TaxTMI 
TaxTMI 
2018 (10) TMI 1438
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....CIT(A) erred in deleting the addition made to total income amounting to Rs. 60,24,03,734/- (iii) On the facts and in the circumstances of the case and in law, without prejudice to ground No.1and 2 above, the Id.CIT(A) ought to have held that share premium is a revenue receipt taxable under the Act being accretion to assets without corresponding increase in liability and the corresponding reserves generated can be distributed as dividend in the form of bonus/shares". 2. The facts as narrated by AO are extracted below:- "Facts of the case:- The assessee company was incorporated on 28.12.2010 the name Anumati Properties Private Limited. The assessee company was acquired by current Management on 14.3.2011 and its name was changed to Varsity Education Management Pvt Ltd w.e.f. 27.3.2011. The assessee is engaged in the business of providing services like content development, facilities management, transportation management, text books and uniforms, mess and canteen services of students of K-10 schools (Kinder garden to Class 10) and Junior Colleges situated in Karnataka and Andhra Pradesh. The assessee company had two subsidiary companies, the details of which are as under:- (i) Jun....
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.... shares of the company on the above dates was Nil, as evidenced by the Balance Sheet of the assessee company. Hence the AO asked the assessee to give justification for premium received. 5. The explanations furnished by the assessee are extracted by the AO in the assessment order and for the sake of convenience, we also extract the same below:- "M/s NSR PR Mauritius LLC is (known as New silk route growth capital) is a Mauritius based private equity fund registered with the SEBI as a venture capital fund vide registration no ln/FVCI/08-09/119 dated 16.1.2009 (Herein after referred to as 'NSR') The registration details can be viewed on the SEBI website also. The url address is www. sebi. gov. in/investor/forventure. html. During the Previous year relevant to the AY 2012-13, the company has received Foreign Direct Investment (FDI) from NSR PE Mauritius LLC against allotment of 16.82.692/- Compulsory Convertible Preference shares (CCPS) of Rs. 10/- each at a premium of Rs. 1030/- per share. The share premium of Rs. 173,31,72,760/- credited to Securities Premium account. Further we submit that USD 349,99,993 received from NSR PE Mauritius LLC on 5.12.2011 and exchange rate as o....
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....8,05,15,719 -do- 2013-14 46,60,00,000 85,42,58,692 3. It is to submit that as per the valuation report, the value of Varsity Education Management Pvt ltd i.e. assessee works out to Rs. 2,31,36,85,924/- whereas the valuation of junior Varsity Education Management Pvt ltd works out to Rs. 2,13,01,85,5247-. Thus the total valuation of both the companies works out to Rs. 4,44,38,71,449/-. (i) However the valuer at the time of valuation has discounted the above said valuation and accordingly arrived at a value of Rs. 682/- per equity share. This valuation has been done based on the discounted cash flow method as per RBI guidelines. The guidelines have been already filed with you. Under the RBI guidelines any FDI coming into Indian company has to be valued as per DCF method. Further, investment in Indian company should not be less than the valuation arrived as per the DCF method. After the valuation as per DCF method, the assessee and the NSR have negotiated the price and arrived at share premium of 1030/-. This premium has worked out making a discount of 30% to the total value of 4,44,38,71,449/-. The discounted value works out to 3,11,07,10,014/- and the no of eq....
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....n of India (207 Taxman 185) in the query raised by him. The assessee submitted that the above said decision is not applicable to the facts of the present case. It was submitted that the Hon'ble Bombay High Court, in the above said case, refrained from interfering with the decision reached by the Settlement Commission as the petitioner has failed to demonstrate before the Court that the order passed by the Settlement Commission was perverse. The assessee placed reliance on the decision rendered by Delhi bench of ITAT in the case of Russian Technology Centre P Ltd vs. DCIT (25 ITR (Trib) 521) to contend that no addition is warranted u/s 68 of the Act if the identity of the non-resident remitter is established and the money has come in through banking channels. 7. The assessing officer noticed that the assessee has furnished a valuation report to the Reserve Bank of India (RBI), wherein the value per share was estimated at Rs. 682/- (Face value of Rs. 10/- plus premium of Rs. 672/-) only by following "Discounted Cash Flow" (DCF) method. Accordingly the AO took the view that the assessee should have collected premium of Rs. 672/- only per share and accordingly held that there is no ju....
