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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’ NEW DELHI
Before: SHRI SATBEER SINGH GODARA & SHRI RIFAUR RAHMAN
Date of hearing 11.11.2025 Date of pronouncement 11.11.2025 ORDER
PER SATBEER SINGH GODARA, JM
1. This Revenue’s appeal for assessment year 2018-19, arises against the Commissioner of Income Tax (Appeals)/National Faceless Appeal Centre [in short, the “CIT(A)/NFAC”], Delhi’s DIN and order no. ITBA/NFAC/S/250/2024-25/1066890845(1), dated 22.07.2024 involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’). Heard both the parties. Case file perused.
The Revenue raised the following substant grounds in the instant appeal: “1 Whether Ld. CIT(A) has violated the Rule 46A of the Income Tax Rule and has erred in allowing the fresh evidences submitted by the appellant only during the appellate proceedings without affording reasonable opportunity to the AO regarding admissibility of additional evidences during appellate proceedings as well as on merits. 2 The appellant craves leave to add, alter or amend any/all of the grounds of appeal before or during the course of the hearing of the appeal.”
3. Both the learned representatives next invite our attention to the CIT(A)/NFAC’s detailed discussion reversing the Assessing Officer’s action inter alia making various additions of difference in Form 26AS, share premium under section 56(2)(vii)(b) and unexplained cash credits amounting to Rs.5,99,79,491/-; respectively, reading as under: “3. Ground No 4 is raised against addition of interest income amounting to Rs.34857. The assessing officer held that, “On perusal of records and submissions made by the assessee company, it is revealed that the assessee company has received interest of Rs. 34857/- from Shri Vaibhav Jain. The assessee company has not claimed the TDS of Rs.3,486/- deducted by Shri Vaibhav Jain in it’s return of income. The assessee company has not submitted any documents from which it can be clear whether the interest income of Rs.34,857/- was included in the books of accounts. Therefore, I hereby add Rs. 34,857/- as income from other sources.” During appeal proceedings the assessee submitted that, “For the year under consideration, the Appellant has advanced loan to Mr. Vaibhav Jain amounting to INR 1,00,000 under co-lending arrangement with IDFC Bank Limited. Under the arrangement INR 1,00,000 was given by the appellant and INR 4,00,000 was given by IDFC Bank Limited. On the said co-lending arrangement, the payer made an interest payment of INR 34,857 and 2 | P a g e deducted TDS on the entire interest payment of INR 34,857 against the PAN of the Appellant disregarding the fact that the Appellant's share of interest income was only INR 6,971. The said interest income of INR 6,971 is duly reflected in the books of accounts of the Appellant and has been duly offered to tax. Moreover, the Appellant in its Return of Income for AY 2018-19 did not make a claim of tax deducted at source on the entire interest income (appearing incorrectly in Form 26AS of AY 2018-19) including the TDS on the interest income of INR 6,971 belonging to Appellant.” From the ledger account of Vaibhav Jain uploaded by the appellant, it is seen that Rs.1 lakh was paid through IDFC escrow account on 8.12.2017. Total interest received was Rs.6971. Additional interest income of Rs.27,885 was not actually the income of the Appellant. Merely because a payment was reflected in Form-26AS and was shown to have been made to the assessee, it could not be brought to tax as it is apparent that the assessee was not the actual beneficiary of said payments and the addition is liable to be deleted. As a result, ground no 1 is allowed.
4. Ground No 5 is raised against addition amounting to Rs.5,84,410 under section 56(2)(viib) on account of issue of shares at an amount exceeding Fair market value (FMV) to Residents. On perusal of records, it was found that the assessee company has issued 19243 shares @ Rs.1610.80 in June, 2017 to various entities. The assessee company had also submitted the valuation report dated 21.03.2017 from M/s P. K. Arora & Co., Chartered Accountants, in this report the fair market value of each share was calculated at Rs.1580.43. The assessing officer held that the company issued shares to various parties on the value more than the fair market value (Difference from FMV 1610.80 - 1580.43 = 30.37). As the assessee is a company in which public are not substantially interested, section 56(2)(viib) of the Act is applicable in this case. Hence, the difference amount of Rs. 5,84,410/- (total shares issued 19243 x 30.37 = 5,84,410) was added u/s 56(2)(viib) of the Act as income from other sources. 4.1 During appeal proceedings the appellant submitted that out of 19,243 shares, 12,416 shares were issued to Resident Venture Capital Funds and 6,827 shares were issued to other resident investors as per break up below: Name of investor Shares issued Nature of investor WaterBridge Ventures - I 3,104 Resident VCF White Board Capital 9,312 Resident VCF
3 | P a g e Fund - I Other resident investors 6,827 Residents (individuals and corporate)
Total 19,243 Appellant submitted documents to show that WaterBridge Ventures and White Board Capital are SEBI registered Alternate Investment Fund (AIF) having registration numbers IN/AIF2/16-17/0244 and IN/AIF2/17-18/0379 respectively. Copies of the respective SEBI registrations were uploaded. 4.2 As per section 56(2)(viib), where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the _ fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received — 1. by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund; or; 2. by a company from a class or classes of persons as maybe notified by the Central Government in this behalf. As per Explanation (a) to section 56(2)(viib) of the Act, in case where the consideration for issue of shares is received from a venture capital company or a venture capital fund (VCF) or specified fund, the aforesaid section is not applicable. Keeping in view the aforesaid legal provisions, the applicability of provisions of section 56(2)(viib) is tabulated by the appellant as follows; Nature of Addition Name of investor Applicability of section 56(2)(viib) investor made (INR)
WaterBridge Resident VCF 3,77,073 As per explanation (a) to section 56(2)(viib), Ventures - I provisions of section 56(2)(viib) will not apply in 4 | P a g e relation to the shares issued to the said resident White Board Capital VCFs. Resident VCF Fund - I Other resident • Th e issuance of shares to individual and corporate investors at a price higher than FMV is an oversight investors(individuals Residents 2,07,336 and is in contravention of provisions of section and 56(2)(viib). The Appellant admits to the addition in this regard corporate)
As a result, addition of Rs.2,07,336 is sustained and ground no 5 is partly allowed.
