TaxTMI 
TaxTMI 
TaxTMI 
2016 (10) TMI 920
X X X X Extracts X X X X
X X X X Extracts X X X X
....Pvt Ltd 75,000 14,25,000 Dashmesh Fincap Pvt Ltd 1,00,000 19,00,000 Aasma Mercantile Pvt Ltd 1,00,000 19,00,000 Virgo Textiles Pvt Ltd 2,75,000 52,25,000 Inex Infotech Pvt Ltd 1,75,000 33,25,000 Essen Marketing Pvt Ltd 2,00,000 38,00,000 Nanchi Marketing Pvt Ltd 1,00,000 19,00,000 Total: 11,50,000 2,18,50,000 3. AO acknowledged that these companies were neither associate companies nor sister concerns nor any of the Directors of the company has influence over these companies. However, he asked for confirmation of the above investments from various companies which assessee has furnished. AO questioned the rationale for issuing shares at a huge premium. Assessee explained that: a) The assessee-company is a running company making profits; b) The company has all the licenses and permissions for running industry in place; c) The company is already established and has good future potential of earning profits; d) The company has goodwill among investors; e) Investors unanimously have been allotted shares at Rs. 200/- per share; It has also been brought to AO's notice that the share premium do not go with the books value, since there are various other a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cases of Agarwal Coal Corporation vs Addl.CIT [135 ITD 270-Indore], Dhingra Global Credence (P) Ltd vs ITO [1 ITR(T) 529 Delhi], Nova Promoters & Finlease [342 ITR 169-Delhi], NR Portfolio(P) Ltd [263 CTR 456-Delhi],Onassis Axles(P) Ltd vs CIT [364 ITR 53-Delhi], Gayathri Associates vs ITO [221 Taxman 143-Andhra Pradesh], Dr. D. Siva Sankara Rao vs ITO[356 ITR 117-Andhra Pradesh],Sri Chakra Cements Ltd vs ITO [221 Taxman 181-Andhra Pradesh],Vijay Kumar Talwarvs CIT[330 ITR 1-Supreme Court], CIT vs MAF Academy(Pvt) Ltd[361 ITR 258- Delhi]. Considering the ratio of the plethora of these decisions, in brief, it is clear that the three vital limbs of Section 68 of the IT Act i.e., identity, creditworthiness and genuineness have to be clearly established. While agreeing with the findings of the assessing officer, it is clear that the share premium received from the various companies is clearly cash credits as the identity, genuineness and creditworthiness of the companies mentioned in the assessment order is doubtful and there is no reason to interfere with the finding of the Assessing Officer. The assessment order in this case reflects a good attempt made by the assessing officer to br....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....29 Crores. This was accepted. It was further submitted that assessee has justified the premium with market conditions at that point of time and business profile of assessee-company. Ld. Counsel relied on the case law for various propositions to submit that Revenue authorities cannot question the charging of such huge premium which has no bar by any legislated law of the land. It was further submitted that the details of the subscribers are before the authorities and without making any enquiries, the annual reports and other details filed by assessee were doubted and the transaction was held to be sham and bogus. He relied on the proposition that share premium realised from the issue of shares is of capital nature and forms part of share capital of the company and therefore, cannot be taxed as 'revenue receipt'. It is also settled proposition of law that any expenditure incurred to the expansion of capital base of a company is to be treated as 'capital expenditure' as has been held by the Supreme Court in the case of CIT Vs. Allahabad Bank Ltd., [73 ITR 745]. It was submitted that the share premium received by the company cannot be taxed u/s. 56(1) of the Act. It was submission of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quity shares to the shareholders as income of that assessee. The ITAT considered the issues which are similar to the present case and held as under: "10. We have considered the rival submissions and carefully perused the orders of the lower authorities and the material evidences brought on record in the form of Paper book. The entire dispute revolves around the charging of share premium of Rs. 490/- per share on a book value of Rs. 10/- each. This dispute is more so because of the fact that the assessee company was incorporated during the year under consideration. Therefore, according to the revenue authorities, it is beyond any logical reasoning that a company with zero balance sheet could garner Rs. 490/- per share premium from its subscribers. Such transaction may raise eyebrows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It is an undisputed fact admitted by the Revenue authorities that 10,19,000 equity shares has been subscribed and allotted to IDFC PE Fund-II which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to the IDFC ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Revenue receipt. It is also a settled proposition of law that any expenditure incurred for the expansion of the capital base of a company is to be treated as a capital expenditure as has been held by the Hon'ble Supreme Court in the case of Punjab State Industrial Corporation Ltd. Vs CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. VS CIT. Thus the expenditure and the receipts directly relating to the share capital of a company are of capital in nature and therefore cannot be taxed u/s. 56(1) of the Act. The assessee succeeds and Revenue fails on this account. 11. The Ld. Departmental Representative has raised an altogether plea by stating that the nature of the transaction should also be judged within the parameters of the Sec. 68 of the Act. The counsel for the assessee strongly objected to this but in the interest of justice and fair play, we allowed the DR to raise this issue. For this, we draw support from the decision of the Hon'ble Supreme Court in the case of Kapurchand Shrimal Vs CIT 131 ITR 451, wherein the Hon'ble Supreme Court has laid down the ratio that "It is well known that an appellate authority has the jurisdiction as well as the duty to correct all....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ind Farms Ltd., wherein the assessee is holding 99.88% of share capital which means that the funds have not been diverted to an outsider. This clears the doubt about the application of funds and the credibility of the company in whom the funds have been invested. Since the assessee itself is holding 99.88% of shares and in turn the assessee company's 98% of shares are held by IDFC PE Fund-II, this entire share holding structure cannot be said to generate any transaction which could be said to be sham. 12. We have considered the grievance of the Revenue from all possible angles and by applying the provisions of Sec. 56 of the Act and at our stage we have gone to the extent of testing the transaction within the parameters of Section 68 of the Act. We could not find a single evidence which could lead to the entire transaction as sham. Our view is also fortified by the share holding pattern as explained to us and as substantiated by the material evidence on record. We find that the share holders in all the related transaction under issue are directly or indirectly related to the Government of India. Therefore, considering the entire issue in the light of the material evidence brought....