SUZUKI SUITINGS PVT.LTD.,AHMEDABAD vs. THE ITO, WARD-4(1)(2), AHMEDABAD

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ITA 236/AHD/2019Status: DisposedITAT Ahmedabad29 April 2022AY 2014-154 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the difference between the share issue price and the FMV was negligible (approximately 1%) and could be attributed to estimation in valuation. Therefore, no addition under Section 56(2)(viib) was warranted. The Tribunal also upheld the disallowance of ROC expenses as capital in nature.

What were the facts?

The assessee company issued shares at a premium. The Assessing Officer (AO) made an addition under Section 56(2)(viib) for the difference between the issue price and the fair market value (FMV) of the shares. The assessee also claimed a deduction for ROC expenses, which was disallowed.

What were the issues?

Whether the difference between the share issue price and FMV justified an addition under Section 56(2)(viib), and whether ROC expenses for issuing share capital were allowable.

Which sections of the Income-tax Act were involved?

Section 56(2)(viib)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, AHMEDABAD “SMC” BENCH

Before: Ms. Annapurna Gupta & Shri T.R. Senthil Kumar

For Appellant: Shri S. N. Divetia, A.R
For Respondent: Shri R.R. Makwana, Sr.D.R

Appellant by : Shri S. N. Divetia, A.R. Respondent by : Shri R.R. Makwana, Sr.D.R. Date of hearing : 20-04-2022 Date of pronouncement : 29 -04-2022 आदेश/ORDER PER : ANNAPURNA GUPTA, ACCOUNTANT MEMBER:-

The present appeal has been filed by the Assessee against the order passed by the Commissioner of Income Tax (Appeals)-4, Ahmedabad, (in short referred to as CIT(A)), dated 18-12-2018, u/s. 250(6) of the Income Tax Act, 1961(hereinafter referred to as the “Act”) pertaining to Assessment Year (A.Y) 2014-15.

2.

The grounds raised by the assessee reads as under:

Page No 2 Suzuki Suitings Pvt. Ltd. vs. ITO 1.1 The order passed u/s.250 on 18.12.2018 for A.Y.2014-15 by CIT(A)-4 , Abad upholding the addition of Rs.7,02,500/- u/s.56(2)(viib) and disallowance of ROC expenses of Rs.2 lakhs made by AO is wholly illegal, unlawful and against the principles of natural justice. 1.2 The Ld. CIT(A) has grievously erred in law and or on facts in passing a non- speaking order without considering fully and properly the submissions made and evidence produced by the appellant with regard to the impugned additions. 2.1 The Ld.CIT(A) has grievously erred in law and on facts in confirming the addition of Rs.7,02,500/- u/s.56(2)(viib) though there was no substantial difference between the share premium charge and the value as per certificate. 2.2 That in the facts and circumstances of the case as well as in law, the Ld.CIT(A) ought not to have upheld the addition of Rs.7,02,500/-u/s.56(2)(viib). 3.1 The Ld.CIT(A) has erred in law and on facts in upholding the disallowance of ROC expenses of Rs.2 lakhs.

3.

Ground no. 1, it was stated before us by the ld. Counsel for the assessee were general in nature and are therefore not being dealt with by us.

4.

Ground no. 2 .1 and 2.2, Ld. Counsel for the assessee stated related to addition made of Rs. 7,02,500/- u/s. 56(2)(viib) of the Act being the excess consideration/premium received by the assessee on issue of shares as compared to the fair market value of shares.

5.

Ld. Counsel for the assessee pointed out that the face value of the shares was Rs. 100 and had been issued at a premium of Rs. 100. Thus the shares had been issued for Rs. 200. He thereafter pointed out that the valuation of these shares at fair market value certified by the C.A. was admittedly 197.19 per share and the difference therefore of Rs. 2.81 per share was treated as income of the assessee u/s. 56(2)(viib) of the Act.

Page No 3 Suzuki Suitings Pvt. Ltd. vs. ITO

6.

Noting the above facts, we are of the view that there is no cause for making any addition u/s. 56(2)(viib) of the Act in the present case. Admittedly, the difference in the price of the share issued by the assessee and its fair market value and calculated and certified by the C.A. is barely 1% of its total value. The difference being Rs. 2.81 against the share value of Rs. 200/-, it is meager and immaterial to hold that the shares were issued at unjustifiably high prices, which is the essence and purport of the section invoked. In fact, we hold, that the valuation by the C.A. justifies the value at which the shares was issued by the assessee. The method for determining the fair market value is by way of a calculating the net worth of the company based on the value of assets and liabilities, some of the assets like land and plant and machinery being valued at market price. There is no doubt that this involves some degree of estimation. Therefore variance in value of shares by 1% can justifiably be attributed to this estimation.

7.

We therefore hold that there was no case or justification at all for making any addition u/s. 56(2)(viib) in the present case amounting to Rs.7,02,500/- and direct deletion of the same.

8.

Ground No.3.1 relates to disallowance of ROC expenses amounting to Rs 2 lacs incurred for issuing share capital. The same was disallowed holding it to be capital in nature.

Page No 4 Suzuki Suitings Pvt. Ltd. vs. ITO 9. The Ld.Counsel for the assessee could not controvert the above and fairly admitted that the disallowance had been rightly made.

9.1 In view of the above ground of appeal No.3.1 is dismissed

10.

In effect, appeal of the Assessee is partly allowed.

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