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2024 (7) TMI 393 - AT - Income TaxDisallowance u/s 56(2)(viib) - shares have been allotted on premium on the basis of valuation report which was not supported by the documentary evidences -assessee opted for valuation as per the DCF method and the auditor arrived at the fair market value of Rs. 735 per share - CIT(A) deleted addition - HELD THAT - As per the provisions of section 56(2)(viib) of the Act if the consideration received for the issue of shares of a company in which the public is not substantially interested exceeds the fair value of such shares the aggregate consideration as exceeds the fair market value shall be chargeable to income tax under the head income from other sources . AO neither accepted the valuation report as furnished by the assessee to arrive at the fair market value of the shares on the basis of the DCF method nor pointed out any mistake in the valuation report so furnished by the assessee. Rather in the present case the AO treated the value of the premium on the shares at Rs. Nil without following any of the methods prescribed under the relevant Rules. It is evident from the record that the AO by comparing the financials of the assessee and Projected Summarised Financials in the valuation report noted that the assessee has in fact incurred loss during the assessment year 2018-19. As decided in Cinestaan Entertainment Pvt. Ltd. 2021 (3) TMI 239 - DELHI HIGH COURT that the valuer makes a forecast of approximation based on the potential value of business while the underline facts and assumptions can undergo change over a period of time. The Hon ble High Court further held that valuation is not an exact science and therefore cannot be done with arithmetic precision. Undoubtedly section 56(2)(viib) of the Act is an anti-abuse provision brought in the statute to prevent the practice of transferring shares of specified company for no or inadequate consideration. As pertinent to note that in the present case the shares of the assessee were subscribed not by a sister concern or any closely related person but by an outside investor. Further as noted by the learned CIT(A) by no less than a corporate giant called Shapoorji Pallonji group whose identity creditworthiness and genuineness are not doubted by the Revenue. Therefore we find no infirmity in the impugned order passed by CIT(A) on this issue deleting the addition as share premium under section 56(2)(viib) of the Act. Accordingly grounds raised in Revenue s appeal are dismissed. Disallowance made u/s 36(1)(iii) on a pro-rata basis - assessee has made new investments in subsidiary company and an investment in zero coupon redeemable non-convertible secured debentures of PNP Infra Projects Private Limited - As per the AO the total interest-bearing funds constitute 79% of the total funds available with the assessee - HELD THAT - As per the assessee it has recognised the profit arising out of the said transfer agreement in the statement of profit and loss account. From the perusal of the financial statement of the assessee we find that the assessee made the declaration in respect of transfer of assets and liabilities to PNP Infra Projects Pvt. Ltd. It is evident from the record that after considering the declaration in financial statement of the assessee the learned CIT(A) deleted the disallowance of interest expenditure under section 36(1)(iii) of the Act in respect of zero coupon debentures - we find no infirmity in the aforesaid findings of the CIT(A) as zero coupon debentures are not an investment by the assessee instead the same is a consideration for the transfer of assets and liabilities to PNP Infra Projects Pvt. Ltd. Accordingly grounds raised in Revenue s appeal are dismissed. Interest-free deposit - Since zero coupon debenture received from PNP Infra Projects Pvt. Ltd. has already been found to be sale consideration instead of investment as claimed by the Revenue therefore it is evident that the assessee had sufficient own funds for giving interest-free deposit to M/s Dharmatar Infrastructure Private Limited. We find that in CIT v/s Reliance Utilities Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT held that if funds are available with the assessee which are sufficient to meet the investment then presumption would arise that the investment is made out of funds so available with the assessee and therefore no disallowance under section 36(1)(iii) can be made. In view of the above respectfully following the aforesaid decision we direct the AO to delete the disallowance made under section 36(1)(iii) of the Act in respect of interest-free advances given to M/s Dharmatar Infrastructure Private Limited. Accordingly grounds no. 1-3 raised in assessee s appeal are allowed.
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