Revenue's appeal dismissed on share premium additions under sections 68 and 56(2)(viib) for established transactions

ITAT Mumbai dismissed revenue's appeal regarding additions under sections 68 and 56(2)(viib) for share premium receipts. The AO had questioned premium of Rs. 40 per share (face value Rs. 10) for a loss-making company without valuation basis. ITAT held that once identity, creditworthiness, and genuineness of transactions with Future group and Godrej group were established, addition under section 68 was unjustified. Share valuation is a commercial decision between parties. The company qualified as "public substantially interested" under section 2(18), making section 56(2)(viib) inapplicable. Reopening under section 147 was deemed impermissible change of opinion. Interest disallowance on inter-corporate deposits was also rejected.

---

---

Issues Involved:
1. Addition u/s 68 on account of share premium.
2. Addition u/s 56(2)(viib) on account of share premium.
3. Interest paid on loan taken from Holding Company.
4. Validity of reopening u/s 147 of the Act.

Summary:

1. Addition u/s 68 on account of share premium (A.Y. 2011-12 & 2012-13):
The revenue challenged the deletion of the addition of Rs. 10,00,00,000/- made by the AO u/s 68 of the Income Tax Act, claiming the assessee failed to justify the share premium. The CIT(A) deleted the addition, noting that the identity and creditworthiness of the investors were established, and the transaction was genuine. The tribunal upheld the CIT(A)'s decision, stating that the valuation report prepared prior to Rule 11UA was valid and that questioning the share premium was beyond the scope of section 68.

2. Addition u/s 56(2)(viib) on account of share premium (A.Y. 2013-14, 2014-15, 2017-18):
The AO added Rs. 9,60,00,000/- u/s 56(2)(viib) for A.Y. 2013-14, Rs. 8,00,00,000/- for A.Y. 2014-15, and Rs. 12,00,00,000/- for A.Y. 2017-18, questioning the share premium. The CIT(A) deleted these additions, holding that the provisions of section 56(2)(viib) did not apply as the assessee was a subsidiary of a public company. The tribunal upheld the CIT(A)'s decision, emphasizing that the valuation was a commercial decision and the provisions of section 56(2)(viib) were not applicable.

3. Interest paid on loan taken from Holding Company (A.Y. 2011-12):
The AO disallowed Rs. 45,67,728/- paid as interest on loans from the holding company, arguing it was unjustified due to the assessee's losses. The CIT(A) allowed the deduction, and the tribunal upheld this decision, noting that the interest on ICDs was legitimate and could not be disallowed merely because the assessee incurred losses.

4. Validity of reopening u/s 147 of the Act (A.Y. 2011-12):
The assessee challenged the reopening u/s 147, arguing it was a change of opinion. The CIT(A) upheld the reopening, citing sufficient reasons to believe income had escaped assessment. The tribunal, however, found the reopening to be based on a mere change of opinion and not permissible, thus allowing the assessee's cross-objection.

Conclusion:
The tribunal dismissed the revenue's appeals and upheld the CIT(A)'s decisions, allowing the assessee's cross-objection regarding the reopening u/s 147. The tribunal emphasized the validity of commercial decisions and the inapplicability of section 56(2)(viib) to the assessee, a subsidiary of a public company.

---