TaxTMI 
TaxTMI 
2019 (3) TMI 689
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....f facts of the case are that the assessee is a private limited company engaged in the business of providing consultancy services, etc. The return of income for the year under consideration was filed on 30.09.11 declaring total income of (-) Rs. 3,90,36,096/-. Subsequently the case was selected for scrutiny and after serving statutory notices and providing opportunity of hearing, assessment order u/s 143(3) of the I.T. Act was passed by the AO thereby making additions/disallowances under different heads. 3. Aggrieved by the order of AO, assessee preferred appeal before Ld. CIT(A) and Ld. CIT(A) after considering the case of both the parties partly allowed the appeal of the assessee. 4. Aggrieved by the order of Ld. CIT(A), the revenue has filed the present appeal before us on the grounds mentioned herein above. Ground No. 1 5. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) in deleting the addition of Rs. 2,74,45,000/- on account of unexplained cash credit u/s 68 of the IT Act. 6. Ld. DR appearing on behalf of the revenue relied upon the order passed by AO and submitted that during the course of assessment proceedings, it was noticed by the AO ....
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....e sale said proceeds, the amount was invested in the assessee company (page 46 & 50 of the paper book), party ledger account (page 51 of the P.B.), bank statement of Joshi (page 66 of the P.B). 8. It was also submitted that it was not for the first time that Shri Joshi had made the investment in the assessee company whereas he had made similar investment in AY 2008-09 and the share capital received by the assessee for AY 2008-09 was accepted by the AO in the order of assessment passed u/s 143(3) of the Act and also Ld. AR relied upon the judgment in the case of Green Infra Ltd. 7762/Mum/2012, Gagandeep Infrastructure Pvt. Ltd. 2014 TIOL-656, Umacharan Shah vrs. CIT 37 ITR 271 (SC), CIT Vrs. Dwarkadish Investment Pvt. 330 ITR 298, etc. 9. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. 10. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6.4 to 6.15 of its order and the same is reproduced below:- 6.4....
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....t of Rs. 2,84,10,384/- being sales consideration receivable by Shri Joshi on sale of shares of M/s Prime Focus Limited Bank statement of Shri Joshi highlighting that the sales consideration of M/s Prime Focus Ltd (Rs. 2,84,10,384/-) has been credited in the bank account on 08.10.2010 and an amount of Rs. 2,75,00,000/- has been invested in the Appellant Company out of the above sales proceeds on the same day (i.e. 08.10.2010) 6.7 The documents filed by the Appellant have been perused. In order to adjudicate the ground disputed in appeal section 68 of the Act has been referred. On perusal of section 68 of the Act it emerges that section 68 of the IT. Act suppose to tax the sum found to be credited in books of assessee if (i) the nature and source of the same is not explained by the assessee (ii) the explanation offered by the assessee is not found satisfactory by the AO. It further states that where the assessee is a private company and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee company shall be deemed to be not satisfactory, unless the person, being a res....
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....subjected year which has been duly accepted by the AO; then I found no reason (except some doubt in premium) as to what made the AO to doubt the genuineness of the investor and make the addition. 6.10 Coming to the genuineness of the transaction, as explained in paragraph 6.6 above, I am of the view that the Appellant has filed the enough documents to prove the genuineness of the transaction which in fact accepted by the AO; therefore, I found no reason or justification as why the AO has made the addition. 6.11 The addition has been made by the AO on the reason that the security premium received by the Appellant is unjustifiable as the Appellant is a loss making company. For this reason my attention was duly drawn to the decision of Hon'ble Mumbai ITAT in the case of Green Infra Limited [7762/Mum/2012] wherein the Hon'ble ITAT has categorically held that "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 ....
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....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. ' 6.13 Thus, the Hon'ble Bombay High Court held that section 68 of the Act cannot be invoked on the ground of higher premium received if the assessee proved the identity and creditworthiness of the investors and genuineness of the transaction. In the present: case, the Appellant has duly proved the identity and creditworthiness of the investor and genuineness of the transactions; therefore, the addition made by the AO is deleted. 6.14 This view also find support from the another decision of Hon'ble Mumbai ITAT in the case of Gagandeep Infrastructure Pvt. Ltd. [2014-TIOL-656- ITAT-Mum] wherein it has been categorically held that "11. We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium i....
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....Revenue to add the same to the assessee's income as unexplained cash credit (f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained." Thus, respectfully following the above two judgments of the Hon'ble jurisdictional High Court, I am of the considered view that since the Appellant has proved the identity and creditworthiness of the investor as well as genuineness of the transaction; no addition can be made for the sole reason that the premium received by the Appellant are higher. In view of this discussion the addition on account of .security premium of Rs. 2,74,45,000/- made by the AO cannot be sustained in appeal and is directed to be deleted. Accordingly this ground of appeal is allowed. 11. After having gone through the facts of the present case and hearing the parties at length, we find as per the facts of the present case, the assessee had issued 550 no, 1% non-cumulative, non-convertible preference shares to an individual Shri Anuj Joshi. The assessee had also placed on record the sou....
