No penalty on addition owing to variation in perception of valuer and that of AO

Identity Wellness Centre Pvt. Ltd. Vs DCIT (ITAT Delhi)

Introduction: The recent decision by the Income Tax Appellate Tribunal (ITAT) Delhi in the case of Identity Wellness Centre Pvt. Ltd. vs. DCIT has significant implications. The tribunal deleted the penalty under section 271(1)(c) of the Income Tax Act, 1961, related to the assessment year 2015-16. This article provides a comprehensive analysis of the case, highlighting the grounds for the penalty cancellation.

Detailed Analysis: The appeal filed by Identity Wellness Centre Pvt. Ltd. challenges the imposition of a penalty amounting to Rs.28,43,574 under section 271(1)(c) of the Income Tax Act for the assessment year 2015-16. The penalty was related to the disputed ‘fair market value’ of share premium received on share subscription.

During the assessment, the Assessing Officer (AO) contested the fair market value of share premium, relying on section 56(2)(viib) of the Act. The company, however, asserted that the fair market value had been determined under Rule 11UA of the Income Tax Rules, 1962, and was supported by a valuation report. The AO, despite the valuation report, alleged concealment of income and imposed the penalty.

Upon review, the ITAT Delhi found little justification for the penalty imposition. The AO had displaced the fair market value supported by a valuation report, creating a debatable issue. The variation in perception between the valuer and the AO did not automatically imply concealment.

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