The Income Tax Appellate Tribunal (ITAT), Mumbai “C” Bench, dismissed two appeals filed by the Revenue against City Centre Mall Nashik Pvt. Ltd. in relation to the addition of ₹17.10 crore as unexplained share premium under Section 68 of the Income Tax Act, 1961. The order pertains to the assessment years (AY) 2009–10 and 2010–11.
The ITAT bench comprising Accountant Member Narendra Kumar Billaiya and Judicial Member Sandeep Singh Karhail upheld the CIT(A)’s decision, noting The AO failed to provide any alternative valuation to counter the DCF-based report. Mere suspicion over the commercial prudence of investors is insufficient to invoke Section 68. Premium on shares, being a capital account transaction, cannot be treated as taxable income for AYs prior to 2013–14, as provisions like Section 56(2)(viib) and amendments to Section 68 applied prospectively from April 1, 2013.
The Assessing Officer (AO) had questioned the issuance of shares at ₹100 per share (including a premium of ₹90 per share). A total of 19 lakh shares were issued, out of which 9.5 lakh were allotted to K2C Residential Ltd. (formerly Eredene Mauritius Ltd.), a foreign company, while the rest were issued to closely associated group entities.
During scrutiny, the AO accepted the identity and creditworthiness of the subscribers but raised doubts over the genuineness of charging such a high premium. Believing the transaction to be “abnormal and suspicious,” the AO treated the share premium of ₹17.10 crore as unexplained credit and added it to the taxable income under Section 68.
The assessee company argued that the share premium was determined based on a valuation report prepared using the Discounted Cash Flow (DCF) method, a widely accepted approach. It highlighted that the valuation factored in projections from FY 2009–10 to FY 2014–15, aligning with the company’s business operations, which commenced in April 2009.
The company further contended that as per judicial precedents, the pricing of shares is a matter of commercial wisdom between the company and investors, and the tax authorities cannot question it merely because they find the valuation high.
The Commissioner of Income Tax (Appeals) [CIT(A)] deleted the addition, holding that the AO had not disputed the identity or creditworthiness of the investors. The valuation was backed by a professional report using a recognized method. Judicial rulings, including Shendra Advisory Services Pvt. Ltd. v. DCIT (2024) and SLS Energy Pvt. Ltd. v. ITO (2023) of the Bombay High Court, clearly establishes that share premium is a capital receipt and not taxable as income.
The tribunal also relied on the landmark Bombay High Court judgment in Vodafone India Services Pvt. Ltd. v. Union of India (2014), which clarified that share premium received on capital account does not give rise to income chargeable under the Act.
Case Details
Case Title: ACIT Versus City Centre Mall Nashik Pvt. Ltd.
Case No.: I.T.A. No. 1691/Mum/2025
Date: 25/08/2025
Counsel For Appellant: Tanzil Padvekar/Ms. Tejal Kharkar
Counsel For Respondent: R.A. Dhyani
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