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2019 (4) TMI 1422
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....rned CIT(A) has erred on facts and circumstances of the case in deleting the addition of Rs. 4,47,10,385/- on account of introduction of share application money treated as unexplained credit u/s. 68 of the Income Tax Act, 1961. II. The Learned CIT(A) has erred on facts and circumstances of the case in deleting the addition of Rs. 23,47,38,900/- on account the share premium collected on issue of shares treated as unexplained credit u/s. 68 of the Income Tax Act, 1961". 3. Briefly stated facts are that the assessee-company was setting up BOPP line in the previous year 2010-11 relevant to the AY. 2011-12. The main activity which were going on over a building, commissioning and setting up of plant for manufacturing a BOPP film. The company is in the process of carrying on business as manufacturers, importers, exporters, buyers, sellers, suppliers, distributors, stockiest, designers of and dealers in polymers, monomers, elastomers and resins of all types, grades and copolymer formulations and in all forms such as resins/chips, powder, flakes, granules, films, sheets, tubes, pipes, fibres, laminates or as processed goods and including specifically polyethylene, polypropylene,....
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....08.2010 18.10.2010 09.12.2010 21.02.2011 70000 700000 69300000 990 70000000 5 M/s. Bhusan Profiles Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 35000 350000 34650000 990 3535000000 6 M/s. Shanti Educational Initiatives Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 5500 55000 5445000 990 5500000 7 Chiripal Textile Mills Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 30000 300000 29700000 990 30000000 8 Dindayal Processors Pvt. Ltd 16.08.2010 18.10.2010 09.12.2010 21.02.2011 35000 350000 34650000 990 35000000 9 M/s. Prakash Calender Pvt. Ltd., 16.08.2010 18.10.2010 09.12.201021.02.2011 30000 300000 29700000 990 30000000 10 M/s. Vijay Shubham Contrade Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 1000 10000 990000 990 1000000 Total 237110 2371100 234738900 990 237110000 5. The AO issued show cause notice and notice u/s. 142(1) requiring the assessee to explain and file the details like confirmation of account from all the above parties along with complete ad....
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....vestment Ltd., i. Copy of FC-GRP submitted to RBI ii. Copy of FIRC received from the IDBI Bank iii. Copy RBI letter allotting UIN No." 7. Ld. Counsel for the assessee explained the back ground of the business of assessee-company and future prospectus of the assessee-company by stating that Chiripal Poly Films Ltd (CPFL) is a closely held company incorporated under the Companies Act, 1956. The company is promoted by Chiripal Group of Industries, Ahmedabad. CPFL has proposed to set up imported BOPP Line of 3 Layers of 8700 MM width to manufacture BOPP film of specialty to commodity grade in range of 10 microns to 60 microns at an installed capacity of 38775 TPA. The project is to be set up at Vraj Integrated Textile Park Ltd., Bidaj Village, Kheda District in Gujarat for manufacture of BOPP Films at an installed capacity of 38775 TPA at a cost of project of Rs.24147.61 Lacs. The company also proposed to go for expansion and install 2ndline of BOPP films at an installed capacity of 34200 TPA at a cost of project of Rs. 21565.46 Lacs. With respect to 1st BOPP Line, KBC Bank Dutshland AG, Germany has financed (unsecured loan) the transaction for purchase of....
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....ium, as there is no nexus or justification and after going through Rule 11UA of the Rules, added an amount of Rs. 23,47,38,900/- u/s. 68 of the Act. Aggrieved, assessee came in appeal before the CIT(A). 9. The CIT(A) deleted the addition by observing in paras 9.5 and 9.6 i.e., share application money Rs. 4,47,10,385/- which is as under: "9.5. I have given a careful consideration to the entire facts and circumstances relating to the share application money of Rs. 4,47,10,385/- and have considered the reasoning contained in the assessment order in support of this addition as also the cases cited by the Assessing Officer and also considered the submissions of the appellant-company as reproduced above. I am of the view that the addition has been made by the Assessing Officer without allowing adequate opportunity and without examining the correct factual position. As mentioned above, primarily the addition has been made on the assumption that the appellant-company was debarred from receiving the aforesaid share application money unless first the authorized share capital is increased. From the factual position explained in the statement of facts it is clear that there was no ....
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....he above, it is seen that in this case, firstly loan of Rs. 6.00 crores was received by the appellant-company and subsequently shares were issued at premium and it was found that the two companies had no financial standing for giving such a huge loan. So, in my view this case is not relevant to the facts of the present case. There is no justification for the addition of Rs. 4,47,10,385/- and the same is deleted. Ground of Appeal No. 2 is allowed". 10. Further, the CIT(A) deleted the addition of share premium added by the AO u/s. 68 amounting to Rs. 23,47,38,900/- by observing in paras 9.17 to 9.20 as under: "9.17. I have carefully considered the factual position pertaining to the share application premium of Rs. 23,47,38,900/- vis-à-vis the provisions of section 68 of the I.T. Act. I have also duly considered the legal position as emerging from the various judicial pronouncements relied upon by both the A.O. and the appellant. There is no dispute about the proposition that the primary onus u/s. 68 of the I.T. Act is cast upon the appellant to prove and establish the following:- i) Identity of the creditor ii) Financial capacity of the creditor t....
