AMBARNUJ FINANCE & INVESTMENTS PVT LTD.,NEW DELHI V. DCIT, CENTRAL CIRCLE-26, DELHI

ITA 4127/DEL/2024

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The case involves Ambarnuj Finance & Investments Pvt. Ltd, which appealed against the order of the CIT(A) confirming an addition of Rs. 1,48,267 to their income, treating it as income from other sources under section 56(2)(viib) of the IT Act, 1961. The addition was based on the difference between the fair value of shares and the issue price during a transaction with related parties. The appellant argued that the difference was within the 10% safe harbor limit as per the recent CBDT notification, which the CIT(A) did not accept. The Tribunal, referencing a similar case and the CBDT notification, ruled in favor of the appellant, allowing the appeal and setting aside the addition.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46985 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2018-2019
• Other Referred Cases: Sakshi Fincap Pvt. Ltd. vs. ITO, Allied Motors Private Limited Vs. CIT, Shaista Irphan Mogul Vs. ACIT, CC-5 (3), Mumbai
• Laws Referred To: Income Tax Act, 1961, Income Tax Rules 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAVED AKHTAR
• Assessee Lawyers: SHILPI JAIN
• Keywords: Set aside; Sale consideration of property below Jantri Value; Fair market value; Valuation report
• Section: 43B; 50C; 191

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “A”, NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER, AND SHRI SUDHIR PAREEK, JUDICIAL MEMBER ITA NO. 4127/Del/2024 A.YR. : 2018-19 Ambarnuj Finance & Investments Pvt. Ltd, Shop 243, North Ex Mall, Sector-9, Rohini, Delhi – 85 (PAN: AAACA5799F) VS. DCIT, Central Circle-26, New Delhi (APPELLANT) (RESPONDENT) Appellant by : Ms. Shilpi Jain, CA Respondent by : Sh. Javed Akhtar, CIT(DR) Date of hearing : 01.04.2025 Date of pronouncement : 09.04.2025 ORDER PER SHAMIM YAHYA, AM : The assessee filed the present appeal against the order of the Ld. CIT(Appeals)-29, New Delhi dated 14.8.2024 pertaining to assessment year 2018-19 on the following grounds:- 1. On the facts and circumstances of the case, the order passed by the learned CIT (A) is bad both in the eye of law and on facts. 2. On the facts and circumstances of the case, Ld. CIT(A) has erred both on facts and in law in confirming the addition of Rs. 1,48,267 treating it as income from other sources as per provisions of section 56(2)(viib) of the IT Act, 1961. 3. On the facts and circumstances of the case and in view of CBDT notification 81/2023 dated 25.09.2023 introducing safe harbor of 10% by curative amendment in Rule 11UA of the Income tax Rules 1962, the Ld. CIT(A) has erred in confirming the addition as the difference between fair value adopted by the AO and issue price is only 0.88% i.e. less than 10%. 2 | P a g e 4. On the facts and circumstances of the case, the learned CIT(A) has erred in both on facts and in law in upholding the assessment which was made without giving adequate opportunity to the assessee company i.e without issuing Show Cause Notice to the assessee company. 5. On the facts and circumstances of the case, the learned CIT(A) has erred both on facts and in law in confirming the addition which has been made by indulging in gross conjecture and surmises without bringing any adverse material on record. 6. The appellant craves leave to add, amend or alter any of the grounds of appeal. 2. The brief facts of the case are, that, return declaring total loss of Rs.75,73,058/ - was filed by the assessee on 18.08.2018. As noted by the AO, the case of Assessee was selected for limited scrutiny under CASS. Subsequently, assessment was completed vide order dated 20.04.2021 after making additions at Rs. 2,66,665/-. During the assessment proceedings, it was noted by the AO that appellant had received the share capital alongwith premium from the related parties. It was seen that 6,17,777 shares were sold to the related parties at Rs. 27 per share i.e. face value of Rs. 10/- and premium of Rs. 17/- per share. A valuation certificate under Rule 11UA of the I.T. Act, 1961 was also submitted by the appellant wherein the value of each share of the appellant company was evaluated at Rs. 26.76 per share. Accordingly, the difference (being Rs. 27- Rs. 26.76) for 6,17,777 shares at Rs. 1,48,267/- was added back by AO as excess consideration as per the provisions of section 56(2)(viib) of the Act. 3. Upon assessee’s appeal Ld. CIT(A) noted the following submissions of the assessee: “During the course of appellate proceedings, it was contested by the appellant that the share premium has been computed in accordance with valuation under Rule 11 UA. It was also contested that the variation from the valuation report is within the range of 10%. In this regard, reliance was also placed on the CBDT notification 81/2023 dated 25.9.2023.” 