Case Law Details
Vivasvat Retail and IT Services Pvt. Ltd. Vs ITO (ITAT Delhi)
The appeal was filed against the order of the National Faceless Appeal Centre dated 12.06.2025 arising from an assessment order passed under Section 143(3) for Assessment Year 2016–17. The assessee had filed its return declaring NIL income and deemed income under Section 115JB, which was processed under Section 143(1). The case was selected for limited scrutiny under CASS to verify the large share premium received and the applicability of Section 56(2)(viib).
During assessment, the Assessing Officer (AO) noted that although the assessee furnished investor details, share valuation reports, and bank statements, it failed to provide sufficient evidence regarding identity, creditworthiness, and genuineness of transactions. The AO conducted enquiries under Section 68 and treated the entire share capital and premium of Rs. 3,47,47,166 as unexplained credit, adding it to income. The AO further held that once the transaction failed under Section 68, examination under Section 56(2)(viib) was not required.
The assessee’s appeal before the Commissioner (Appeals) was dismissed in limine due to a delay of 246 days. The assessee then appealed before the Tribunal, raising multiple grounds including that the AO exceeded the scope of limited scrutiny by making additions under Section 68 instead of restricting the enquiry to Section 56(2)(viib).
Before the Tribunal, the assessee argued that the AO had no jurisdiction to expand the scope of limited scrutiny without obtaining prior approval from the competent authority. Reliance was placed on a coordinate bench decision where similar action was held invalid. The Departmental Representative supported the orders of lower authorities.
The Tribunal examined the records and observed that the case was specifically selected for limited scrutiny to verify share premium under Section 56(2)(viib). However, the AO made additions under Section 68 without any evidence of having obtained approval to expand the scope of enquiry. Following the precedent cited, the Tribunal held that such expansion without approval rendered the assessment invalid in law.
Accordingly, the Tribunal quashed the assessment order and deleted the addition of Rs. 3,47,47,166 made under Section 68. Since the issue was decided on legal grounds, other grounds raised by the assessee were treated as academic and left open. The appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is against the order of National Faceless Appeal Centre (NFAC) [hereinafter referred to as the ‘Ld. CIT(A)] order dated 12.06.2025 arising out of the assessment order dated 17.12.2018 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘the Act’) by the ITO, Ward 4(5), Gurugram, (hereinafter referred to as the ‘AO’) pertaining to Assessment Year 2016-17.
2. Brief facts of the case: Return declaring Income of NIL and Rs.105,440/- as deemed income under section 115JB was e-filed by the assessee on 15.10.2016 and the same was processed w/s 143(1). The case was selected for limited scrutiny under CASS “to verify the large share premium received during the year and applicability of section 56(2)(viib)” as noted by the AO in the assessment order. Notice u/s 143(2) of the Income Tax Act, 1961 was issued to the assessee company electronically on 27.7.2017. The AO noted that on 06.10.2017, the assessee replied the notice and furnished the names of the investors of its shares who invested in its shares at premium, two valuations of shares as per the provisions of Rule 11UA(c) of the Income Tax Rules, 1962. (First dated 31.10.2015 valued share at Rs.72/- and second valuation dated 10.01.2016 valued at Rs.550/- per share), copy of one bank account statement for the period 01.4.2015 to 31.03.2016 of account Numbers: 12037630000303 and 50200000381222 maintained with HDFC Bank. However, the AO noted that no details with respect to identity. creditworthiness and genuineness of transaction was submitted.
3. Thereafter, the AO made enquiries in term of section 68 of the Act regarding the identity, creditworthiness and the genuineness of the transaction from whom share capital worth Rs. 3,47,47,166/- was received. The AO was not satisfied about the explanation submitted by the assessee, in this regard and made an addition of Rs. 3,47,47,166/- u/s 68 of the Act. On the issue of the application of section 56(2)(viib) by the Act for which the case was selected under CASS for limited scrutiny, the AO stated that the transaction having failed the tests of section 68 of the Act would not necessitate the tests u/s 56(2)(viib) of the Act, and therefore, the share capital (including share premium) of Rs.3,47,47,166/- was added u/s 68 of the Act. In this regard, the relevant discussion in para no. 7 of the assessment order is reproduced as under:
“7. In In view of above discussion the source of share premium remained not only unsatisfactory but also valued at high premium without any cogent basis. Therefore, the whole of the contended share capital (including share premium) of Rs.3,47,47,166/- is treated as bogus transaction and treated as unexplained credit u/s 68 of the income-tax act, 1961 and added to the income of the assessee company. (Addition Rs.3,47,47,166/-)
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On the point of dealing with the share premium in terms of section 56(2)(viib) of the Act, it is noted that the question of dealing with and testing the fair market value of the shares under the Rule 11UA would arise only and only where there is no doubt about the identity, creditworthiness, genuineness and reasonableness/prudence factors of the transaction vis-a-vis section 68 of the Act (The transaction having failed the tests of section 68 of the Act would not necessitate the tests u/s 56(2)(viib) of the Act, and therefore, as already discussed in aforementioned paragraphs, the assessee company the whole of share premium at Rs.3,47,47,166/- is already disallowed u/s 68 of the Act, along with the money received by way of share capital.”
3. Aggrieved with the said order, the assessee filed an appeal before the Ld. CIT(A), who dismissed the appeal of the assessee in limine, on the ground that the appeal of the assessee was filed with a delay of 246 days.