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....njustified premium and accordingly added Rs. 43.02 crores as income of the assessee u/s 68 of the Act. In the appellate proceedings pertaining to AY 2011-12, the Ld CIT(A) had deleted the addition by holding that the assessee has proved the identity and creditworthiness of investor/shareholder as well as genuineness of transactions in terms of sec.68 of the Act. The assessee had also contended before Ld CIT(A) that the amounts received on account of issue of equity shares are in the nature of capital receipts as held by Hon'ble Bombay High Court in the case of Vodafone India Services P Ltd. 10. In the instant year, the ld CIT(A) followed the decision rendered by him in AY 2011-12 and deleted the addition made by the AO by observing that there is no logic in making addition of alleged excess premium of Rs. 358/- per share, when the identity and source of the same have been proved. Aggrieved, the revenue has filed this appeal. 11. The Ld CIT-DR submitted that the addition made in the year under consideration is identical in nature to the addition made in AY 2011-12, i.e., both relate to the assessment of excess premium as income of the assessee u/s 68 of the Act. The Ld D.R submitt....
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....er share and hence the burden has shifted back to the assessee and the assessee has failed to discharge the same. 13. The Ld D.R further submitted that the decision rendered by Hon'ble Bombay High Court in the case of M/s Major Metals Ltd (2012)(19 taxmann.com 176) would squarely apply to the facts of the present case. In the above said case, the assessee collected huge premium of Rs. 990/- per share. The Settlement Commission found that neither the subscribers had financial standing for giving such huge amount nor the past performance of assessee would justify payment. Hence the addition was made u/s 68 of the Act. The Hon'ble Bombay High Court has refused to interfere with the decision taken by the Settlement Commission. The Ld D.R submitted that, in the present case also, the assessee has failed to justify the excess premium of Rs. 358/- per share, as the valuation report justifies premium to the extent of Rs. 672/- per share only. 14. The Ld D.R submitted that the assessee has placed its reliance on the decision rendered by Hon'ble Bombay High Court in the case of Vodafone India Service P Ltd (supra) to contend that the share premium is capital receipt. She submitted that the....
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....eged excess premium in AY 2014-15. The Ld A.R, accordingly contended that the addition made by the AO in this year should be deleted. 16. The Learned AR submitted that M/s NSR PR Mauritius LLC (also known as New Silk route growth capital) is a venture capital fund registered with SEBI, vide registration No.IN/FVCI/08-09/119 dated 16.1.2009. He submitted that the above said investor company is not related to the assessee in any manner. The Learned AR further submitted that the above said investor company has given a letter dated 3.3.2014 to the assessee, copy of which is placed at page No. 200 of the paper book, wherein the above said investor company has explained that it has taken commercial decision to invest in the assessee company looking at the bright future it had. The Learned AR submitted that above said investor-company has invested funds in other concerns in India as well as in other Countries also. In this regard, he invited our attention to the material placed at page No. 198-199 of the paper book, wherein newspaper report about the investments made by the above said company with the assessee firm and other concerns is given. The Learned AR further submitted that the as....
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....passed the order for A.Y. 2011-12 on 11.1.2017 upholding the view of the Assessing Officer in assessing alleged excess premium as income of the assessee. He submitted that Hon'ble Bombay High Court has considered the issue of excess share premium in the case of CIT Vs. Green Infra Limited (2017) 392 ITR 7 (order dated 16.1.2017). He submitted that Revenue itself has accepted before the Hon'ble High Court that Share premium should also be judged on touch stone of section 68 of the Act. Accordingly, it was held that once the assessee has discharged burden placed upon him u/s. 68 of the Act, no addition could be made on account of share premium collection. The Learned AR submitted that identical view was expressed by Hon'ble Bombay High Court in the case of Gagandeep Infrastructure P. Ltd. (2017) 394 ITR 680. The ld AR submitted that the Coordinate Bench of the Tribunal, while disposing of the appeal of the assessee for A.Y. 2011-12, did not have benefit of decisions rendered by Hon'ble Bombay High Court in the case of Green Infra Ltd. (supra) as well as in the case of Gagandeep Infrastructure P. Ltd. (supra). He submitted that the decision rendered by Hon'ble jurisdiction....
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....e assessee-company were not creditworthy in as much as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000/- at premium at Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this Court in its writ-jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholders/share applicants were unidentifiable or bogus." Accordingly the Ld A.R submitted that the decision rendered by Hon'ble Bombay High Court was on the point whether there was any perversity in the order passed by the Settlement Commission or not, i.e., the Hon'ble Bombay High Court did not adjudicate the issue on merits. Hence it cannot be said that the said decision shall have any binding effect. 20. The Ld A.R submitted that the share premium amount has to be examined under sec.68 of the Act only. The assessing officer has satisfied with the identity, credit worthiness and genuineness of funds invested b....
