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Facts
The assessees challenged separate orders of the CIT(A) which confirmed additions made by the AO under Section 143(3) for AY 2015-16. The additions were primarily related to the allotment of shares and unexplained investments, with the AO treating sundry debtors as fictitious.
Held
The Tribunal held that the additions made by the AO concerning the allotment of shares were illegal and set aside, referring to judicial precedents. Similarly, additions related to unexplained investments and fictitious sundry debtors were also found to be illegal and set aside.
Key Issues
Whether the additions made by the AO for allotment of shares under Section 56(2)(viia) were justified and whether additions based on fictitious sundry debtors for unexplained investments were valid.
Sections Cited
143(3), 250(6), 143(2), 142(1), 56(2)(viia), 56(2)(viib), 119
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Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI M BALAGANESH & SHRI VIMAL KUMAR
Assessee by: Shri Manoj Kataruka, Adv Department by: Shri Kumar Avikal Manu, CIT - DR (V/C) Date of Hearing: 05.08.2025 Date of pronouncement: 30.09.2025 O R D E R
PER VIMAL KUMAR, JUDICIAL MEMBER:
The appeals of the assessees are against separate orders of the Learned Commissioner of Income-Tax (Appeals)-XXVI, New Delhi (hereinafter referred as “the Ld. CIT(A)”) under Section 250(6) of the Income Tax Act, 1961 ( hereinafter referred as “the Act”) arising out of separate Assessment Orders dated 29.12.2017 of the Ld. ACIT, Central Circle-13, New Delhi (hereinafter referred as “Ld. AO") under Section 143(3) of the Act for assessment year 2015-16.
Both the appeals having similar facts, grounds and issues were heard together for sake of convenience.
Brief facts of the case in are that income tax return was e-filed by the assessee on 30.09.2015 showing total income of Rs.7,990/-. The case was selected for scrutiny assessment through CASS under the category of ‘limited scrutiny’. Notice under Section 143(2) of the Act was issued on 21.04.2016. Notice under Section 142(1) of the Act was issued on 24.07.2017 along with questionnaire. Learned Authorized Representative of assessee attended hearing and filed details/evidence to explain the return. On completion of assessment proceeding, Ld. AO vide assessment order dated 29.12.2017, made additions of Rs.383,79,60,000/-, Rs.195,52,00,000/- and Rs.89,29,195.
Ld. AO vide assessment order dated 29.12.2017 made additions of Rs.335,82,26,342/-, Rs.195,53,19,098/- and Rs.69,81,290/-.
5. Against separate assessment orders dated 29.12.2017 of Ld. Assessing Officer, the appellant/assessee filed separate appeals before the Ld. CIT(A) which were dismissed vide separate orders dated 15.11.2018.
Being aggrieved, the appellant/assessee preferred present appeals, raising following grounds:
1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition of Rs.383,79,60,000/- made by the A.O. U/s 56(2) (viia) of the Act, on account of investment of shares of M/s. Bhartiya Hotels Limited through allotment is against the provisions of law and the addition made is arbitrary, excessive and illegal.
2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the A.O. of Rs.195,52,00,000/- u/s 56(2) (vila) on account of investment of shares of M/s. Dunlop Properties Pvt. Ltd, through allotment is against the provisions of law and the addition made is arbitrary, excessive and illegal.
3. That on the facts and in the circumstances of the case the treatment made out by the AO of applying section 56(2) (viia) on allotment of shares through share application, and thereby making the addition as confirmed by the Ld.. CIT(A) is contrary to the provisions of law and the allotment of shares does not fall u/s 56(2) (viia) of the act and instead for allotment of shares provisions section 56(2) (viib) applies and therefore, the addition made is illegal and bad in law.
That on the facts and in the circumstances of the case the action of the Ld.CIT(A) to confirm the addition made by the A.O. of Rs.89,29,195/- as unexplained investments on the reason that the Sundry Debtors are fictitious is contrary to the settled principles of law and the addition is arbitrary, excessive and illegal.
