TaxTMI 
TaxTMI 
2018 (10) TMI 1122
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....stances of the case and in law, the Ld. CIT(A) erred in deleting the entire addition of Rs. 10 crores without appreciating that even though the source of funds from Xander Group stand explained in the course of appeal proceedings, no satisfactory reply was furnished by the assessee with regard to "nature" of the investment made by Xander Group." 4. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not sustaining the addition with regard to "share premium" charged "over and above the intrinsic value of shares" of the company which as per the finding of the A.O was only Rs. 2G7.90 per share. Needless to ,,ay, CIT(A) need to examine the "substance" of the transaction and not get satisfied only with the "form" of transaction The ''economic reality" will clearly show that in arms length relationship no one will pay anything more than the "intrinsic value of the shares. The CIT(A), therefore, ought to have confirmed anything paid over and above the intrinsic value of share and can not allow deduction for the entire amount paid as "share premium" only on the basis of "commercial expediency". 5. "On the facts and in the circums....
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..../s Xander Investment Holding XV Limited, the assessee has already furnished the required details including the address and the required details may be directly called for to ascertain the genuineness of transaction. 3. The AO, after considering relevant submissions of the assessee and also on analysis of provisions of section 68 of the Act, held that the alleged capital introduction of assessee are held to be non genuine transactions entered through the process of accommodation or bogus entries to bring in assessee's own money in the guise of capital. The AO further observed that in case any sum found credited in books of account of the assessee, the assessee needs to prove the identity, capacity and genuineness, but the assessee failed to prove the same. The cash credit is not satisfactorily explained and hence, it is justified to treat it as 'Income from undisclosed sources'. The assessee has to establish that the amount was exactly given by the subscriber, which it failed to do so and the explanation it gave was not supported by any documentary evidence and, therefore, the deeming fiction provided under section 68 is being invoked. The identity of the alleged subscriber had n....
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....t all additional evidences along with written submissions filed by the assessee to the AO for examination and report. The AO, vide his remand report dated 23-10-2013, has objected to the admission of additional evidence filed by the assessee in the appellate proceedings by stating that sufficient opportunities were granted to the assessee at the time of assessment proceedings. The AO further stated that the assessee failed to file required evidences at the time of assessment proceedings, therefore, the documents produced now cannot prove the genuineness of the transaction. It is further stated that the assessee is also not able to satisfactorily explain issue of shares at a high premium of Rs. 9,99,900 per share as the assessee has not given any justification regarding the issue of shares at high premium and nature and source of credit. The AO further observed that though the amendment to section 68 of the Act was inserted by Finance Act 2012 w.e.f 01-04-2013 to treat share application money within the ambit of section 68, but such amendment is clarificatory in nature and should have retrospective effect. The Ld.CIT(A) has sent the remand report issued by the AO to the assessee for....
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....ssessee has furnished complete details of Xander Group Inc and also its scale of operation. M/s Xander Group Inc is an Institutional Value firm focused on the real estate, infrastructure, hospitality and other sectors and has been an active investor in India since 2005. The Group has made over USD 1.2 Billion in Indian in association with various groups. None of these facts have been disputed by the AO. In other words, the explanations of the assessee relating to identity and creditworthiness have to be accepted as satisfactory. The AO, in my considered opinion was not right in ignoring the right aspect of the matter. The AO has not brought any cogent evidence on record to disprove the identity and genuineness of Xander Group Inc from whom the assessee has received Rs. 10 crores towards share capital. Insofar as issue of shares at a high premium, the Ld.CIT(A) observed that the assessee has filed a valuation report to justify issue of shares at a high premium, therefore, the AO was incorrect in observing that the share price of an entity shall be determined only on the basis of discounted cash flow basis. On the other hand, the assessee has filed necessary evidence to prove that it....
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.... reasons for not admitting additional evidences, therefore, the Ld.CIT(A) ought to have given her finding why the additional evidence should be accepted, in the given facts and circumstances of the case. The Ld.DR further submitted that on the issue of addition made u/s 68 of the Act, in respect of share application money, the onus was on the assessee to prove to the satisfaction of the AO, the nature and source of the credits found in the books of account. The assessee has failed to give any satisfactory explanation in respect of nature and source of credit, therefore, the AO was right in making addition towards share application money received from Xander Group Inc as unexplained cash credit u/s 68 of the Income-tax Act, 1961. The Ld.DR further submitted that though the AO has brought out various reasons for making additions, the Ld.CIT(A) has negated all observations made by the AO without recording any reasons as to how the findings of fact recorded by the AO is incorrect. The assessee has failed to explain the issue of shares at a high premium of Rs. 9,99,900 per share without any corresponding business activity and asset base. Although, the issue of shares and subscription of....
