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2026 Supreme(Online)(ITAT) 10521
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
Sudhir Kumar, Judicial Member, Manish Agarwal, Accountant Member
ACIT – Appellant
Versus
Cinestaan Entertainment Pvt. Ltd. – Respondent
ITA No.4557/Del/2025
For the Appellants/Petitioners: Pooja Swaroop, CIT-DR
For the Respondents: Pradeep Dinodia, R.K. Kapoor, Ravi Kumar, Shruti Gupta
For the purpose of Section 56(2)(viib), a valuation report for the issue of unquoted shares at a premium is specific to the assessment year. An assessee cannot rely on a valuation report from a preceding assessment year; a fresh valuation is mandatory for each instance of share issuance.
Headnote:(A) Income Tax Act, 1961 - Section 56(2)(viib) - Income Tax Rules, 1962 - Rule 11UA - Issue of unquoted shares at premium - Requirement to obtain fresh valuation report - Assessee must obtain a valuation report for every assessment year for the purpose of justifying share premium; reliance on a report from a preceding assessment year is not permissible - Once the assessee opts for a specific valuation method (DCF or NAV), the Assessing Officer must scrutinize the report but may not change the method or reject it without providing a reasoned basis; the AO may, however, perform a fresh valuation if the existing one is found deficient. (Paras 14, 15, 18, 19, 21, 24)
Facts of the case:
The taxpayer issued unquoted equity shares at a premium during the assessment year. The taxpayer relied on a valuation report from a prior assessment year to justify this premium. The revenue authority treated the premium as income under Section 56(2)(viib), contending that the valuation was stale and that the excess consideration over fair market value constituted taxable income.
Findings of Court:
The court held that while the valuation method adopted by the taxpayer was recognized, the failure to obtain a fresh valuation report for the relevant assessment year violated the requirements of the Act. The court maintained that taxation of share premium requires contemporaneous valuation, and a report from a previous year cannot be treated as binding.
Issues: Whether the taxpayer can rely on a valuation report from a previous assessment year to justify the share premium charged in the current assessment year, and whether the revenue authority is empowered to disregard the valuation method opted by the assessee.
Ratio Decidendi: Taxation of excess share premium over fair market value requires a valid, current valuation. The taxpayer cannot use a 'stale' report from a prior year. While the revenue officer cannot arbitrarily change the valuation method chosen by the taxpayer, the officer is entitled to scrutinize the report or commission a fresh valuation if the existing data is found insufficient or the reporting is lacking, as there is no provision permitting the use of previous years' reports for subsequent capital issuance.
Result: Appeal of the revenue is allowed for statistical purposes; matter remanded to the Assessing Officer for fresh valuation.
| Table of Content |
|---|
| 1. overview of appeal, facts regarding share premium issuance, and grounds for dispute. (Para 1 , 2 , 3 , 4 , 5) |
| 2. contentions regarding mandatory nature of valuation report for share premiums under section 56(2)(viib). (Para 6 , 7 , 8) |
| 3. detailed factual background and reliance on previous years' valuation reports and joint venture agreements. (Para 9 , 10 , 11 , 12 , 13 , 14 , 15) |
| 4. requirement to obtain fresh valuation reports annually and prohibition on using stale valuation reports. (Para 16 , 17 , 18 , 19 , 20 , 21) |
| 5. setting aside order and remanding matter for fresh valuation by assessing officer. (Para 22 , 23 , 24 , 25) |
O R D E R
PER MANISH AGARWAL, AM:
This appeal is filed by the Revenue against the order of Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi [CIT(A) in short], dated 13.06.2025 in Appeal No. CIT(A), Delhi 2/10173/2018-19 arising out of the order passed u/s 143 of the Income Tax Act, 1961 (the Act, in short) dated 20.12.2018 for Assessment Year 2016-17.
2. Brief facts of the case are that assessee has e-filed its return of income on 05.10.2016 declaring total income of Rs.2,77,520/-. The case of the assessee was selected for limited scrutiny for examination of issue of its shares at premium. The AO observed that during the year under appeal, assessee has issued 57,620/- equity shares having face value of Rs. 1/- each at a premium of Rs.2602.26 per share and later 94,588/- equity shares having face value of Rs. 1/- each were issued at a premium of 2642.04 per share to same party. The AO further observed that the assessee has taken premium based on the valuation report dt. 15.12.2014 from the approved valuer for determination of Fair Market Value (FMV) wherein the Discount Cash Flow Method (DCF) was selected by the valuer. This report was obtained in immediately preceding assessment year i.e. in AY 2015-16 when the assessee had issued shares at a premium of Rs.2602.04 per share. The AO observed that during the year under appeal no fresh valuation report for determination of FMV of the shares issued was obtained and based on the valuation report dated 15.12.2014 obtained in preceding year, shares were issued at a premium. The AO, thus, issued summon u/s 131 to the valuer and his statements were recorded wherein he denied of issue fresh valuation report for determination of FMV of the equity shares issued during the year under appeal. The valuer further stated that before issue of shares during the year under appeal, the assessee should have obtained fresh report from the approved valuer. Than the AO observed certain deficiencies in the valuation report obtained in previous year and by comparing the projections taken for Five years in the said report with the actual results available for certain years hold that the report so obtained suffers serious errors and thus, such report cannot be made basis issue of shares at premium. The AO further observed that since no fresh valuation report was obtained prior to the issue of shares in the year under appeal, he invoked the provisions of section u/s 56(2)(viib) of the Act made the additions of the entire share premium received during the year under appeal at Rs. 39,98,47,792/- by taking the fair market value at Rs. 1/- per equity share.
3. Against the said order, the assessee preferred the appeal before the Ld. CIT(A) wherein the Ld. CIT(A) by following the order of the Tribunal in assessee’s own case for AY 2015-16 in ITA No.8813/Del/2018 deleted the additions so made.
4. Aggrieved by the said order, the Revenue is in appeal before the Tribunal by taking following grounds of appeal:
“1. Whether the Ld. CIT(A) has erred on the facts in deleting the addition of Rs. 39,98,47,792/- made by the Assessing Officer under section 56(2)(viib) of the Income-tax Act, 1961, and accepting a stale and invalid share valuation report dated 15.12.2014, which was originally prepared for a prior year and not applicable to the