That on the facts and in the circumstances of the case the action of the Ld.CIT(A) to confirm the addition made by the A.O. of Rs.89.29,195/- as unexplained investments by partly treating the bogus Sundry Debtors of A.Y. 2014-15 is against the settled principles of law and the addition is arbitrary, excessive and illegal.
6. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to hold that the sales for AY 2014-15 & 2015-16 were not genuine on the basis of expenses debited in the Profit & Loss Account is contrary to the material evidences on record and contrary to be expenses claimed and debited in the Profit & Loss Account and therefore, the addition confirmed by the Ld CIT(A) of Rs.89,29,195/- is illegal and bad in law.
That on the facts and in the circumstances of the case the action Ld CIT(A) to confirm the assessment made by the AO by rejecting the scope of limited scrutiny having being expanded by the AO without prior permission is in violation of the provisions u/s 119 of the Act and the assessments is illegal and bad in law.
8. That the assessment framed by the AO and confirmed by the Ld. CIT(A) is unjust, illegal, arbitrary and excessive.
9. That the above grounds of appeal
will be argued in detail at the time of hearing and the appellant crave leave to submit additional grounds of appeal, if any, and/or alter, verify, modify or rectify any grounds of appeal at or before the time of hearing. 6.2 “Grounds in 1. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition of Rs.335,82,26,342/- made by the A.O. U/s 56(2) (vila) of the Act, on account of investment of shares of M/s. Bhartiya Hotels Limited through allotment is against the provisions of law and the addition made is arbitrary, excessive and illegal.
2. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to confirm the addition made by the A.O. of Rs.195,53,19,098/- u/s 56(2) (vila) on account of investment of shares of M/s. Dunlop Properties Pvt. Ltd, through allotment is against the provisions of law and the addition made is arbitrary, excessive and illegal.
3. That on the facts and in the circumstances of the case the treatment made out by the AO of applying section 56(2) (viia) on allotment of shares through share application, and thereby making the addition as confirmed by the Ld. CIT(A) is contrary to the provisions of law and the allotment of shares does not fall u/s 56(2) (viia) of the act and instead for allotment of shares provisions section 56(2) (viib) applies and therefore, the addition made is illegal and bad in law.
4. That on the facts and in the circumstances of the case the action of the Ld.CIT(A) to confirm the addition made by the A.O. of Rs.69,81,290/- as unexplained investments on the reason that the Sundry Debtors are fictitious is contrary to the settled principles of law and the addition is arbitrary, excessive and illegal.
5. That on the facts and in the circumstances of the case the action of the Ld.CIT(A) to confirm the addition made by the A.O. of Rs.69.81.290/- as unexplained investments by partly treating the bogus Sundry Debtors of A.Y. 2014-15 is against the settled principles of law and the addition is arbitrary. excessive and illegal.
6. That on the facts and in the circumstances of the case the action of the Ld. CIT(A) to hold that the sales for AY 2014-15 & 2015-16 were not genuine on the basis of expenses debited in the Profit & Loss Account is contrary to the material evidences on record and contrary to be expenses claimed and debited in the Profit & Loss Account and therefore, the addition confirmed by the Ld CIT(A) of Rs. 69,81,290/- is illegal and bad in law.
7. That on the facts and in the circumstances of the case the action Ld CIT(A) to confirm the assessment made by the AO by rejecting the scope of limited scrutiny having being expanded by the AO without prior permission is in violation of the provisions u/s 119 of the Act and the assessments is illegal and bad in law.
8. That the assessment framed by the AO and confirmed by the Ld. CIT(A) is unjust, illegal, arbitrary and excessive.
That the above grounds of appeal
will be argued in detail at the time of hearing and the appellant crave leave to submit additional grounds of appeal, if any. and/or alter, verify, modify or rectify any grounds of appeal at or before the time of hearing.”
