Case Law Details
ITO Vs Quetzal Exim Pvt. Ltd. (ITAT Delhi)
The Income Tax Appellate Tribunal, Delhi allowed the Revenue’s appeal and restored the addition of ₹14.25 crore made under Section 56(2)(viib) of the Income Tax Act, 1961, holding that the order of the Commissioner of Income Tax (Appeals) was unjust and unfair. The assessee company had filed its return for Assessment Year 2016–17 declaring a nominal income. The case was selected for limited scrutiny to verify investments and the source and taxability of share premium received. During assessment proceedings, the Assessing Officer found that the assessee had issued shares at a substantial premium, receiving ₹14.28 crore as share premium and ₹12 lakh as share capital.
The Assessing Officer examined the valuation submitted by the assessee based on the Discounted Cash Flow (DCF) method but found it unsupported by reliable evidence. Despite issuing summons, the concerned parties failed to appear, and irregularities were noted in the valuation assumptions. Consequently, the DCF valuation was rejected, fair market value was determined in accordance with Rule 11UA(2) of the Income Tax Rules, 1962, and an addition of ₹14.25 crore was made under Section 56(2)(viib).
The Commissioner (Appeals) deleted the addition. Aggrieved, the Revenue carried the matter to the Tribunal. During appellate proceedings, none appeared on behalf of the assessee despite multiple notices, many of which were returned unserved. After examining the record, the Tribunal observed that the assessee failed to substantiate the DCF valuation and did not comply with summons during assessment. It held that the Assessing Officer had validly rejected the valuation and correctly determined the fair market value. The Tribunal concluded that the order of the Commissioner (Appeals) was neither just nor reasonable and therefore set it aside, restoring the addition. As a result, the Revenue’s appeal was allowed.
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Addition Restored for Unsubstantiated DCF Valuation of Share Premium
The ITAT held that unsupported DCF valuation could not justify high share premium. The addition under Section 56(2)(viib) was restored after setting aside the appellate relief.
CIT(A) Order Set Aside for Deleting Share Premium Addition
The Tribunal ruled that deletion of the addition was unjust where valuation defects remained unexplained. Fair market value determined by the Assessing Officer was upheld.
Failure to Justify Share Valuation Leads to Revival of ₹14.25 Cr Addition
The ITAT found that the assessee failed to substantiate its DCF valuation and ignored summons. The share premium addition under Section 56(2)(viib) was therefore reinstated.
ITAT Upholds AO’s Rejection of DCF Method in Share Premium Case
The Tribunal agreed with the Assessing Officer that the DCF valuation was unreliable. The appellate relief was reversed and the addition restored.
Unexplained Share Premium Taxed After Appellate Relief Overturned
The ruling confirms that unverified share premium in excess of fair market value attracts Section 56(2)(viib). The Tribunal restored the addition after finding the appellate order unfair.
FULL TEXT OF THE ORDER OF ITAT DELHI
The appeal filed by the Department of Revenue is against order dated 08.11.2019 of Learned Commissioner of Income Tax (Appeals)-7, Delhi (hereinafter referred to as “Ld. CIT(A)”) under Section 250(6) of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) arising out of assessment order dated 28.12.2018 of the Learned Assessing Officer/Income Tax Officer, Ward 20(3), New Delhi ((hereinafter referred to as “Ld. AO”) under Section 143 (3) of the Act for AY 2016-17.
2. Brief facts of the case are that assessee company filed its return of income on 17.10.2016 declaring total income of Rs.90,780/-. The case was selected for under limited scrutiny through CASS for verification of investment and also for verification of funds received in the form of share premium are from disclosed sources and have correctly been offered for tax. Notice under Section 143(2) of the Act was issued electronically on 05.07.2017. Notice under Section 142(1) of the Act were issued. Assessee filed electronically responses to the notices. On completion of proceedings, Ld. AO vide order dated 28.12.2018, assessed income of Rs. 14,26,38,780/- and made addition of Rs.14,25,48,000/- under Section 56(viib) of the Act.
3. Against order dated 28.12.2018 of Ld. AO, the assessee filed appeal before Ld. CIT(A) which was allowed vide order dated 08.11.2019.
4. Being aggrieved, the Appellant/Department of Revenue, preferred present appeal with following grounds:
“1. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 56(2) of the Income Tax Act, 1961 of Rs.14,25,48,000/- on account of share allotment in excess of fair market value as determined under Rule 11UA(2) of the Income Tax Rules, 1962.”
5. Learned Departmental Representative submitted that Ld. CIT(A) erred in deleting addition of Rs.14,25,48,000/- under Section under Section 56(2) of the Income Tax Act, 1961 of Rs.14,25,48,000/- on account of share allotment in excess of fair market value as determined under Rule 11UA(2) of the Income Tax Rules, 1962. Ld. AO for valid reasons had made the addition.
6. None appeared on behalf of assessee on 14.07.2022, 06.10.2022, 13.12.2022, 06.03.2023 , 18.07.2023, 03.10.2023, 14.12.2023, 07.03.2024, 20.05.2024, 20.09.2024 and 24.12.2024. Notices sent to the assessee were returned unserved.
7. From examination of record in light of aforesaid rival contentions, it is crystal clear that the assessee company received shares premium of Rs.14,28,00,000/- and share capital of Rs.12,00,000/-. Copies of agreement were filed by the assessee. Ld. AO summoned the parties but they failed to appear. On basis of irregularities found, DCF method submitted by the Department, assessee remained unsubstantiated and was rejected. Fair market value of the shares was assessed and addition of Rs.14,26,48,000/- was made. Therefore, order of Ld. CIT(A) being not just, fair, reasonable and legal is set aside. Accordingly, ground of appeal is accepted.
8. In the result, the appeal filed by the Department of Revenue is allowed.
Order pronounced in the open court on 20th January, 2026.
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