Airoplast Private Limited Vs ITO (ITAT Mumbai)
Section 69 Cannot Be Invoked for Recorded Share Investments Merely Due to Premium Mismatch: ITAT Mumbai Deletes ₹2.45 Cr Addition
The Mumbai ITAT (“A” Bench) allowed the appeal of Airoplast Pvt. Ltd. for AY 2015-16 and deleted the addition of ₹2.45 crore made under section 69, holding that the foundational conditions for invoking the deeming provision were not satisfied.
The reassessment was initiated on the premise that the assessee had invested ₹2.45 crore in shares of JKM Holdings Pvt. Ltd. at a lower premium than that allegedly charged by the investee company from other allottees, and that the assessee’s allotment was not reflected in the investee company’s shareholding pattern. On this basis, the AO treated the investment as unexplained under section 69, an approach which was mechanically affirmed by the NFAC in an ex-parte order.
The Tribunal emphatically held that section 69 applies only to investments not recorded in the assessee’s own books and where the assessee fails to explain the nature and source thereof. In the present case, the AO himself noticed the investment from the assessee’s balance sheet; thus, the very jurisdictional gateway of section 69 was not crossed. There was no finding of any off-book investment, unaccounted consideration, or unexplained source of funds.
The ITAT further held that comparison of share premium with other issuances, or alleged deficiencies in the investee company’s records, cannot substitute the statutory requirements of section 69. Pricing differences, in the absence of evidence of on-money or unrecorded consideration, do not render a recorded investment unexplained. Section 69 cannot be converted into a tool for policing commercial pricing or curing perceived lapses in a third party’s corporate records.
The Tribunal also deprecated the AO’s approach of making the addition citing limitation constraints without examining documents such as board resolutions, valuation reports and allotment records, holding that limitation cannot legitimise a deeming addition without satisfaction of jurisdictional facts.
Accordingly, the reassessment addition of ₹2.45 crore was held to be legally unsustainable and was deleted in full. The appeal of the assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The present appeal has been preferred by the assessee against the order dated 11 November 2024 passed by the National Faceless Appeal Centre Delhi for the quantum of reassessment framed under section 147 for Assessment Year 2015 16, whereby an addition of ₹2,45,00,000 has been sustained under section 69 of the Act. The assessee has also challenged the validity of the reopening proceedings and has further assailed the ex parte appellate order.
