Case Law Details
ACIT Vs Diligent Media Corporation Limited (ITAT Mumbai)
Share Premium Can’t Be Taxed U/s 68 Merely Because AO Finds It Excessive: Mumbai ITAT
The Mumbai ITAT upheld the deletion of a massive addition of ₹112.52 crore made under Section 68 towards share premium received by Diligent Media Corporation Ltd., holding that for AY 2011-12, the Assessing Officer could not invoke Section 68 merely because he believed the share premium charged was excessive or unsupported by the intrinsic value of the shares.
The assessee had issued shares to its holding company, Mediavest India Pvt. Ltd., at a premium based on a valuation report prepared under the Discounted Cash Flow (DCF) method. The Assessing Officer doubted the valuation, questioned the commercial rationale for charging a substantial premium despite the company being loss-making, and treated the entire share premium as unexplained cash credit under Section 68.
The Tribunal noted that there was no dispute regarding the identity of the investor, the movement of funds through banking channels, or the source of funds available with the investor company. The Assessing Officer himself had recorded that the investor had received substantial funds from its holding company and financial institutions. Once the assessee established the identity, genuineness and creditworthiness of the subscriber, the requirements of Section 68 stood satisfied.
Relying heavily on the Bombay High Court decision in SLS Energy Pvt. Ltd. and the Tribunal ruling in Aadhaar Wholesale Trading & Distribution Ltd., the ITAT held that prior to the introduction of Section 56(2)(viib) and the amended provisions relating to taxation of excess share premium, the Assessing Officer had no authority to tax share premium merely because he considered the valuation excessive. Questions relating to valuation and fair market value may be relevant under Section 56(2)(viib), but not for invoking Section 68 in AY 2011-12.
The Tribunal therefore upheld the CIT(A)’s order deleting the addition of ₹112.52 crore, dismissed the Revenue’s appeal, and treated the assessee’s cross-objection challenging the reopening as academic.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These are Revenue’s appeal and the Cross Objection filed by the assessee directed against the order passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi [hereinafter referred to as “CIT(A)”]under section 250 of the Income-tax Act, 1961 [hereinafter referred to as “the Act”] dated 31.03.2025 for Assessment Year 2011-12, arising out of the reassessment order passed by the Additional Commissioner of Income Tax, Circle-6(1)(1), Mumbai [hereinafter referred to as “Assessing Officer”]under section 143(3) read with section 147 of the Act dated 29.12.2017.
Condonation of Delay
2. At the outset, it is noticed that the Revenue’s appeal has been filed with a delay of 09 days and the assessee has filed the Cross Objection with a delay of 73 days. Separate applications supported by affidavits have been filed explaining the respective delays.
3. In support of the application for condonation of delay, the Revenue has filed an affidavit sworn by Smt. Shilpa Khanikar, Assistant Commissioner of Income Tax, Circle-6(1)(1), Mumbai. In the said affidavit, it has been explained that the impugned appellate order passed by the learned CIT(A), NFAC, Delhi dated 31.03.2025 was received by the Department and the limitation for filing the appeal before the Tribunal expired on 31.05.2025. It has been stated that the concerned office resumed functioning after a brief interruption on 15.05.2025 and efforts were immediately undertaken for tracing the assessment records pertaining to Assessment Year 2011-12, which being an old matter was time-barred and had already been transferred to the DTVSV records. It has further been stated that the scrutiny report was prepared and submitted on 28.05.2025 and the requisite authorization memo was received on 03.06.2025. Owing to the aforesaid administrative and procedural circumstances, the appeal could not be filed within the prescribed period and came to be filed with a delay of 09 days. It has been averred that grave prejudice would be caused to the interests of the Revenue if the delay is not condoned, whereas no prejudice would be caused to the assessee if the appeal is admitted and heard on merits.
4. In support of the condonation application relating to Cross Objection filed by the assessee, an affidavit has been sworn by Shri Nagendra Bhandari, Authorised Signatory of the assessee-company. In the said affidavit, it has been stated that the Revenue’s appeal was received by the assessee on 10.10.2025 and the statutory period available for filing the Cross Objection expired on 09.11.2025. It has been explained that while preparing for the hearing of the appeal and after obtaining legal advice in the light of various judicial pronouncements, the assessee was advised to challenge the validity of the reassessment proceedings initiated under section 148 of the Act on certain legal grounds which had not been adjudicated by the learned CIT(A). It is further stated that the assessee has a substantial legal challenge to the validity of the reassessment notice and the consequential reassessment proceedings and that the Cross Objection came to be filed only after obtaining such legal advice. According to the deponent, the delay was occasioned due to bona fide circumstances and was neither deliberate nor intentional. It has also been stated that no prejudice would be caused to the Revenue if the delay is condoned and the Cross Objection is adjudicated on merits.
