Suri Agro Fresh Private Limited vs. DCIT, ITA No:- 1572/Del/2024
The dispute pertained to the Assessment Year 2017–18, where the Assessing Officer added ₹9 lakhs to the assessee’s income, stating that equity shares were issued at ₹3 per share against the fair market value of ₹2.91 per share. The AO invoked Section 56(2)(viib) on the ground that the ₹0.09 per share difference constituted excess premium.
Despite the shares being allotted proportionately to existing shareholders, the Commissioner of Income Tax (Appeals) upheld the addition, prompting the assessee to approach the ITAT.
Key Issues Raised
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Whether Section 56(2)(viib) applies to share allotment made exclusively to existing shareholders?
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Whether the minor difference of ₹0.09 per share (3%) can be disregarded in light of the 10% safe harbour margin introduced under CBDT Notification No. 81/2023?
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Whether the amendment to Rule 11UA, introducing safe harbour, should be treated as retrospective in nature?
Tribunal’s Observations
The ITAT bench, comprising Shri S. Rifaur Rahman and Shri Sudhir Pareek, made the following critical observations:
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Non-Applicability of Section 56(2)(viib): Referring to precedents such as Dhruv Milkose Pvt. Ltd. and BLP Vayu Projects, the bench emphasized that the purpose of Section 56(2)(viib) is to prevent abuse in cases where companies receive unjustified premiums from outsiders. In cases of allotments made to existing shareholders in the same proportion, there is no real gain or benefit derived, and thus, the provision does not apply.
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Safe Harbour of 10%: The Tribunal acknowledged that the valuation difference in this case (only 3%) falls within the 10% threshold provided in Notification No. 81/2023 dated 25.08.2023. It referred to Sakshi Fincap Pvt. Ltd., where this notification was held to be a curative amendment, and therefore retrospective.
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Rounding-Off Explained: The assessee had issued shares at ₹3 per share based on a DCF valuation of ₹2.91. The Tribunal accepted that this was merely a rounding-off for practical convenience, and not an attempt to evade tax or inflate value.
Final Decision
After evaluating the facts, legal arguments, and relevant precedents, the ITAT concluded that:
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The addition of ₹9,00,000 made by the AO under Section 56(2)(viib) was unsustainable.
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The CIT(A)’s order was set aside, and the appeal was allowed in full.
Significance of the Ruling
This decision reinforces the principle that Section 56(2)(viib) should be applied judiciously and contextually, and not in cases involving nominal variation or allotments to existing shareholders. It also validates the retrospective applicability of the 10% safe harbour margin, offering relief to companies frequently scrutinized under valuation disputes.
Case Citation: ITA No. 1572/Del/2024, Assessment Year 2017–18, Order dated 27.02.202