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....iolation of Rule 46A and hence, the ground taken by the revenue may be dismissed. 11. Insofar as addition made by the AO towards share application money received from Xander Group Inc, the Ld.AR submitted that the assessee has filed enormous details to prove the identity, creditworthiness and genuineness of the subscriber to the share capital which is evidenced from the fact that the Ld.CIT(A) has dealt with the issue at length in the light of evidences filed by the assessee, therefore, the AO was totally incorrect in making addition towards share application money only for the reason that the assessee has issued shares at a high premium. The Ld.AR further submitted that the assessee has filed complete details of names and address of the subscriber to the share capital and also filed confirmations from Xander Investment Holding XV Ltd confirming the investment in the equity shares of the assessee company. The assessee also filed bank statement along with foreign inward remittance certificate to prove the genuineness of transactions. The assessee also filed financial statements of the investor for last two financial years to prove the capacity of the investor in share application....
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....ed for additional details regarding the creditworthiness of the subscriber vide her order sheet entry dated 26- 08-2013 for which the assessee, vide letter dated 07-09-2013 had filed additional evidence including confirmation from the subscriber, bank statements, the financial statements of Xander Investment Holding XV Ltd and share certificate issued by the assessee company. All the aforesaid evidences have been filed at the instance of the Ld.CIT(A) and, therefore, the said evidence is covered by Rule 46A(4) which does not require to satisfy the conditions of Rule 46A(1) of Income-tax Rules, 1962. We further notice that under the provisions of section 250(4), the CIT(A) has wide discretion to make such further enquiry, as he thinks fit or to direct the AO to make further enquiry in the light of grounds taken by the assessee. Even rule 46A(4) clarifies that nothing contained in Rule 46A(1) shall curtail the CIT(A)'s power to direct the production of any document or the examination of any witness to enable him to dispose of the appeal. This fact has been further clarified by the Board vide circular No.108 dated 20-03-1973. Therefore, we are of the considered view that there is no m....
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....not genuine, he has every right to add the amount as 'Income from other sources'. The satisfaction of the AO is the basis for making addition u/s 68 and the satisfaction must be derived from the relevant factors on the basis of proper enquiry. It is well settled that the assessee is required to prove prima facie the transactions which results in cash credits in its books of account. Such proof includes the proof of identity of its creditor, the capacity of such creditor to advance money and lastly, the genuineness of the transaction. These things must be proved prima facie by the assessee and only after assessee has adduced evidence, the onus shifts to the department. In this legal background, when we examine the facts of the present case, whether the AO was right in making addition towards share application money received from Xander Investment Holding XV Ltd, under section 68 of the Income-tax Act, 1961. The assessee has filed various details including names and address of the subscribers to the share capital. The assessee also filed number of documents including share purchase agreement between the assessee and Xander Investment Holding XV Ltd, financial statements of the invest....
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....a non-resident the statue has given wide powers to the AO to conduct necessary enquires through competent authority, i.e. FT&TR, Department of Revenue, Ministry of finance, Govt. of India. But, the AO neither conducted required enquiries on its own nor resorted to the proper mechanism provided under the statue for exchange of information under bilateral tax treaty from the county from where the funds has come in order to verify genuineness of transaction. The AO without exercising his option provided under the statue simply came to the conclusion that the amount of investment received from a nonresident is non-genuine transaction on suspicious and surmises manner. Therefore, we are of the considered view that once the initial burden cast on the assessee has been successfully proved with necessary evidence, then there is no reason for the AO to doubt a genuine business transaction between two parties as a sham transaction to make addition u/s 68 of the Income-tax Act, 1961. 16. Coming to the allegations made by the AO in respect of issue of shares at a premium. The AO has questioned issue of shares at a premium. According to the AO, there is no justification for issue of shares a....
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....ions and creditworthiness of the parties. The issue of share capital with premium and subscription to such share capital is a commercial decision between two parties and the AO does not have to play any role as long as the credit in respect of share application money passed the test of identity, genuineness of transaction and creditworthiness of the parties. In this case, on perusal of details available on record, we find that the identity of the subscriber to the share capital is not in doubtful because there is a share purchase agreement between the parties, which establishes the identity of the creditor. The genuineness of transactions and creditworthiness of the parties is also not in doubtful as the assessee has filed necessary evidences to prove the genuineness of transaction by filing bank statements and foreign inward remittance certificate. In respect of creditworthiness, the assessee has filed financial statement of investors which is self explanatory, as per which the investor has capacity to explain source of investment in share application money of the assessee. 17. Coming to another aspect of the issue, the AO has made addition towards share application money recei....
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....n of the AO. We find that the issue of taxability of share premium has been considered by the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt Ltd vs UOI 308 ITR 1 (Bom) and after considering relevant provisions including the provisions of section 56(2)(viib) of the Act held that although section 56(1) of the Act would permit including within its head any income not otherwise excluded, it does not provide for a charge to tax on capital account transaction of issue of shares as is specifically provided for in section 45 or section 56(2)(viib) of the Act and included within the definition of "income" in section 2(24) of the Act. It was further observed that amendment to section 2(24) and insertion of section 56(2)(viib) wef 01- 04-2013 relevant to AY 2013-14 and therefore, prior to insertion of section 56(2)(viib), share premium cannot be charged to tax as it is in the nature of capital receipt. This legal position is further reiterated by the Hon'ble Bombay High Court, Nagpur Bench in a series of tax appeals in Income-tax Appeals No. 26 to 31 of 2017 dated 08-06-2017, where the Hon'ble High Court has considered the question of taxability of share premium in the l....