5. During the course of hearing, the learned Departmental Representative (DR) fairly submitted that the Revenue has no objection to the condonation of delay in filing the assessee’s Cross Objection. Similarly, the learned Authorised Representative (AR) for the assessee submitted that the assessee has no objection to the condonation of delay in filing the Revenue’s appeal. Thus, both the parties have consented to the condonation of the respective delays and have requested that the controversy be decided on merits.
6. We have carefully considered the applications for condonation of delay, the affidavits filed in support thereof and the submissions advanced by the rival parties. The law relating to condonation of delay is fairly well settled. The expression “sufficient cause” occurring in the relevant provisions governing limitation is required to receive a liberal and justice-oriented interpretation so as to advance substantial justice. The Hon’ble Supreme Court in the case of Collector, Land Acquisition v. Mst. Katiji & Ors. (167 ITR 471) has held that a pragmatic and liberal approach should ordinarily be adopted while considering applications for condonation of delay and that substantial justice should prevail over technical considerations. Similar principles have been reiterated by the Hon’ble Supreme Court in N. Balakrishnan v. M. Krishnamurthy [(1998) 7 SCC 123], wherein it was held that length of delay is not decisive and acceptability of the explanation is the primary criterion.
7. Applying the aforesaid principles to the facts of the present case, we find that the Revenue has explained the delay of 09 days by referring to administrative requirements relating to tracing of old records and obtaining statutory authorization. Likewise, the assessee has explained the delay of 73 days in filing the Cross Objection by stating that the legal grounds challenging the validity of reassessment proceedings were raised pursuant to legal advice received while preparing for the hearing of the appeal. The explanations furnished by both sides appear to be bona fide and do not indicate any mala fide intention, deliberate inaction or conscious negligence. Moreover, neither side has disputed the correctness of the explanation offered by the other side.
8. Considering the totality of facts and circumstances, the explanations furnished in the respective affidavits, the relatively short nature of the delay in the Revenue’s appeal, the bona fide explanation offered by the assessee in support of the Cross Objection and particularly the fact that neither party has objected to the condonation of delay sought by the opposite side, we are satisfied that sufficient cause has been shown both for the delay of 09 days in filing the Revenue’s appeal and for the delay of 73 days in filing the assessee’s Cross Objection.
9. Accordingly, in the interest of substantial justice, the delay of 09 days in filing the Revenue’s appeal and the delay of 73 days in filing the assessee’s Cross Objection are condoned. The appeal filed by the Revenue as well as the Cross Objection filed by the assessee are admitted for adjudication on merits.
Facts of the Case
10. The brief facts of the case are that the assessee company is engaged in the business of publishing and printing of newspapers. The assessee filed its return of income on 28.09.2011 declaring loss of Rs. 1,12,09,54,399/-. The original assessment was completed under section 143(3) of the Act on 16.03.2014 determining the loss at Rs. 1,12,08,90,111/-.
11. Subsequently, on examination of the balance sheet, the Assessing Officer observed that the assessee had disclosed receipt of share premium aggregating to Rs. 5,80,22,18,142/- as on 31.03.2011. According to the Assessing Officer, the cumulative balance of share premium as on 31.03.2010 stood at Rs. 4,67,70,00,000/- and during the year under consideration the assessee had received additional share premium of Rs. 1,12,52,18,142/-. The Assessing Officer formed a prima facie view that the issue relating to charging of share premium over and above the intrinsic value of shares had not been examined in the original scrutiny assessment. Accordingly, after recording reasons and obtaining sanction under section 151(2) of the Act, notice under section 148 dated 31.03.2016 was issued and reassessment proceedings were initiated.
12. The Assessing Officer noted that prior to reopening, notice under section 133(6) dated 29.03.2016 had been issued calling upon the assessee to justify the share premium received. Upon examination of the details furnished, the Assessing Officer observed that the assessee was continuously incurring losses and that the intrinsic value of its shares was negative. According to him, the valuation adopted by the assessee under the Discounted Cash Flow (DCF) method was not supported by the actual financial position of the company and was in sharp contrast with the value that would emerge under the Net Asset Value (NAV) method.
