Savegenic E-Marketing Private Limited Vs ITO (ITAT Delhi)
The assessee appealed against the order of the CIT(A) for A.Y. 2015-16, where the only issue concerned the confirmation of an addition of ₹60,06,500 made by the Assessing Officer as unexplained cash credit under Section 68 on the share premium collected during the year. The assessee had allotted equity shares of ₹10 each at a premium of ₹63.25 to two subscribers: 11,500 shares to a resident individual and 70,500 shares to a foreign company. The assessee filed its return declaring nil income, and the assessment under Section 143(3) initially accepted the allotment and return. Later, based on the AO’s view that the assessee lacked intangible assets to justify the premium and that its net worth was negative in the previous year, the assessment was reopened under Section 148. The AO concluded that the premium exceeded the market value and that the assessee had issued shares at an incorrect premium. The AO rejected the valuation report prepared using the DCF method under Section 56(2)(viib) read with Rule 11UA and added the entire share premium as unexplained cash credit under Section 68.
The CIT(A) upheld the addition. Before the Tribunal, the assessee argued that the assessment order did not explain how Section 68 applied and that all requirements under the provision were fulfilled, including explaining the nature and source of the resident subscriber’s investment. It further argued that the second proviso to Section 68 does not apply to non-resident subscribers and that valuation under Section 56(2)(viib) must follow either the NAV or DCF method, with the AO having no authority to substitute his own value unless errors in the valuation report were identified. The assessee maintained that the valuation was properly carried out under the DCF method by a Chartered Accountant and that no defects were pointed out by the AO.
