ACIT Vs Kanchan Markhedkar (ITAT Mumbai)
The Mumbai ITAT upheld deletion of additions exceeding ₹10.57 crore made under section 56(2)(vii)(c), holding that for AYs 2015-16 and 2016-17, the Assessing Officer could not adopt a “look-through” approach by valuing underlying subsidiary companies instead of the shares actually purchased by the assessee.
The Revenue alleged that the assessee and family members had acquired control of companies having huge share premium and assets through intermediary holding companies at nominal value, thereby indirectly acquiring underlying shares far below fair market value. Based on this theory, additions of ₹6.97 crore and ₹3.59 crore were made by valuing the underlying companies under Rule 11UA.
However, the Tribunal held that under the unamended Rule 11UA applicable to the relevant years, valuation of unquoted shares had to be based strictly on the book value of assets of the shares actually purchased, namely the holding companies, and not on fair market value of underlying subsidiaries. The “look-through” valuation mechanism considering underlying assets and investments was introduced only from 01.04.2018 and could not be retrospectively applied.
The ITAT further observed that once the Revenue invoked section 56(2)(vii)(c), it implicitly accepted the genuineness of the transaction and therefore could not simultaneously sustain additions merely on allegations of sham or colourable device without invoking provisions like sections 68 or 69.
Relying on earlier coordinate bench decisions in family members’ cases and the Delhi High Court ruling in PCIT vs. Minda SM Technocast Pvt. Ltd., the Tribunal held that the AO had wrongly applied the amended Rule 11UA retrospectively and deleted the additions in entirety.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These appeals are filed by the Revenue against the separate orders passed by the Commissioner of Income Tax (Appeals), Pune-11 [hereinafter referred to as “the CIT(A)”] under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] for A.Ys. 2015–16 and 2016–17, both dated 08.11.2024, arising out of the assessment orders passed by the Assessing Officer under section 143(3) read with section 153A of the Act dated 31.03.2022.Since the issues involved in both the appeals are identical and arise out of common set of facts, these appeals were heard together and are being disposed of by way of this consolidated order for the sake of convenience and brevity.
