TaxTMI 
TaxTMI 
2021 (4) TMI 486
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....used the materials available on record. We find that the assessee is engaged in the business of manufacturing and sales of Bi-axially oriented polypropylene and the return of income for the Asst Year 2012-13 was filed by the assessee company on 30.9.2012 declaring total loss of Rs. 29,25,45,580/- under normal provisions of the Act and book profit of Rs. 1,51,56,973/- u/s 115JB of the Act. The assessee company is in the process of carrying on business as manufacturers, importers, exporters, buyers, sellers, suppliers, distributors, stockiest, designers 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, polyethylene polystyrene, polyvinyl acetate, methacrylate, resins, alkide resins, melamine, polyesters, such as polyethylene, terephihallate and polyethylene, sphathalate or any other or new substances being improvements upon, modifications of our being derived from additions to petrochemicals or other / products or resulting for many processe....
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....Before the completion of assessment, no replies were received from the said competent authority. The ld AO observed that the assessee did not furnish the details of source of funds for OMIL and accordingly concluded that the assessee had not proved the creditworthiness of OMIL to make investment in assessee company. 2.4. We find that similar amount of share capital and premium was received by the assessee company from OMIL in earlier year i.e Asst Year 2011-12 in the sum of Rs. 4,47,10,385/- which was sought to be added by the ld AO as unexplained cash credit u/s 68 of the Act. We find that the ld CITA had deleted the said addition in Asst Year 2011-12 , against which revenue had preferred an appeal before this tribunal for Asst Year 2011-12. We find that the ld CITA had deleted the addition made in the year under consideration by placing reliance on the order of his predecessor for Asst Year 2011-12 wherein, on similar facts and circumstances in respect of share capital and premium received from the same party i.e OMIL, the addition made u/s 68 of the Act was deleted. We find that the ld CITA had also observed in para 10.7 of the order that reference made to CBDT Foreign Tax Divis....
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.... 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 requirement of increasing the authorized share capital as the assessee was having sufficient authorized share capital to issue shares to the investor. During the year under consideration, the assessee received fund of Rs. 4,47,10,385/- on 25.03.2011 out of total investment of Rs. 19.80 crores. The balanced funds were remitted by the investor in subsequent years, which is already mentioned in FCGPR attached in assessee's paper book. We find from the case records and the assessment order and the order of CIT(A) that the assessee has filed complete paper book in respect to these investments like the following details: - Sr. No. Name of the shareholders No. of share Amount of premium Details submitted Particulars Paper Book 1 Paper Book 2 Paper Book 3 &nb....
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....tworthiness 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 dealt with the case laws in the next part of this order which was cited before us by both the sides. 13. As regards to the addition of share application money of Rs. 23,47,38,900/- by the AO and deleted by CIT(A), the facts relating to this dispute is that the assessee has issued 2,37,100 shares to ten different shareholders along with evidences filed by assessee are as under: - Ground of Appeal No. (ii)- Share Premium on issue of shares -Rs. 23,47,38,900 1. M/s Desert Diamond General Trading LLC 12,977 12,847,230 1. PAN and complete address 20 377 2. shareholder's agreement 378-413 3. Share Application form received from investor 414-415 663-664 &nbs....
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...... Ms/s Sparrow Exports Pvt. Ltd. 70,000 69,300,000 1. PAN and complete address 20 2. Confirmation of Accounts 21 3. Return of income 28 4. Letter issued by RBI in connection with FCGPR 52-53 5. Minutes recorded in board meeting for allotment of shares 59-67 6. Share application from received from investor 70-73 7. Share allotment certificate issued to investor 89-90 7. Notice 01.11.2013, 24.12.2013 and 04.02.2014 issued under section 133(6) of the Income Tax Act. 828-833 8. Response to notice issued under section 133(6) of the Income Tax Act. 834-845 5. M/s BhushanPetrofils Pvt. Ltd. 35,000 34,650,000 1. PAN and c....
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.... 7. Notices dated 01.11.2013, 24.12.2013 and 04.02.2014 issued under section 133(6) of the Income Tax Act. 789-792 8. Response to notice issued under section 133(6) of the Income Tax Act. 793-801 8. M/s Dindayal Processors Pvt. Ltd. 35,000 34,650,000 1. PAN and complete address 20 2. Confirmation of Accounts 25 3. Return of income 32 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 78-79 6. Share allotment certificate issued to investor 86 7. Response to notice issued under section 133(6) of the Income Tax Act. 857-865 9. M/s Prakash Calendar Pvt. ....