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.... the Assessing Officer has admitted in the remand report that the identity of parties and the source of deposit have been established by the appellant-company. 9.18 In the remand report the Assessing Officer has tried to justify this addition by referring to the provisions of the IT. Act and the Companies Act contained in the following sections: - (i) Section 56(vii)(b) (ii) Section 56(v) (iii) Section 78(2) of the Companies Act. 9.19 It may be mentioned that section 56(vii)(b) has been inserted in the Income-tax Act with effect from 1.4.2013 and, therefore, it has no applicability in respect of the assessment year under appeal. Further, this section permits the Assessing Officer to bring to the charge of tax income under the head "Income from other courses" if certain conditions are satisfied. On the contrary, the present addition has been made u/s.68 of the I.T. Act. Similarly, section 56(v) referred to by the Assessing Officer permits the Assessing Officer to bring to the charge of tax certain money under the head "Income from other sources". This provision is applicable whenever any sum or money exceeding the prescribed limit is rece....
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....r the addition made by him. In my view the present addition has to be considered solely and entirely with regard to the provisions of section 68 of the I.T. Act under which the addition has been actually made by the Assessing Officer. There is no justification for travelling beyond the scope and ambit of section 68 of the I.T. Act. The Assessing Officer's observation that the appellant-company has failed to properly explain the nature of the credit, does not contain any force. The entire facts and circumstances clearly show that the nature of the receipt has been fully explained by the appellant-company as share premium actually received. There may be a difference of opinion regarding the basis on which the amount of share premium is calculated. The appellant-company in its reply dated 10th September, 2015 in response to the remand report has explained in detail the methodology adopted for estimating the share premium per share. A detailed chart has also been given summarizing the position contained in the audited financial statements for the financial years 2010-11 to 2013-14. On this basis of these parameters it has been rightly contended by the appellant-company that the share p....
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....unexplained, is without any basis. From the factual position, according to us under the Income Tax Act, there is no requirement for increasing the share capital for allotment of shares of 1.98 lakhs to Orange Mauritius Investment Ltd. but in any case the shares were ultimately allotted only on 11.07.2011 i.e. during the previous year relevant to next assessment year. Even otherwise, under the provisions of section 68 of the act, the only requirement is that the transaction should be genuine, identity of the party should be established and credit worthiness of the party should be proved. We find that the assessee entered into share holder agreement dated 15.03.2011 with Orange Mauritius Investment Ltd. is to be allotted 1.98 lakh shares of Rs. 10 each at a premium of Rs. 990 by the assessee company. The allotment of equity shares was to be made by the assessee company to the investor on receipt of full payment of Rs. 19.8 crores. We also find that the assessee has filed all the requirements complying with RBI guidelines by filing FIRE with RBI and also filed unique identification No. from RBI. Further, it has also filed FCGPR with RBI in this connection. Hence, there was no requirem....
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....rties, the financial capacity and the sources, has fully been explained by the assessee company. According to us, in the given facts and circumstances of the case records, documentary evidences, arguments of both the sides clearly established that this transaction carried out by assessee receiving share application money party to the extent of Rs. 4,47,10,385/- seems to be genuine and explained. Further, the AO has not carried out any further inquiry except the fact recorded that there is no authorized share capital to that extent and moreover, the AO also noted that there is unjustifiable amount of share premium and hence, entire transactions is not genuine. We have noted that for the purpose of section 68 of the Act, three requirements are required to be fulfilled which is the genuineness of transaction, source of money i.e. creditworthiness of the party and identity of the party. According to us, the assessee has fulfilled all the three ingredients of section 68 of the Act. We also noted that share premium can only be added under section 56(2)(vii)(b) of the Act which was inserted by the Finance Act, 2013 with effect from 01.04.2013 i.e. for and from the AY 2013-14. We will deal....
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....ed to RBI 470-471 3. Mr. Shyamsunder Sharma 4,171 4,129,290 1. PAN and complete address 20 472 2. Letter issued by RBI in connection with FCGPR 52-53 473-506 3. Minutes recorded in Board Meeting for allotment of shares 56-58 507-508 4. shareholder's agreement 473-506 745-778 5. Share application form received from investor 507-508 779-780 6. FIRC issued by bank 46-47 509 7. Share Allotment certificate issued to investor 510 781 8. FCGPR submitted to RBI 511-512 4. M/s Sparrow Exports Pvt. Ltd. 70,000 69,300,000 1. PAN and complete address 20 2. Confirmation of Accounts....