13. During the reassessment proceedings, the assessee submitted that during the relevant year it had issued 1,66,77,533 equity shares of face value of Rs.10/- each at a premium of Rs.67.4691 per share to its holding company, M/s. Mediavest India Private Limited. The assessee furnished the valuation report determining the issue price at Rs.77.46 per share and contended that the valuation had been carried out by an independent Chartered Accountant in accordance with the DCF method. The assessee also furnished copies of income-tax returns, audited financial statements, assessment orders, confirmations, bank statements, Form No.2 filed before the Registrar of Companies, board resolutions and other supporting documents relating to the shareholder company. It was further contended that complete details establishing the identity, genuineness and creditworthiness of the investor had been furnished. The assessee also furnished details relating to M/s. Prajatma Trading Co. Pvt. Ltd., which had funded the holding company, to establish the source of source. The assessee further contended that the proviso to section 68 introduced by the Finance Act, 2012 was applicable only from Assessment Year 2013-14 and therefore could not be invoked for the year under consideration.
14. The Assessing Officer, however, was not convinced with the explanation furnished. According to him, the assessee failed to establish the true nature and genuineness of the transaction. He observed that the assessee had not furnished adequate evidence to establish the identity, capacity and creditworthiness of the investor and that mere movement of funds through banking channels did not establish the commercial justification for payment of huge share premium. The Assessing Officer further examined the financial statements of M/s. Mediavest India Pvt. Ltd. and observed that the said company itself had nominal share capital, no reserves and surplus and had obtained substantial funds from its holding company and financial institutions. According to him, the investor company did not possess sufficient own funds to justify investment at such substantial premium.
15. The Assessing Officer further held that the DCF valuation adopted by the assessee was not genuine and was based on figures having no correlation with the actual affairs of the assessee. According to him, the valuation was founded upon unrealistic projections and lacked commercial rationale. He further concluded that the transaction of issue of shares at a huge premium was a make-believe arrangement designed to confer illegitimate tax benefits. Relying upon the decisions of the Hon’ble Supreme Court in McDowell & Co. Ltd. v. CTO (154 ITR 148), CIT v. Durga Prasad More (82 ITR 540) and Sumati Dayal v. CIT (214 ITR 801), the Assessing Officer held that the transaction lacked genuineness and failed the test of human probabilities.
16. Consequently, the Assessing Officer treated the amount of Rs. 1,12,52,18,142/- received during the year towards share premium as unexplained cash credit under section 68 of the Act and added the same to the income of the assessee. Accordingly, against the assessed loss of Rs. 1,12,08,90,111/-, the total income was determined at Rs. 1,12,52,18,140/- vide order passed under section 143(3) read with section 147 of the Act dated 29.12.2017.
17. Aggrieved by the reassessment order, the assessee preferred appeal before the learned CIT(A). Before the first appellate authority, the assessee challenged both the validity of reopening as well as the addition made under section 68 of the Act. The assessee contended that the issue of share capital and share premium had already been examined during the original assessment proceedings and therefore the reopening amounted to a mere change of opinion. It was further contended that all details regarding the share premium transaction had been furnished before the Assessing Officer including valuation report, income-tax returns, assessment orders, financial statements, confirmations, bank statements and source of source details. The assessee reiterated that the investor company was its holding company and that the identity, genuineness and creditworthiness stood fully established.
18. The assessee further submitted that the DCF method was a statutorily recognised method of valuation and that valuation based on future projections could not be rejected merely because actual results in subsequent years differed from the projections. Reliance was also placed upon the judgment of the Hon’ble Bombay High Court in the case of Gagandeep Infrastructure Pvt. Ltd.(ITA No.1613 OF 2014) to contend that the proviso inserted in section 68 with effect from Assessment Year 2013-14 could not be retrospectively applied to the year under consideration.
19. The learned CIT(A) examined the documentary evidence furnished by the assessee in support of the share premium received from its holding company, M/s. Mediavest India Pvt. Ltd. Upon consideration of the confirmations, PAN details, financial statements, bank statements and valuation report placed on record, the CIT(A) concluded that the assessee had successfully discharged the burden cast upon it under section 68 by establishing the identity of the subscriber, its creditworthiness and the genuineness of the transaction. The CIT(A) observed that the share premium was supported by a valuation report and represented a capital receipt forming part of the shareholders’ funds and, therefore, could not be treated as income of the assessee.
