TaxTMI 
TaxTMI 
2011 (8) TMI 1340
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....llows:- i) Interest from M/s. Berg Trading Pvt. Ltd. ₹ 7,15,785 ii) Interest on Project Loan ₹ 1,23,931 iii) Interest on Bank FDR ₹ 20,084 Total Interest Received ₹ 8,59,798 3. Out of the total interest received, the assessee offered ₹ 5,91,854, as revenue receipt and treated the balance interest as capital receipt and reduced the same from the cost of acquisition of the capital assets. The Assessing Officer called for an explanation as to why the difference interest income should not be taxed as a revenue receipt under section 56 of the Act. After considering the explanation of the assessee, the Assessing Officer considered only ₹ 1,44,015 as pre-operative income and treated the balance under the head "Income From Other Sources". The assessee accepted this finding of the Assessing Officer. This issue is not in dispute before us. 4. Further, the Assessing Officer found that shares were issued at a premium and 23 shares holders applied for share capital of a face value of ₹ 48,90,000 at a premium on the shares of ₹ 2,53,35,000 during the year. The assessee was asked to furnish details, confirmation and justification for....
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....nt order. Suffice to say, the Assessing Officer did not agree with the method of valuation and valuation reports of the assessee. Thereafter, he referred to section 68 of the Act and treated the amount of ₹ 2,53,35,000, as unexplained cash credit and made an addition. 6. Aggrieved, the assessees carried the matter in first appeal, wherein the Commissioner (Appeals) considered various arguments of the assessee and, vide Para-6.4 of his order, recorded that the assessee has furnished documentary evidence with respect to each and every credit and that there is no finding in the assessment order disputing the evidence filed. The Commissioner (Appeals) observed that the Assessing Officer accepted a part of the transactions as explained while considering the rest of the transactions as unexplained and held that a part of the same transactions pertaining to the same party cannot be treated as unexplained. He further held that the identity, capacity and genuineness of the transactions stood explained. The Commissioner (Appeals) specifically held that no addition is warranted under section 68, on the sole ground that charging of a certain premium on shares is not justified, either o....
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....0) 110 Taxman 172 (AP); 5. Barkha Synthetics Ltd. v/s ACIT, (2006) 283 ITR 377 (Raj.); 6. CIT v/s First Point Finance Ltd. (2006) 286 ITR 477 (Raj.); 7. Creative World Telefilms Ltd., 333 ITR 100 (Bom.); 8. CIT v/s Electro Polychem Ltd., 294 ITR 661 (Mad.); 9. Prakash Narain v/s CIT, (1981) 20 CTR (All.) 147; and 10.CIT v/s P.K. Noorjahan, 237 ITR 570 (SC). 9. He submits that, as the identity, creditworthiness of the share holders and genuineness of the transactions are established, no addition can be made under section 68 of the Act. He also placed reliance on the decision of this Tribunal in DCIT v/s Sahara India Finance Corporation Ltd., 81 TTJ 389 (Luck.), and submits that the issue is squarely covered by this decision of the Tribunal, Lucknow Bench. He finally submits that the first appellate authority was right in holding that the transactions cannot be divided into two parts and one part be accepted and the other part treated as unexplained. He emphasised that both share capital and share premium are concerning a single transaction and part cannot be accepted as genuine and the other part cannot be treated as non-genuine. 10. Finally, he submits that th....
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....f corporate shareholders; iv) PAN of shareholders / applicants; v) Copy of acknowledgment of I.T. return filed by the assessee; vi) Copy of ledger account of the assessee company in the books of account of the shareholders; and vii) The latest address of the parties were furnished wherever the assessee was not available at the given address; 13. The Assessing Officer has, in fact, accepted the identity, creditworthiness and genuineness of the transaction concerning the subscription of share capital by all these 23 parties to the extent of the face value of shares amounting to ₹ 48,90,000. The Assessing Officer only doubted the premium paid by the aforesaid parties on the ground that the valuations are not fair and were excessive and added the amount under section 68 of the Act. 14. The entire addition in this case has been made under section 68, based no the ground that the assessee was not able to substantiate the valuation of shares for the determination of premium. In our considered opinion, such an addition under section 68, is bad-in-law. The fact that the amounts were received from 23 persons, whose identity and capacity are not disputed. The fact that t....
