Revenue's appeal dismissed for share premium addition under section 56(1) before AY 2013-14 due to non-retrospective application

The ITAT Jaipur dismissed the Revenue's appeal regarding addition under section 56(1) for share premium, holding that provisions of section 56(2)(viib) are applicable only from AY 2013-14 onwards and cannot be applied retrospectively. The CIT(A) correctly deleted the addition as share premium received cannot be considered income under section 56(1) for the year under consideration. However, for AY 2013-14, the ITAT directed the AO to calculate fair market value of shares under section 56(2)(viib) and tax only the excess amount received over fair market value, allowing the Revenue's appeal for statistical purposes.

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Here are the key points from the legal judgment:

Issues Involved:
1. Taxability of share premium received by the assessee companies under section 56(1) and 56(2)(viib) of the Income Tax Act.
2. Addition made by the Assessing Officer (AO) treating share premium as unexplained cash credits under section 68.
3. Opportunity of cross-examination not provided to assessee regarding statements recorded by the Investigation Wing.

Analysis and Findings:
1. For AY 2009-10 and 2011-12, the entire addition made by the AO under section 56(1) was deleted as the amended provisions of section 56(2)(viib) were not applicable for those years.

2. For AY 2012-13, out of the total addition of Rs. 42,07,29,600 made by the AO under section 56(1), Rs. 5,94,47,727 was sustained by the CIT(A) on account of cash/DD deposited at the 4th stage/channel as per investigation wing inquiries. The remaining addition was deleted.

3. For AY 2013-14, out of the addition of Rs. 4,41,00,000 made by the AO under section 56(1), Rs. 3,90,50,000 was deleted by the CIT(A). An addition of Rs. 50,50,000 was sustained on account of cash/DD deposited at the 4th stage.

4. The ITAT held that for AY 2013-14, the AO should have calculated the fair market value of shares as per section 56(2)(viib) and taxed only the excess premium received, if any. The matter was restored to the AO for this limited purpose.

5. Regarding addition sustained by CIT(A) for cash/DD deposited at 4th stage, the ITAT held that the assessee cannot be asked to explain the source of source. Statements recorded by the Investigation Wing behind the back of the assessee cannot be used without giving opportunity of cross-examination.

6. The ITAT allowed the appeals of the assessee for statistical purposes on the limited issue of addition sustained by CIT(A) for cash/DD deposited at 4th stage.

In summary, the entire addition made by the AO under section 56(1) was set aside and the matter was restored to the AO to calculate fair market value and tax excess premium, if any, as per section 56(2)(viib) for AY 2013-14. The additions sustained by CIT(A) for cash/DD at 4th stage were deleted.

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