GOPESH FABRICS PVT. LTD.,BALLABHGARH vs. ITO WARD-1(3) , FARIDABAD

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ITA 98/DEL/2021Status: DisposedITAT Delhi18 April 2024AY 2016-17Bench: DR. B.R.R. KUMAR (Accountant Member), SHRI YOGESH KUMAR U.S. (Judicial Member)42 pages

AI SummaryAllowed

Facts

The assessees' returns were selected for 'limited scrutiny' to verify the source of share premium received. The Assessing Officer (AO) made additions under Section 68 of the Income Tax Act on account of share capital and share premium, doubting the identity, creditworthiness, and genuineness of the investors. The Ld. CIT(A) upheld these additions and further enhanced the income under Section 251(1) read with Section 56(2)(viib) by rejecting the valuation reports furnished by the assessees.

Held

The Tribunal found that the assessees had provided sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the share transactions. It held that the AO and CIT(A) erred in rejecting the valuation reports (prepared using the Discounted Cash Flow method as per Rule 11UA(2)) without providing any contrary material or having the legal authority to substitute their own valuation. The Tribunal concluded that the additions under Section 68 and enhancements under Section 56(2)(viib) were based on conjectures and were bad in law, thus liable to be deleted.

Key Issues

(i) Whether CIT (A) was correct in confirming the addition made u/s 68 of the Income Tax Act on account of share capital and share premium received by the assessee Company? (ii) Whether CIT(A) was correct in enhancing the income of the assessee u/s 251(1) read with Section 52(2) (viib) of the Act on protective basis ignoring the valuation report furnished as per Rule 11UA(2) of the IT Rules, 1962?

Sections Cited

Section 68 of the Income Tax Act, Section 251(1) of the Income Tax Act, Section 56(2)(viib) of the Income Tax Act, Section 133(6) of the Income Tax Act, Section 143(1) of the Income Tax Act, Section 142(1) of the Income Tax Act, Section 271(1)(c) of the Income Tax Act, Rule 11UA of the Income Tax Rules, 1962, Rule 11UA(2) of the Income Tax Rules, 1962, Rule 11U of the Income Tax Rules

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, DELHI BENCH ‘H’: NEW DELHI

Before: DR. B.R.R. KUMAR & SHRI YOGESH KUMAR U.S.

Hearing: 15/03/2024Pronounced: 18/04/2024

PER YOGESH KUMAR U.S., JM:

The above captioned appeals are filed by the different Assessees against the orders passed by the Learned Commissioner of Income Tax (Appeals), Faridabad [“Ld. CIT(A)”, for short],dated 19/03/2020, 23/03/2020, 13/03/2020, 17/03/2020 and 23/03/2020 respectively pertaining to Assessment Year 2016-17.

The common grounds of Appeal taken by the Assessees in all the captioned appeals except variance of figures are as under:- , 87, 88, 89 & 99Del/2021 M/s Shanta Blankets and Ors.

CONCISE GROUNDS OF APPEAL

“1. That the Ld. CIT (A) has erred in law as well as on facts in confirming addition of Rs. 67,20,000/- u/s 68 of the Act and enhancing the income by Rs. 28,80,000/- u/s 251(1) of the Acton account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction.

2. That the Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant u/s 251(1) by a sum of Rs. 60,54,400/-under the head income from other sources by applying section 56(2)(viib) of the Acton protective basis and rejecting the valuation report furnished under Rule 11UA(2)(b) of Income Tax Rules, 1962 i.e., Discounted Cash Flow Method.

3. That the Ld. CIT(A) has grossly erred in law as well as on facts in sustaining addition u/s 68 of the Act and enhancing the income of appellant on protective basis u/s 56(2)(viib) r.w.r 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny for the reason that "Large share premium received during the year (verify applicability of sec 56(2)(viib)" which restrict the scope of assessing authorities to scrutinize the limited aspect.