Additions agreed during assessment proceedings can be challenged in appeal when assessee itself not made disallowance in return of income
ABCAUS Case Law Citation:
ABCAUS 3213 (2020) (01) ITAT
Important case law relied upon by the parties:
CIT vs. Everest Kento Cylinders Ltd (2015)(58 taxmann.com 254)(378 ITR 57),
In the instant case the assessee had filed the appeal challenging the order passed by CIT(A) in confirming the addition made by the AO u/s 56(2)(viib) of the Income Tax Act, 1961 (the Act).
The assessee was engaged in the business of providing software services. During the year under consideration, the assessee had issued shares above the par value.
The Assessing Officer (AO) invoked the provisions of sec.56(2)(viib) of the Act and proposed to assess the amount in excess of the fair market value of the shares collected as income of the assessee.
During the course of assessment proceedings, the assessee agreed for the said addition by filing letter. Accordingly, the AO completed the assessment by adding the above said amount.
However, the assessee challenged the above said addition by filing appeal before CIT(A), who dismissed the appeal of the assessee by holding that the assessee was not justified in retracting from its stand.
Before the Tribunal, the assessee submitted that the company fall under the category of “Start-up company”. He submitted that the Government had issued notification no. 13/2019 F. No. 370142/5/2018-TPL (Pt.) dated 05th March, 2019, exempting the start up companies from the application of provisions of sec.56(2)(viib) of the Act retrospectively.
It had also been clarified by CBDT in its Circular No.173/354/2019-ITA-1 dated 09-08-2019 that the relaxation so provided is applicable to the assessments completed before 19-02-2019 also, if a recognised start-up had filed declaration in Form No.2.
Accordingly, the it was submitted that the assessee was eligible to avail the benefit given under the above said notification/circulars. Accordingly, he prayed that the impugned matter may be restored to the file of the AO for examining the same afresh in the light of notifications/circulars, referred above.
With regard to the acceptance of the addition before the AO, the assessee submitted that the company was having huge losses and hence the representative had agreed to the addition, since the same shall not have any immediate tax effect. He submitted that the assessee had agreed for the addition only during the course of assessment proceedings and at that point of time, the policy decision taken by the Government through the above said notifications/circulars were not available.
The Tribunal noted that admittedly, the assessee had agreed for the addition u/s 56(2)(viib) of the Act during the course of assessment proceedings. It was not the case that the assessee itself has disallowed or added the above said amount in its return of income.
Additions agreed during assessment proceedings can be challenged
The Tribunal noted that the Hon’ble High Court in an identical issue pertaining to addition u/s 14A of the Act, upheld the order of the ITAT by holding that the addition was not conceded in the return but was adhoc acceptance during the course of assessment and the assessee could not be bound by it.
The Tribunal observed that in the instant case also, the assessee had agreed for the disallowance during the course of assessment proceeding only and it is not the case of the AO that the assessee itself had made the impugned disallowance in its return of income.
The Tribunal opined that the assessee could contend the addition as per the ratio laid down by Hon’ble Bombay High Court. Also, the claim of the assessee that it was eligible to claim benefit of the notifications/circulars issued by the CBDT needed to be examined by the tax authorities. Accordingly, the Tribunal set aside the order passed by CIT(A) and restored all the issues to his file for examining the above said claim of the assessee on merits.
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