Case Law Details
Ameya Perfomatt Finserv Private Limited Vs DCIT (ITAT Ahmedabad)
The Income Tax Appellate Tribunal (ITAT), Ahmedabad, considered an appeal against the confirmation of an addition of ₹1,14,75,000 made under Section 40A(2)(a) of the Income-tax Act for Assessment Year 2014-15. The assessee, a company engaged in financial services and investment activities, had filed a return declaring nil income. During assessment proceedings, the Assessing Officer noted that the assessee had issued equity shares worth ₹1.22 crore to its associate concern and, in turn, acquired 67,500 unquoted shares of another company at ₹180 per share for a total consideration of ₹1.215 crore through book entries without any cash movement.
The Assessing Officer observed that the face value of the acquired shares was ₹10 per share and concluded that the assessee had paid ₹170 per share in excess. Treating the transaction as a business transaction with an associate concern, the Assessing Officer invoked Sections 40A(2)(a) and 40A(2)(b), treated ₹1,14,75,000 as excessive and unreasonable expenditure, and added the amount to the assessee’s income.
Before the Commissioner (Appeals), the assessee contended that the shares were acquired as long-term investments and were disclosed as non-current investments in the balance sheet. It was also argued that no amount relating to the acquisition had been debited to the Profit and Loss Account and therefore Section 40A(2)(a), which applies to expenditure claimed while computing income, could not be invoked. The assessee further submitted that the Assessing Officer had adopted face value as fair market value without any valuation report or supporting evidence. However, the Commissioner (Appeals) upheld the addition.
Before the Tribunal, the assessee reiterated that the transaction involved acquisition of a capital asset reflected as an investment and not an expenditure claimed in the Profit and Loss Account. It was also pointed out that the total expenditure claimed during the year was only ₹65,732 and that the impugned amount was not part of such expenditure. The assessee further submitted that the shares continued to be held and no sale had taken place during the year.
The Tribunal observed that the acquired shares had been shown as non-current investments in the balance sheet and that merely because the company’s objects included dealing in shares, every acquisition could not automatically be treated as stock-in-trade. It further noted that the Assessing Officer had adopted the face value of the shares as their fair market value without conducting any valuation exercise or bringing comparable data on record. Considering these aspects, the Tribunal set aside the matter to the file of the Assessing Officer for fresh adjudication and a de novo order. The appeal was allowed for statistical purposes.
FULL TEXT OF THE ORDER OF ITAT AHMEDABAD
This appeal has been filed by the assessee against the order dated 03.09.2025 passed by the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as ‘Ld. CIT (A)’ in short), under Section 250 of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’ in short) for Assessment Year 2014-15.
2. The assessee has raised following grounds of appeal:-
“1. The Ld. CIT(A), National Faceless Appeal Centre (NFAC), Delhi has erred in law and in facts in confirming the action of the Ld. A.O. in making an addition /disallowance applying the provisions of Sec. 40(A)(2)(a) of the Act of Rs. 1,14,75,000/- in respect of investment made in shares without considering the submissions made by the appellant that no such expense has been claimed by the appellant and thus, the provisions of Sec. 40(A)(2)(a) are not applicable to the transaction under consideration. The addition of Rs.1,14,75,000/-being bad in law and in facts is prayed to be deleted.
2. The Ld. CIT(A), NFAC has erred in law and in facts in confirming the action of the Ld. AO in addition of Rs. 1,14,75,000/-u/s. 40(A)(2)(a) of the Act though there is no sale of shares effected during the year under consideration. The addition made of Rs. 1,14,75,000/- is therefore deserved to be deleted.”
