This analysis explores the Income Tax Appellate Tribunal’s decision for ITA No. 267/DEL/2019 involving Prime Comfort Products P. Ltd. and the ACIT, Circle-20(1), New Delhi, concerning share capital and premium under scrutiny.
Prime Comfort Products P. Ltd., located in South Extension, Part-II, New Delhi, faced scrutiny over the receipt of substantial share capital amounting to Rs.3,18,00,000. The primary legal contention revolved around the application of Sections 56(2)(viib) and 68 of the Income Tax Act, 1961.
The case was selected for limited scrutiny focusing on the large share premium received by the company. The Assessing Officer expanded the scrutiny to include Section 68, questioning the genuineness of the share capital received, particularly from Avishkar Marketing (P) Ltd. Despite multiple documents provided by the appellant to substantiate the transactions, the IT department added the amount to the company’s taxable income.
The tribunal reviewed the appellant’s evidence, including bank statements, share allotment documents, and financial statements, which substantiated the transactions’ legitimacy. The decision highlighted the importance of the source of funds in share capital transactions and the need for thorough documentation to avoid unwarranted additions under Section 68.
The tribunal’s decision to delete the addition marks a significant precedent for similar cases, emphasizing the need for clarity in documenting and justifying share premiums and capital. It underscores the scrutiny businesses may face regarding their financial structures and the imperative to maintain transparent and compliant financial practices.
Analysis of ITA No. 267/DEL/2019: Prime Comfort Products P. Ltd. vs. ACIT
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