DIABETOMICS MEDICAL PRIVATE LIMITED,HYDERABAD vs. ACIT, CIRCLE-8(1), HYDERABAD

ITA 2147/HYD/2025Status: DisposedITAT Hyderabad11 February 2026AY 2016-1771 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held in favour of the assessee on the issue of Section 56(2)(viib) additions for all three assessment years. It was reasoned that the AO erred in rejecting the assessee's valuation report based on the DCF method, which is a permissible method under Rule 11UA(2). The AO's adoption of the NAV method without the assessee opting for it was legally unsustainable. The Tribunal also noted that the legislative intent of Section 56(2)(viib) was to curb unaccounted money, and the facts did not warrant its invocation. The issue of whether Section 56(2)(viib) applies to CCPS was also decided in favour of the assessee. Regarding depreciation for AY 2018-2019, the Tribunal found that the separate addition for depreciation, when the returned loss already included it, amounted to a double addition. The AO was directed to verify this and delete the addition if the depreciation was indeed part of the returned loss. Consequently, the appeals were partly allowed.

What were the facts?

The assessee, DIABETOMICS Medical Private Limited, filed appeals against the orders of the CIT(A)-NFAC, Delhi, for assessment years 2016-2017, 2017-2018, and 2018-2019. The core dispute involves additions made under Section 56(2)(viib) of the Income Tax Act, 1961, concerning the premium received on the issuance of Compulsorily Convertible Preference Shares (CCPS). For AY 2016-2017, the assessee received Rs. 9,56,51,200/- as share premium by issuing shares at Rs. 720/- per share (face value Rs. 10/-). The Assessing Officer (AO) rejected the assessee's valuation report using the Discounted Free Cash Flow (DCF) method and instead used the Net Asset Value (NAV) method, leading to an addition. The CIT(A) confirmed this addition. A secondary issue for AY 2018-2019 concerns the disallowance of depreciation.

What were the issues?

1. Whether the addition of Rs. 9,56,51,200/- (and similar amounts for other AYs) made under Section 56(2)(viib) of the Income Tax Act, 1961, in respect of Compulsorily Convertible Preference Shares (CCPS) issued at a premium is sustainable? - Assessee's contention: The AO erred in rejecting the Fair Market Value (FMV) determined by a Chartered Accountant using the Discounted Free Cash Flow (DCF) method as per Rule 11UA(2). The AO cannot change the method of valuation chosen by the assessee, and using the face value as FMV is unsustainable. Furthermore, Section 56(2)(viib) applies only to equity shares, not CCPS, and the assessee qualifies as a Venture Capital Undertaking for exemption. - Revenue's contention: Not recorded. 2. Whether the disallowance of depreciation of Rs. 11,15,834/- for AY 2018-2019 is sustainable, given that it was part of the loss declared by the assessee? - Assessee's contention: The disallowance amounts to double addition/disallowance as depreciation was already included in the loss returned by the assessee, which the AO treated as NIL. - Revenue's contention: The AO may be directed to verify and consider this aspect.

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, Hyderabad ‘A’ Bench, Hyderabad

Before: SHRI VIJAY PAL RAO

Hearing: 07.01.2026

PER VIJAY PAL RAO, VICE PRESIDENT :

These three appeals by the Assessee are directed

against the three separate Orders all dated 18.11.2025 of the learned CIT(A)-National Faceless Appeal Centre [in short

“NFAC], Delhi, for the assessment years 2016-2017, 2017-

2018 and 2018-2019, respectively.

ITA.Nos.2147, 2148 and 2149/Hyd./2025

ITA.No.2147/Hyd./2025 - A.Y. 2016-2017 :

2.

The assessee has raised the following grounds of appeal:

1.

“The order of the Ld. CIT(Appeals) is erroneou

The order continues below.

Read the full judgment

A free account opens 10 full judgments a month. Re-reading one you have already opened does not count again.

Create a free accountSign in

See plans and prices

The summary, the parties, the sections and the citations above are open to everyone and always will be. Only the text of the order and the PDF are metered.

More judgments on Section 56(2)(viib)

All 746 judgments and leading authorities on Section 56(2)(viib) →

Recent GST High Court judgments

Search GST case law →