AMBARNUJ FINANCE & INVESTMENTS PVT LTD.,NEW DELHI vs. DCIT, CENTRAL CIRCLE-26, DELHI

2. The brief facts of the case are, that, return declaring total loss of Rs.75,73,058/ - was filed by the assessee on 18.08.2018. As noted by the AO, the case of Assessee was selected for limited scrutiny under CASS. Subsequently, assessment was completed vide order dated 20.04.2021 after making additions at Rs. 2,66,665/-. During the assessment proceedings, it was noted by the AO that appellant had received the share capital alongwith premium from the related parties. It was seen that 6,17,777 shares were sold to the related parties at Rs. 27 per share i.e. face value of Rs. 10/- and premium of Rs. 17/- per share. A valuation certificate under Rule 11UA of the I.T. Act, 1961 was also submitted by the appellant wherein the value of each share of the appellant company was evaluated at Rs. 26.76 per share. Accordingly, the difference (being Rs. 27- Rs. 26.76) for 6,17,777 shares at Rs. 1,48,267/- was added back by AO as excess consideration as per the provisions of section 56(2)(viib) of the Act.

3. Upon assessee’s appeal Ld. CIT(A) noted the following submissions of the assessee: “During the course of appellate proceedings, it was contested by the appellant that the share premium has been computed in accordance with valuation under Rule 11 UA. It was also contested that the variation from the valuation report is within the range of 10%. In this regard, reliance was also placed on the CBDT notification 81/2023 dated 25.9.2023.” 3.1 However, Ld. CIT(A) was not convinced with the aforesaid submissions of the assessee, hence, he confirmed the AO’s order by observing as under:- “I have perused the facts of the case and the submissions on record. It is seen that there was a clear difference between the issue price of the share and the price valued under Rule 11UA. Under these circumstances, AO under statutory obligation to invoke the provisions of section 56(2)(viib), more so, in the present case as the parties to whom the shares was issued were related parties of the appellant company. The addition therefore appears to be highly reasonable and in accordance with the provisions of the law. The notification under reference by the appellant in the above para was effective from 2 | P a g e

25.09.2023 and does not pertain to the year under reference. Therefore, the addition made by AO is confirmed and these grounds of appeal are dismissed.”

4. Against the above order, assessee is in appeal before us.

5. We have heard both the parties and perused the records. Ld. Counsel for the assesee submitted that the issue in dispute is squarely covered by the CBDT Notification dated 25.9.2023 and in support of her contention, she submitted the following submissions :

“CBDT has issued a notification dated 25.09.2023 which is a safe harbor to mitigate the hardship faced from unintended consequences of Section 56(2)(viib) which is :

Sub rule : 4 (4) For the purposes of clause (A) or clause (b) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with – (i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares; (ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from a non-resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares. Therefore, as per the notification, the difference is (0.88%) which is less than 10% in the present case. Now, with regard to applicability of this notification, the assessee company is placing the reliance on judgment of Sakshi fincap Pvt. Ltd. vs. ITO dated 16.4.2024 passed by the ITAT, Delhi wherein, it was held in para 15 that amendment by the CBDT is curative and will apply retrospectively.” 5.1 Per contra, Ld. DR relied upon the order of the AO.

“12. We find that the CBDT after having detailed consultation with various stakeholders, in order to mitigate the hardship faced from the un-intended consequences of Section 56(2)(viib) read with rule 11UA, via notification 81/2023 dated 25.08.2023 has introduced a safe harbor of 10% variation in value. Relevant extract of the notification are as follows:

(4) For the purposes of clause (A) or clause (B) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with – (i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent, of the valuation price, the issue price shall be deemed to be the fair market value of such shares; (ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received I from a non- resident, by an amount not exceeding ten per cent, of the valuation price, the issue price shall be deemed to be the fair market value of such shares.

“A proviso which is inserted to remedy unintended consequences and to make the " provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole.

This view has been accepted by a number of High Courts. In the case of CIT vs. Chandulal Venichand [1994] 209 ITR 7, the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This 5 | P a g e decision deals with assessment year 1984-85. The Calcutta High Court in the case of CIT vs. Sri Jagannath Steel Corporation [1991] 191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G. P. Singh in his Principles of Statutory Interpretation, 4th Edn., page 291, " It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended." In fact the amendment would not serve its object in such a situation, unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.”

“9. Upon careful consideration we note that the difference between value declared and value as per stamp value authority is less than 10%. This is within the tolerance limit specified in section 50C. The authorities below have rejected it on the 6 | P a g e premise that the tolerance limit was introduced by the Finance Act, 2018; hence it is not applicable for the year under consideration.

We note the plea that the amendment was intended to cure a hardship and hence retrospective has been duly accepted in the ITAT decision referred in the assessee’s submission above. Moreover, the speech of Hon'ble Finance Minister while introducing the provisions duly support this premise. Moreover, in such situation curative provision to remove hardship should be retrospective is duly supported by Hon'ble Supreme Court decision in the case of Allied Moters (P) Ltd. (91 Taxman 205) by the following exposition.

A proviso which is inserted to remedy unintended consequences and to make the proviso workable, a proviso which supplies an obvious omission in the section and is require to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.

Undoubtedly this amendment was done to obviate hardships arising out of minor variation in value of transaction qua 50C valuation. In this view of the matter assessee’s plea succeeds. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. ”

by the assessee.