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.... 5 Share application from received from investor 68-69 6. Share allotment certificate issued to investor 84 7. Response to notice issued under section 133(6) of the Income Tax Act. 8. Response to notice issued under section 133(6) of the Income Tax Act. 7. M/s Chiripal Textile Mills Pvt. Ltd 30,000 29,700,000 1. PAN and complete address 20 2. Confirmation of Accounts 24 3. Return of income 31 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 76-77 6. Share allotme....
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....ntrade Pvt. Ltd. 1,000 990,000 1. PAN and complete address 20 2. Confirmation of Accounts 27 3. Return of income 34 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 82-83 6. Share allotment certificate issued to investor 91 We also find that the assessee has filed details with respect to balance with ROC for share issuance in term of form No. 2 and annual return filed with ROC. As regards to non-resident investors i.e. namely (i) Desert Diamond General Trading LLC (ii) Mrs. Neelam Sharma (iii) Mr. Shyamsunder Sharma, the assessee has filed the details in form No. 2 and Annual Return filed with ROC in respect of share allotted to these non-residents. 14. We have noted that the AO has simply relied on th....
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....l 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 along with 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 dismissing the Revenue's appeal". 16. We find that in the given facts of the case the decision of Hon'ble Jurisdictional High Court in case of Gagande....
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....n 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 Fund-II are all by public sector undertakings. (c) Mr.Chhotaray the learned counsel for the Revenue states that the impugned orderitself 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". 17. In view of the aforesaid, we are of the view that valuation is not relevant for determining genuineness of the tran....
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....ear 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". 20. 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 of divid....
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....osing 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. These two common issues of Revenue's appeal are dismissed. 23. The third issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO by invoking the provisions of section 56(2)(vii)(a) of the Act. For this Revenue has raised the following ground No. 3: - "II. The learned CIT(A) has erred on facts and circumstances of the case in deleting the addition of Rs. 1,18,67,508/- under section 56(2)(viia) of the Income Tax Act, 1961." 24. Brief facts are that the assessee company became member in Vraj Integrated Textile Park Ltd. (VITPL), which is Special Purpose Vehicle, Textile Park formed on the basis of the Scheme of Integrated Textile Park (SlTP) of the Ministry of Textile, Government of India. The main objective of this scheme is to....
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....the appellant has an option to choose the methods as prescribed therein with regard to valuation of equity shares. Such valuation shall be supported by a report issued by an accountant specified u/s.288 of the IT Act, 1961. The appellant has however not exercised any such option or submitted any such valuation report issued by an accountant. Therefore, the unsigned valuation working without even the basic supporting documents is considered as invalid and not acceptable. e. As regards the mode of receipts of the shores by appellant, the section specifies only 'Receipt of Share'. It does not specify the mode of receipt. Therefore, the mode of receipt of shares can be either by transfer or by allotment. What is important here for invoking the section is the receipt of an asset and not the more of receipt. The appellant admittedly received the shares for a consideration which is below the fair market value as pointed out in the show cause notice. f. In view of the above stated facts and legalities, the amount of Rs. 1,18,67,508 being the difference in the consideration which is paid less in comparison to fair market value in excess of Rs. 50,000 is taxable in ....
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....ind considerable force in the submission that the fair market value under Rule 11UA must be determined in an objective manner so as to reflect the correct market value of the shares. VITPL, as mentioned above, is a special purpose vehicle formed to facilitate the scheme of Integrated Textile Park mooted by the Ministry of Textiles, Government of India. It is not a profit making entity. The entire reserves and surplus appearing in the balance sheet as on 1.4.2010 are only on account of the grant received from the Government of India and not on the basis of any business profit earned by the company. In these circumstances, in my view, there can be no inference that the shares of VITPL have been acquired by the appellant- company at a price which is less than its fair market value. Considering the entire facts and circumstances the addition of Rs. 1,18,67,508/- is deleted. GroundAppeal No.4 is allowed." Aggrieved, now Revenue is in appeal before Tribunal. 26. We have heard rival contentions and gone through the facts and circumstances of the case. We have gone through the findings of CIT(A) and noted that the entire reserves and surplus appearing in the balance sheet as on 1.4.2....
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....ot made any submissions and has not controverted the legal position explained in detail by the appellant company in the reply reproduced above. The facts and circumstances about which there is no dispute are that during the previous year relevant to the present assessment year the project of the appellant-company was in the process of being set up and the business had not commenced. No commercial activity whatsoever was started by the appellant-company and the only income earned was some commission income. Therefore, all the major expenses incurred in relation to the project have been capitalized by the appellant-company under the head "Capital work-in-progress". During the year the appellant-company earned interest income of Rs. 48,30,629/- from deposits placed with IDBI Bank with the sole object of availing credit facilities for importing BOPP Line Equipment. In my view, there is considerable force in the argument that the aforesaid interest income is inextricably connected to the setting up of the project of BOPP. The interest income has been dRveITF5ifixidëposu placed with bank for availing L.C. margin against importing plant and machinery. In view of these facts the inter....