ITAT Dismisses Appeal Over Excess Share Premium Tax as Assessee Fails to Appear [Read Order]
ITAT upholds addition under Section 56(2)(viib) due to the assessee's failure to respond and provide evidence
![ITAT Dismisses Appeal Over Excess Share Premium Tax as Assessee Fails to Appear [Read Order]](https://www.taxscan.in/wp-content/uploads/2025/03/ITAT-Premium-Tax-Assessee-Fails-taxscan.jpg "ITAT Dismisses Appeal Over Excess Share Premium Tax as Assessee Fails to Appear [Read Order]")
The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) dismissed an appeal concerning an addition made under Section 56(2)(viib) of the Income Tax Act, 1961 after the assessee failed to appear for hearings despite being granted 30 opportunities. The assessee Canpac Trends Pvt.Ltd submitted its income tax return for the assessment year 2017-18, reporting a total income...
The Ahmedabad Bench of the Income Tax Appellate Tribunal ( ITAT ) dismissed an appeal concerning an addition made under Section 56(2)(viib) of the Income Tax Act, 1961 after the assessee failed to appear for hearings despite being granted 30 opportunities.
The assessee Canpac Trends Pvt.Ltd submitted its income tax return for the assessment year 2017-18, reporting a total income of ₹9,73,53,840/- after claiming a deduction of ₹5,60,500/-. The return was initially processed under Section 143(1) of the Income Tax Act. Subsequently, the case was scrutinized under the Computer-Assisted Scrutiny Selection (CASS) system.
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During the assessment proceedings, the assessee responded to certain notices via e-submissions on the e-filing portal. However, these responses were incomplete and did not fully address the concerns raised by the Assessing Officer (AO).
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In the scrutiny, AO found two main areas necessitating adjustment:
Firstly, the AO disallowed the assessee’s claim for employee PF/ESI contributions amounting to ₹1,41,730/- due to delayed deposit beyond the statutory due dates. Even though the payments were made before the due date for filing the return, the AO relied on Section 2(24)(x) of the Income Tax Act, 1961 read with Section 36(1)(va) to justify the disallowance, emphasizing that employee contributions must be deposited within the prescribed deadlines to be eligible for deduction.
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Secondly, the AO added ₹1,18,08,000 to the company's income under Section 56(2)(viib). This addition was based on the observation that the assessee had issued shares at a premium that exceeded the shares' fair market value (FMV). The FMV, determined to be ₹145 per share, was significantly lower than the prices at which shares were issued to certain shareholders.
Aggrieved by the order, the assessee moved to the Commissioner of Income Tax (Appeals), CIT(A). The CIT(A) rejected the appeal based on the available records and supported the additions made by the AO because the assessee did not provide any arguments.
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The assessee then moved before the ITAT bench comprising T.R. Senthil Kumar (Judicial Member) and Makarand V. Mahadeokar (Accountant Member).
The assessee appealed on the grounds stating that the transactions were internal, occurring between the promoter and existing shareholders, and should therefore be treated differently, as they should not attract tax implications under Section 56(2)(viib) of the Income Tax Act, 1961.
The assessee claimed that the application of Section 56(2)(viib) was against the intent of the law and that the Assessing Officer (AO) failed to properly consider their submissions and the shareholding pattern of the company since 2011.
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However, despite multiple notices and many hearing opportunities, neither the appellant nor any authorized representative appeared before the Tribunal. Furthermore, no written submissions, including the statement of facts or supporting documents, were filed by the appellant.
The Tribunal, after reviewing the case, observed that Section 56(2)(viib) applies to closely held companies issuing shares at a premium exceeding FMV, regardless of whether the shares are issued to existing shareholders or the promoter group.
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The Tribunal referred to the legislative intent behind the provision, as explained in the Finance Bill, 2012, which aimed to tax excessive share premiums thereby preventing unlawful gains. The relationship between the company and shareholders was deemed irrelevant in determining the applicability of the provision.
Given that the AO’s findings were based on a valuation certificate from an independent Chartered Accountant, and the assessee failed to present any counter arguments or evidence, the Tribunal upheld the addition under Section 56(2)(viib).
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Furthermore, the Tribunal took strong note of the repeated non-appearance of the assessee despite being granted 30 opportunities to present its case. It categorically stated that "The assessee has failed to provide any new submissions or evidence to challenge these findings during appellate or proceedings before us. It is evident from the repeated non-appearance of the appellant and the lack of submissions that the appellant is not interested in pursuing the appeal. As held in many judicial precedents, merely filing an appeal is insufficient; it must be effectively prosecuted."
Since the assessee failed to substantiate its claims, the Tribunal affirmed the AO’s decision and dismissed the appeal.
Dr. Sanjay Lal represented the respondent in this case.
To Read the full text of the Order CLICK HERE
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