3.1 However, Ld. CIT(A) was not convinced with the aforesaid submissions of the assessee, hence, he confirmed the AO’s order by observing as under:- “I have perused the facts of the case and the submissions on record. It is seen that there was a clear difference between the issue price of the share and the price valued under Rule 11UA. Under these circumstances, AO under statutory obligation to invoke the provisions of section 56(2)(viib), more so, in the present case as the parties to whom the shares was issued were related parties of the appellant company. The addition therefore appears to be highly reasonable and in accordance with the provisions of the law. The notification under reference by the appellant in the above para was effective from 3 | P a g e 25.09.2023 and does not pertain to the year under reference. Therefore, the addition made by AO is confirmed and these grounds of appeal are dismissed.” 4. Against the above order, assessee is in appeal before us. 5. We have heard both the parties and perused the records. Ld. Counsel for the assesee submitted that the issue in dispute is squarely covered by the CBDT Notification dated 25.9.2023 and in support of her contention, she submitted the following submissions : “CBDT has issued a notification dated 25.09.2023 which is a safe harbor to mitigate the hardship faced from unintended consequences of Section 56(2)(viib) which is : Sub rule : 4 (4) For the purposes of clause (A) or clause (b) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with – (i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares; (ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received from a non-resident, by an amount not exceeding ten per cent of the valuation price, the issue price shall be deemed to be the fair market value of such shares. Therefore, as per the notification, the difference is (0.88%) which is less than 10% in the present case. Now, with regard to applicability of this notification, the assessee company is placing the reliance on judgment of Sakshi fincap Pvt. Ltd. vs. ITO dated 16.4.2024 passed by the ITAT, Delhi wherein, it was held in para 15 that amendment by the CBDT is curative and will apply retrospectively.” 5.1 Per contra, Ld. DR relied upon the order of the AO. 6. We have carefully considered the submissions and perused the records. We find that assessee’s plea is that CBDT’s notification dated 25.9.2023 duly supports the case of the assessee and also the ITAT, Delhi decision in the case of Sakshi Fincap (Supra) expounds the 4 | P a g e same proposition. For this purpose, we can gainfully refer the decision of the Tribunal in the case of Sakshi Fincap (Supra) as under:- “12. We find that the CBDT after having detailed consultation with various stakeholders, in order to mitigate the hardship faced from the un-intended consequences of Section 56(2)(viib) read with rule 11UA, via notification 81/2023 dated 25.08.2023 has introduced a safe harbor of 10% variation in value. Relevant extract of the notification are as follows: \"(4) For the purposes of clause (A) or clause (B) of sub-rule (2), where the issue price of the shares exceeds the value of shares as determined in accordance with – (i) sub-clause (a) or sub-clause (b) of clause (A), for consideration received from a resident, by an amount not exceeding ten per cent, of the valuation price, the issue price shall be deemed to be the fair market value of such shares; (ii) sub-clause (a) or sub-clause (b) or sub-clause (d) of clause (A), for consideration received I from a non- resident, by an amount not exceeding ten per cent, of the valuation price, the issue price shall be deemed to be the fair market value of such shares.” 13. From perusal of above notification, it is evident that where the difference between the issue price and value adopted by the AO is 10% or less, in such cases issue price will be deemed to be the fair value of shares for the purpose of Rule 11UA of the Income Tax Rules, 1962. In the present case the issue price is Rs.15 per share and the value adopted by the AO is Rs.14.68/per share, hence the difference between the issue price and value adopted by AO is Rs.0.32 i.e. 2.21% (0.32/15) which is less the 5 | P a g e then the safe harbor of 10% variation in value introduced by CBDT notification 81/2023 dated 25.08.2023. 14. Hence, in view of above mentioned submission and curative amendment introduced by CBDT notification 81/2023 dated 25.08.2023, addition of Rs.50,77,334/- u/s 56(2)(viib) read with Rule 11UA is unsustainable. 15. With regard to the applicability of the amendment introduced by CBDT notification 81/2023 dated 25.08.2023 which is a curative amendment and the same will be applicable retrospectively, we find that the Hon’ble Apex Court in the case of Allied Motors Private Limited Vs. CIT, 1997 (3) TMI 9 – (SC) Dated March 10, 1997, has observed that where a proviso which is inserted to remedy unintended consequences and to make the provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole, relevant finding of the apex court are as under: “A proviso which is inserted to remedy unintended consequences and to make the \" provision workable, a proviso which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation, so that a reasonable interpretation can be given to the section as a