Case Number: ITA 4919/DEL/2019
Appellant: Trojan Developers Pvt. Ltd., New Delhi
Respondent: Principal Commissioner of Income Tax (PCIT), New Delhi
Assessment Year: 2014-15
Case Filed On: 2019-05-30
Order Type: Final Tribunal Order
Date of Order: 2021-11-10
Pronounced On: 2021-11-10
This case involves Trojan Developers Pvt. Ltd. (appellant) and the Principal Commissioner of Income Tax (PCIT) (respondent). The dispute centers around the issuance of shares at a high premium and its tax implications under Section 56(2)(viib) of the Income Tax Act for the assessment year 2014-15.
Trojan Developers Pvt. Ltd., based in New Delhi, filed its return of income on September 20, 2014, declaring an income of Rs. 11,43,240. The return was processed under Section 143(1) of the Income Tax Act, 1961, on January 1, 2015. Subsequently, the case was selected for scrutiny through the Computer Assisted Scrutiny Selection (CASS) system, and a notice under Section 143(2) was issued on August 28, 2015. The assessment was completed on December 29, 2016, accepting the returned income.
After the assessment, the PCIT reviewed the assessment records and found that the Assessing Officer (AO) had failed to enquire about the issuance of shares at a high premium to closely held companies within the meaning of Section 56(2)(viib) of the Income Tax Act. During the year under consideration, the appellant had allotted 28,729 shares to two companies, M/s. Experience Financial Consultants Pvt. Ltd. and M/s. Sankalp Advisory Services Pvt. Ltd., on December 16, 2013. The details are as follows:
Company | Number of Shares | Face Value | Premium | Total Capital | Total Premium | Total Consideration |
---|---|---|---|---|---|---|
Experience Financial Consultants Pvt. Ltd. | 11,222 | 100 | 1236 | 11,22,200 | 1,38,70,392 | 1,49,92,592 |
Sankalp Advisory Services Pvt. Ltd. | 17,507 | 100 | 1236 | 17,50,700 | 2,16,38,652 | 2,33,89,352 |
Total | 28,729 | 100 | 1236 | 28,72,900 | 3,55,09,044 | 3,83,81,944 |
The PCIT held that the AO failed to examine whether the shares were transferred with or without consideration and did not evaluate the applicability of Section 56(2)(viib) concerning the valuation of shares under Rule 11UA of the Income Tax Rules, 1962.
The PCIT computed the Fair Market Value (FMV) of the shares as follows:
FMV = (A – L) / PE x PV
Where:
Thus, the FMV per share was calculated to be Rs. 143.80, and the excess premium was determined as Rs. 1,192.20 per share, leading to an aggregate value of Rs. 3,42,50,714 required to be taxed under Section 56 of the IT Act under the head “Income from Other Sources”.
The appellant, represented by Sh. Rakesh Joshi, argued that the AO had thoroughly examined the issue during the assessment proceedings. The appellant provided detailed responses, including the P&L account, details of share sales, premium appearing in the audited balance sheet, confirmations from the parties who purchased the shares, and bank transaction details. The valuation of the property at 41-A, Prithvi Raj Road, New Delhi, used to justify the premium, was also submitted.
The Tribunal, comprising Sh. Amit Shukla, Judicial Member, and Dr. B. R. R. Kumar, Accountant Member, reviewed the case. The Tribunal found that the AO had indeed examined the issue of share issuance at a high premium during the scrutiny assessment. The AO had issued multiple notices and obtained detailed responses from the appellant, including justifications for the premium based on property valuation and compliance with Section 56(2)(viib).
The Tribunal concluded that the PCIT’s contention that the AO failed to inquire about the issuance of shares at a high premium was incorrect. The Tribunal also noted that the PCIT did not provide any guidelines on how the AO’s order was erroneous and prejudicial to the interests of revenue.
The Tribunal held that the revisionary order passed by the PCIT under Section 263 was not legally valid. The appeal of the assessee, Trojan Developers Pvt. Ltd., was allowed, and the order was pronounced in the open court on November 10, 2021.
Order Pronounced: November 10, 2021
By:
Sh. Amit Shukla, Judicial Member
Dr. B. R. R. Kumar, Accountant Member
Copy forwarded to:
Assistant Registrar
Trojan Developers Pvt. Ltd. vs PCIT – ITA 4919/DEL/2019: Issuance of Shares at High Premium
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