Assessee can issue a Corrigendum in case there is an error in arriving at the FMV of shares

An assessee company was subject to an addition by the AO under Section 56(2)(viib) of the Income-tax Act due to an error in the fair market value (FMV) of shares issued. The company later provided a corrigendum from the valuer to correct the valuation report. The ITAT ruled that such a corrigendum, issued to rectify an error in calculating the FMV, should not be treated as inadmissible additional evidence. The case was restored to the AO for examination of the full report, including the corrigendum.

IN THE INCOME TAX APPELLATE TRIBUNAL
“C’’ BENCH: BANGALORE

BEFORE SHRI B. R. BASKARAN, ACCOUNTANT MEMBER
AND
SMT. BEENA PILLAI, JUDICIAL MEMBER
 
ITA No.882/Bang/2019
 Assessment Year: 2015-16

M/s. I Brands Beverages Pvt. Ltd.
No.90, Above Bimal Hero Showroom
Byatarayanapura
Amruthahalli Cross
Bangalore
PAN NO : AABCI9950M
APPELLANT 

Vs.

Deputy Commissioner
of Income-tax
Circle-3(1)(1)
Bangalore
RESPONDENT

Appellant by : Shri Suresh Muthu Krishnan, A.R.
Respondent by : Shri Pradeep Kumar, D.R.

Date of Hearing : 01.07.2021
Date of Pronouncement : 13.07.2021

O R D E R

PER B.R. BASKARAN, ACCOUNTANT MEMBER:

 The appeal filed by the assessee is directed against the order dated 21.03.2019 passed by Ld CIT(A)-3, Bengaluru and it relates to the assessment year 2015-16. All the grounds urged by the assessee relate to the addition of Rs.16.20 crores made by the AO u/s 56(2)(viib) of the Income-tax Act,1961 ['the Act' for short].

2. The facts relating to the above said issue are stated in brief. The assessee company is engaged in the business of manufacture and sale of beverages. During the year under consideration, the  assessee has allotted 4,80,000 shares having nominal value of Rs.10/- each at a price of Rs.375/- per share to M/s Raynal Realtors Pvt Ltd. The premium was Rs.365/- per share. Thus, the assessee has collected Rs.18.00 crores on allotment of above said shares. Hence the AO examined the transaction in terms of sec.56(2)(viib) of the Act. As per the provisions of sec. 56(2)(viib) of the Act, a Company (issuer), not being a company in which the public are substantially interested, is required to issue shares at Fair MarketValue (FMV). Accordingly, any consideration received by such issuing Company in excess of the FMV, to the extent it exceeds the face value of such shall be liable to tax.

3. The assessee furnished a valuation report dated 22.01.2015issued by a Chartered Accountant. The AO noticed that the valuation has been done under “Discounted Cash Flow” method. The AO noticed that the value of per share, as per projections was Rs.37.49 per share and it was mistakenly arrived at Rs.374.95. Accordingly, the AO assessed the difference amount of Rs.16.20 crores as income of the assessee u/s 56(2)(viib) of the Act.

4. Before Ld CIT(A), the assessee furnished a “Corrigendum” issuedby the Chartered Accountant in respect of Valuation report earlier furnished by him. The assessee furnished the same as an additionalevidence. The assessee submitted that there was an error in theSchedule attached to the original valuation report. The assesseesubmitted that the Corrigendum issued by the valuer has to be readtogether along with the original report and the same would show thatthe fair market value of share was arrived at by the valuer at Rs.374.95. 

5. The Ld CIT(A) called for a remand report from the AO on the additional evidence filed by the assessee. The AO expressed the view that the corrigendum issued by the valuer is an afterthought of the assessee. He also expressed the view that the valuation report cannot be changed as per whims and fancies of the assessee. The Ld CIT(A) confronted the remand report of the AO with the assessee. After considering the reply filed by the assessee, the Ld CIT(A) first examined the issue of admissibility of additional evidence and took the view that the same is not admissible. Accordingly, the Ld CIT(A) refused to admit additional evidence and accordingly confirmed the addition made by the AO. Aggrieved, the assessee is in appeal before us.

6. We heard the parties and perused the record. We notice that the additional evidence furnished by the assessee before the AO is in the nature of Corrigendum issued by the Valuer, who was constrained to issue the same as there was an error in the original valuation report. The corrigendum issued same shall form part of original valuation report. In our view, the same should not be treated as additional evidence, as observed by Ld CIT(A). Hence, in our view, there is no reason to reject the corrigendum. Accordingly, we admit the corrigendum furnished by the assessee before the Ld CIT(A), since the same has been issued to correct the error in arriving at the fair market value of shares issued by the assessee. Accordingly, the original report and corrigendum shall constitute full report and the same has to be examined by the AO. Accordingly, we set aside the order passed by Ld CIT(A) and restore the same for examination of the AO with the direction to take into account full report. 

7. In the result, the appeal filed by the assessee is treated as allowed for statistical purposes.

Order pronounced in the open court on 13th July, 2021

 Sd/-                                                      Sd/-
 (Beena Pillai)                                     (B.R. Baskaran)
 Judicial Member                               Accountant Member

Bangalore,
Dated 13th Jul, 2021.
VG/SPS

Copy to:
1. The Applicant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR, ITAT, Bangalore.
6. Guard file

 By order
 Asst. Registrar,
 ITAT, Bangalore.