Section 56(2)(viib) of the Income Tax Act

Income-tax Act, 2025: s.92

Section 56(2)(viib) falls under section 56 of the Income-tax Act, 1961, which corresponds to section 92 (Income from other sources) of the Income-tax Act, 2025.

Read section 92 of the 2025 Act

Correspondence checked against the ICAI tabular mapping of the two Acts and the BharatTax.co section commentary.

The decision most relied on for Section 56(2)(viib) is National Insurance Co. Ltd. v. Pranay Sethi (16 SCC 680), cited in 152 of the 746 judgments on BharatTax that turn on this section.

Leading authorities on Section 56(2)(viib)

National Insurance Co. Ltd. v. Pranay Sethi
16 SCC 680 · 2017 · Reported
152
citing judgments

The Supreme Court in Pranay Sethi laid down the principles for determining 'future prospects' to be added to the income of a deceased person for calculating compensation under the Motor Vehicles Act. It also clarified principles of judicial discipline, including the binding nature of coordinate bench decisions and how to resolve conflicting Supreme Court judgments.

SA Builders, 288 ITR 1 (SC) and CIT v. Panipat Woollen and General Mills Company Ltd.
103 ITR 66 · 1976 · Supreme Court
105
citing judgments

The Income Tax Department cannot sit in the armchair of a businessman or question their commercial wisdom and business decisions. Expenses incurred for business expediency, determined from the businessman's point of view, are allowable business expenses.

PCIT v. Chain House International (P) Ltd.
98 Taxmann.com 47 · 2018 · High Court
104
citing judgments

The Assessing Officer cannot arbitrarily reject a share valuation report prepared by an expert using recognized methods like NAV or DCF for the purpose of Section 56(2)(viib) without providing valid reasons to demonstrate its perversity or unreasonableness.

CIT v. Tin Box Company
260 ITR 637 · 2003 · High Court
80
citing judgments

When an assessee possesses sufficient interest-free funds, it is presumed that any interest-free advances or investments made are from these funds, preventing disallowance of interest under Section 36(1)(iii). This principle applies if own capital and interest-free loans exceed the interest-free advances given.

Vodafone M-Pesa Ltd. v. PCIT
164 DTR 257 · 2018 · High Court
69
citing judgments

An assessee has the option to choose either the Discounted Cash Flow (DCF) method or the Net Asset Value (NAV) method for share valuation under Section 56(2)(viib) read with Rule 11UA. The Assessing Officer cannot substitute the chosen method or value without identifying a specific error in the assessee's valuation.

PCIT v. Cinestaan Entertainment Pvt Ltd.
433 ITR 82 · 2021 · High Court
49
citing judgments

The Assessing Officer cannot reject the share valuation method adopted by an assessee under Section 56(2)(viib) if it adheres to prescribed methodologies and commercial prudence. The valuation cannot be challenged based on future performance or by substituting another method.

Green Infra Ltd. v. ITO
38 Taxmann.com 253 · 2013 · ITAT
42
citing judgments

Share premium and share application money cannot be added as unexplained cash credits under Section 68 if the genuineness of the transaction and the creditworthiness and identity of the investors are established. The onus is on the revenue authorities to prove that the apparent nature of the receipt is not real.

Innoviti Payment Solutions Pvt. Ltd. v. ITO
102 Taxmann.com 59 · 2019 · ITAT
35
citing judgments

The Assessing Officer (AO) cannot discard the Discounted Cash Flow (DCF) method for share valuation if the assessee opts for it as per Rule 11UA(2). The AO must record reasons for not accepting the assessee's valuation report and obtain a fresh report before proceeding with their own valuation, but cannot change the method chosen by the assessee.

Agro Portfolio (P.) Ltd. v. ITO
94 Taxmann.com 112 · 2018 · High Court
33
citing judgments

The Assessing Officer (AO) has the power to disturb the valuation of shares provided by the assessee's chartered accountant, even if Rule 11UA(2) is followed. If the AO doubts the valuation report, they are not necessarily bound to refer the matter to the Valuation Officer and can adopt a different method to determine the fair market value.