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....rovide that where a closely held company issues its shares at a price which is more than its fair market value then the amount received in excess of fair market value of shares will be charged to tax in the hand of the company as income from other sources. This amendment was made keeping in view the practice of closely held companies to brought in undisclosed money of promoters/directors by issuing shares at high premium which is normally over and above the book value of share of the company, and moreover which escaped the provisions of section 68 of the Act. Moreover, in case of many closely held companies and even in new companies promoters used to issue share at premium with the main purpose of keeping share capital low, yet capital base stronger so that breakup value and market value is high. This leads to advantage of low cost of servicing share capital and also improved prospects to issue share at premium in future by way of initial issue of offering by promoters. One more practical advantage was to save on account of cost of fees payable on increase of authorized capital. When shares are issued at premium, number of shares and authorized capital increase lesser in comparison....
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....assessee. Despite being the specific argument of the CIT-DR that the share premium defies commercial prudence, Hon'ble Jurisdictional High Court has held that genuineness of the transaction is proved since the entire transaction is recorded in the books of the assessee and the transaction has taken place through banking channels. The decision of the Hon'ble High Court has specifically 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 Tribunal after examining the ingredients of section 68 of the Act held that the addition of share premium under section 68 of the Act cannot be sustained. We hereunder reproduce the relevant paragraph of the decision of Hon'ble Jurisdictional High Court in ease of Green Infra (supra) for ready reference: 3.Regarding question no.(ii): (a)Before the Tribunal, the Revenue raised a new plea viz. that the so called share premium has also to be judged on the ....
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.... of Green Infra Ltd. (supra). It is a settled position that what is apparent is real unless proved otherwise. It is a settled legal position that "apparent is real" and the onus to prove that the apparent is not the real is on the party who claims it to be so as held by Hon'ble Supreme Court in case of CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 349. 18. In the present case, the overwhelming evidence proves that the 'nature' of receipt is share premium and share application money. The audited accounts of both parties, the statutory since it was the department which claimed that the share premium is not in fact so, despite the statutory forms viz. Form 2 for return of allotment and Form 20B for annual return filed with the ROC all show the 'nature' as share premium. If the Department wants to contend that what is apparent is not real, it is the onus of the department to prove that it was Assessee's own money which was routed through a third party. Only then can the provisions of section 68 of the Act be invoked. This aspect is considered in the decision of Mumbai Tribunal in case of Green Infra Ltd. Vs. ITO (2013) 145 lTD 240, wherein Tribunal has hel....
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....for valuing preference shares. Even the present Rule 11UA of the Income Tax Rules 1962 are applicable only to section 56(2) of the Act, requires valuation of preference shares by the merchant bankers. The AO has not even attempted to do any sort of valuation of preference shares. His addition is based entirely on conjectures and surmises. It is settled law that the assessment cannot he made on mere suspicion, conjectures and surmises. 21. Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further evident from a parallel amendment in section 56(2) of the Act which b....
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....gible assets u/s 32(1)(ii) of the Act and accordingly denied the depreciation thereon. We find that the assessee had pleaded that it had acquired 'rights in infrastructure' during the year under consideration and since such rights were for usage of common infrastructure and administrative facilities for plots allotted in Vraj Infrastructure Textile Part (VITP) , the same were akin to and having inextricable link with 'excess and effective utilization of factory building and other facilities' established by the assessee in VITP. We find that the assessee had further pleaded that despite the fact that such rights were shown as 'intangible assets' eligible for depreciation at 25% in the Tax Audit Report, the assessee had adopted rate of depreciation applicable to 'factory building' at 10% and since the assets were acquired in the second half of the year, it had claimed depreciation at the rate of 5% amounting to Rs. 17,29,780/- (3,45,95,600 * 10%* 50%). We find that the ld AO had denied depreciation on the only ground that the assessee had self-contradicted its claim by saying that such rights were intangible assets on one hand and by claiming depreciation at the rate applicable to fa....
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....m/2016 dated 19.2.2019 by holding as under:- 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 provide state of the art infrastructure and support to the members who are setting up units in the Textile Park. To become a member in the said Textile Park, the assessee was required to subscribe to the share capital being total 2,45,450 shares of the face value of Rs. 10 per share. These shares have been allotted to the appellant-company at the face value and thus a total consideration of Rs. 24,5....
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....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 the hands of appellant company u/s.56(2)(via9(a) of the Act. g. Accordingly an amount of Rs. 1,18,67,508 is taxed in the hands of appellant under the Head Income from Other Sources." 25. Aggrieved, assessee preferred the appeal before CIT(A), who deleted the addition by observing in Para 9.25 and 9.26 as under: - "9.25 It is seen that the Assessing Officer was allo....