20. The CIT(A) further held that the Assessing Officer had failed to appreciate that the first proviso to section 68 was inserted by the Finance Act, 2012 with effect from 01.04.2013 and was not applicable to Assessment Year 2011-12. Relying upon the judgment of the Hon’ble Bombay High Court in CIT v. Gagandeep Infrastructure Pvt. Ltd.(supra), the CIT(A) accepted the assessee’s contention that the amended provisions could not be invoked for the year under consideration.
21. The CIT(A) also took note of the appellate order passed in the assessee’s own case for Assessment Year 2012-13 on an identical issue and followed the same. Accordingly, the CIT(A) held that the addition of Rs. 1,12,52,18,142/- made by the Assessing Officer under section 68 was unsustainable in law and on facts. The addition was therefore deleted and the assessee’s appeal was allowed.
22. As regards the challenge to reopening, although extensive submissions of the assessee on the validity of reassessment proceedings were reproduced in the appellate order, the operative findings and relief granted by the CIT(A) were founded on the merits of the addition under section 68. The CIT(A) did not pass any separate operative order annulling the reassessment proceedings, but proceeded to adjudicate the issue on merits and granted relief by deleting the addition. Consequently, the appeal was allowed on merits.
23. Aggrieved by the order of CIT(A), the Revenue is in appeal before us raising following grounds of appeal:
1. On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 112,52,18,142/- u/s 68 of the Act, on account of unexplained Share Premium.
2. On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 112,52,18,142/- being the amount received on account of Share Premium, without appreciating the fact that assessee, as recorded in the assessment order was unable to prove before the A.O. that the transaction in its books were true, genuine and justified.
24. The assessee has filed the Cross Objection with following grounds:
1. On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the reassessment order passed by the Additional Commissioner of Income-tax -6(1)(1) (herein referred to as ‘Assessing officer’ or ‘AO’) under Section 147 read with Section 143(3) of the Income-tax Act, 1961 (‘the Act’) dated 29.12.2017 which is untenable and contrary to the facts of the case, and therefore, liable to be quashed.
2. On facts and circumstances of the case and in law, the reassessment proceedings are without jurisdiction and void ab initio, in the absence of ‘reason to believe’ as mandated under section 147 of the Act.
3. On the facts and circumstances of the case and in law, the reassessment order passed by the learned Assessing Officer is bad in law, as it is arbitrary and has been passed by deviating from the original reasons recorded for reopening the assessment.
4. On the facts and circumstances of the case and in law, the reassessment proceedings, being based on facts already on record, amount to a mere change of opinion and therefore bad in law.
5. The respondent craves leave to add to, alter, amend and/or delete all or any of the above grounds of appeal.
25. During the course of hearing, the learned DR invited our attention to the findings recorded by the Assessing Officer in para nos. 4.6, 4.7 and 4.13 of the assessment order and strongly relied upon the reasoning contained therein.
26. The learned DR submitted that the Assessing Officer had specifically examined the financial position of the investor company, namely M/s. Mediavest India Pvt. Ltd. It was pointed out that the paid-up share capital of the said company was merely Rs. 1,00,000/- and that it did not possess any reserves and surplus of its own. The Assessing Officer had further noticed that M/s. Mediavest India Pvt. Ltd. had received share application money amounting to Rs. 5,20,76,00,000/- from its holding company and had also availed secured loans of Rs. 90,00,00,000/- from financial institutions. Referring to these facts, the learned DR submitted that the Assessing Officer had rightly concluded that the investor company did not possess sufficient independent financial strength to justify investment in the assessee company at such a substantial premium and that the assessee had failed to satisfactorily establish the creditworthiness of the investor.
27. The learned DR further submitted that the Assessing Officer had examined the valuation report furnished by the assessee and had found that the valuation was based on assumptions and projections which had no correlation with the actual state of affairs of the assessee company. Drawing support from para 4.7 of the assessment order, the learned DR contended that the Assessing Officer had rightly observed that the assessee had failed to furnish adequate evidence to establish the commercial justification for charging such a huge premium despite being a loss-making company. According to the learned DR, the Assessing Officer was justified in holding that the assessee had failed to discharge the burden cast upon it under section 68 of the Act.
28. Referring thereafter to para 4.13 of the assessment order, the learned DR submitted that the Assessing Officer had analysed the transaction by applying the test of surrounding circumstances and human probabilities. It was contended that the Assessing Officer had rightly observed that the valuation adopted by the assessee was not genuine and was founded on figures which had no nexus with the actual affairs of the company. The Assessing Officer had further recorded that the transaction lacked commercial rationale and that the assessee had failed to explain what efforts, if any, were undertaken to identify or attract investors willing to subscribe to shares at such a substantial premium. The learned DR submitted that the Assessing Officer was therefore justified in concluding that the transaction was merely an arranged transaction lacking economic substance.
