Case Law Details
Sunstone Learning Pvt. Ltd. Vs DCIT (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT), Delhi, allowed the appeal filed by Sunstone Learning Pvt. Ltd. for Assessment Year 2014-15 against the order of the Commissioner of Income Tax (Appeals)-28, New Delhi dated 14.12.2018 passed under Section 143(3) of the Income Tax Act, 1961.
The dispute related to additions made by the Assessing Officer under Section 56(2)(vii)(b) and Section 68 of the Act concerning share premium received by the assessee. The assessee had received total share premium of Rs.4,19,65,494 from two investors, namely M/s Omnia Education Pvt. Ltd. and Rabani Garg, against issuance of 3230 shares having face value of Re.1 per share with a premium of Rs.1299 per share.
To justify the valuation, the assessee furnished a valuation report prepared under the Discounted Cash Flow (DCF) method prescribed under Rule 11UA of the Income Tax Rules. The Assessing Officer, however, observed that the valuation report was based on fake or bogus estimates and held that the fair market value adopted by the assessee was not acceptable. He determined the fair market value of the shares at Rs.16.47 per share and consequently made an addition of Rs.4,14,33,414 under Section 56(2)(vii)(b) on substantive basis.
The Assessing Officer also added Rs.4,14,97,800 as unexplained cash credits under Section 68 on a protective basis. These additions were upheld by the CIT(A).
Before the Tribunal, both parties reiterated their respective positions. The Tribunal examined whether the Assessing Officer had identified any specific defect or violation in the assessee’s DCF valuation report prepared under the prescribed method. The Tribunal noted that the Revenue was unable to point out any specific finding rebutting the valuation report before arriving at the revised fair market value of Rs.16.47 per share.
The Tribunal held that the lower authorities could not summarily determine a different fair market value without specifically rejecting the valuation prepared under the DCF method. In reaching this conclusion, the Tribunal relied upon the decisions in PCIT vs. A.H. Multisoft (P.) Ltd. and PCIT vs. Cinestaan Entertainment Pvt. Ltd., which held that such action is not sustainable in law.
Accordingly, the Tribunal deleted the addition made under Section 56(2)(vii)(b).
The Revenue also attempted to support the protective addition made under Section 68. The Tribunal observed that protective assessments arise only where the Assessing Officer has doubt regarding the person in whose hands a particular income is taxable. Referring to the decision in Lalji Haridas vs. ITO, the Tribunal held that additions under Section 56(2)(vii)(b) and Section 68 could not simultaneously be made on a protective basis in the hands of the same assessee for the same assessment year.
The Tribunal therefore deleted the protective addition under Section 68 as well.
As a result, the appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This assessee’s appeal for assessment year 2014-15, arises against the Commissioner of Income Tax (Appeals)-28 [in short, the “CIT(A)”], New Delhi’s order dated 14.12.2018 passed in case no. 111/17-18, involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).
Heard both the parties. Case file perused.
2. We notice during the course of hearing that the assessee/appellant is aggrieved against both the learned lower authorities’ respective assessment findings dated 23.12.2016 inter alia treating its share premium under section 56(2)(vii)(b) of the Act amounting to Rs.4,14,33,414/- as excessive and unreasonable; and, further treating it as unexplained cash credits u/s 68; on “substantive” as well as “protective” basis, respectively, as upheld in the CIT(A)’s lower appellate discussion.
We advert to the basic relevant facts:
3. There is hardly any dispute between the parties that the assessee claims to have received total share premium of Rs.4,19,65,494/- from the twin investor parties, namely, M/s Omnia Education Pvt. Ltd. and Rabani Garg for 3230 shares having face value of Rs.1 per share and premium thereupon @ 1299 per unit. It had sought to justify the same by filing corresponding supportive valuation report adopting one of the prescribed method i.e. Discount Cash Flow (DCF) under Rule 11UA of the Income Tax Rules. There is further no issue between the parties that what all the learned Assessing Officer appears to have discussed in his findings at page 12 onwards in the assessment order is that the assessee’s foregoing valuation report was based on fake/bogus estimates and the fair market value of its share adopted was not tenable. He thus arrived at a fair market value of the assessee’s shares @ 16.47% per unit, which followed the impugned corresponding proportionate section 56(2)(vii)(b) addition of Rs.4,14,33414/- made herein on “substantive” basis. We further reiterate here that he went on to add the very sum of Rs.4,14,97,800/- as unexplained cash credits on “protective” basis as well. Learned CIT(A) has upheld the same in the assessee’s lower appeal as well.
This is what leaves the assessee aggrieved who has come in appeal before the tribunal.
4. That being the case, both the parties vehemently reiterate their respective stands against and in support of the impugned addition. It is in this factual backdrop that we sought to ascertain as to whether the learned Assessing Officer had found any specific violation in the assessee’s valuation report of its shares prepared under the prescribed “DCF” method. The Revenue could not take us to any such specific finding rebutting the assessee’s valuation repot before determining the above fair market value @ Rs. 16.47 per share (supra) only.
5. Faced with this situation, we are of the considered view that both the learned lower authorities could not have summarily arrived at the impugned fair market value of the assessee’s share without specifically rejecting its valuation prepared under the “DCF” method in light of PCIT Vs. A.H. Multisoft (P.) Ltd. [2025] 175 com 46 (Del) and PCIT v. Cinestaan Entertainment Pvt. Ltd. (2021) 433 ITR 82 (Del) holding that such a course of action is not sustainable in law. We thus delete the impugned section 56(2)(vii)(b) addition made in the assessee’s hands in very terms.
6. The Revenue at this stage further seeks to fortify section 68 “protective” addition representing the assessee’s unexplained cash credits of Rs.4,19,97,800/- as well as the difference of Rs.5,64,386/- (supra) made in both the lower proceedings. We are of the considered view that going by Lalji Haridas Vs. ITO (1961) 43 ITR 387 (SC), such a course of “protective” assessment arises only in an instance wherein the learned Assessing Officer has a doubt in his mind as to in whose hands a particular income is to be taxed and not otherwise. Meaning thereby the very addition under the two heads i.e. u/s 56(2)(vii)(b) and u/s 68, could not have been made “protectively” in the same assessee’s hands in the impugned assessment year itself. This protective addition also stands deleted therefore.
7. This assessee’s appeal is allowed.
Order pronounced in the open court on 24th April, 2026
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