DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-2(1), CHENNAI, CHENNAI V. DEVANAYAGAM FINANCE PRIVATE LIMITED, KOLKATA

ITA 634/CHNY/2025

AI Insights

The case involves an appeal by the Revenue against the order of the CIT(A) which had allowed the appeal of Devanayagam Finance Pvt. Ltd. The Revenue challenged the CIT(A)'s decision on grounds that the CIT(A) had erred in deleting substantial additions made under section 56(2)(x)(c) of the Income Tax Act, 1961, which were alleged to be transactions introducing unaccounted income into the books. The primary legal contention revolved around the applicability of section 56(2)(x)(c) for A.Y. 2014-15, despite it being introduced by the Finance Act, 2017, effective from A.Y. 2018-19. The tribunal also considered the issue of whether there was any incriminating evidence found during the search that justified the additions under section 153A.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 772702 (ITAT-CHENNAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Assessment Year: 2014-2015
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: E.PAVUNA SUNDARI
• Assessee Lawyers: Y. SRIDHAR; F.C.A
• Keywords: Fair market value; Income from undisclosed sources
• Section: 143(3); 132; 153A; 56(2)

Judgement Text

"आयकर अपीलीय अिधकरण, ‘ए’ \u0011ा यपीठ, चे\u0016ई। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHENNAI \u0019ी एबी टी. वक , \u0011ा ियक सद! एवं \u0019ी जगदीश, लेखा सद! क े सम( BEFORE SHRI ABY T. VARKEY, JUDICIAL MEMBER AND SHRI JAGADISH, ACCOUNTANT MEMBER आयकर अपील सं./ITA No.634/Chny/2025 िनधा:रण वष: /Assessment Year: 2014-15 The Dy. Commissioner of Income Tax, Central Circle-2(1), Chennai. Vs. Devanayagam Finance Pvt. Ltd., 3/2, Ground Floor, Marcus Square, Kolkata – 700 007. [PAN: AABCD 0465C] (अपीलाथ\u0007/Appellant) (\b यथ\u0007/Respondent) अपीलाथ की ओर से/ Assessee by : Shri Y. Sridhar, F.C.A HIथ की ओर से /Revenue by : Ms. E. Pavuna Sundari, CIT सुनवाई की तारीख/Date of Hearing : 02.07.2025 घोषणा की तारीख /Date of Pronouncement : 28.08.2025 आदेश / O R D E R PER JAGADISH, A.M : Aforesaid appeal filed by the Revenue for Assessment Year (AY) 2014-15 arises out of the order of Learned Commissioner of Income Tax, Appeal, Chennai-19 [hereinafter “CIT(A)”] dated 16.12.2024 in the matter of assessment framed by the Assessing Officer [AO] u/s. 143(3) r.w.s 153A of the Income-tax Act,1961 (hereinafter “the Act”) on 29.03.2022. Printed from counselvise.com ITA No.634/Chny/2025 Devanayagam Finance Pvt. Ltd. :- 2 -: 2. The ground of appeal raised by the Revenue are as under: “1. The order of the learned Commissioner of Income Tax (Appeals) is erroneous. 2. The Ld. CIT (A) erred in deleting addition of Rs.1,43,75, 250/ Rs. 1,42,68, 825/- & Rs.1,37,00, 250/- made merely for quoting Section 56(2) (x)(c) is erroneous for this case & the Ld. CIT(A) has erroneously relied on relied on technicalities rather than substance, failing to recognize that the transaction was a colorable devise designed to introduce unaccounted income into the books. 3 The Ld.CIT (4) failed to observe that prior to AY 2018-19, similar provisions u/s 56(2) (viia) of the Income Tax Act, 196l were applicable to cases of similar facts. 4. The Ld. CIT (A) erred in observing that there was no incriminating evidence found during search in the case of the assessee as during the course of search, it was revealed that the KAG India Pvt. Lid routed its unaccounted income into its company as share capital through direct investments by shelI companies based in Kolkata and by capital introduction via M/s. Devanayagam Finance Pvt. Ltd and M/s. Bholenath Merchants Pvt Ltd. M/s Devanayagam Finance Pvt. Ltd is private limited company and registered with Registrar of Companies the companies. 5. The Ld CIT (A) erred in not appreciating the fact that the share capital introduced by the shell companies is an \"asset \" as the entire amount introduced into the assessee through shell companies as share capital and share premium are out of undisclosed income earned, including unaccounted sales in cash, which represent the undisclosed asset.” 3. The assessee is engaged in the business of finance and investment. A search u/s. 132 of the Act was carried out in the case of the assessee along with the business premises of KAG India Ltd. on 26.02.2021. During the search, it was alleged that KAG India Ltd. had routed its unaccounted income as share capital through direct investments by shell companies based in Kolkata and by way of Printed from counselvise.com ITA No.634/Chny/2025 Devanayagam Finance Pvt. Ltd. :- 3 -: capital introduction through M/s. Devanayagam Finance Pvt. Ltd. and M/s. Bholenath Merchants Pvt. Ltd. The A.O. in the assessment order has noted that an application had been filed before the NCLT, Kolkata, for amalgamation of M/s. Anilabh Vinimay Pvt. Ltd., M/s. Bholenath