29. The learned DR further invited our attention to para 4.14 of the assessment order and submitted that the Assessing Officer had specifically dealt with the valuation report prepared under the Discounted Cash Flow (DCF) method. According to the learned DR, the Assessing Officer had recorded a categorical finding that the valuation report was not based on realistic projections and that the actual financial performance of the assessee was completely at variance with the projections adopted in the valuation exercise. It was submitted that the DCF valuation was merely a device employed to justify the excessive premium charged on the shares and that the projections underlying the valuation had no reasonable basis. The learned DR therefore contended that the Assessing Officer was justified in rejecting the DCF valuation and holding that the valuation exercise lacked credibility and genuineness. According to him, once the very foundation of the valuation report stood discredited, the justification for charging premium of Rs. 67.4691 per share automatically collapsed and the assessee failed to establish the genuineness of the transaction.
30. The learned DR accordingly submitted that the Assessing Officer had rightly invoked the principles laid down by the Hon’ble Supreme Court in the cases of McDowell & Co. Ltd. v. CTO, CIT v. Durga Prasad More and Sumati Dayal v. CIT and held that the receipt of share premium amounting to Rs. 1,12,52,18,142/- represented unexplained cash credit under section 68 of the Act. It was therefore contended that the learned CIT(A) was not justified in deleting the addition and the order of the Assessing Officer deserved to be restored.
31. The learned DR further invited our attention to para nos. 12 to 15 of the order of the learned CIT(A) and submitted that the first appellate authority has not properly adjudicated the issue in accordance with law. It was contended that though the Assessing Officer had raised serious doubts regarding the genuineness of the transaction, the creditworthiness of the investor and the justification for charging substantial share premium, the learned CIT(A) had deleted the addition without recording detailed findings on the evidences produced by the assessee and without dealing with the specific deficiencies pointed out by the Assessing Officer. The learned DR submitted that the learned CIT(A) merely accepted the contentions of the assessee regarding identity, genuineness and creditworthiness without undertaking any independent examination of the material available on record. According to the learned DR, there is no proper discussion in the appellate order as to how the requirements of section 68 stood satisfied in the facts of the present case. It was therefore submitted that the order of the learned CIT(A) lacks proper reasoning and does not constitute a speaking order on the issues arising for consideration.
32. The learned DR further invited our attention to the decision of the Co-ordinate Bench of in the assessee’s own case for Assessment Year 2012-13 in ITA No. 4314/Mum/2017 dated 03.06.2021. The learned DR submitted that on identical facts involving addition under section 68 in respect of share premium received from the same shareholder, the Co-ordinate Bench had found that the learned CIT(A) had passed a very short and laconic order and consequently restored the matter to the file of the learned CIT(A) for fresh adjudication by passing a proper speaking order after granting adequate opportunity to the assessee. The learned DR therefore submitted that, following the decision of the Co-ordinate Bench in the assessee’s own case for Assessment Year 2012-13, the present matter may also be restored to the file of the learned CIT(A) for a fresh examination of the entire issue relating to reopening as well as the addition made under section 68. According to the learned DR, such a course would enable proper appreciation of the facts, examination of the evidences and adjudication of the issues by a reasoned and speaking order in accordance with law.
33. Per contra, the learned Authorised Representative strongly supported the order passed by the learned CIT(A) and submitted that the entire addition has been made by the Assessing Officer under section 68 of the Act by questioning the valuation of shares and the justification of the share premium. According to the learned AR, such an approach is wholly alien to the scheme of section 68. It was submitted that the scope of enquiry under section 68 is confined to examining the identity of the creditor, the genuineness of the transaction and the creditworthiness of the creditor. Once these three ingredients are established, no addition can be sustained under section 68 merely because the Assessing Officer is of the view that the premium charged on the shares is excessive.
34. Inviting our attention to para 4.6 of the assessment order, the learned AR submitted that the Assessing Officer himself has recorded that M/s. Mediavest India Pvt. Ltd. had received substantial funds from its holding company. It was therefore contended that the source of the funds invested in the assessee company stood duly explained and, in fact, the Assessing Officer has himself acknowledged the source from which the investor company derived the funds. According to the learned AR, once the source of funds in the hands of the investor company has been identified and accepted by the Assessing Officer, no adverse inference could thereafter be drawn regarding the creditworthiness of the investor.
