M/s. Sunstone Learning Pvt. Ltd. vs DCIT

PER SATBEER SINGH GODARA, JM

This assessee’s appeal for assessment year 2014-15, arises against the Commissioner of Income Tax (Appeals)-28 [in short, the “CIT(A)”], New Delhi’s order dated 14.12.2018 passed in case no. 111/17-18, involving proceedings under section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’).

Heard both the parties. Case file perused.

We notice during the course of hearing that the assessee/appellant is aggrieved against both the learned lower authorities’ respective assessment findings dated 23.12.2016 inter alia treating its share premium under section 56(2)(vii)(b) of the Act amounting to Rs.4,14,33,414/- as excessive and unreasonable; and, further treating it as unexplained cash credits u/s 68; on “substantive” as well as “protective” basis, respectively, as upheld in the CIT(A)’s lower appellate discussion.

We advert to the basic relevant facts:

There is hardly any dispute between the parties that the assessee claims to have received total share premium of Rs.4,19,65,494/- from the twin investor parties, namely, M/s Omnia Education Pvt. Ltd. and Rabani Garg for 3230 shares having face value of Rs.1 per share and premium thereupon @ 1299 per unit. It had sought to justify the same by filing corresponding supportive valuation report adopting one of the prescribed method i.e. Discount Cash Flow (DCF) under Rule 11UA of the Income Tax Rules. There is further no issue between the parties that what all the learned Assessing Officer appears to have discussed in his findings at page 12 onwards in the assessment order is that the assessee’s foregoing valuation report was based on fake/bogus estimates and the fair market value of its share adopted was not tenable. He thus arrived at a fair market value of the assessee’s shares @ 16.47% per unit, which followed the impugned corresponding proportionate section 56(2)(vii)(b) addition of Rs.4,14,33414/- made herein on “substantive” basis. We further reiterate here that he went on to add the very sum of Rs.4,14,97,800/- as unexplained cash credits on “protective” basis as well. Learned CIT(A) has upheld the same in the assessee’s lower appeal as well.

This is what leaves the assessee aggrieved who has come in appeal before the tribunal.

That being the case, both the parties vehemently reiterate their respective stands against and in support of the impugned addition. It is in this factual backdrop that we sought to ascertain as to whether the learned Assessing Officer had found any specific violation in the assessee’s valuation report of its shares prepared under the prescribed “DCF” method. The Revenue could not take us to any such specific finding rebutting the assessee’s valuation repot before determining the above fair market value @ Rs. 16.47 per share (supra) only.

Faced with this situation, we are of the considered view that both the learned lower authorities could not have summarily arrived at the impugned fair market value of the assessee’s share without specifically rejecting its valuation prepared under the “DCF” method in light of PCIT Vs. A.H. Multisoft (P.) Ltd. [2025] 175 taxmann.com 46 (Del) and PCIT v. Cinestaan Entertainment Pvt. Ltd. (2021) 433 ITR 82 (Del) holding that such a course of action is not sustainable in law. We thus delete the impugned section 56(2)(vii)(b) addition made in the assessee’s hands in very terms.

The Revenue at this stage further seeks to fortify section 68 “protective” addition representing the assessee’s unexplained cash credits of Rs.4,19,97,800/- as well as the difference of Rs.5,64,386/- (supra) made in both the lower proceedings. We are of the considered view that going by Lalji Haridas Vs. ITO (1961) 43 ITR 387 (SC), such a course of “protective” assessment arises only in an instance wherein the learned Assessing Officer has a doubt in his mind as to in whose hands a particular income is to be taxed and not otherwise. Meaning thereby the very addition under the two heads i.e. u/s 56(2)(vii)(b) and u/s 68, could not have been made “protectively” in the same assessee’s hands in the impugned assessment year itself. This protective addition also stands deleted therefore.

This assessee’s appeal is allowed.