TaxTMI 
TaxTMI 
2025 (12) TMI 1225
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..../s.143 (2) of the I.T. Act, 1961 was issued on 21/04/2016 and duly served upon the assessee. According to the AO, during the relevant previous year, the assessee claimed to have earned income from Sale of Cotton Knitted Fabrics. One of the reasons of selection of the case of assessee for scrutiny was "Large increase in investment in unlisted equities during the year" and the AO raised necessary queries regards the details of investments in the shares and applicability of section 56(2)(via) to such investments. 2.1 Upon examination of the details submitted by the assessee, the AO noted that inter- alia the assessee had failed to provide any details in respect of purchase of shares of Gain E Commerce Pvt. Ltd. and Kanti Commercial Pvt. Ltd. and also failed to explain as to why the provisions of section 56(2)(viia) of the I.T. Act, 1961 would not apply in the share purchase transaction in the above shares. The AO further noted that assessee also failed to produce valuation report of shares of Gain E Commerce Pvt. Ltd. and Kanti Commercial Pvt. Ltd. 2.2. Thereafter, the AO noted quoted the provision of section 56 (2)(via) of the Act and, after quoting the said provision, the AO o....
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....cial Pvt. Ltd. @ Rs. 3000/- per shares, the fair market value of the same was Rs. 3,113.30. Accordingly, the AO added sum of Rs. 20,39,400/- being the difference in the purchase value and FMV u/s 56(2)(viia) of the Act. The relevant discussion made by the AO in the assessment order made by the AO is as under: "iii) Assessee has purchased 18000 shares of M/S Kanti Commercial Pvt. Ltd. @Rs. 3000/- per share which comes to Rs.5,40,00,000/-, however the total fair market value of 18000 shares of M/S Kanti Commercial Pvt. Ltd. @ Rs. 3,113.30/-per share comes to Rs. 5,60,39,400/- and as such difference of the total fair market value and total purchase consideration comes to Rs. 20,39,400/- which is far excess than rupees fifty thousand and as such transaction of purchase of shares of M/s Kanti Commercial Pvt. Ltd is grossly covered u/s 56(2)(viia) of the 1.T. Act, 1961. In view of the aforesaid discussion difference of the total fair market value and total purchase consideration of Rs. 20,39,400/- is hereby added to the returned income of the assessee." 3. Aggrieved with said findings of the AO the assessee filed an appeal before the ld. CIT(A) wherein the assessee challenged....
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....hing a reliable and robust basis of valuation of such equity. The relevant rule in this regard is rule 11 UA(1) cb. The AO has carried out the valuation on NAV method. The appellant assessee is in clear mischief of the same, hence the premium charged by the assessee is to be subjected to the provisions of section 56 (2) viia read with rule 11UA. It is bounden on the assessee to furnish reliable valuation determining such share premium as in its case for the AY 2015-16, from a qualified valuer. The assessee has not done the same, nor has any submission filed before me in this regard. The AO has carried out the exercise of computing the share valuation basis the assets owned by the appellant in absence of appellant discharging its onus. The quantum of consideration determined and accordingly payable on account of rule 11UA clearly falls within scope and zone of understatement of considerations. The same, therefore, to be brought to tax. The relevant addition in case of the assessee is upheld for this period." 4. Aggrieved with the said findings of the Ld. CIT(A), the assessee is in appeal before us on the following grounds of appeal: "1. That on the facts and in the circu....
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....value and the purchase price of the shares paid by the assessee in the case of M/s Gain E-Commerce Pvt. Ltd. and M/s Kanti Commercial Pvt. Ltd. In this regard, the valuation adopted by the assessee of the shares of the aforesaid two companies placed at page no. 108 and 110 of the paper book are reproduced as under: "Valuation of Unquoted Equity Shares as per Rule Annexure - A 11UA of M/s Gain E Commerce Pvt Ltd as on 31.03.2014 FMV of Unquoted Equity Shares = (A-L)/PE x PV RS A =Book Value of the Assets 310,141,409 Less: Amount shown in the Balance Sheet which has no realizable 45,510,000 value and hence not represent the value of assets 264,631,409 L = Book value of all the liabilities 47,749,244 PE = Total Amount paid up equity share capital 2,714,750 PV = Paid up value of such equity shares 10 (264631409-47749244)/2714750*10 = 798.90 Therefore Fair Market Value is Rs.799/- per share "Valuation of Unquoted Equity Shares as per Rule Annexure - A 11UA of M/s Kanti Commercial Pvt. Ltd. as on 31.03.2014 FMV of Unquoted Equity Shares = (A-L)/PE x PV RS A =Book Value of the Asset....
