TaxTMI 
TaxTMI 
2018 (8) TMI 1193
X X X X Extracts X X X X
X X X X Extracts X X X X
....sion'. 2.2 During the assessment proceedings, AO noted that assessee was incorporated in the year 1999 as the company with limited liability and initially it is registered as Raghuram Cements. The name of the company was changed to the present name in August'2008. The assessee has its manufacturing unit established at Nallalingayapalli Village, Kamalapuram Mandal, Kadapa District, A.P. with a licensed capacity of 5 million tonnes per annum. The details of shareholders and directors of the company are as under: Sri YS Jagan Mohan Reddy 66.43% equity M/s Silicon Builders (P) Ltd. 33.15% equity ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... assessment order, which is related to subsequent findings in search operation in the case of Dalmia Bharat Enterprises on 21/01/2012. Assessee was given a copy of such information and also assessee was asked to submit its argument on all the issues before the AO, so that a comprehensive remand report can be submitted by the AO. Accordingly, AO submitted remand report. 5. Ld. CIT(A) issued a notice of enhancement to the assessee on 31/01/2014 to show cause as to why the entire receipt from the three investors amounting Rs. 70.32 crores not to be assessed under the head 'income from other sources'. Assessee filed its objections before the CIT(A) and first objection of the assessee was that information submitted by the AO during the appeal proceedings was nothing but additional evidence and as per Rule 46A, only assessee can file additional evidence and not the AO. On this issue, ld. CIT(A) relying on the decision in the case of Goel Die Cast Ltd., [2008] 297 ITR 72 (P&H) observed that the CIT(A) is bestowed with powers which are co-terminus with that of the AO and during the course of appeal proceedings, CIT can call for information or take cognizance of any information presented....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... share premium was a capital investment and accordingly it could not be brought to tax as a revenue receipt. 5.2 After considering the submissions of the assessee and the information available before him, the CIT(A) confirmed the additions made by the AO by appraising further evidence before him. He brought on record, certain schemes and benefits allotted by the Govt. of AP to the investors like permission for industrial water supply to the India Cements Ltd., environmental clearances and clearance of change of land use to subsidiary companies of Dalmia Cements Ltd. and issue of licence for land for ports and giving clearance for various plots of land owned by Nimmagadda Group and their relatives. 5.3 By relying on the above incidences of benefits passed on to the investors in the assessee company, the CIT(A) opined that the investors received huge benefits and largesse from the Govt. of AP during the period of making investment. He further opined that there is unmistakable connection between huge concessions received by the three investors from the Govt. of AP and the investments in preferential share capital in the assessee company and, therefore, it is clear from the subst....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hart is reproduced below:- S. No. Name of the company Share prices of the Cement companies during the relevant period of investment Sales turnover during 2008-09 in Crores. May/June 2008 July 2008 August 2008 November 2008 1 ACC 628.00 533.60 626.00 405.00 7474.15 2 UltraTech Cement 627.00 535.00 635.00 318.00 6436.96 3 Ambuja Cements 81.90 82.00 81.00 56.50 7100.00 4 Birla Cements 180.00 161.00 187.00 94.00 2057.89 5 JK Cements 139.00 125.00 131.00 50.00 1502.46 6 KCP Cements 32.80 26.00 30.18 13.25 405.26 7 Madras Cements 121.25 125.00 133.20 69.25 2538.50 8 India Cements Ltd. 121.25 125.00 133.20 69.25 2538.50 5.4 The CIT(A) adjudicated the issue by observing as under: "6.15 In the present circumstances, the situation and conditions warrant that the test of human probability be applied and the real should be unearthed from the cloak of the apparent. As discussed in detail supra, the entire set of transactions smacks of non-genuineness and is abso....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ell as on facts while: a. Confirming addition of Rs. 69,84,11,520/- towards share premium on shares allotted in Assessment Year ("AY") 2009-10 u/s 56 of the Income Tax Act, 1961 ("the Act"); b. Enhancing income by Rs. 48,52,335/- u/s 56 of the Act towards face value of the shares allotted in that year. 2. The order of the Ld. CIT-A is based on surmises, conjectures and presumptions and does not take into consideration extensive evidence and material 3. The impugned order selectively relies on incomplete investigations which have not reached finality and reaches incorrect, unsubstantiated and unlawful conclusions. 