2023 (2) TMI 727 - HC - Income Tax

Addition u/s 68 - basis for the issue of the share capital by the assess is not explained - HELD THAT -Undisputedly, there is no unexplained cash credit uncovered by the AO. We are at a loss to understand as to how the aforesaid transaction has been brought under the ambit of Section 68 of the Income Tax Act. Prima facie we are inclined to accept the contention that no person familiar with the Income Tax Act, could possibly accept the said assessment order and the same is without application of mind. As noted above, there is no dispute as to the nature of the transaction. AO seems to harbour a view that the valuation is higher than the one disclosed by the assessee. Respondent prays for some time to seek instructions.

Summary

Issues involved: Stay of demand pursuant to assessment order under Section 143(3)/144B of the Income Tax Act for the assessment year 2017-2018.

Analysis:
1. The petitioner sought a stay on the demand resulting from the assessment order dated 30.09.2021, passed under Section 143(3)/144B of the Income Tax Act for the assessment year 2017-2018. The petitioner appealed this order before the National Faceless Appeal Center and requested the demand of Rs. 54.78 crores to be stayed until the appeal's disposal.
2. The petitioner had applied to the Jurisdictional Commissioner for a stay on the demand, who ordered a payment of at least 20% of the outstanding demand before granting the stay. The petitioner contended that the assessment order was erroneous and untenable in law, emphasizing that no reasonable person well-versed with the Income Tax Act could have passed such an order.
3. The assessment order raised a demand by adding Rs. 46,07,78,600 as unexplained income under Section 68 of the Income Tax Act, based on the issuance of share capital without a satisfactory explanation. The petitioner, engaged in running a training school, had acquired leasehold rights of a property valued at Rs. 46,07,78,600 and issued shares against this consideration. However, the Assessing Officer deemed the valuation report submitted by the petitioner as inadequate and sought a departmental evaluation report.
4. Section 68 of the Income Tax Act deals with cash credits, requiring explanations for sums credited in the books of an assessee. Despite no unexplained cash credit being found, the transaction was brought under the ambit of Section 68, which the court found perplexing.
5. The court observed that the assessment order lacked application of mind and seemed to question the valuation provided by the assessee. The court was inclined to accept the contention that no person familiar with the Income Tax Act would accept the assessment order in question.
6. Consequently, the court stayed the impugned demand until the next hearing date, providing time for the respondents to seek instructions. The case was listed for further proceedings on 19.01.2023.