Case Law Details
PCIT Vs Livros Publishing Pvt. Ltd. (Allahabad High Court)
Share Capital Addition Invalid as Assessee Was Only Recipient of Investment; No Section 68 Addition Without Evidence That Assessee Routed Its Own Money Through Investor; High Court Upholds Deletion of Share Premium Addition Due to Lack of Direct Evidence; High Share Premium Alone Not Enough for Section 68 Addition.
The Allahabad High Court dismissed the Revenue’s appeal against the order of the Income Tax Appellate Tribunal (ITAT), which had upheld the decision of the Commissioner of Income Tax (Appeals) deleting an addition made under Section 68 of the Income-tax Act, 1961 in respect of share capital and share premium received by the assessee company.
The Revenue challenged the genuineness of the transaction on the ground that the assessee, a newly incorporated company with no discernible net worth, had received share application money at a premium of ₹490 per share on a face value of ₹10. It was argued that the transaction lacked commercial rationale and that the test of human probabilities, as laid down by the Supreme Court in Sumati Dayal v. CIT, ought to have been applied.
The assessee raised a preliminary objection regarding maintainability, contending that the tax effect involved was ₹1.29 crore, which was below the monetary threshold of ₹2 crore prescribed under CBDT Circular No. 09/2024. It was also submitted that no adverse material had been found against the assessee to justify an addition under Section 68.
The Court noted that the assessee was a duly incorporated company and that the shares issued by it were genuine. It observed that if the Revenue had doubts regarding the source of funds available with the investor company, M/s Apurva Leasing Finance and Investment Company, any inquiry or addition concerning such funds would have to be made in the hands of the investor or other relevant parties. The assessee, being merely the recipient of the share capital, had no means to verify the source of investment made by the investor.
The Court further recorded that the Commissioner (Appeals) had made categorical findings confirming the genuine business activities of the assessee and had specifically found that the assessee was not a shell entity. According to the Court, an addition under Section 68 in the hands of the assessee could have been justified only if there was evidence that the funds invested had actually originated from the assessee itself and had been routed back through the investor company.
However, the Revenue had not alleged or established any such round-tripping arrangement. Its case was based on allegations that certain third parties were operating the investor company. The Court held that even if such allegations existed, any action would have to be taken against the relevant persons or entities under the appropriate provisions of law and could not automatically justify an addition in the hands of the assessee.
Since the assessee was only the recipient of the share capital and there was no evidence linking the invested funds back to the assessee, the Court found no fault with the reasoning adopted by the CIT(A) and affirmed by the Tribunal. Finding no perversity or serious infirmity in the concurrent factual findings, the High Court held that the appeal lacked merit and dismissed it. No order as to costs was passed.
FULL TEXT OF THE JUDGMENT/ORDER OF ALLAHABAD HIGH COURT
1. Heard Shri Ankur Agarwal, learned counsel for the appellants and Shri Rakesh Ranjan Agarwal, learned Senior Advocate assisted by Shri Sumit Mishra, learned counsel for assessee.
2. Present appeal filed by the revenue arises from the order dated 08.10.2025 passed by the Income Tax Appellate Tribunal, Delhi Bench, Delhi in ITA No. 1971/Del/2020, Assessment Year: 2012-13, Income Tax Officer Vs. M/s Livros Publishing Pvt. Ltd. By that order, learned Tribunal has dismissed the revenue’s appeal and thereby confirmed the order passed by the Commissioner Income Tax (Appeal), Meerut dated 28.08.2020 allowing the assessee’s appeal against the assessment order dated 27.03.2015.
3. The present appeal has been pressed on the following question of laws:
“3. Whether the Ld. ITAT has erred in law and on facts in ignoring the genuineness of transactions of a newly incorporated assessee company (with no discrenible net worth) receiving share application money at an exorbitant premium of Rs. 490 per share on face value of 10, thereby failing to apply the test of human probabilities as laid down by the Hon’ble Supreme Court in the case of Sumati Dayal Vs. CIT?
4. Whether the Ld. ITAT erred in law by failing to apply the principle of preponderance of probabilities, as enunciated in Sumati Dayal vs. CIT, wherein the Supreme Court held that apparent transactions must be tested against surrounding circumstances and human conduct, thereby overlooking that the assessee’s claim of receipt of share premium lacked commercial rationale and was wholly improbable?”
4. At the outset, learned counsel for the assessee has raised preliminary objection that the tax effect Rs. 1,29,75,868/- is below the monitory limit of Rs. 2 crore. Relying on the Circular No. 09/2024 issued by the CBDT. Thus, it has been objected that the present appeal is not maintainable.
5. Even otherwise, it has been submitted that there is no adverse fact found against the appellant as may have allowed for the addition to be made under section 68 of the IT Act, 1961.
6. To the extent, the assessee is a duly incorporated company and further to the extent, the shares issued by it were duly listed, if any doubt existed with the revenue as to the source of money available to the investor, here another corporation M/s Apurva Leasing Finance and Investment Company, that may have led to addition at the hands of the third party i.e. the investor. However, the present assessee has no means to verify the source of investment made in its share capital.
7. To the extent, issuance of shares is genuine, other issues may fade into insignificance.
8. Having heard learned counsel for the parties and having perused the record, we find that the Commissioner of Income Tax (Appeals) has recorded categorical findings confirming the genuine activity of the assessee. To the extent, the present assessee is not a shell entity and further to the extent, it had invited investment in its share capital, the fact that said investment made by M/s Apurva Leasing Finance and Investment Company may have been added at the hands of the assessee only if evidence may existed of that money having been passed on by the assessee itself.
9. To the extent, that is not the case of the revenue, and further to the extent, the revenue alleges that certain third party namely Shri S.K. Jain and Virendra Kumar Jain were operating the investor company M/s Apurva Leasing Finance and Investment Company, the addition may have been made at other hands under other provision of law.
10. So far as the present assessee is concerned, it is the recipient of the amount invested. The amount in issue is share capital received from third party. Which third party is to be assessed with respect to the amount invested, may remain outside the control of the assessee and may have no bearing on it’s assessment.
11. In view of the above, the reasoning of the Tribunal, confirming the order of the CIT (Appeal) cannot be faulted.
12. In absence of any element of perversity or other serious doubt, the appeal lacks merits and is dismissed.
13. No order as to costs.
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