TaxTMI 
TaxTMI 
2020 (1) TMI 852
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....any has shown only business loss of Rs. 31,243/- and that the assessee-company has issued shares to Mediorals Laboratory Pvt. Ltd. The shares issued, 85,500 in number, had a face value of Rs. 10/- and were issued at premium of Rs. 390/- totalling to a sum of Rs. 3,42,00,000/-. The Assessing Officer examined the credibility of the above. He was of the opinion that the assessee-company was having earnings per share of only Rs. 1.37. He also found that the aforesaid sum introduced in the form of share capital and share premium has been used in reduction of long term borrowings of Rs. 4,50,00,000/-. The Assessing Officer asked for Valuation Report about the shares issued. The Assessing Officer was of the opinion that the Discounted Cash Flow method used was based upon projected/estimated revenue, which was totally unrealistic. The Assessing Officer was of the opinion that because of negative net worth and huge loan liability, no new shareholder would bring in share premium, that too, to square off existing loan liability. Examining the present case on the cornerstone of Section 68 of the Act, the Assessing Officer was of the opinion that the intrinsic value of the share does not justif....
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.... u/s. 271(1)(c) are hereby initiated for furnished inaccurate particulars of its income. 7. During the course of assessment proceedings the assessee was duly asked to file the details of expenses incurred in connection with increase in authorised capital. It was also asked to why the same be not treated as capital expense and disallowed as business expenses in view of the decision of the Hon'ble Supreme court in the case of M/s. Brookbond India Ltd. Vs CIT as reported in 225 ITR 798 (SC). The assessee through its AR submitted that a sum of Rs. 34,600/- was paid as stamp duty on allotment of share in connection with increase in authorised share capital. The AR admitted that same may be disallowed. Accordingly, a sum of Rs. 34,600/- is disallowed as being capital in nature, and added back to the total income of the assessee." 4. Against the above order of Assessing Officer, assessee appealed before the learned CIT(A). The learned CIT(A) confirmed the action of the Assessing Officer. He found that there was no business, no assets, no stock belonging to the said company. The learned CIT(A) reiterated the reliance upon the decision of Kolkata Bench of the Tribunal in the case o....
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....f Section 78(2) of the Companies Act, 1956. In this regard, he referred to the decisions of Mumbai Bench of the Tribunal in the case of DCIT vs Finproject India (P.) Ltd., 171 ITD 82 and Credit Suisse Business Analysis (India) Pvt. Ltd vs ACIT, 72 taxmann.com 131. Further, the learned counsel submitted that even if there is a violation of Section 78(2) of the Companies Act, 1956, there is no provision under the Income Tax Act to tax such receipts. 7. Per contra, the learned Departmental Representative (DR) submitted that the issue of share premium and applicability of Section 78(2) of the Companies Act, 1956 was very much dealt with by the Kolkata Bench of the Tribunal in the case of Bisakha Sales Pvt. Ltd.(supra). He referred to the following observations in the said case law :- "7.9 We further find that the Hon'ble Apex Court in the case of Bharat Fire & General Insurance Ltd. v. CIT [1964] 34 Cos. 683 has held that prior to the enactment of section 78 premium received on issue of shares were profits. Now section 78 of the Act provides that aggregate value of share premium should be transferred to an account to be called the securities new account. Section 78(2) of the A....
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.... contention of the learned counsel for the assessee that the issue of compliance of Section 78 of the Companies Act, 1956 or diversion of share premium cannot be considered is not justified in view of the reliance by the authorities below on the decision of the Kolkata Bench of the Tribunal in the case of Bisakha Sales Pvt. Ltd. (supra) wherein this issue was duly considered as reproduced hereinabove. The authorities below have referred to apex court decision in the case of Durga Prasad More (supra) to buttress the point that the apparent is not real, that it is in fact and substance not share premium and that corporate veil has been put to use in a scheming manner. We find that the distinguishing feature of this case is that, not only the assessee's finances and operations do not justify the share premium, but the entire share premium raised has been diverted in paying off long term loan of the assessee. Hon'ble Apex Court in the Bharat Fire & General Insurance Co. vs CIT, (1964) 34 Comp Cas 683 has observed that but for section 78 of the Companies Act share premium was profits available. Hon'ble Apex Court in CIT vs Allahabad Bank Ltd., 73 ITR 745 (SC) has held that after....