Case Number: ITA 5600/DEL/2019
Appellant: ITO Ward 24(1), New Delhi
Respondent: Soma Warehousing Corporation, New Delhi
Assessment Year: 2015-16
Case Filed On: 2019-06-27
Order Type: Final Tribunal Order
Date of Order: 2023-06-15
Pronounced On: 2023-06-15
This case involves an appeal filed by the Income Tax Officer (ITO), Ward 24(1), New Delhi against Soma Warehousing Corporation, New Delhi. The appeal was filed on 2019-06-27, and the order was pronounced on 2023-06-15. The main issue in this case was related to the fair market value dispute for the assessment year 2015-16.
Soma Warehousing Corporation, New Delhi is engaged in the business of construction and development of warehouse and godown. The company filed its return of income electronically on 30.09.2015, declaring a loss of Rs. 11,300/-. The return was selected for scrutiny assessment through CASS, and statutory notices were issued and served upon the assessee.
During the scrutiny of the return of income, the Assessing Officer (AO) noticed that the assessee had made an investment in shares of M/s Soma Punjab Warehousing (P) Ltd, purchasing 1,45,70,000 shares at a face value of Rs. 10/- and a premium value of Rs. 94/- per share, totaling Rs. 104/- per share. The AO asked the assessee to furnish the fair market value of the shares in which the investment was made.
The assessee submitted that the fair market value of the shares was Rs. 148.08 per share, while the purchase price was Rs. 104 per share. The AO made an addition of Rs. 64,20,99,900/- under Section 56(2)(viia)(ii) of the Income Tax Act, 1961, as the purchase price was lesser by Rs. 44.07 per share multiplied by the number of shares purchased.
The assessee challenged the addition before the Commissioner of Income Tax (Appeals) [CIT(A)] and submitted a valuation report as per the method prescribed in sub-clause (b) of Rule 11U(1) of the Income Tax Rules, which computed the fair market value at a negative figure of Rs. 340.56. The assessee claimed that since the fair market value determined as per the IT Rules was negative, there was no question of making any addition in the purchase of shares at Rs. 104/- per share.
The CIT(A) admitted the valuation report and called for a remand report from the AO. The AO furnished the remand report, which accepted the valuation as per the IT Rules. Based on the remand report, the CIT(A) deleted the addition made by the AO.
The Revenue, represented by Ms. Parmita M. Biswas, CIT-DR, argued that the AO made the impugned addition of Rs. 64.20 crores based on the valuation report submitted by the assessee, which showed the fair market value of Rs. 148.07 per share. Therefore, there was no error in the assessment, and the addition should be upheld.
On the other hand, the assessee, represented by Shri Gautam Jain, Advocate, argued that the valuation report submitted to the AO was for making the investment and not as per Rule 11UA(1) of the IT Rules. Before the CIT(A), the assessee submitted the valuation of the fair market value as per IT Rules, which determined the fair market value at a negative figure of minus Rs. 340.56 per share. Hence, the CIT(A) rightly deleted the addition made by the AO.
The Income Tax Appellate Tribunal (ITAT), comprising Shri N.K. Billaiya, Accountant Member, and Shri Anubhav Sharma, Judicial Member, reviewed the orders of the authorities below and the remand report submitted by the AO. The Tribunal found that the AO did not point out any error or infirmity in the valuation report based on the method prescribed under the IT Rules, which determined the fair market value at minus Rs. 340.56 per share.
Since the valuation report was based on the method prescribed under the IT Rules and determined the fair market value at a negative figure, the CIT(A) rightly followed the same while deleting the addition. The Tribunal upheld the CIT(A)’s order and dismissed the Revenue’s appeal.
In conclusion, the appeal filed by the Revenue in ITA No. 5600/DEL/2019 was dismissed, and the order was pronounced in the open court on 2023-06-15. This case highlights the importance of following the prescribed methods for valuation and ensuring that all relevant facts and figures are accurately considered in tax assessments.
Order pronounced in the open court on 2023-06-15
Signed by:
(ANUBHAV SHARMA) JUDICIAL MEMBER
(N.K. BILLAIYA) ACCOUNTANT MEMBER
Date: 2023-06-15
Copy forwarded to:
Assistant Registrar, ITAT, New Delhi
Soma Warehousing Corporation vs ITO Ward 24(1), New Delhi – Fair Market Value Dispute
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