Pr. Commissioner of Income Tax v. Rohtak Chain Co. Pvt. Ltd.
110 Taxmann.com 59 · 2019 · Supreme Court
31
citing judgments

The case is cited for the proposition that assessees must produce requisite documents, including confirmation of ITR, balance sheets, and bank accounts, to satisfy the ingredients of Section 68 of the Income Tax Act. Failure to do so can lead to adverse inferences.

Judgments on Section 56(2)(viib)

M/S. Town Essential Private Limited, Bangalore vs. Commissioner of Income Tax (Appeals)- 7, Bangalore

In the result, the appeal is allowed for statistical purposes

ITA 139/BANG/2020[2016-17]Status: DisposedITAT Bangalore30 Jun 2021AY 2016-17

Bench: Shri N.V. Vasudevan & Shri B R Baskaranassessment Year : 2016-17 M/S. Town Essential Private Limited, Vs. The Commissioner Of Income Tax 54/1, Industrial Suburb, (Appeals)-7, Yeshwanthpur, Bengaluru. Bengaluru – 560 022. Pan : Aabct 4200 D Appellant Respondent Appellant By : None (Adjournment Request Refused) Respondent By : Shri Kannan Narayanan, Jt.Cit(Dr)(Itat), Bengaluru. Date Of Hearing : 24.06.2021 Date Of Pronouncement : 30.06.2021 O R D E R Per N.V. Vasudevanthis Appeal By The Assessee Is Against The Order Of The Commissioner Of Income Tax (Appeals)–7, Bangalore, Dated 29.11.2019 In Relation To Assessment Year 2016-17. 2. The Only Issue Involved In The Appeal Is As To Whether The Revenue Authorities Were Justified In Invoking Provisions Of Section 56(2)(Viib) Of The Income Tax Act, 1961 (The Act) & Bringing To Tax The Difference Between The Fair Market Value & The Issue Price Of Shares At A Premium As Income Of The Assessee. Section 21 Clause (B) Of Finance Act, 2012 Introduced Sec.56(2)(Viib) Of The Act With Effect From The 1St Day Of April, 2013 & The Said Provisions Reads Thus:-

For Appellant: None (Adjournment request refused)For Respondent: Shri Kannan Narayanan, Jt.CIT(DR)(ITAT), Bengaluru
Section 10Section 14Section 21Section 56(2)(viib)

M/S. Ukn Hospitality Private Limited, Bangalore vs. Income Tax Officer, Ward- 7(1)(2), Bengaluru

In the result, the appeal is allowed for statistical purposes

ITA 2170/BANG/2019[2013-14]Status: DisposedITAT Bangalore30 Jun 2021AY 2013-14

Bench: Shri N.V. Vasudevan & Shri B. R. Baskaranassessment Year : 2013-14 M/S. Ukn Hospitality Private Limited, Vs. Income Tax Officer, 10Th Floor, Gamma Block, Sigma Soft Tech Ward – 7(1)(2), Park, No.7, Airport Varthur Road, Bengaluru. Whitefield Main Road, Bengaluru – 560 066. Pan : Aaacu 8470 B Appellant Respondent Appellant By : Shri S. V. Ravishankar Advocate Respondent By : Shri Kannan Narayanan, Jt.Cit(Dr)(Itat), Bengaluru. Date Of Hearing : 24.06.2021 Date Of Pronouncement : 30.06.2021 O R D E R Per N.V. Vasudevanthis Appeal By The Assessee Is Against The Order Of The Commissioner Of Income Tax (Appeals)–10, Bangalore, Dated 8.3.2019 In Relation To Assessment Year 2013-14. 2. There Is A Delay Of About 132 Days In Filing This Appeal By The Assessee. The Reasons For The Delay Is Owing To The Fact That Mr.K.Ravindran, The Group Cfo & Director Who Was Handling The Matter Did Not Bring To The Notice Of The Group Chairman About The Impugned Order. Mr.K.Ravindran Was Made To Resign As Director Due To Various Issues & He Stopped Attending Office Since April, 2019. The Chartered Account Who Appeared Before Cit(A) In A Meeting With The Officials On Page 2 Of 12 30.9.2019 Found That No Action Had Been Taken Against The Impugned Order & Thereafter The Appeal Had Been Filed.

For Appellant: Shri S. V. Ravishankar AdvocateFor Respondent: Shri Kannan Narayanan, Jt.CIT(DR)(ITAT), Bengaluru
Section 10Section 14Section 21Section 56(2)(viib)