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Facts
The assessee, a shareholder and director in a private limited company, was allotted 813 shares on a rights basis. The Assessing Officer (AO) made an addition of Rs.10,19,908/- under section 56(2)(vii)(c) of the Income Tax Act, 1961, alleging that the shares were allotted at a consideration less than their Fair Market Value (FMV). The First Appellate Authority (FAA) confirmed this addition.
Held
The Tribunal held that the additional evidences filed by the assessee, including Board resolutions and valuation reports, were essential for a proper adjudication of the issue concerning the valuation date for fixing the price of rights shares. Therefore, these evidences were taken on record.
Key Issues
Whether the addition made by the AO and confirmed by the FAA under Section 56(2)(vii)(c) of the Income Tax Act, 1961, on account of shares being allotted at a price lower than FMV, is justified. The key dispute revolves around the correct valuation date for determining the FMV of the shares.
Sections Cited
56(2)(vii)(c), 250, 148, 143(2), 142(1)
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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI GEORGE GEORGE K & SHRI S.R. RAGHUNATHA
आदेश/ O R D E R
PER GEORGE GEORGE K, VICE PRESIDENT:
This appeal filed by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi dated 30.07.2025 passed under section 250 of the Income Tax Act, 1961 (hereinafter called ‘the Act’). The relevant Assessment Year is 2014-15.
2 -: 2. The solitary issue that is raised is whether the First Appellate Authority (FAA) is justified in confirming the addition made by the AO of Rs.10,19,908/- u/s.56(2)(vii)(c) of the Act.
Brief facts of the case are as follows: The assessee is an individual. The assessee is a shareholder and director in a private limited company namely Powertech Construction Private Limited. The private limited company vide its Board Resolution dated 15.04.2013 proposed to allot 3,930 shares on right basis. The face value per share was Rs.1,000/- and right issues was at a premium of Rs.4,004/- per share. The premium was fixed based on valuation report dated 31.03.2013 taking into account the audited financials of the private limited company for the year ending 31.03.2012. Pursuant to the above right issues, assessee was allotted 813 shares.
The AO issued notice u/s.148 of the Act dated 31.03.2021. Pursuant to notice issued u/s.148 of the Act, the return of income was filed on 17.11.2021. Thereafter notice u/s.143(2) & 142(1) of the Act was issued on various dates. Since there was no response to the notice issued, the AO issued a show-cause notice proposing addition u/s.56(2)(vii)(c) of the Act. In response to the same, 3 -: assessee submitted a letter on 18.02.2022, the gist of the same is reproduced at para 4 of the assessment order dated 21.03.2022. The AO in the said order observed that the price at which the right issues were allotted by the private limited company was less than the market value based on the audited financial statement as on 31.03.2014, where the Fair Market Value (FMV) for one share was Rs.6,320/-. Further, the AO held that no evidence has been submitted to show that assessee was allotted shares in right issues. Thereafter the AO concluded that since shares have been allotted to the assessee at lesser/inadequate consideration in comparison to the fair market value of the share, the difference between the FMV (Rs.6,320/-) and the allotted price (Rs.5,004/-) ought to be added as income of the assessee u/s.56(2)(vii)(c) of the Act. Therefore, an addition of Rs.10,19,908/- was made under section 56(2)(vii)(c) of the Act.
Aggrieved by the reassessment completed vide order dated 21.03.2022, assessee filed appeal before the FAA. The FAA dismissed the assessee’s appeal and confirmed the addition made by the AO u/s.56(2)(vii)(c) of the Act.
4 -: 6. Aggrieved by the order of the FAA, assessee has filed the present appeal before the Tribunal. The assessee has filed a paper-book enclosing therein the written submissions and various enclosures. The assessee also filed a petition for admission of additional evidences. The additional evidences that is sought to be admitted is the private limited company’s Board resolution dated 15.04.2018, the valuation report dated 31.03.2013 of the private limited company based on which the price for the rights issue has been fixed, the ledger extracts of the assessee as appearing in the books of the private limited company for assessment years 2013-14 & 2014-15, Form PAS-3 as filed by the private limited company, etc. The Ld.AR submitted that the additional evidences filed is absolutely essential for deciding the appeal and for substantial cause and justice, the same may be taken on record. The Ld.AR submitted that assessee had omitted to submit these details during the course of proceedings before the AO and the FAA. The Ld.AR stated that the issue may be restored to the files of the AO for fresh adjudication of the matter by taking into consideration the additional evidences that is now filed.
The Ld.DR on the other hand submitted that the date of valuation should be the date of allotment of shares and not the 5 -: date of Board Resolution of the private limited company for issuance of right shares. The Ld.DR did not have a serious objection for remitting the matter to the AO in light of the additional evidences now filed before the Tribunal.
We have heard rival submissions and perused the material on record. The assessee has filed additional evidences in the form of Board’s resolution of the private limited company for issuance of right shares, the valuation report based on which the price for issuance of right shares have been fixed, the ledger extracts of various shareholders, Form PAS-3 filed by the private limited company, etc. The issue that needs to be considered is valuation date for fixing the price of rights shares. The assessee in its valuation report had taken 31.03.2012 balance sheet details for arriving at the price of Rs.5,004/- whereas the AO in the impugned reassessment order has taken the Fair Market Value at Rs.6,320/- based on the audited balance sheet of the company as on 31.03.2014. The additional evidences now produced before the Tribunal is essential for proper adjudication of the issues raised. Therefore, for substantial justice and equity, the additional evidences that are filed before the Tribunal is taken on record. Since the additional evidence is taken on record, we deem it 6 -: appropriate to restore the matter to the files of the AO. The AO is directed to afford reasonable opportunity of hearing to the assessee. The assessee is directed to cooperate with the Revenue and shall not seek unnecessary adjournment. It is ordered accordingly.
In the result, the appeal filed by the assessee allowed for statistical purposes.
Order pronounced in the open court on 7th January, 2026 at Chennai.