4. Aggrieved with the said order, the assessee is in appeal before us on the following grounds of appeal:
“1. That the appellant denies its liability to be reassessed u/s 144/147 at a total income of Rs. 3,47,47,166/- as against the returned income u’s 115JB of Rs. 1,05,440/- and accordingly denies its liability to pay tax, interest demanded thereon.
2. That in the facts and circumstances of the case, the Ld. AO erred in going beyond the scope limited scrutiny u/s 56(2)(viib) by making an addition u/s 68 of the Income-tax Act, 1961.
3. That in the facts and circumstances of the case, the Ld. AO erred in assuming jurisdiction and making the addition u/s 68, when the case was scrutiny was limited to the scope of section 56(2)(viib).
4. That in the facts and circumstances of the case, the Ld. AO erred in making an addition of Rs 3,47,47,166/-u/s 68 solely on suspicion, surmises and without making any inquiry whatsoever
5. That in the facts and circumstances of the case, the Ld. AO erred in not considering that Rs. 1,74,99,304/- were not amounts credited in the previous year under consideration but were amounts adjusted against the old loans, proving that the additions have been made without any application of mind
6. That in the facts and circumstances of the case, the Ld. AO erred in making an addition u/s 68, more so when it were the promoters themselves who infused funds into the company for business purposes. Hence, the identity, genuineness and creditworthiness were duly justified.
7. That in the facts and circumstances of the case, the Ld. AO erred in making an addition of Rs. 3,47,47,166/-u/s 68 of the Act.
8. That in the facts and circumstances of the case, the Ld. CIT(A) erred in dismissing the appeal on the ground of delay, after it had called for a remand report. 9. That in the facts and circumstances of the case, the Ld. CIT(A) erred in… ignoring the detailed evidences filed and further erred in dismissing the appeal solely on delay, which was also justified, more so when it had called for a remand report.
10. That without prejudice to all of the above, the Assessment is non-est as no valid notice u/s 143(2) had been issued during the course of the proceedings.
11. That having regard to the facts and circumstances of the case, the Ld. AO has erred in law and on facts in charging interest u/s 234B of the Income Tax Act, 1961.
12. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other.”
5. At the outset, the Ld. Counsel submitted that the ground no. 3, that in the facts and circumstances of the case, the Ld. AO erred in assuming jurisdiction and making the addition u/s 68 of the Act, when the case was selected for limited scrutiny under CASS “to verity the large share premium received during the year and applicability of section 56(2)(viib).” In this regard, the assessee relied upon the order of the Coordinate Bench of Tribunal in the case of M/s Krian Cinema Banquets Pvt. Ltd. vs. The ACIT 10(1)(2) in ITA No.- 4860/Mum/2025 and submitted that in similar circumstances, the Tribunal had held the assessment order as invalid order and had quashed the same. Accordingly, the Ld. AR submitted that the assessment framed by the AO in the case of the assessee was bad in law and should be quashed.
6. On the other hand, the Ld. DR supported the orders of the authorities below.
7. We have heard both the parties and perused the material available on record. On perusal of the assessment order, it is seen that the case was selected for limited scrutiny under CASS to verify the large share premium received during the year and applicability of section 56(2)(viib) of the Act, whereas the AO made addition of the share capital (including share premium) amounting to Rs.3,47,47,166/- u/s 68 of the Act. On similar facts, the Mumbai Bench of Tribunal in the case of M/s Krian Cinema Banquets Pvt. Ltd. vs. The ACIT 10(1)(2) (supra), held such an assessment order to be invalid and had quashed the same. The relevant extract of the said order is reproduced as under:
“8. We have heard the rival submissions and perused the documents available on record. During the course of hearing, arguments were advanced on two fronts, namely, on the legal issue as well as on merits. The scrutiny proceedings were initiated solely with respect to the acceptance of share premium and to examine the applicability of section 56(2)(viib) of the Act. The assessee had duly furnished all relevant documents before the Ld. AO as well as before the Ld. CIT(A), which are placed on record in the paper book. Since the investors were NRIs, the assessee submitted all relevant documents, including bank statements and ledger confirmations, before the authorities. The assessee has thus complied with the requirements of section 68 of the Act by establishing the identity of the subscribers, their creditworthiness, and the genuineness of the transactions.
So far as the legal issue is concerned, none of the revenue authorities could place on record any evidence to show that the Ld. AO had obtained the requisite approval from the competent authority for expanding the scope of enquiry from section 56(2) (viib) of the Act to section 68 of the Act. In the absence of such approval, the addition made under section 68 of the Act is legally unsustainable. Accordingly, respectfully following the decisions of the co-ordinate Bench of the ITAT, Delhi Bench, in the cases of Rakesh Arora (supra) and B.K. Sales Corporation (supra), the assessment framed by the Ld. AO is quashed, and the addition of Rs.2,00,01,000/- is deleted.
As the issue has been decided on legal grounds, the remaining grounds raised by the assessee are rendered academic and are left open.”
7.1 In the present case also, none of the revenue authorities could place on record any evidence to show that the AO had obtained the requisite approval from the competent authority for expanding the scope of enquiry from section 56(2) (viib) of the Act to section 68 of the Act. Therefore, facts being identical in the case of the assessee, respectfully following the above order, we quash the impugned assessment order and the addition of Rs. 3,47,47,166/- is deleted. As the issue has been decided on legal grounds, the remaining grounds raised by the assessee are rendered academic and are left open.
8. In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 22nd April 2026.
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