35. The learned AR further invited our attention to the balance sheet of M/s. Mediavest India Pvt. Ltd. as on 31.03.2011 placed at page no. 104 of the paper book. Referring to the said financial statements, the learned AR submitted that the investor company had raised secured loans aggregating to Rs. 90 crore from financial institutions. It was contended that the very fact that reputed financial institutions had sanctioned and disbursed substantial loans to the investor company clearly demonstrated its financial standing and creditworthiness. According to the learned AR, financial institutions undertake extensive due diligence before sanctioning loans of such magnitude and therefore the Assessing Officer was not justified in doubting the creditworthiness of the investor company in the absence of any contrary material.
36. The learned AR further submitted that the Assessing Officer has proceeded on an entirely erroneous premise by treating the valuation of shares as relevant for the purposes of section 68. It was contended that valuation of shares and determination of fair market value are matters which fall within the scope of section 56(2)(viib) of the Act and not section 68. The learned AR submitted that section 56(2)(viib) was introduced by the Finance Act, 2012 with effect from 01.04.2013 and therefore has no application to the assessment year under consideration. It was argued that for the year under appeal there was no statutory provision empowering the Assessing Officer to question the commercial wisdom of the parties in agreeing upon a particular share valuation or share premium once the source of funds stood explained.
37. In support of the aforesaid proposition, the learned AR placed reliance upon the judgment of the Hon’ble Bombay High Court in the case of SLS Energy (P.) Ltd. v. ITO [154 taxmann.com400], wherein it has been held that receipt of share capital and share premium is a capital receipt and where the identity of the subscriber and the factum of the transaction are not in dispute, reopening or addition merely on the ground that the premium charged is excessive or does not correspond with the intrinsic value of the shares is not permissible. The learned AR submitted that the Hon’ble High Court has specifically observed that prior to the insertion of section 56(2)(viib) and the corresponding amendments, share premium could not be brought to tax merely because the Assessing Officer considered the valuation excessive.
38. Reliance was also placed on the decision of the Co-ordinate Bench in the case of ACIT v. Aadhaar Wholesale Trading and Distribution Ltd.[167 com526], wherein it has been held that once the identity and creditworthiness of the investors and the genuineness of the transaction are established, an addition under section 68 cannot be sustained merely because the Assessing Officer considers the share premium to be excessive. The Tribunal further held that valuation of shares is essentially a commercial decision between the investor and the investee company and questioning such valuation falls outside the ambit of section 68.
39. The learned AR further submitted that the reliance placed by the learned DR on the order of the Co-ordinate Bench in the assessee’s own case for Assessment Year 2012-13 is misconceived. Inviting our attention to para 7 of the order of the Tribunal dated 03.06.2021, the learned AR submitted that the matter was restored to the file of the learned CIT(A) only because the Co-ordinate Bench found that the then appellate order did not contain any finding as to whether the details called for by the Assessing Officer had actually been furnished and whether the ingredients of section 68, including creditworthiness, stood established. The Tribunal specifically noted that the learned CIT(A) had summarily accepted the assessee’s submissions without recording independent findings on those aspects.
40. The learned AR submitted that the defect noticed by the Co-ordinate Bench in Assessment Year 2012-13 does not survive in the year under consideration. Referring to para 14 of the impugned appellate order, the learned AR pointed out that the learned CIT(A) has independently examined the material placed on record and has categorically recorded a finding that the assessee has established the identity, capacity and creditworthiness of the subscriber as well as the genuineness of the transaction. The learned CIT(A) has further recorded that the assessee furnished confirmations, PAN details and bank statements of the subscriber and that the premium was supported by a valuation report. Therefore, according to the learned AR, the precise deficiency which had weighed with the Tribunal while restoring the matter in Assessment Year 2012-13 stands cured in the present year.
41. The learned AR accordingly submitted that the impugned order of the learned CIT(A) is a detailed and reasoned order containing specific findings on all the three ingredients contemplated under section 68. It was therefore contended that no purpose would be served by restoring the matter once again to the file of the learned CIT(A) and that the order deleting the addition deserves to be upheld.
42. We have heard the rival submissions, perused the orders of the lower authorities and carefully considered the material placed before us. We have also examined the judicial precedents relied upon by both sides.