Merchants Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd. with the assessee-company w.e.f. 01.04.2018. However, he proceeded to make additions in respect of the amalgamating companies in the hands of the assessee-company. The A.O in the order passed u/s. 153A of the Act for A.Y. 2014-15, has made additions u/s. 56(2)(x)(c) of the Act in respect of purchase of 63,890 share of M/s. Bholenath Merchants Pvt. Ltd. by M/s. Anilabh Vinimay Pvt. Ltd. at face value, making addition of Rs. 1,43,75,250/-, for purchase of 1,05,695 shares of M/s. Devanayagam Finance Pvt. Ltd. by M/s. Equal Dealers Pvt. Ltd. at lower value, making addition of Rs. 1,42,68,825/- and for purchase of 60,980 shares of M/s. Bholenath Merchants Pvt. Ltd. by M/s. Wakeeta Vyapaar Pvt. Ltd. at face value, making addition of Rs.1,37,00,250/-. The assessee challenged the assessment order before the Ld. CIT(A) on multiple grounds: (i) that no incriminating material was found during the search and, therefore, no addition could be made u/s. 153A, (ii) that the A.O. assumed Printed from counselvise.com ITA No.634/Chny/2025 Devanayagam Finance Pvt. Ltd. :- 4 -: jurisdiction beyond the 6th assessment year without recording satisfaction that underlying assets exceeded Rs. 50 lakhs, as required by Explanation 2 to Section 153A, and (iii) that the additions were made u/s. 56(2)(x)(c) of the Act for A.Y. 2014-15 though the provision was introduced by the Finance Act, 2017 w.e.f. 01.04.2017. The Ld CIT(A) in detailed speaking order has allowed the appeal on all accounts. 4. The Ld. Departmental Representative (DR) contended that the Ld. CIT(A) had relied more on technicalities rather than on substance, failing to recognize that the impugned transactions were colourable devices to introduce unaccounted income. The Ld. DR argued that during the search it was revealed that KAG India Ltd. had routed unaccounted income into its company as share capital through shell companies based in Kolkata and through capital introduction via M/s. Devanayagam Finance Pvt. Ltd. and M/s. Bholenath Merchants Pvt. Ltd., and therefore it cannot be said that there was no incriminating material. It was further argued that share capital introduced by shell companies constitutes an “asset,” thereby conferring jurisdiction on the A.O. to reopen even the 7th year u/s. 153A. Printed from counselvise.com ITA No.634/Chny/2025 Devanayagam Finance Pvt. Ltd. :- 5 -: 5. On the other hand, the Ld. Authorized Representative (AR) of the assessee submitted that the transactions related to M/s. Anilabh Vinimay Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd., which amalgamated with the assessee-company w.e.f. 01.04.2018, and therefore the additions could not be made in the hands of the assessee. The Ld. AR reiterated that there was no incriminating material found during the search and that no reference to any seized material was made in the assessment order. The Ld. AR further argued that while assuming jurisdiction beyond the 6th year, the A.O. had not recorded the mandatory satisfaction regarding existence of assets exceeding Rs. 50 lakhs as required u/s. 153A. It was also contended that the addition was made u/s. 56(2)(x)(c) for A.Y. 2014-15, even though the section was introduced only w.e.f. 01.04.2017, applicable from A.Y. 2018-19. 6. We have heard the rival submissions and perused the materials on record. The A.O. has passed the order u/s. 153A for A.Y. 2014-15, which falls beyond the 6th assessment year immediately preceding the assessment year relevant to the previous year in which the search was conducted. The additions were made u/s. 56(2)(x)(c) in respect of Printed from counselvise.com ITA No.634/Chny/2025 Devanayagam Finance Pvt. Ltd. :- 6 -: shares purchased by M/s. Anilabh Vinimay Pvt. Ltd., M/s. Equal Dealers Pvt. Ltd., and M/s. Wakeeta Vyapaar Pvt. Ltd. below fair market value , but there was no reference to any seized material. Further, Section 56(2)(x)(c) of the Act was introduced by the Finance Act, 2017, with effect from 01.04.2017, and therefore it has no application to A.Y. 2014-15. The Ld CIT(A) has discussed all the grounds in details and allowed the appeal and we do not find any infirmity in the order of the Ld. CIT(A). At the same time we do not find any force in the appeal of revenue. Accordingly, we uphold the order of Ld CIT(A) and dismiss the appeal of Revenue. 7. In the result, the appeal filed by the Revenue is dismissed. Order pronounced on 28th day of August, 2025 at Chennai. Sd/- Sd/- (एबी टी. वक ) (ABY. T. Varkey) \u0011ाियक सद! / Judicial Member (जगदीश) (Jagadish) लेखा सद! /Accountant Member चे\u0010नई/Chennai, \u0013दनांक/Dated: 28th August, 2025. EDN/- आदेश क\u0016 \bितिल\u0019प अ\u001aे\u0019षत/Copy to: 1. अपीलाथ\b/Appellant 2. थ\b/Respondent 3. आयकर आयु\u0010/CIT, Chennai/Madurai/Coimbatore/Salem 4. िवभागीय ितिनिध/DR 5. गाड\u0019 फाईल/GF Printed from counselvise.com "