7. Learned Authorized Representative for the appellants/assessee regarding grounds of appeal nos. 1 to 3 submitted that the assessee got allotment of shares of M/s. Bhartiya Hotels Ltd. and M/s. Dunlop Properties Pvt. Ltd. The case of assessee was not covered by the provisions of section 56(2)(viia) on allotment of shares through share application. In fact, section 56(2)(viib) of the Act was only applicable in circumstances where the receipt of consideration for issue of shares were involved. Circular No.3 dated 21.01.2019 was not applicable. Reliance was placed on paras 5, 11 and 17 to 19 of the decision in the case of “PCIT vs. Jigir Jaswantlal Shah”. On merit, it was submitted that Assessing Officer had filed valuation report. Ld. Assessing Officer in para no. 12 on page no. 9 held the value of shares as negligible. In view of para 10 of decision in the case of Agro Portfolio Vs. PCIT. Ld. AO failed to reduce mortgage loan of ICICI Bank. Rule 11UA was not applicable. The apex Court in the case of Khoday Distilleries Ltd. vs. CIT & Anr. (2008) 220 CTR (SC) 228: (2008)
15. DTR (SC) 126: (2008) 307 ITR 312 (SC): (2008) 176 Taxmann 142 (SC), after referring to the decision in the case of Shri Gopal Jalan & Co. vs. Calcutta Stock Exchange Association Ltd. 1964 (3) SCC 698, noted the question arose as to the amendment of the word "allotment" held that the word "allotment" means appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person and till such allotment, the shares do not exist as such". Therefore, it is only on allotment that the shares come into existence. In every case, the words "allotment of shares" having used to indicate the creation of shares appropriation out of unappropriated share given to a particular person which is also referred to in the notice of clause to the Finance Bill, 2010. Therefore, the aim and intention behind amending the provision of s. 56 is to prevent the practice of transferring unutilized shares at a price which are allotted for the first time by way of right shares. The amendment is therefore never meant to aim the "fresh issue" or "fresh allotment" of shares by a company.
7.1 Learned Authorized Representative for the appellant/assessee submitted that ground of appeal nos. 4 and 5 were in respect of additions by Ld. AO for unexplained investment. For the reasons that the sundry debtor are fictitious. Ld. AO had made addition without rejecting books of accounts. The grounds were squarely covered by the order dated 25.04.2025 in titled as “M/s. Fabulous Nivesh Pvt. Ltd. Vs. ACIT”.
7.2 Learned Authorized Representative for the appellant/assessee submitted that the ground of appeal nos. 6 to 9 were consequential.
Learned Authorized Representative for the Department of Revenue submitted that assessee had purchased 4000000 shares of M/s. Bhartiya Hotels Limited @ Rs.10/- per share which comes to Rs.4,00,00,000/-, However fair 7 market value is Rs. 3,87,79,60,000/-(@Rs. 969.49 per share). Difference of fair market value and total purchase consideration is Rs. 3,83,79,60,000/- which is far excess than rupees fifty thousand and as such this transaction is covered under Section 56(2)(viia) of the Act.
8.1 Learned Authorized Representative for the Revenue submitted that assessee had also purchased 2000000 shares of M/s. Dunlop Properties Pvt. Ltd @ Rs.10/- per share which comes to Rs.2,00,00,000/-, However fair market value is Rs. 1,97,52,00,000/-(@Rs. 987.60 per share). Difference of fair market value and total purchase consideration is Rs. 1,95,52,00,000/- which is far excess than rupees fifty thousand and as such this transaction is covered u/s 56(2)(viia) of the Act. Section 56(2) (viib) is applicable only in circumstances where the receipt of consideration for issue of shares is involved. In this case, appellant received shares for a consideration reported to be sub-par. So, only section 56(2)(viia) is applicable.
8.2 Learned Authorized Representative for the Revenue submitted that as per assessment order, since the sundry debtors of A.Y. 2014-15 had already been found to be fictitious and the sale of A.Y. 2015-16 was also not genuine as the very basic features of commercial activities are absent. Assessee has also failed to submit any evidence in support of his claim that the sale is genuine. Hence, Ld. CIT(A)'s decision confirm the addition of Rs.8,92,915/-. Reliance was placed on order dated 09.05.2024 in in the case off M/s. Brawny Nivesh Pvt. Ltd. Vs. ACIT.
