TaxTMI 
TaxTMI 
2018 (10) TMI 1438
X X X X Extracts X X X X
X X X X Extracts X X X X
....t. (ii) On the facts and in the circumstances of the case and in law, the Id.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 assess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....R PR at a premium at Rs. 1,030/- per share on 21.3.2011 & 5.12.2011. The AO noticed that the book value of the 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 acc....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 44,63,07,687 Diamond dreams IT Solutions Pvt ltd(presently known as Jr Varsity Education Management Pvt ltd 2012-13 43,60,00,000 78,05,15,719 -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 premiu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....not be applicable to this receipt as the investment has been made by Foreign Venture Capital Fund. The AO had referred to the decision rendered by Hon'ble Bombay High Court in the case of Major Metals Limited vs. Union 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the assessee had received funds in the immediately preceding year, i.e., in AY 2011-12 by issuing CCPS at a premium of Rs. 1030/- per share. In that year also, the AO had considered the excess premium of Rs. 358/- per share as unjustified 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 submitte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....den of proof would shift back to the shoulders of the Assessee, when the AO was not satisfied with the explanations furnished by the assessee. In the instant case, the assessee has failed to prove the genuineness of excess premium of Rs. 358/- per 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....11-12 & 2012-13. The Ld A.R submitted the assessee has received third tranche of funds in AY 2014-15 at the same premium amount of ` 1030/- per share. The AO has accepted the same in AY 2014-15 and accordingly, he did not make any addition towards alleged 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 invit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt of Rs. 672/- and unjustified amount of ` 358/- per share. Accordingly he submitted that "nature" of amount of Rs. 358/- per share cannot be considered to be something else other than "Share premium". 18. The Learned AR submitted that the Tribunal has 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.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd vs. Union of India (2013)(359 ITR 450)(Bom) proceeded on its own facts to uphold the invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....was satisfied with the identity and creditworthiness of the investor and the genuineness of transactions. The Ld. A.R submitted that the AO has accepted the fair market value of CCPS in AY 2014-15, when the above said provisions of sec.2(24)(xvi) read with sec.56(2)(viib) was 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 rende....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 PE Fund-II who is a subscriber to the assessee'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 trans....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Court, the revenue has acccepted that the Share Premium collected by the assessee has to be considered as cash credit and examined on the parameters of sec. 68. Hence, there should not be any dispute now that the share premium amount collected by the assessee should be examined within the parameters of sec. 68 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nue to add the same to the assessee's income as unexplained cash credit." 28. The decision rendered by the Tribunal in the case of Green Infra Ltd (supra), which has been confirmed by Hon'ble Bombay High Court (supra) as well as the decision rendered by Hon'ble jurisdictional High Court in the case of Gagandeep Infrastructure 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/M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Karnataka High Court further held that an error of fact or of law alleged to have been committed by Settlement Commission cannot be looked into by High Court. The following observations made by Hon'ble Bombay High Court in the case of Major Metals Ltd (supra) also support the above said view:- "19. The next aspect of the order 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: ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... procedural requirements of the provisions of Chapter XIX-A and/or violation of the principle of natural justice; and (ii) there is no nexus between the reasons given and the decision taken by the Settlement Commission. In other words, the Court under Article 226 would not interfere with an error of fact alleged to have been committed by the Settlement 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 per....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of transactions and the capacity of the investors were not proved. Even though the Settlement Commission has also observed that the past performance of the company did not justify payment of large premium, the said observations were made only to support the main observations. In any case, it has now been held that the share application/share capital/share 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....planation 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 credited may be charged to income tax as the income of the assessee of that previous year. The Supreme Court held as follows: "It is no doubt true that 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 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cannot act unreasonably and reject that explanation to hold that it was income. If, however, the explanation is unconvincing and one which deserves to be rejected, the department can reject it and draw the inference that the amount represents income either from the sources already disclosed by the assessee or from some undisclosed source. The department does not then proceed on no evidence, because 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. I....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e assessee has exceeded the financial projections. Accordingly he has held that the premium of Rs. 1030/- was determined between the parties on the basis of commercial considerations and agreed to by them, which cannot be questioned by the tax authorities. It is well settled proposition of law that the AO was not entitled to sit on the arm chair of a businessman and regulate the manner of conducting business. Hence, 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 assesse....