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....uld not be liable to be added to its total income as unexplained. The relevant extract of the said assessment order in the case of the assessee for A.Y. 2014-15 and the letter dated 28.11.2017 of the AO to the assessee are reproduced as under: (a) Relevant extract of the Assessment Order in the case of the assessee for A.Y. 2014-15. "On verification of the statement of affairs of the assessee company for the current year as well as earlier assessment year for which debtors are available on record, following facts emerges:- * "The assessee company has hardly any business during the past few years. * Sales and purchases of fabrics and shares were purchased/sold to selective parties keeping huge Sundry debtor in the balance sheet. * Despite having stock of cotton knitted fabrics, no sign of commensurate expenses on account of rent, maintenance etc. is visible. * Despite some sales claimed to have effected during the year, no transportation cost found as debited in the P&L A/c. " (b) Relevant extract of the AO's letter dated 28.11.2017 "2 This may be mentioned that based on immediately preceding years observation, it is found ....
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....rics and shares were purchased/sold to selective parties keeping huge Sundry debtor in the balance sheet, ii) despite having huge stock of cotton knitted fabrics, no sign of commensurate expenses on account of rent, maintenance etc., and iii) despite some sales claimed to have effected during the year, no transportation cost found as debited in the P&L A/c" 8.3. Thereafter, the AO observed that from the aforesaid facts it was clear that assessee had not carried any business during the current year also. 8.4. The AO further noted that investments had been purchased from sundry debtors and sundry debtors of Rs. 29,47,215/- relating to AY 2014-15 had been concluded as bogus during the assessment proceedings for AY 2014-15 and since current year sale was also not genuine on the same set of facts as discussed in the assessment order held that the sundry debtors of Rs. 69,08,950/- relating of current year was also fictitious and as such investment made during the year by the assessee company to the extent of aggregate of sundry debtors of A.Υ. 2014- 15 & Α.Υ. 2015-16 of Rs. 98,56,165/- was treated as not genuine and added to the returned inco....
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....e 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. 98.56.165/- is illegal and bad in law." 12. Before us, at the outset, the Ld. AR relied upon the order dated 25.04.2025 of the Co-ordinate Bench of the Tribunal Order in ITA No. 569/Del/2019 for A.Y. 2015-16 in the case of Fabulous Nivesh Pvt. Ltd. vs. ACIT (placed at page no. 87-91 of the paper book filed by the assessee) and submitted that on similar facts the Tribunal in this case had deleted the addition of Rs.67,39,130/-, which comprised outstanding sundry debtors balance of Rs.29,35,130/- for AY 2014-15 and Rs.37,74,000/- for AY 2015-16 respectively which was held by the Assessing Officer to be fictitious and not genuine on the ground that the sale claimed by the assessee was not genuine as was held by the Assessing Officer in the case of the assessee for the present assessment year. The Ld. AR further, relying upon the details of "ot....
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....he Tribunal in the case of Fabulous Nivesh Pvt. Ltd. vs. ACIT (supra) deleted similar addition of sundry debtors. The relevant findings of the Tribunal of the said order are reproduced as under: "5. We have heard both parties and have perused the material available on the record. The assessment order passed in this case has clearly held that the entire business transactions including trading and investments in shares are bogus/non-genuine. Therefore, such finding, being broad, is held falling within the following parameters of limited scrutiny: i. Low income in comparison to very high investments. ii. Low income in comparison to high loans/advances/investment in shares iii. Large increase in investment in unlisted equities during the year Therefore, the issue raising scope of limited scrutiny is decided against the assessee and in the favour of the Revenue. 6. The AO, in the assessment order passed in this case, has held that the entire business transactions including trading and investments in shares are bogus/non-genuine. Therefore; in such circumstances, the AO should have taken pains to gather various details of real benefic....
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....cted or commented upon either by the AO or by the ld. CIT(A). 14.2 Therefore, considering the entire facts as discussed above and by following the above order of the Tribunal, we are satisfied that the addition of Rs. 98,56,165/-on account of sundry debtors is not sustainable in this case and we accordingly delete the same. Ground nos. 3 to 5 of the appeal are allowed. 15. Ground no. 6 of the appeal is as under: "6. 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." 15.1 In the above ground, the assessee has challenged that the action of the Ld. CIT(A) in confirming the assessment made by the AO by rejecting the scope of 'limited scrutiny' having been expanded by the AO without prior permission was in violation of the provision u/s 119 of the Act and the assessment passed was illegal and bad in law. This case as per the AO was selected for scrutiny as one of the reasons being "large increase in invest....