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....n the case of Green Infra Ltd, Gagandeep Infrastructure Pvt. Ltd. (supra), it has been held that the issue of shares at premium is always a commercial decision, which does not require any justification. Further, the premium is a capital receipt which has to be dealt with in accordance with section 78 of the Companies Act 1956. 14. We have also considered the written submission, wherein the assessee has distinguished the judgments relied upon by the revenue and we are in agreement with the said reasoning. Ld. AR has also submitted that identical issue has already been decided by the Coordinate Bench of ITAT in ITA No. 2317/Mum/2017 in the case of DCIT vrs. Piramal Realty Pvt. Ltd, wherein in para no. 5 to 16 it was held as under:- 5. We have heard rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee company issued 59,850 1% NCCPs having face value of 10/- at a premium of Rs. 99,990/- to PCPL. These shares were issued in two tranches 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 ....
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....not be applied in the present case on facts of the case. He explained that the said decision is rendered on different set of facts as compared to the present case. He stated that the valuation of the share premium is to be looked into for the purpose of section 68 of the Act. The facts in that case were that equity shares were issued in the year under consideration to the promoters as well as three new parties. Both these classes of shareholders were issued equity shares. Promoters were issued shares at par whereas premium of Rs. 4901- per share was charged from the new parties and for this the Tribunal has made specific note of the following: Despite making such huge investment in the company, the company did not know the whereabouts of those shareholders (para 6, page 10 of the order). Ld counsel stated that no justification for such different issue price even within this relevant year under consideration is brought on record. The Tribunal noted that no doubt the price can be different in genuine 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 inspecto....
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....sessee of Hon'ble Bombay High Court in case of Gagandeep (supra) which reads as under:- "(c) Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on 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 dism....
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....al, the Revenue raised a new plea viz. that the so called share premium has also to be judged on the touchstone of Section 68 of the Act which provides for cash credit being charged to tax. The impugned order of the Tribunal allowed the issue to be raised before it for the first time, overruling the objection of the respondentassessee. (b)The impugned order examined the applicability of Section 68 of the Act on the parameters of the identity of the subscriber to the share capital, genuineness of the transaction and the capacity of the subscriberto the share capital. It found that the identity of the subscribers was confirmed by virtue of the Assessing Officer issuing a notices under Section 133(6) of the Act to them. Further, it holds that the Revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, it concludes as the entire transaction is recorded in the Books of Accounts and reflected in the financial 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 ....
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....13) 145 lTD 240, wherein Tribunal has held 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 shareholders 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. The said decision has been affirmed by Hon'ble Jurisdictional high Court in case of Green Infra Ltd (Supra). 14. The Ld. Counsel for the assessee made another argument that the power of carrying valuation is not envisaged by the Legislature for the purpose of Section 68 of the Act. He argued that, wherever the Legislature intended to give the power to determine the value to the AO, it either prescribes Rule for valuation of a particular thing or vested upon the AO the power to refer to the Valuation officer. The power of AO to make a reference to the Valuation Officer is contained in section 142A of the Act. Section 142A of the Act as it 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 investm....
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....hich brings in its ambit so much of the share premium as charged by a company, not being a company in which the public are substantially interested, as it exceeds the fair market value of the shares. If one accepts the Ld CIT-DR's contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time. In view of the matter, the Ld Counsel explained that it is a settled law that where two views are possible, the view favorable to the assesse should be adopted as held by Hon'ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192. In view of the above facts and circumstances, we are of the view that the assessee has discharged its onus by adequately disclosing 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 suffi....
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....,265 Total (A) 22,10,18,973 Interest bearing loan Effort BPO 1.30,00,000 The Appellant has filed the details of loans and advances given which were placed on page 32 of the paper book; the same is tabulated below for the purpose of completeness ExpressIT Logistic Worldvide Limited 1,00,00,000 Axis Spaces Pvt Ltd - Inter Corporate Deposits 5,00,00,000 Frameboxx Animation and Visual Effects Pvt. Ltd 65,00,000 Total (B) 7,95,00,000 Total (A+B) 30,05,18,973 From the details filed by the Appellant which are tabulated above, the Appellants contention is found to be in order and it is accepted that the interest free loans or advances given by the Appellant is Rs. 22,10,18,973f- only as against the amount of Rs. 30,05,18,9737- considered by the A.O. On perusal of the balance sheet of the Appellant,, it was seen that own fund (i.e. share capital and surplus) of the Appellant is Rs. 27,43,62,7427- against which the interest free advances given by the Appellant is Rs. 22,10,18,973/-. This establishes that the interest free funds have been given by the Appellant out of its own funds. In view of this discussion the addition made by the A.O. cannot be ....