Ground No 6 is raised against addition under section 68 of the Act amounting to Rs.5,99,79,491 received on account of issue of shares to non-residents and VCFs at an issue price higher than FMV The company had issued 62211 shares @ 3271.13 in October, 2017 and January, 2018 to various non-residents. The assessee company submitted valuation report dated 20.09.2017 from M/s.ASHM & Associates, Chartered Accountants. In this report the fair market value of each share was calculated at Rs.2307. The assessing officer held that the company issued shares to non-residents on the value more than the fair market value (Difference from FMV 3271.13 – 2307 = 964.13). The assessee company has not submitted any reason for issuing shares on value much higher than fair market value of the shares. Further, the assessee company had not submitted the genuineness and creditworthiness of the non-residents. Therefore, the difference amount of Rs.5,99,79,491/- (total shares issued 62211 x 964.13 = 5,99,79,491) was added u/s 68 of the Act as income from undisclosed sources. 5.1 During appeal proceedings the appellant submitted break up of issued shares as follows; Name of investor PAN Country Shares issued Premium per Amount of Nature of share Premium investor Matrix AAKCM6142L Mauritius 55,179 964.13 53199729 Nonresident investor Partners WaterBridge AAATW4010G India 4,586 964.13 44,21,500 Resident Ventures VCF White Board AAATW4616J India 2,446 964.13 23,58,262 Resident Capital Fund VCF
5 | P a g e 62,211 5,99,79,491 Total It is already discussed in earlier para that WaterBridge Ventures and White Board Capital are SEBI registered Alternate Investment Funds (AIF) having registration numbers IN/AIF2/16-17/0244 and IN/AIF2/17-18/0379 respectively. Regarding the non-resident investor Matrix Partners, the appellant furnished following documents; 1. KYC Form 2. Foreign inward remittance certificate (FIRC) 3. Foreign Currency Gross Provisional Return (FCGPR) 4. Other documents to substantiate the receipt of foreign currency from the non-resident investor and issuance of shares thereof such as Advance remittance reporting form and PAS 3. 5.2 In order to prove creditworthiness of share subscribers, the appellant submitted following documents; S.No. Name of the investor Documents
1. Foreign inward remittance certificate (FIRC) 2. Foreign Currency Gross Provisional Return (FCGPR) 3. UIN letter 4. Balance sheet extract as on 31 Dec 2017 1 Matrix Partners 5. Balance sheet extract as on 31 Dec 2020 6. Bank statement evidencing the investment 7. Tax Residency Certificate 8. PAN number
1. Copy of PAN 2. ITR Acknowledgement for AY 2018-19 2 WaterBridge Ventures - I 3. Bank statement evidencing the investment 4. Net Worth certificate as on 31 March 2018 5. Net Worth certificate as on 31 March 2022
PAN number 2. ITR Acknowledgement for AY 2018-19 3 White Board Capital Fund - I 3. Net Worth certificate as on 31 March 2018 4. Net Worth certificate as on 31 March 2022 5.3 From the perusal of documents, it is clear that investment by above investors was made as per FDI and RBI regulations. The 6 | P a g e subscription money was received by the appellant through normal banking channels as per requirements under the foreign exchange regulations. Moreover, by the time of second round of shares issue, WaterBridge Ventures - I and White Board Capital Fund had become existing shareholders of the Company. Hence, investments by these entities cannot be added under section 68 of the Act and may at best be undertaken under section 56(2)(viib) of the Act, that too is not applicable in this case because Matrix Partners is a non-resident investor and Water Bridge Ventures and White Board Capital Fund are VCFs. As a result, ground no 6 is allowed.”
This is what leaves the Revenue aggrieved who has filed the instant appeal before the tribunal.
Both the learned representatives reiterate their respective stands against and in support of the CIT(A)’s above extracted detailed discussion. Learned departmental representative could hardly dispute that what all the Revenue pleads in its grounds is that the CIT(A) has violated Rule 46A of the Income Tax Rules, 1962 whilst admitting the assessee’s additional evidence for the first time in the lower appellate proceedings i.e. without granting adequate opportunity of hearing to the Assessing Officer. A perusal of the Revenue’s instant appeal file however indicates that no such additional evidence had been filed by the assessee which could be held to have admitted for the first time in the lower appellate proceedings. That being the case, we find no merit on the instant sole issue of admission of 7 | P a g e additional evidence on merits; as the case may be, as the learned CIT(A)/NFAC has passed its detailed judgment after appreciating the relevant facts and evidence as per law. Rejected accordingly. No other ground or argument has been pressed before us.