Circle Rate-Based Land Valuation Accepted as FMV Under Section 56(2)(viib) — ITAT Delhi Deletes Addition in Holding-Subsidiary Share Allotment Case

Case Background

KBC India Private Limited Vs ITO (ITAT Delhi)
Assessment Year: 2017-18
Order Date: 24th June, 2026

The Income Tax Appellate Tribunal, Delhi Bench, recently adjudicated an appeal arising from the order passed by the Commissioner of Income-tax (Appeals)/National Faceless Appeal Centre (NFAC), Delhi, dated 10.11.2025, for Assessment Year 2017-18. The core controversy centred on an addition made by the Assessing Officer under Section 56(2)(viib) of the Income-tax Act, 1961, in the context of share allotment between a wholly owned subsidiary and its holding company.

The Tribunal, while hearing rival contentions, found that the matter was already covered by a coordinate bench decision rendered in the assessee's own case — ITA No. 9710/Del/2019, decided on 02.11.2022 — and accordingly proceeded to allow the appeal by following the earlier ruling.

Key Facts of the Case

The assessee, KBC India Private Limited, is a wholly owned subsidiary of M/s. Puran Associates Pvt. Ltd. During the relevant assessment year, the assessee allotted 10,000 equity shares to its holding company. The salient financial details of the transaction were as follows:

  • Face value per share: ₹100
  • Issue price per share: ₹1,500
  • Share premium charged per share: ₹1,400

The Assessing Officer proceeded to make an addition under Section 56(2)(viib) of the Income-tax Act, 1961, on the ground that the consideration received on issue of shares exceeded the fair market value (FMV) of such shares as computed by him, pegging the FMV at ₹1,082 per share.

The assessee contested this addition, asserting that the FMV as determined by a registered valuer — using the Net Asset Value (NAV) method — was not less than the issue price and hence the provision had no application, particularly in a transaction between related entities within the same corporate group.

Issues Before the Tribunal

The Tribunal identified the following core issues arising for its consideration:

  1. Whether Section 56(2)(viib) of the Income-tax Act, 1961 is applicable at all to a share allotment transaction between a holding company and its wholly owned subsidiary.
  2. Whether the FMV of shares, as determined by the registered valuer on the basis of the State Government's circle rate for land held by the assessee, was correctly rejected by the Commissioner (Appeals).
  3. Whether the book value of land can be treated as a substitute for or equivalent to its fair market value for the purposes of the said provision.

Tribunal's Analysis and Findings

Anti-Abuse Nature of Section 56(2)(viib)

The Tribunal, relying upon the coordinate bench's findings in ITA No. 9710/Del/2019, reiterated the legislative intent behind Section 56(2)(viib). As observed in the earlier order:

"On a careful analysis of the speech of Hon'ble Finance Minister while introducing Finance Bill, 2012, section 56(2)(viib) is an anti-abuse provision introduced to the statute to check and regulate introduction of unaccounted money through share premium."