The AO made addition u/s 56(2)(viia) of the Act by treating the difference between the fair value of the shares and the purchase price of shares of the shares by the assessee. CIT(A) confirmed the order of the AO. Tribunal held that rejection of DCF method is held to be not proper. Tribunal held that S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01.04.2019) which defines “balance sheet‟ was not applicable to a foreign company. If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1.4.19 is prospective in nature .( Followed CIT v. B. C. Srinivasa Shetty ( 1981) 128 ITR 294 (SC), CIT v. Official Liquidator Palai Central Bank Ltd(In liquidation) (1985) 1 SCC 45) .( ITA No.1703/Mum/2019, dt. 16.10.2019)(AY. 2015-16)
Keva Industries Pvt. Ltd. v. ITO ( 2020) 186 DTR 134 / 203 TTJ 672(Mum)(Trib), www.itatonline.org
S. 56 : Income from other sources –Foreign company –DCF Method- Receipt of property less than aggregate fair value of the property – S. 56(2)(viia) cannot apply to a foreign company as Rule 11U(b)(ii) (prior to 01.04.2019) which defines “balance sheet‟ was not applicable to a foreign company-If the computation provisions cannot apply, the charging section cannot apply. The amendment to Rule 11U with effect from 1.4.19 is prospective in nature –Rejection of DCF method is held to be not proper. [ S.56(2) (viia), Rule 11UA(b) (ii) ]