share valuation and whether the premium charged had reliable backing.
Ratio Decidendi: The Tribunal emphasized adherence to credible financial data in valuation in accordance with established methodologies, rejecting the valuation on grounds of lack of empirical support.
Result: Appeals dismissed.
| Table of Content |
|---|
| 1. development of shares and valuation disputes (Para 3 , 4 , 5 , 6) |
| 2. valuation methodology scrutiny (Para 11 , 12 , 21) |
| 3. conclusion on appeal validity (Para 22 , 23 , 24) |
आदेश/Order
PER LALIET KUMAR, J.M:
This is an appeal filed by the Assessee against the order of the Ld. CIT(A)-5, Ludhiana dt. 18/02/2024 pertaining to Assessment Year 2013-14.
2. In the present appeal Assessee has raised the following grounds:
The Learned CIT (A) has erred in passing an ex parte order without giving reasonable opportunity to the appellant
2. That the Learned CIT (A) has erred in making an addition in the Case of the Assessee on account of unexplained investment under Section 69 of the Income Tax Act, 1961 .
3. That no reasonable opportunity has been afforded to the Assessee to represent his Case.
4. Learned Ld. AO has erred in making addition of INR. 77,25,000/- as per para 4.6 of the order on account of share issued at premium more than fair market value of share.
5. Ld. AO has erred in calculating the fair market value of unquoted equity shares of the appellant company. Valuation of shares for the purpose of Section 56 (2)(viib) of the Income Tax Act, 1961 has been incorrectly calculated by the Ld. AO and the addition has been made to the total income under this section.
6. Learned Ld. AO in its original order has erred in making addition of Rs. 77,25,000/- u/s 56(2)(vib) of the Income Tax Act, 1961 . The Assessee Company made the first allotment of shares on 15/02/2013 of 25000 shares to the promoter at par value of INR. 10/- in consideration of takeover of share capital in the Firm of the same partners/promoters.
3. Briefly the facts of the case are that the assessee company was incorporated on 19.12.2012 with the object of taking over the business of an existing partnership firm, M/s Triveni Knits. During the year, the company allotted 1,00,000 equity shares, of which 75,000 were issued at a premium of Rs.240/- per share to the promoters—Mr. Rohit Sahi and Mrs. Anshul Sahi—in consideration of the capital and loan balances standing in their names in the erstwhile firm. The Ld. AO, invoking the provisions of section 56(2)(viib) of the Income Tax Act, 1961 , made an addition of Rs.77,25,000/- on the grounds that the share premium received exceeded the fair market value (FMV) of the shares.
4. Against the order of the Ld. Assessing Officer, the assessee went in appeal before the Ld. CIT(A) who has since sustained the addition made by the AO.
5. Against the order of the Ld. CIT(A) the assessee preferred an appeal before the Tribunal.
6. During the course of hearing the Ld. AR contended that the share allotment was not for the infusion of new funds, but rather in consideration for the takeover of the business assets and liabilities of the partnership firm. It was argued that the transaction did not involve unaccounted money and, therefore, Section 56 (2)(viib) had no application. The shares were issued to the same persons who were partners in the firm, and in the same ratio.
7. During the appellate proceedings before the CIT(A), the assessee filed additional evidence under Rule 46A of the Income Tax Rules, including a valuation report prepared under the Discounted Cash Flow (DCF) method by a Chartered Accountant. It was contended that the valuation using the DCF method is permitted under Rule 11UA and is more appropriate in case of a newly incorporated company where asset-based NAV method may not reflect the true value. Ld. CIT(A) called for the remand report from Assessing Officer.
8. In accordance with Rule 46A(3), the additional evidence was forwarded to the AO for examination. The AO submitted a remand report objecting to both the admissibility and the merits of the new evidence. The AO stated that sufficient opportunity was already provided to the assessee during the assessment proceedings to furnish justification and valuation methodology for the share premium, but no such evidence was submitted at that stage. Hence, the assessee
