M/s Jarul Glasswork Pvt. Ltd., located in Ballabgarh, Haryana, appealed against the order passed by the Commissioner of Income Tax (Appeals), Faridabad, which upheld the Assessing Officer’s decision to disallow Rs. 96,00,000 under Section 68 of the Income Tax Act, 1961. The addition was made on account of unexplained share premium and share capital, and the appellant also contested the enhancement of income under Section 56(2)(viib) of the Act.
Grounds of Appeal
The CIT(A) erred in confirming the addition of Rs. 96,00,000 under Section 68, despite the appellant providing documentary evidence to establish the identity, creditworthiness of the investors, and the genuineness of the transactions.
The CIT(A) further erred in enhancing the income by Rs. 64,00,000 under Section 56(2)(viib) on a protective basis, rejecting the valuation report furnished under Rule 11UA(2)(b) of the Income Tax Rules, 1962.
The enhancement of income was done without issuing a valid show cause notice as mandated under Section 250(2) of the Act.
The scope of assessment was restricted to verifying whether the funds received in the form of share premium were from disclosed sources, thus limiting the CIT(A)’s authority to scrutinize only the source of share premium.
The initiation of penalty proceedings under Section 271(1)(c) was erroneous.
Arguments Presented
The appellant’s counsel argued multiple points:
The addition under Section 68 was incorrect as the subscription money for four out of five entities was received in earlier years. Only M/s Raysonic Infracon Pvt. Ltd. provided subscription during the financial year 2015-16.
All necessary documents, including income tax returns, audit reports, balance sheets, bank statements, and confirmations from the investors, were uploaded on the ITBA Portal.
The enhancement proceedings initiated by the CIT(A) under Section 251(1)(a) were without proper notice, violating Section 251(2) of the Act.
The CIT(A) invoked Section 56(2)(viib) alongside Section 68 on a protective basis, which is not permissible in law.
Tribunal Findings
The Tribunal noted the following:
The CIT(A) initiated enhancement proceedings without issuing a show cause notice, making the proceedings null and void.
The enhancement cannot be done on a protective basis and must have definite findings.
The Assessing Officer should verify the appellant’s claim that the share subscription money from four entities was received in earlier years, making Section 68 inapplicable for these entities.
The Assessing Officer should reassess the documentary evidence provided by the appellant for all five entities, including M/s Raysonic Infracon Pvt. Ltd.
Conclusion
The Tribunal set aside the CIT(A)’s enhancement action and remitted the matter back to the Assessing Officer for fresh assessment in accordance with the law.
Final Judgment
“In the light of the above delineations, the matter is set aside and restored to the file of the Assessing Officer for framing the assessment afresh in accordance with law. The appeal of the assessee is allowed for statistical purposes.”
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