AO was not competent in valuing the share premium amount as he is not an expert to do the job – ITAT
In a recent judgment, ITAT Calcutta has deleted addition made by the AO by calculating fair market value of shares premium by applying the NAV method as per Rule 11UA(2) instead of referring the matter to the valuation cell.
ABCAUS Case Law Citation:
5183 (2026) (07) abacus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A)/National Faceless Appeal Centre(NFAC) in deleting the addition by accepting the fair market value (FMV) of the share against the addition made by the AO.
During the year the assessee had issued 2 lacs shares to a group company. The case of the assessee was selected for limited scrutiny for examination of investments/ advance loans and share premium. The AO during the course of assessment proceedings, noted that the assessee had issued fresh share on high premium during the year.
The assessee had issued 2 lacs equity shares of face value ₹10 each at a premium of ₹375/- per share based on the valuation report by the Chartered Accountant. However, the AO rejected the same on the ground that the assessee had not provided any sound analysis and computation of valuation of share premium.
The AO computed the value of premium at NAV method as per Rule 11UA(2) at ₹207. The AO noted that the assessee had issued shares at an excess price of 168/- per share and accordingly, computed the excess share premium received by the assesse and added it to the income of the assessee as excess share premium u/s 56(2)(viib) of Income Tax Act, 1961 (the Act).
The CIT(A) observed that the assesse had filed the detailed working and supporting calculation on the basis of which the Valuer (Chartered Accountant) has arrived at the FMV. Further, during the assessment proceedings, the Assessee was never confronted with the doubts of the AO about the Valuation Report and/or inadequacy of supporting, and thus there was no occasion before the Assessee to comprehend that the AO was not satisfied with the Valuation Report submitted before him and/or calculation of the FMV of the shares.
The CIT(A) further observed that the AO despite of having sufficient time at its disposal did not make any attempt whatsoever to seek working of the valuation report which was uploaded by the assesse at the portal.
The ITAT observed that the AO instead of referring the matter to the valuation cell himself calculated the value of the share by applying the NAV method as per Rule 11UA(2) and determined the value at 207.
The ITAT opined that the action of the AO in valuing the share premium was not acceptable as he is not an expert to do the job. The CIT (A) noted that the AO had only rejected the valuation on the ground that no basis of valuation were provided and thus, observed that the AO’s observations were based upon suspicion and conjectures and non-examination of detailed working and findings given in the valuation report.
Accordingly, the ITAT held that the order of the CIT (A) was a very speaking and reasoned order. Consequently, it was upheld and the ground raised by the Revenue was dismissed.
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