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....s very much applicable. Accordingly he submitted that there is no reason to suspect the share premium during the year under consideration also. Accordingly he submitted that the order passed by Ld CIT(A) should be upheld. 22. The Ld D.R, in the rejoinder, submitted that the co-ordinate bench has held that the assessee has failed to explain the basis of share premium collected by it over and above the valuation as per RBI guideline and accordingly held that the assessee has failed to satisfactorily explain genuineness of transactions to the satisfaction of the assessing officer. The ld DR further submitted that the decision rendered by Hon'ble Bombay High Court in the case of Major Metals Ltd (supra) was not referred to in the decisions rendered by the Bombay High Court in the case of M/s Green Infra Ltd (supra) and Gagandeep Infrastructure Ltd (supra). Accordingly, the Ld D.R submitted that the decision rendered by the Tribunal in AY 2011-12 should be followed. 23. We have heard rival contentions and perused the record. The assessee has issued CCPS to M/s NSR PR Mauritius LLC, a SEBI registered Venture Capital Fund at a premium of Rs. 1030/- per share. In the valuation certificat....
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....see's share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any sense. 10.1 No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. Details of subscribers were before the Revenue authorities. The AO has also confirmed the transaction from the subscribers by issuing notice u/s. 133(6) of the Act. The Board of Directors contains persons who are associated with IDFC group of companies, therefore their integrity and credibility cannot be doubted. The entire grievance of the Revenue revolves around the charging of su....
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....of the Act. In the instant case, the assessing officer has assessed the alleged excess premium u/s 68 of the Act only. 26. The above said legal position was reiterated by Hon'ble Bombay High Court again in the case of CIT vs Gagandeep Infrastructure Pvt Ltd (2017)(394 ITR 680). In the above said case, the assessee therein issued shares at a premium of Rs. 190/- per share and collected a sum of Rs. 7.53 crores including share premium amount of Rs. 6.98 crores. The AO questioned the justification for charging Share Premium and it was explained that the same was on the basis of the future prospects of the business of the respondent assessee. The AO did not accept the same and invoked sec.68 of the Act to treat the amount of Rs. 7.53 crores as unexplained cash credit. The Ld CIT(A) deleted the addition cited above. The Ld CIT(A) observed that the AO has not given any reason to conclude that the investment made (inclusive of premium) was not genuine in spite of furnishing of evidences to prove genuineness. The Ld CIT(A) also held that the appropriate valuation of shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. The Tribunal noticed that the a....
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....structure Pvt Ltd (supra) makes it clear that no addition could be made u/s 68 of the Act in respect of Share premium, if the assessee discharges its burden by proving the three essential ingredients, viz., identity of the subscriber, the capacity of the subscriber and the genuineness of the transaction. 29. We notice that the decision rendered by the co-ordinate bench in AY 2011-12 in the assessee' own case in ITA No.486/Mum/2015 did not consider the decision rendered by another Co-ordinate bench in the case of Green Infra Ltd (supra), wherein it was held that the share premium cannot be assessed u/s 56 of the Act, but to be examined within the parameters of sec.68 of the Act. It is a fact that the assessee has failed to quote the same before the Tribunal at the time of hearing of appeal. It is so mentioned in the M.A order dated 23-06-2017 passed in M.A.No.153/Mum/2017. In any case the decisions rendered by Hon'ble Bombay High Court in the cases of Green Infra Ltd (supra) and the Gagandeep Infrastructure P Ltd (supra) have been rendered subsequent to the decision of the Tribunal in AY 2011-12 and hence the co-ordinate bench did not have the benefit of the same. In the above said....
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.... of the Settlement Commission which needs to be looked into relates to the computation of the additional income of Rs. 6.18 crores in the hands of the assessee. Before we deal with the merits of the challenge, it must be noted at the outset that the extent of judicial review in a determination made by the Settlement Commission must fall with the parameters settled by decided cases. In Jyotendrasinhji v. S.I. Tripathi [1993] 201 ITR 611/68 Taxman 59 (SC) the Supreme Court emphasised that the only ground upon which an order passed by the Settlement Commission can be interfered with is that the order of the Commission is contrary to the provisions of the Act and that such contravention has prejudiced the appellant. This would be apart from grounds of bias, fraud or malice which would constitute a separate category. The Supreme Court held as follows: "16. ...The scope of enquiry, whether by High Court under Article 226 or by this Court under Article 136 is also the same - whether the order of the Commission is contrary to any of the provisions of the Act and if so, has it prejudiced the petitioner/appellant. Apart from ground of bias, fraud and malice which, of course, constitute a s....