3. The brief facts of the case are that the assessee is a company incorporated on 24.03.2014, with the main object of carrying on business of financial services, underwriting, dealing and investing in shares, securities and related financial products. It filed its return of income for the year under consideration on 30.09.2015 declaring total income at Rs. Nil. The return was processed under section 143(1) of the Act and thereafter the case was selected for limited scrutiny. Statutory notices were issued and complied with. During the course of assessment proceedings, it was noticed by the Assessing Officer that the assessee had issued 12,20,000 equity shares of Rs. 10 each aggregating to Rs. 1,22,00,000/- to its associate concern. Simultaneously, the assessee acquired 67,500 unquoted shares of Silsolutia Specchem Pvt. Ltd. at a price of Rs. 180 per share from its associate concern, resulting in a total consideration of Rs. 1,21,50,000/-. The transaction was carried out through book entries without actual movement of cash. The Assessing Officer observed that the face value of the shares acquired was Rs. 10 per share and, therefore, the assessee had paid Rs. 170 per share in excess. According to the Assessing Officer, the assessee, being a newly incorporated company with no independent funds and having entered into a transaction with its associate concern, had made an excessive and unreasonable payment. He further held that the transaction, though shown as investment, was in substance a business transaction.
Accordingly, invoking the provisions of section 40A(2)(a) read with section 40A(2)(b) of the Act, the Assessing Officer treated the excess payment of Rs. 1,14,75,000/- as excessive expenditure and added the same to the income of the assessee.
4. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A). The assessee submitted before the Ld. CIT(A) that the shares were acquired as long-term investments and were reflected as non-current investments in the balance sheet. It was further contended before the Ld. CIT(A) that no part of the said amount had been debited to the Profit and Loss Account and, therefore, there was no question of disallowance under section 40A(2)(a), which applies only to expenditure claimed in computation of income. The assessee also submitted before the Ld. CIT(A) that the Assessing Officer had arbitrarily adopted face value as fair market value without any valuation report or supporting evidence. The Ld. CIT(A), however, did not accept the contentions of the assessee and held that the payment for acquisition of shares constituted expenditure and the provisions of section 40A(2)(a) were applicable. The Ld. CIT(A) also upheld the action of the Assessing Officer in adopting face value as fair market value in absence of any valuation furnished by the assessee. Accordingly, the addition of Rs. 1,14,75,000/- was confirmed.
5. Aggrieved by the order of the Ld. CIT(A), the assessee is now in appeal before the Tribunal.
6. Before us, the Ld. AR reiterated the submissions made before the lower authorities and contended that the very foundation of the addition is legally unsustainable. It was submitted that section 40A(2)(a) operates only in respect of expenditure claimed while computing income under the head “Profits and gains of business or profession”. In the present case, the transaction relates to acquisition of capital assets, which has been duly reflected in the balance sheet as non-current investment and not routed through the Profit and Loss Account. It is also noted that the total expenditure claimed in the Profit and Loss Account during the year is only Rs. 65,732/- and the impugned amount does not form part of such expenditure. The Ld. AR further submitted that the shares continue to be held by the assessee and no sale has taken place during the year. Therefore, no income or loss has arisen from such investment. It was also contended that the Assessing Officer has not brought any material on record to establish the fair market value of the shares and has merely presumed the face value to be the fair value, which is contrary to settled principles. It was thus argued that the addition is based on conjectures and deserves to be deleted.
7. The Ld. DR, on the other hand, supported the orders of the lower authorities and submitted that the assessee had entered into a transaction with its associate concern at an inflated price and failed to justify the same. It was contended that the provisions of section 40A(2)(a) were rightly invoked in the facts of the case.
8. We have considered the rival submissions and perused the material available on record. The core issue for adjudication is whether the provisions of section 40A(2)(a) of the Act can be invoked in the facts of the present case. It is an undisputed position that the assessee has acquired shares of Silsolutia Specchem Pvt. Ltd. which have been reflected in the balance sheet as non-current investments. Merely because the objects of the assessee-company include dealing in shares, it cannot be presumed that every acquisition is in the nature of stock-in-trade, especially when the same has been consistently shown as investment and continues to be held as such. Moreover, the Assessing Officer has adopted the face value of the shares as their fair market value without conducting any valuation exercise or bringing any comparable data on record. Hence, the matter is set aside to the file of the Assessing Officer to pass an order “de novo”
9. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the open Court on 14.05.2026
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