Income Tax Addition made towards Unsubstantiated Share Capital is eligible for Deduction u/s 80-IC of Income Tax Act: Delhi HC [Read Order]

In a significant ruling the Delhi High Court observed that the income tax addition made towards unsubstantiated share capital is eligible for deduction under Section 80-IC of the Income Tax Act, 1961.

he petitioner-assessee impugned the order passed by the Income Tax Settlement Commission with the challenge being restricted to the additions made with respect to the infusion of share capital by M/s Amit Goods and Supplier Private Ltd. and the denial of benefit of deductions under Section 80IC of the Income Tax Act, 1961 on the income of INR 24.99 crores. The Principal Commissioner of Income Tax has also assailed the aforesaid order of the ITSC and to the extent that relief was accorded to the assessee, including grant of immunity from prosecution.

In the report which was submitted pursuant to the provisions contained in Section 245D(3), the PCIT took the stand that the introduction of share capital amounting to INR 34,66,56,950/- could not be verified and that there were grave doubts with respect to the genuinity of the aforesaid transactions. The report also doubted the claim for deductions under Section 80 IC of the Income Tax Act.

A Division Bench of Justices Yashwant Varma ad Purushaindra Kumar Kaurav observed that “We are therefore of the considered opinion that the surrendered income would not fall within the ambit of Section 115 BBE since the said provision did not even exist for the AYs in question. Section 115 BBE came to be inserted by virtue of Finance Act, 2012 with effect from 01 April 2013. As Mr. Ganesh rightly points out, since the aforesaid provision did not even exist at the relevant point in time, the same could not have been invoked by the ITSC.”

“Consequently, we refuse to grant the reliefs as sought by the respondents-Department to set aside the ITSC’s impugned order insofar as it granted immunity from penalty and prosecution to the petitioner-assessee or for that matter its decision to allow the claim of the petitioner-assessee relating to infusion in share capital from M/s Balaji Enterprises, M/s Sai Enterprises and M/s Molu Ram Pramanand and allowing the claim of deductions under Section 80IC of the Act” the Court noted.

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