PINGASH MARKETING PRIVATE LIMITED,BALLABHGARH vs. ITO WARD-2(1), FARIDABAD

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ITA 99/DEL/2021Status: DisposedITAT Delhi18 April 2024AY 2016-17Bench: DR. B.R.R. KUMAR, ACCOUNTΑΝΤ ΜΕΜBER, SHRI YOGESH KUMAR U.S. (Judicial Member)42 pages

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Facts

Assessees' returns were selected for limited scrutiny to verify share premium sources. The Assessing Officer (AO) made additions under Section 68 of the Income Tax Act, doubting the identity, creditworthiness of investors, and genuineness of transactions, despite assessees providing documentary evidence. The Commissioner of Income Tax (Appeals) (CIT(A)) upheld these additions and further enhanced income under Section 251(1) read with Section 56(2)(viib) on a protective basis, rejecting the valuation reports furnished by the assessees under Rule 11UA(2)(b) of the Income Tax Rules, 1962.

Held

The Tribunal held that the assessees had discharged their burden of proving the identity, creditworthiness, and genuineness of the share subscribers under Section 68, as no contrary material was brought on record by the department. It further ruled that the lower authorities erred in rejecting the valuation reports for share premium prepared using the Discounted Cash Flow (DCF) method as per Rule 11UA(2), emphasizing that the assessee has the option to choose the valuation method and authorities cannot substitute their own value without specific statutory provision. Consequently, the additions and enhancements made by the AO/CIT(A) were deleted.

Key Issues

1. Whether additions made under Section 68 of the Income Tax Act on account of share capital and share premium were justified. 2. Whether the enhancement of income under Section 251(1) read with Section 56(2)(viib) of the Income Tax Act by rejecting the assessee's valuation report was correct in law.

Sections Cited

Section 68 of the Income Tax Act, Section 56(2)(viib) of the Income Tax Act, Section 251(1) 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(2) of the Income Tax Rules, 1962

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.