ITAT Bangalore: Procedural Lapse Renders TP Adjustment Invalid; ₹288.26 Crore Share Capital Addition Under Section 68 Deleted in DCIT vs Adamas Builders Pvt. Ltd.
Background and Overview
The ITAT Bangalore, in a significant ruling in DCIT Vs Adamas Builders Pvt. Ltd., addressed two distinct but equally important issues arising out of cross appeals for Assessment Year 2013–14. The first concerned the validity of a transfer pricing adjustment of ₹12.22 crore that was reintroduced in an assessment order passed under Section 143(3) read with Section 144C read with Section 263 of the Income Tax Act, 1961. The second related to an addition of ₹288.26 crore under Section 68, representing share capital received from a Mauritius-based foreign investor, Greenwald Development Ltd.
The Tribunal's ruling is significant on both counts — it reinforces the principle that procedural compliance in the assessment framework is not optional, and it reaffirms that once an assessee discharges its evidentiary burden under Section 68, the Revenue cannot simply reject the explanation without cogent reasoning.
Facts of the Case
Adamas Builders Pvt. Ltd. is a company engaged in the construction, development, leasing, management, and operation of commercial premises. The assessee filed its return of income for AY 2013–14 on 30 November 2013, declaring a total income of ₹10,45,81,140. The return was selected for scrutiny under Section 143(2).
Since international transactions were involved, a reference was made to the Transfer Pricing Officer (TPO). Based on the TPO's order, a draft assessment order was passed by the Assessing Officer (AO) on 21 November 2016. The assessee raised objections before the Dispute Resolution Panel (DRP), which issued directions on 23 August 2017. Consequently, a final assessment order under Section 143(3) read with Section 144C was passed on 25 September 2017, incorporating a transfer pricing (TP) adjustment of ₹12,22,77,336 under Section 92CA.
The assessee appealed this order before the ITAT, which passed an appellate order on 20 July 2018, setting aside the TP issue and directing the DRP to pass fresh directions in light of coordinate bench decisions. Pursuant to these directions, the DRP issued fresh directions on 20 November 2019. However, no fresh final assessment order was passed by the AO following these DRP directions.
Separately, the Principal Commissioner of Income Tax (PCIT) passed a revision order under Section 263 on 18 March 2020, directing the AO to examine the nature and source of ₹28,82,16,000 received by the assessee from Greenwald Development Ltd., Mauritius, towards subscription of 2,200 ordinary equity shares at a face value of ₹10 each at a premium of ₹1,31,028 per share.
Acting on the PCIT's directions, the AO passed an assessment order on 29 September 2021 under Section 143(3) read with Section 144C read with Section 263. In this order, the AO:
- Made an addition of ₹28,82,60,800 under
Section 68on the share capital received from Greenwald Development Ltd., Mauritius. - Reintroduced the TP adjustment of ₹12,22,77,336 — even though this was never part of the revision scope under
Section 263.
The assessee's total taxable income was thereby assessed at ₹51,51,19,274, against a returned income of ₹10,45,81,138.
Issue I: Transfer Pricing Adjustment of ₹12.22 Crore — Validity in Section 263 Proceedings
The Assessee's Contention
The assessee argued before the CIT(A) and subsequently before the ITAT that: