The Chennai Bench of Income Tax Appellate Tribunal (ITAT) has upheld the deletion of addition holding that the addition made by the Assessing Officer (AO) towards the share premium under Section 56(2)(viib) of Income Tax Act had already offered to tax by the assessee before the settlement commission.
The appellant, Lunar Finance Pvt Ltd, filed its return of income for the assessment year 2009-10 on 09.11.2018, admitting total income of Rs. 9,130/-. The assessment has been completed and the case had been subsequently, reopened on the basis of reasons, as per which income chargeable to tax had been escaped assessment in terms of provisions of Section 147 of the Income Tax Act. Further, on verification with AST Module new address was found from the latest Income tax returns filed by the assessee and hence the notice u/s. 148 and 143(2) of the Income Tax Act, was also issued on 24.08.2016.
In response to the notice, the assessee replied that notice issued under Section 148 of the Income Tax Act is beyond the due date specified under the Act and thus, requested to drop the proceedings. During the course of assessment proceedings, it was noticed that search was conducted in the group case of RPP Infra Projects Ltd on 26.03.2016 and during the course of search, it was found that Luncar Finance Pvt Ltd appeared to be an investment company without much business activities.
The Assessing Officer, further noted that during the financial year relevant to assessment year 2009-10, the assessee had issued fresh share capital with a huge premium. Since, the assessee could not explain the premium on issue of shares, the Assessing Officer had made addition towards share premium under Section 56(2)(viib) of the Income Tax Act.
R. Mohan Reddy, on behalf of the appellant, revenue submitted that the CIT(A) had erred in deleting addition made by the Assessing Officer towards share premium under Section 56(2)(viib) of the Income Tax Act by admitting additional evidence contrary to Rule 46A of Income Tax Rules, 1962.
S. Sridhar, on behalf of the assessee submitted that the addition made by the Assessing Officer towards share premium under Section 56(2)(viib) of the Income Tax Act had been offered to tax by the assessee group before the Settlement Commission and the Settlement Commission had accepted the income declared by the assessee towards investment with Luncar Finance Pvt Ltd.
The two-member Bench of V. Durga Rao, (Judicial Member) and Manjunatha. G, (Accountant Member) dismissed the appeal filed by the revenue holding that the addition made by the Assessing Officer towards security premium in the hands of the assessee was already subjected to tax in the hands of RPP Infra Projects Ltd, which was evident from the order passed by the Income-tax Settlement Commission. Therefore, further addition towards very same income could not be made in the hands of the assessee.
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