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....ttlement Commission." Against the background of above said legal position, the Hon'ble Bombay High Court examined the decision rendered by the Settlement Commission in the case of Major Metals Ltd (supra). The Hon'ble Bombay High Court noticed that the Settlement Commission has given atleast 14 reasons for taking the view that the genuineness of the transactions was not proved by the assessee. In this regard, the Hon'ble Bombay High Court observed as under:- "23. Now, it is in this background that the Settlement Commission has arrived at a considered finding of fact that the transactions of the two companies were not genuine transactions; that the two companies lacked a credit standing which would have enabled them to pay large amounts towards share premium of Rs. 990/- on a face value of Rs. 10/- per share and that neither the past performance or the financials of the petitioner itself would justify the payment of such a large premium. The Settlement Commission has relied upon the law laid down by the Supreme Court inSumati Dayal vs. CIT in applying the test of human probabilities." Since the Settlement Commission has given its decision on finding of facts, the Hon'ble Bombay H....
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.... premium collections have to be examined under the parameters of sec.68 of the Act. 32. The Ld D.R also argued that the assessee has not explained "nature" of excess premium amount of Rs. 358/- per share, i.e., according to Ld D.R/AO, the share premium was justified only to the extent of Rs. 672/- only. Accordingly she contended the excess amount of Rs. 358/- collected by the assessee cannot be considered as share premium. Since the "nature" of this excess collection is not explained by the assessee to the satisfaction of the AO, the Ld D.R contended that the same was rightly assessed u/s 68 of the Act. 33. Section 68 of the Act is a deeming fiction to assess cash credits, if the same was not declared by the assessee as his income and further, if the assessee offers no explanation or the explanation offered by the assessee is not satisfactory to the AO. The provisions of sec.68 read as under:- 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the "nature and source" thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the sum so credite....
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....he burden lies on the Department to prove that it is within the taxing provision and if a receipt is in the nature of income, the burden of proving that it is not taxable because it falls within exemption provided by the Act lies upon the assessee. [See : Parimisetti Seetharamamma [1965] 57 ITR 532 at page 536). But, in view of Section 68 of the Act, where any sum is found credited in the books of the assessee for any previous year, the same may be charged to income-tax as the income of the assessee of that previous year if the explanation offered by the assessee about the nature and source thereof is, in the opinion of the Assessing Officer, not satisfactory. In such a case there is, prima facie, evidence against the assessee, viz., the receipt of money, and if he fails to rebut it, the said evidence being unrebutted, can be used against him by holding that it was a receipt of an income nature. While considering the explanation of the assessee the Department cannot, however, act unreasonably." A careful reading of the above observations would show that the term "nature" is used in sec.68 of the Act in the context of whether the cash credit is of "income nature" or is "not of inco....
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.... the fact that there was receipt of money is itself evidence against the assessee. There is thus, prima facie, evidence against the assessee which he fails to rebut, and being unrebutted, that evidence against him by holding that it was a receipt of an income nature. (c) Smt. Panna Devi Chowdhary vs. CIT (208 ITR 849, 858)(Bom):- .....The Income tax Act imposes a liability to tax upon income. It does not provide that whatever is received by a person can be regarded as his income liable to tax. In all cases in which a receipt is sought to be taxed as income, the burden lies on the Department to prove that it is within taxing provision. It is only in a case where the receipt is in the nature of income, the burden of proving that it is not taxable lies upon the assessee. 37. In the instant case, there is no dispute to the fact that the assessee has received the sum of Rs. 1030/- per share as Share Premium. It is the case of the assessing officer is that he will accept the share premium only to the extent of Rs. 672/- per share worked out as per Valuation certificate. Accordingly the AO has considered the amount of Rs. 358/- per share as unjustified premium and assessed the same as....
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....in our view, the AO was not justified in holding that he will accept the share premium amount only to the extent of Rs,672/- only. Hence the AO was not justified in partially not accepting the share premium and accordingly he could not have doubted the genuineness of transactions on this reason. 39. We have noticed that the AO has assessed the alleged excess premium u/s 68 of the Act. The Hon'ble Bombay High Court has held in the cases of Green Infra Ltd (supra) and Gagandeep Infrastructure P Ltd (supra) has held that the amount received on issuing of Shares should be examined by the AO within the parameters of sec.68 of the Act. Accordingly, once the AO was satisfied with the identity and credit worthiness of the investor and genuineness of transactions, the assessee can be said to have proved the "nature and source" of the cash credits. The amounts received as Share premium are in the nature of capital receipts as per the decision rendered by Hon'ble Bombay High Court in the case of Vodafone India Services P Ltd (supra) and the assessee has also discharged the onus placed upon it u/s 68 of the Act. In fact, the AO himself accepted the share premium to the extent of Rs. 672/- pe....