whole. This view has been accepted by a number of High Courts. In the case of CIT vs. Chandulal Venichand [1994] 209 ITR 7, the Gujarat High Court has held that the first proviso to section 43B is retrospective and sales tax for the last quarter paid before the filing of the return for the assessment year is deductible. This 6 | P a g e decision deals with assessment year 1984-85. The Calcutta High Court in the case of CIT vs. Sri Jagannath Steel Corporation [1991] 191 ITR 676, has taken a similar view holding that the statutory liability for sales tax actually discharged after the expiry of the accounting year in compliance with the relevant statute is entitled to deduction under section 43B. The High Court has held the amendment to be clarificatory and, therefore, retrospective. The Gujarat High Court in the above case held the amendment to be curative and explanatory and hence retrospective. The Patna High Court has also held the amendment inserting the first proviso to be explanatory in the case of Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70. It has held the amendment inserting first proviso to be retrospective. The special leave petition from this decision of the Patna High Court was dismissed. The view of the Delhi High Court, therefore, that the first proviso to section 43B will be available only prospectively does not appear to be correct. As observed by G. P. Singh in his Principles of Statutory Interpretation, 4th Edn., page 291, \" It is well settled that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended.\" In fact the amendment would not serve its object in such a situation, unless it is construed as retrospective. The view, therefore, taken by the Delhi High Court cannot be sustained.” 16. Further, reliance in this regards is placed upon the ITAT Mumbai judgment in the case of Shaista Irphan Mogul Vs. ACIT, CC-5 (3) , Mumbai, 2021 (8) TMI 270 - ITAT Mumbai, Dated July 1, 2021: “9. Upon careful consideration we note that the difference between value declared and value as per stamp value authority is less than 10%. This is within the tolerance limit specified in section 50C. The authorities below have rejected it on the 7 | P a g e premise that the tolerance limit was introduced by the Finance Act, 2018; hence it is not applicable for the year under consideration. We note the plea that the amendment was intended to cure a hardship and hence retrospective has been duly accepted in the ITAT decision referred in the assessee’s submission above. Moreover, the speech of Hon'ble Finance Minister while introducing the provisions duly support this premise. Moreover, in such situation curative provision to remove hardship should be retrospective is duly supported by Hon'ble Supreme Court decision in the case of Allied Moters (P) Ltd. (91 Taxman 205) by the following exposition. \"A proviso which is inserted to remedy unintended consequences and to make the proviso workable, a proviso which supplies an obvious omission in the section and is require to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole.\" Undoubtedly this amendment was done to obviate hardships arising out of minor variation in value of transaction qua 50C valuation. In this view of the matter assessee’s plea succeeds. Hence, we set aside the orders of the authorities below and decide the issue in favour of the assessee. ” 17. The amendment brought in Rule 11UA of the Act was introduced to mitigate the hardship faced by taxpayers by the un- intended invocation of Section 56(2)(vlib) read with rule 11UA and therefore the same is a curative amendment. In view of the of the above mentioned judgment of Apex court and judgments of multiple bench’s tribunals , it is established in law that where an amendment which is inserted to remedy unintended consequences 8 | P a g e and to make the proviso workable, an amendment which supplies an obvious omission in the section and is required to be read into the section to give the section a reasonable interpretation, requires to be treated as retrospective in operation so that a reasonable interpretation can be given to the section as a whole. Hence, in view of above mentioned submissions and judicial pronouncements curative amendment in Rule 11UA of the Income Tax Rules, 1962 introduced by CBDT notification 81/2023 dated 25.08.2023 will apply retrospectively and consequently, the addition of Rs.50,77,334 u/s 56(2)(viib) read with rule 11UA is unsustainable as the difference between issue price and value adopted by AO is 2.1% i.e. less than 10%. 7. Upon careful consideration, we find that the issue involved in the instant appeal is squarely covered by the aforesaid decision and as well as per the notification, the difference is 0.88% which is less 10% in the present case. Accordingly, we allow the grounds raised by the assessee. 8. In the result, the Assessee’s appeal is allowed. Order pronounced on 09/04/2025. Sd/- (SUDHIR PAREEK) Sd/- (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER SRBHATNAGAR Copy forwarded to:- 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT Assistant Registrar "