Disallowance u/s 56(2)(viib) Invalid Despite Evidence of Creditworthiness: ITAT upholds CIT(A) Order [Read Order]

The Delhi Bench of Income Tax Appellate Tribunal(ITAT) upheld the Commissioner of Incomme Tax(Appeals)[CIT(A)]'s order, stating that the disallowance under Section 56(2)(viib) of Income Tax Act,1961 was invalid despite evidence of creditworthiness.

The Revenue-appellant, appealed against the order passed by the CIT(A) dated 01.08.2024.In this case,Anglian Infrastructure Development Private Ltd,respondent-assessee,filed its return of income for the Assessment Year 2017–18 on 25.10.2017, declaring NIL income, and also filed a revised return on the same date with higher TDS credit but still NIL income. The case was picked for limited scrutiny to examine share premium and investment in immovable property.

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During assessment, the AO made three additions, including taxing interest income of ₹94,78,739 under ‘Income from Other Sources’ on the ground that the company was not engaged in any lending activity. The AO also added ₹52,00,000 as unexplained share premium, as the company failed to provide KYC and bank details of the foreign investor, and disallowed preliminary expenses of ₹72,59,610 for lack of justification under Section 35D.

The CIT(A) deleted all three additions, which led the department to file an appeal, arguing that the CIT(A) had not properly examined the facts and had accepted the company’s claims without adequate evidence.

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The two member bench comprising Anubhav Sharma(Judicial Member) and Naveen Chandra(Accountant Member) addressed the disallowance of share premium received on shares issued. The AO had added Rs. 52,00,000/- as share premium, deeming it excessive, as the identity, genuineness, and creditworthiness of the investor were not proven. However, before the CIT(A), it was shown that M/s Bluwat AG Switzerland was an existing shareholder as of 31.03.2016, making the share allotment valid.

The CIT(A) found that the same premium had been received from this shareholder in the preceding year, and the share value of Rs. 12 per share was determined using the DCF method, which the AO did not dispute.

Given these facts, the ITAT concluded that the disallowance of Rs. 52,00,000/- under section 56(2)(viib) was not justified, and upheld the CIT(A)’s decision to delete the disallowance.

In short,the appeal filed by the revenue was dismissed.

To Read the full text of the Order CLICK HERE

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