ACIT, NEW DELHI vs. GAMMA PIZZAKRAFT LANKA (PRIVATE) LIMITED, SRI LANKA

ITITA 26/DEL/2025Status: DisposedITAT Delhi12 August 2026AY 2016-1713 pages
AI SummaryDismissed

What were the facts?

The Assessing Officer (AO) received information that Gamma Pizzakraft Lanka (Pvt.) Ltd., a Sri Lankan company, had bought back its shares from an Indian shareholder, Shri Amar Raj Singh, on December 7, 2015. The buy-back price was Rs. 13.48 per share, while the fair market value under Rule 11UA was determined to be Rs. 26.478 per share. The AO noted that the shares were unlisted and the transaction was not routed through a stock exchange. The difference of Rs. 14,94,77,000 was considered by the AO as income from other sources under Section 56(2)(viia) of the Income Tax Act, 1961. The assessee, a non-resident, had not filed a return of income in India. The AO completed the assessment ex-parte. The Commissioner of Income Tax (Appeals) deleted the addition, and the Revenue has appealed this deletion to the Income Tax Appellate Tribunal (ITAT). The penalty proceedings under Section 271(1)(c) were also initiated by the AO.

What did the Tribunal hold?

The Tribunal held that the provisions of Section 56(2)(viia) are not applicable to the buy-back of its own shares by a company. The reasoning is that Section 56(2)(viia) applies only when shares become the 'property' of the recipient company, and this is only possible if the shares are of 'any other company'. In a buy-back of own shares, the shares are extinguished and do not become property in the hands of the company. The Tribunal relied on decisions of coordinate benches of the ITAT in Vora Financial Services Pvt. Ltd. and IPS Infrastructure Ltd., and also cited a decision of the Kolkata Tribunal in VITP Private Limited. The Tribunal noted that the extinguishment of shares by reducing paid-up capital was not examined by the AO and restored the issue to the AO for verification, directing deletion of the addition if the fact of extinguishment is found correct. However, the Tribunal ultimately upheld the deletion of the addition made under Section 56(2)(viia) on the grounds of non-applicability to buy-back transactions and the assessee being a non-resident whose income did not accrue or arise in India under Section 5(2). Consequently, the penalty levied under Section 271(1)(c) was also deleted, following the principle that if the foundation (quantum addition) is removed, the superstructure (penalty) falls.

What were the issues?

1. Whether the learned CIT(A) erred in deleting the addition of Rs. 14,94,77,000 made by the AO under Section 56(2)(viia) of the Income Tax Act, 1961, on account of undervalued buy-back of shares. - Assessee's contention: The CIT(A) erred in holding that Section 56(2)(viia) is not applicable to buy-back of own shares, relying on distinguishable cases like Vora Financial Services Pvt. Ltd. and IPS Infrastructure Ltd., and also erred in holding that the assessee, being a non-resident, is not taxable in India on the impugned income, despite the transaction having a nexus with India. - Revenue's contention: The CIT(A) failed to appreciate that the assessee, a non-resident, bought back its shares from an Indian shareholder at a price lower than the fair market value, and the difference constituted income from other sources under Section 56(2)(viia). The CIT(A) also erred in holding that the transaction was not taxable in India, ignoring the source of income being in India and the connection with an Indian shareholder. 2. Whether the learned CIT(A) erred in deleting the penalty of Rs. 6,46,63,750 levied under Section 271(1)(c) of the Income Tax Act, 1961. - Assessee's contention: Not recorded. - Revenue's contention: The CIT(A) failed to appreciate that the AO levied penalty after finding concealment of income and furnishing of inaccurate particulars, as the assessee did not file a return and did not disclose the buy-back transaction. The CIT(A) erred in deleting the penalty solely because the quantum addition was deleted, without considering the assessee's conduct.

Which sections of the Income-tax Act were involved?

Section 56(2)(viia),Section 271(1)(c),Section 6(3),Section 5(2),Section 9,Section 148,Section 151,Section 144,Section 270A,Section 271A(1)(d),Section 271F,Section 250

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘D’, NEW DELHI

Before: SHRI VIKAS AWASTHY & SHRI NAVEEN CHANDRA

For Appellant: Shri T. M. Shivakumar, Adv, Ms. Sanjana, Adv, Ms. Laxmi Pundir, Adv. and Ms. Palak Kumari, Adv
For Respondent: Shri M. V. Ramesh, Sr. D.R
Hearing: 23.06.2026Pronounced: 12.08.2026

PER NAVEEN CHANDRA [ACCOUNTANT MEMBER]:

The above captioned appeals are preferred by the Revenue against the order dated 29.08.2025, passed by Learned Commissioner of Income Tax (Appeals), Delhi-42 [hereinafter referred to as ‘ld. CIT(A)], under section 250 of the Income Tax Act, 1961 [hereinafter

IT(IT)A Nos.26 & 27/Del/2025 ACIT vs. Gamma Pizzakraft Lanka (A.Y 2016-17)

referred to as, ‘Act’] arising out of the assessment order dated 25.11.2021 passed by ACIT, Circle 1(3)(1), International Taxation, New Delhi and Penalty order, dated 27.05.2022, passed un

The order continues below.

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