43. The short controversy before us is whether the share premium of Rs. 1,12,52,18,142/- received by the assessee from its holding company, M/s. Mediavest India Pvt. Ltd., could be brought to tax under section 68 of the Act merely because the Assessing Officer was of the view that the premium charged was excessive and not commensurate with the intrinsic value of the shares.
44. At the outset, we find that there is no dispute regarding the identity of the subscriber. The subscriber is M/s. Mediavest India Pvt. Ltd., a group company whose existence has never been doubted by the Assessing Officer. We further find that even the source of funds available with the subscriber has been examined by the Assessing Officer in para 4.6 of the assessment order. The Assessing Officer himself records that M/s. Mediavest India Pvt. Ltd. had received substantial share application money from its holding company and had also raised secured loans from financial institutions. Thus, the very material relied upon by the Assessing Officer demonstrates the source of funds available with the investor.
45. We further notice that the Assessing Officer has not disputed the factum of allotment of shares nor the movement of funds through banking channels. The addition has ultimately been made because, according to the Assessing Officer, the assessee was a loss-making company and therefore there was no commercial justification for charging such a high premium. The Assessing Officer has also doubted the valuation report prepared under the DCF method and has concluded that the premium lacked economic rationale.
46. In our considered view, such an approach travels beyond the scope of section 68 as applicable to the year under consideration.
47. The Hon’ble Bombay High Court in SLS Energy (P.) Ltd. v. ITO (supra) has considered an almost identical situation where reassessment proceedings were initiated on the ground that the share premium charged by the assessee was excessive and not supported by intrinsic valuation of shares. The Hon’ble High Court observed as under:
21. It can be seen from the record that while disposing of the objections to the reopening, the A.O. has held asunder:
“7. As far as the argument that receipt of premium on the issue of shares cannot lead one to come to the conclusion that income has escaped assessment is concerned, it is premature, as the assessment proceedings are just initiated and only after the finalization of assessment and after considering the facts of the case whether the share premium received by the assessee was genuine or not and fully explained or not would be decided. If the cash credit shown in assessee’s balance sheet is found unjustified, the AO can treat the same as unexplained cash credit u/s. 68 of the I.T. Act. Therefore, on this ground, the assessee’s plea cannot be acceptable.”
22. It is thus clear that the assessing officer was trying to invoke Section 68 of the Act, which could not have been so invoked in view of the judgment of the Apex Court in CIT v. Lovely Exports (P.) Ltd. [2008] 216CTR 195 (SC) which held as under:
“2. Can the amount of share money be regarded as undisclosed income under section 68 of I.T. Act,1961?. We find no merit in this Special Leave Petition for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the AO, then the Department is free to proceed to reopen their individual assessments in accordance with law. Hence, we find no infirmity with the impugned judgment.”
48. The Hon’ble High Court further observed as under:
27. There is no dispute that in Vodafone India Services (P.) Ltd.’s case (supra) it stands concluded that receipt of share capital including the premium was on capital account and gave rise to no income. The amendments incorporated in the definition of income under section 2(24)(xvi) and Section 56(2)(viib) of the Act were amendments which were to apply only from 01st April, 2013 i.e. assessment year 2013-14. The amendment to Section 68 by incorporation of the first proviso also came into effect by virtue of the Finance Act, 2012 w.e.f.1st April, 2019 and was to apply for the assessment year 2013-14 and onwards, and, therefore, since the amendments were not applicable to the assessment year in question i.e. 2010-11, there would be no basis for the assessing officer’s reason to believe that income had escaped assessment for the said assessment year. From the record it can also be seen that the preference shares allotted to M/s. Pony Infrastructure &Contractors Ltd. (formerly known as M/s. Dynamix Balwas Infrastructure Pvt. Ltd.) was assessed under section 143(3) of the Act and an order of assessment dated 22nd February, 2013 was passed.
49. Further the Hon’ble High Court held:
28. Reassessment proceedings were initiated against the said entity and the appeal allowed vide order dated 11th October, 2018. We therefore agree with the contention of Mr. Shridharan, learned Counsel for the Petitioner that this was not a case where there could be any suspicion with regard to the factum of transaction having taken place between two companies. In any case the assessing officer appears to have not been in doubt regarding the transaction having taken place between the said two companies with regard to allotment of preference shares and receipt of the share premium amount inasmuch as what was sought to be questioned, was not in fact the transaction, but only the receipt of the share premium amount which was said to be excessive and much beyond the intrinsic value of the shares of the Petitioner company.