4. The impugned order is completely erroneous on facts and in law including pages 31 to 34 of the same., is a bundle of contradictions and several inconsistent, contradictory and unsubstantiated reasons are cited and the entire decision in making process is completely vitiated . The conclusions reached are incorrect and deserve to be set aside/ quashed 5. The Ld. CIT-A has neither properly appreciated nor set out any reason as to why the judgments cited by the assessee were not applicable to the matter under appeal and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....much more than share premium determined as per prescribed methods. Bharati Cement Corporation Limited as legal entity is distinct and separate from promoters or shareholders, presumptions made in impugned order to the contrary are contrary to settled principles of law, unlawful, factually baseless and invalid. As no amount of share premium is alleged or even shown to have been allowed as pass through by the company there is no basis for suspicions and wild allegations. Without prejudice, even if lifting of corporate veil is permissible, the consequence would not lead to taxation of share premium in the hands of Appellant Company. Presumptions of some service/benefits being allowed by government of state of Andhra Pradesh to investor companies, even if presumed to be true for argument sake cannot justify taxation of any amount in the hands of Appellant company, as being a legal entity Appellant Company was neither in business of providing such services or was actually involved in any way. As directed during the course of hearing, we have already filed bank accounts into which the entire share investment including share premium was received, and how the sam....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies viz., MIs. Dalmia cements, MIs. Gilchrist Investments Pvt Ltd., MIs. Alpha Villas Pvt Ltd. & MIs. Alpha Avenue Pvt Ltd, have obtained huge benefits from the Government of Andhra Pradesh in various forms. As a gratuitous measure, they have remitted huge amounts into the assessee company in which Mr. Y.S. Jagan Mohnan Reddy is the major shareholder. The said remittance was termed as" investment" and were allotted 0% convertible preference shares. 3. All the investors by spending more than the existing capital of the assessee obtained only 0.3% of shareholding in the company. The investors never had any say in the management of the affairs of the Company. They did not have voting power and were not entitled to any profits of the assessee. 4. The subject investment was not done upon obtaining any due diligence. 5. The investments made by Nimmagadda group were always in huge profit fetching areas like medical, media & entertainment, hospitality etc., but for the first time invested at a huge rate in a Cement Company as stated above, that too in an inexperienced Company which did not commence its production and also without expecting any earning/profit out ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d given their money without expectation of any return out of the said investment and left the scene. They never wanted to derive any benefit out of the said investment. There was never any obligation on the part of the assessee to part any of its profits in favour of the investors. The entire receipt is cloaked as "Capital receipt". 8.1. Referring to the above submissions, the ld. DR submitted that the appeal filed by the assessee is devoid of any merit and liable to be dismissed. He relied on the following cases: 1. CIT Vs. L.N. Dalmia, [1994] 207 ITR 89 (Cal.) 2. Sunil Siddharthbai Vs. CIT, 156 ITR 509 (SC) 3. Workmen of Associated Rubber Industry ltd., 157 ITR 77 (SC) 4. Juggilal Kamlapat Vs. CIT, 73 ITR 702 (SC) 5. CIT Vs. Durga Prasad More, 82 ITR 540 (SC) 9. Considered the rival submissions and perused the material on record as well as the decisions cited. We noticed that assessee has issued and allotted shares of 0% convertible preferential shares in private placement to three investors. They are well known companies in the industry. These shares were issued with huge share premium and share premiums were determined without ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 28(iv) to convert the capital receipt as revenue. This section refers to any benefit/perquisite arising from business or exercise of a profession. This capital receipt is not generated in the business whereas ld. CIT(A) confirmed the capital receipt as income from other sources without establishing that this is income of the assessee when the assessee has not even commenced the business. The alleged receipt is the benefit intended to pass on to the director/shareholdes of the company. We noticed that this capital investment was received by the assessee as 0% convertible preferential shares. No doubt there is no immediate outflow to the company in terms of dividend but it is convertible in the near future as equity share capital. There are certain aspects of this investment which certainly raises eyebrows as they are not the best of investment decision like:- i) no participation in the management considering only 0.43% shares were allotted to outsiders ( no controlling interest is compromised) ii) without yielding the controlling interest, investment of such huge share premium iii) no basis for issuing shares at such huge premium Apart from this asp....