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....hods of valuation and assumptions, etc., in the valuation report filed, following final analysis is given:- S.N. METHOD VALUE PER EQUITY SHARE 1. Net asset value based on book value of assets N.A. 2. Net asset value based on intrinsic worth of assets N.A. 3. Earning capitalisation method projected figures ₹ 94 4. Profit earning capacity method projected figures ₹ 489 5. Discounted cash flow method ₹ 142 6. Market quotation of equity shares Not applicable Since different values are arrived at, considering the most important specifics of the case that the current promoters are experienced and have a good track record the discounted cash flow method is recommended for valuation of the equity shares of M/s. Balaji Textile Mills Pvt. Ltd. The value per equity share could be around ₹ 118 per share being the average of earning capitalisation method and discounted cash flow method. 7. In our view, the method of valuation adopted by the valuer cannot be summarily rejected with showing valid and cogent reason. When all the methods adopted are accepted methods and are widely practiced and in fact prescribed by certain authorities, one cannot ig....
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....investment has not been doubted and identities had been established. In fact, there is no case that there are bogus shareholders. Therefore, it is held that on the facts of the case, the A.O. erred in bringing to tax the amount collected towards share premium of ₹ 2,53,35,000 as unexplained credit under s. 68 of the Act. The addition as made under s. 68 is hereby deleted. This ground is allowed." 10. We fully agree with these findings as it is legally incorrect to treat share application money to the extent of face value as a genuine transaction warranting no addition under section 68 and, thereafter, treating the premium amount received on the very same share application, from the very same share, from the very same person as not genuine. Both the share capital and share premium are concerning a single transaction and it cannot be split into two and decided differently. A part of credit of a single sum of money or of a single transaction cannot, by any stretch of imagination be treated as part explained and part unexplained. The Lucknow Bench of the Tribunal in DCIT v/s Sahara Sahara India Finance Corporation Ltd. (supra), considered an addition comprising of share capital....
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....has only to prove the existence of the person in whose name share application is received; additions could not be sustained where the existence of the investors is not doubted and the investment is not shown to have been made by somebody else." 5. CIT v/s First Point Finance Ltd. (2006) 286 ITR 477 (Raj.); "The Tribunal having found that the investors are genuinely existing persons and they have filed confirmations in respect of investments made by them and their statements were also recorded, the amount of share capital / share application money could not be treated as unexplained cash credits and no addition could be made under section 68." 6. Creative World Telefilms Ltd., 333 ITR 100 (Bom.); "In the case in hand, it is not disputed that the assessee had given the details of name and address of the shareholder, their PAN/GIR number and had also given the cheque number, name of the bank. It was expected on the part of the Assessing Officer to make proper investigation and reach the shareholders. The Assessing Officer did nothing except issuing summons which were ultimately returned back with an endorsement "not traceable". In our considered view, the Assessi....
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....; "The Tribunal no doubt should have considered the question of reliability of confirmation letters on the intrinsic worth and tenor of such letters. If crucial facts throwing light on the source of investment are not discernible from the letters, the Tribunal could have very well schewed those letters from consideration. But, this is a matter of appreciation of evidence and we do not think that a substantial question of law rises on that account. Moreover, we fail to see how merely by reason of unsatisfactory explanation relating to the source of investment by the shareholders, the money invested on shares should be treated as income of the assessee. If the ostensible shareholders failed to explain the means of investment, that should have been treated as unexplained investment in their hands. In order to add it to the income of the assessee, there must be a further finding that in fact the shareholders were mere name-lenders and the money allegedly invested by them really belonged to the directors of the assessee company. In the absence of a finding that the persons to whom the share certificates were issued on receipt of consideration as per the book entries were in fact dumm....