50. Most significantly, the Hon’ble High Court concluded as under:
29. This can be guessed from the fact that the assessing officer had only flagged the share premium amount of Rs. 6,79,32,00,000/- which according to him was chargeable to tax that had escaped assessment and did not question the amount of Rs. 68 lakhs received by the Petitioner company representing the value of Rs. 68 lakhs shares of the face value of rupee 1 per share. Had the Assessing Officer any real doubts regarding the transaction itself, then there was no justification for him to question only the transaction with regard to the extent of the amount of premium charged for the said shares.
30. We therefore of the opinion that there was neither any basis for the assessing officer for his reason to believe that income had escaped assessment nor was there any tangible material which would have otherwise given jurisdiction to reopen the assessment even when the reopening was sought to be made within a period of four years.
51. The ratio emerging from the aforesaid judgment is that prior to the introduction of section 56(2)(viib) and the amended provisions relating to taxation of excess share premium, the Assessing Officer could not question the premium merely on the basis of perceived inadequacy of intrinsic value once the transaction itself was genuine and the subscriber was identifiable.
52. We further find support from the decision of the Co-ordinate Bench in ACIT v. Aadhaar Wholesale Trading and Distribution Ltd.(supra). The Co-ordinate Bench exhaustively considered the scope of section 68 in the context of share premium and held as under:
“The Assessing Officer can examine the nature and source of credit and once the nature and source has been proved which is not doubted by him and then how addition can be made under section 68 for treating the premium amount as unexplained on the reason that premium amount is not justified. To tax such premium amount on account of valuation more that the fair market value statute has brought section 56(2)(viia)/(viib) from assessment year 2013-14. Thus such an addition cannot be made under section 68.” (para 20)
53. Again, in Para 22, the Co-ordinate Bench observed:
“It is agreed that valuation of shares is a commercial decision between the investors and investees and once both the parties agree on a price of the subject shares, then questioning the same by the Assessing Officer would be beyond the scope of section 68.”
54. The aforesaid observations squarely apply to the facts before us. In the present case also, the Assessing Officer has not brought any material on record to demonstrate that the subscriber company was non-existent, that the funds did not belong to the subscriber, or that the transaction was sham. The entire addition is founded on the Assessing Officer’s perception that the premium charged was excessive and that the DCF projections were unrealistic. Such considerations may perhaps be relevant in a proceeding under section 56(2)(viib), where applicable, but cannot by themselves justify an addition under section 68 for Assessment Year 2011-12.
55. We also find no merit in the contention of the Revenue that the matter should be restored to the file of the learned CIT(A) merely because a similar issue was restored in Assessment Year 2012-13. We have carefully perused the order of the Co-ordinate Bench for Assessment Year 2012-13. The restoration was ordered because the then appellate order did not contain any finding regarding whether the details called for by the Assessing Officer had actually been furnished and whether the ingredients of section 68 stood established. In contrast, in the present year, the learned CIT(A) has recorded a categorical finding that the assessee had established the identity, capacity and creditworthiness of the subscriber as well as the genuineness of the transaction. The learned CIT(A) has further recorded that confirmations, PAN details and bank statements were furnished and examined. Thus, the very deficiency noticed by the Co ordinate Bench in Assessment Year 2012-13 stands addressed in the impugned order. Therefore, the order for Assessment Year 2012-13 does not advance the Revenue’s case.
56. Having regard to the entirety of facts and the legal position discussed above, we find ourselves in agreement with the conclusion reached by the learned CIT(A). The Revenue has failed to demonstrate any infirmity in the finding that the assessee had discharged the onus cast upon it under section 68. Once the identity of the subscriber, the genuineness of the transaction and the creditworthiness of the investor stand established, the addition cannot be sustained merely because the Assessing Officer disagrees with the valuation adopted by the parties.
57. Accordingly, we uphold the order of the learned CIT(A) deleting the addition of Rs. 1,12,52,18,142/- made under section 68 of the Act. The grounds raised by the Revenue are dismissed.
58. Since we have upheld the order of the learned CIT(A) on merits and dismissed the Revenue’s appeal, the Cross Objection filed by the assessee challenging the validity of reassessment proceedings becomes academic for the year under consideration. We therefore refrain from adjudicating the grounds raised in the Cross Objection and keep the same open.
59. In the result, the appeal of the Revenue is dismissed and the Cross Objection filed by the assessee is treated as infructuous with the grounds therein being left open.
Order pronounced in the open court on 09.06.2026.
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