AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2018 (11) TMI 1416
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....right in deleting addition of Rs. 598,44,01,500/- u/s 68 of the Act made on account of charging share premium of nearly Rs. one lakh each on 59,850 cumulative compulsory convertible preference shares of face value of Rs. 10/ - each allotted to M/s. Piramal Estates Put Lid without appreciating that the assessee company was not worth such a huge premium and nature and genuineness of the share transaction is not satisfactory. 2. On the facts and in the circumstances of the case and in law, whether charging share premium of nearly Rs. One lakh each the share with face value of Rs. 10/- is just justified in view of the financial results of the assessee company for the financial year ending on 31.3.2011 and 31.3.2012 and other relevant factors. 3. On the facts and in the circumstances of the case and n law, whether the Ld. CIT(A) erred in holding that proviso to section 68 of the Act is prospective in stature Inspite of the fact that the proviso is clarifactory in nature and thus, retrospective." 3. Briefly stated facts are that the assessee company is engaged in the business of real estate and real estate development and incidental services. The AO during the course of assessment p....
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....order is completely silent with regard to the notice issued under section 133(6) of the Act, the ARs' have demonstrated that they had filed considerable documentation in response thereto. As there was only one shareapplicant viz. PEPL and that entity too was a group company, the appellant had filed complete details of the name and address of the applicant, its PAN, its return in form no. 2 filed with the RoC & its return of income. These documents have been re-filed before me as part of the compilation. In any case, as pointed out by the ARs, the sole share-applicant was assessed to tax in the very same Circle with the very same AO as the appellant. Not just that, the AO had very much scrutinized the return of PEPL for this very same assessment year there being no addition made in its hands on account of the share application money paid to the appellant. In these circumstances. I find myself in complete agreement with the ARs' averment that the identity of the investor had been proven beyond any doubt. Further, the return of income of PEPL of the assessment year under consideration too had been filed before me along with its audited financial statements, they having alrea....
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....in the case of CIT v. Standard Vacuum Oil Co. (59 ITR 865), it had been held that premium realized on issue of shares is not in the nature of a revenue receipt and is hence not chargeable to tax. It would hence become dear that as held by the Hon'ble Supreme Court, not just the paid up capital but also the share premium is not chargeable to tax, both being not in the nature of revenue receipts. The Hon'ble High Court too of Bombay had occasion to go into this matter in its decisions rendered in the cases of Vodafone India Services (P) Ltd. v. Uol (supra) and Shell India Markets P. Ltd. v. ACIT (supra). It had then unequivocally held that the amounts received on issue of share capital - including the premium - are undoubtedly on the capital account. The Mumbai Bench of the Hon'ble Tribunal too had occasion to examine this very issue in the case of Green Infra Ltd. v. ITO (38 Taxmann 253). It had cited the judgments of the Hon'ble Supreme Court discussed earlier in this sub-paragraph. It had then examined the facts of that case and stated that a non-est and a zero balance company asking for premium of 490/- per share with a face value of it 10/- defied commercial prudence. Ne....
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....ranches of 20,000 and 39,850/- shares respectively. In respect of first tranche of issue of shares was applied by PCPL and money for the same was received in earlier year i.e. year ended 31st March 2011, which was disclosed as application money received pending allotment under the current liabilities in the FY ended 31.03.2011. The second tranche was received in the previous year 2011-12 relevant to AY 2012-13. The assessee company filed statutory forms with ROC in form No. 2 for each tranche separately disclosing the number of shares, face value and premium per share and also the name of the allottee. The assessee also filed its annual return of with ROC in form No. 20B disclosing the details of accounts of number of shares, face value and premium of share, name and address of shareholders. The AO during the course of assessment proceedings issued notice under section 133(6) of the act dated 28.03.2014 requiring the assessee to furnish details in respect of shares issued at premium. The assessee replied and filed following details: - "Annexure1- details of share allotment Annexure 2- form 2 filed for each tranche of allotment filed with RoC Annexure 3- Annual return filed in....
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....enuine transactions as well however the case got aggravated since the shareholders to whom premium was charged could not be traced (para 6, page 10 of the order). The AO deputed an inspector to make field inquiries with respect to the shareholders. The inspector reported that these three new shareholders are not available at the given addresses and their whereabouts are not known. The assesse in that case was confronted with the adverse inspector report but the assessee could not produce current addresses of these three new shareholders (para 6. page 10 of the order). The creditworthiness of the shareholders was also not proved since the shareholders did not have their own money as every payments made by them towards share money in the favour of the assessee is preceded by deposit in the hank account and the balance maintained regularly by them was miniscule (para 6, page 14 of the order). The confirmations received from three parties were signed by the same person. The assessee in that case could not justify the chargeability of such a huge share premium received from three new shareholder vis-a-vis issuing shares at par to the original promoters within the same relevant year unde....
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....capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P) Ltd. (supra) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal". 10. Now, in the present case of the assessee, the main crux of the facts that the assessee filed sufficient evidences viz, return of income, share allotment, annual return, details including name, address and PAN of the shareholder which are not negated by the AO. The AO in the present case has himself assessed the preference shareholder for the assessment year under consideration and after scrutiny has passed the order u/s 143(3) of the Act around the same date and has neither made any addition nor made any adverse remarks. The AO has not questioned the preference share capital to the extent of the face value but has only questioned the share premium. By this action of the AO himself, the 'nature' of transaction as that of 'preference share allotment' is proved beyond doubt and merely because he feels that the share premium is high the genuineness of the transaction cannot be doubted for the purpose of section 68 of the Act. 11. We find that i....
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....l statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held by IDFC Private Equity Fund which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC Private Equity FundII are all by public sector undertakings. (c) Mr.Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs. 490/ per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. (d) Thus, question no.(ii) as formulated does not give rise to any substantial question of law and thus not entertained". 12. In view of the aforesaid, we are of the view that valuation is not relevant for determ....
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....t stood for the year under consideration reads as under: "142. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 6911 or the value of any bullion, jewellery or oilier valuable article referred to in section 69A or section 6911 or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him". 15. We have considered the issue and find that this section does not cover section 68 of the Act. Thus, the Legislature does not envisage any sort of valuation for the purpose of section 68 of the Act. Indeed, valuation of preference shares is a completely different exercise as compared to valuation of equity shares. The AO makes the mention of the reserves and loss while challenging the charge of share premium on preference shares. "Reserves" could be relevant for valuing equity shares. They are not relevant for valuing preference shares. Preference shareholders get priority over the equity shareholders in terms of payment ....
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....closing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 of the Act and no addition can be made on this account. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. This issue of Revenue's appeal is dismissed. 17. The next issue in this appeal of revenue is against the order of CIT(A) deleting the disallowance of expenses relatable to exempt income made by the AO by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules,1962 (hereinafter the Rules). For this Revenue has raised the following ground No. 4,5 and 6: - "4. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) erred in deleting the disallowance of Rs. 33,22,52,153/- made by the Assessing Officer u/s. 14A of the Income Tax Act, 1961 read with Rule rad with rule 8D of the Income Tax Rules, 1962, without appreciating the facts brought out by ml e Assessing Officer and considering the fact that Section 14A was i....
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....d a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income." 19. In view of the above settled position, the CIT(A) ha....