9. From examination of record in light of aforesaid rival contentions, undisputedly, it is crystal clear that ground of appeal nos. 1 to 3 are regarding confirmation of addition of Rs.383,79,60,000/-, Rs.195,52,00,000/- and Rs.89,29,195/- on account of investment of shares of M/s. Bharat Hotel Ltd. & M/s. Dunlop Properties Pvt. Ltd. through allotment under Section 56(2)(viia) of the Act. Appellant/assessee has challenged application of section 56(2)(viia) being allotment of shares which did not fall within the purview of section 56(2)(viia) instead of allotment of shares profession has to be dealt with section 56(2)(vii)(c).
9.1 As per ratio of judgment rendered in the case of PCIT vs. Jigar Jashwantlal Shah, Hon'ble Gujarat High Court has held as under:
“19. The apex Court in the case of Khoday Distilleries Ltd. vs. CIT & Anr. (2008) 220 CTR (SC) 228: (2008) 15 DTR (SC) 126: (2008) 307 ITR 312 (SC): (2008) 176 Taxmann 142 (SC), after referring to the decision in the case of Shri Gopal Jalan & Co. vs. Calcutta Stock Exchange Association Ltd. 1964 (3) SCC 698, noted the question arose és to the amendment of the word "allotment held that the word "allotment" means appropriation out of previously unappropriated capital of a company, of a certain number of shares to a person and till such allotment, the shares de-not exist as such". Therefore, it is only on allotment that the shares come into existence. In every case, the words "allotment of shares" having used to indicate the creation of shares appropriation out of unappropriated share given to a particular person which is also referred to in the notice of clause to the Finance Bill, 2010.
Therefore, the aim and intention behind amending the provision of s. 56 is to prevent the practice of transferring unutilized shares at a price which are allotted for the first time by way of right shares. The amendment is therefore never meant to aim the "fresh issue" or "fresh allotment" of shares by a company. 9.2 In view of above material facts especially allotment of shares and above well settled principles of law, it is held that the additions made by Ld. AO being illegal are set aside.
9.3 Ground of appeal nos. 4 and 5 are regarding addition made by Ld. AO as unexplained investment of Rs.89,29,195/- on the reason that sundry debtors are fictitious and the sale of assessment year 2015-16 was not genuine as basic features of commercial activities are absent since debtors of assessment year 2014-15 were found to be fictitious.
9.4 A Co-ordinate Bench in ITA No.569/Del./2019 titled as “M/s. Fabulous Nivesh Pvt. Ltd. Vs. ACIT” in order dated 25.04.2025 in para no.7 has held as under:
“7. The AO has not given specific finding pointing out any bogus transaction in the relevant year with the help of any corroboratory evidence. Further, we find that the AO on one hand has held that the entire business transactions including trading and investments in shares are bogus/non-genuine, then no addition on account of purchases and sales treating then real and genuine can be made in the hands of the assessee. We are not able to persuade ourselves that how such contradictions will go together. As far as the addition on account of sundry debtors Rs.29,35,130/- for AY 2014-15 is concerned, we are of the considered view that the same cannot be taxed in the relevant year even if it is fictitious in nature. The current year sale of the shares i.e. Rs.37,74,000/- has not resulted any sundry debtor. The Fabulous Nivesh 10
Pvt. Ltd. 10 assessment order does not pin-point say any adverse material regarding the sale of shares. Further, the Revenue has not brought any material on the record to demonstrate that the trading of shares is non- genuine. Therefore, the addition of Rs.37,74,000/- cannot be sustained. Accordingly, the addition of Rs.37,74,000/- is deleted.” 9.5 In view of above material facts by following judicial precedents, referred above, we hold that the addition made by the Ld. AO is illegal and is set aside. 9.6 In view of above findings, the grounds of appeal nos. 6 to 9 are consequential.
In the result, both the appeals of the assessee are allowed.