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2021 (4) TMI 1024
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....explanation with regard to settled accounting practices, hence the same must be added back to the income of the assessee." "2. That the appellant craves, leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal." 3. Facts of the case, in brief, are that the assessee company was incorporated on 12th April, 2013 with the object of providing airline services. It filed its return of income on 31st October, 2015 declaring nil income. During the course of assessment proceedings, the AO noted that shares have been allotted to Shri Surinder Kumar Kaushik in lieu of goodwill and without any monetary consideration. On being questioned by the AO, the assessee filed certain submissions which has been reproduced in the body of the assessment order and which reads as under:- "Increase in share capital: As mentioned in our earlier reply, share having face value of Rs. 20 crores were issued to Sh. Surinder Kumar Kaushik, against goodwill for acknowledging his efforts for procurement of aviation license. No monetary transaction was involved in this allotment of shares. Copies of....
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....ning of licence in itself was shown as the evidence of his efforts. It was submitted that Shri Kaushik was a renowned advisor in aviation industry and was instrumental in obtaining the above licence. So far as the valuation of goodwill is concerned, it was submitted that two crores of shares of Rs. 10 each were issued to Shri Kaushik because DGCA had a condition that only those companies are entitled to apply for aviation licence who have an issued capital of Rs. 20 crores. Face value of shares (Rs. 20 crores) were booked as goodwill in the books of the company which is a common practice where shares are issued at a discount where the difference in issue price and face value is capitalized in form of goodwill. In the instant case, the shares were issued without any monetary consideration and therefore entire amount of face value has been booked as goodwill. It was argued that the issue of shares to Shri Kaushik without any consideration and booking of goodwill in the books of the company for the said amount has no impact on taxation of the company. Any tax liability on goodwill will arise only when the shares are allotted and that too in the hands of the shareholders to whom shares....
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....ii. Even the assessee could not provide the supportive evidence of work/services rendered for which the goodwill was created. iv. Even the other agencies have also informed to this office that the assessee company is facing the complaint proceedings of cheating and fraud. v. Since, an amount of Rs. 20 crores has been shown as Capital of the assessee in the balance sheet for accounting period 01.04.2013 to 31.03.2014 relevant to this assessment year and Balances Sheet is part and parcel of the Books of Accounts, it tantamount to credit of Rs. 20 crores in the Books of accounts of the assessee. The assessee's version that the shares were issuedto the director namely Shri Surinder Kumar Kaushik lieu of goodwill of the value of Rs. 20 core raised Sh. Surinder Kumar Kaushik. It has also been stated by the counsel that Sh. Surinder Kumar Kaushik has expired. Thus, neither statement of late Sh. Surinder Kumar Kaushik could be recorded as to how he had raised goodwill even when the license for running airline company had not been issued by the DGCA at the time of allotment of shares, and therefore, the company, might not have shared of its business of aviation. Withoutthe....
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....The AO is in the wrong footing in asking for a justification for the creation of goodwill. He did not perhaps realize that doing so was the assumed prerogative. There is no onus which is cast on the assessee to prove the genuineness of the share capital introduced through reciprocating entries in the books. 7.1 So far as the decision of the Hon'ble Supreme Court in the case of McDowell & Co. Limited vs. CTO 154 ITR 448 (SC) is concerned, it was argued that the said decision is not applicable in the facts of the instant case. In that case, it was held that any and every method used by the assessee in order to reduce his tax liability cannot be called a colorable device. The Revenue has first to show how the assessee has resorted to a device let alone a colorable device. Referring to the decision of the Hon'ble High Court in the case of New Holland Tractor India P. Ltd., it was submitted that the the Hon'ble High Court in the said decision has held that tax planning may be legitimate provided it is within the framework of law and held that the Tribunal was in error in applying principle enunciated in McDowell & Co. Ltd. vs. CTO (1985) 154 ITR 148 (SC). It was argued that in the in....
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....), 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- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10. There are 4 limbs to the provision of section 68 as under: First is vis-a-vis sum, Second is that sum is to be found credited in the books of accounts of assessee for that year, third is regarding explanation about the nature and source thereof and the last limb regarding in the case of a company is substantiating Identity of the creditor, Genuineness of the transaction and Credit wo....
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.... 68 applies when the source of the capital contribution made by the share holders is not disclosed or disclosed but not satisfactorily explained to the assessing officer. Introduction of share capital does not always mean that provisions of Section 68 have to come into play necessarily. Without prejudice to above, the amount before being credited to share capital account, is credited to the share applicant, details such as Name, address, PAN, ITR are available on records. 5.9 In the present case the "sum" has been identified by the Ld. AO as per the value of the goodwill claimed to be parted by the shareholder (late. Sh. Surender Kumar Kaushik) in favour of re company. Though there has been no infusion of funds in the books of accounts, the Ld. AO has taken the figure of the goodwill as if the amounts have been infused by the shareholder in re cooks of accounts and this figure has been taken as a sum credited. 5.10 It is however a non-disputed fact that the Ld. AO called for the due evidence and production of the director for examination so as to ascertain the existence and genuineness of the expertise/ goodwill. The fact is that the appellant failed to adduce any....
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....in the share capital reveals the reason adduced for issuing share worth Rs. 20 crore to its one of the directors Sh. Surender Kumar Kaushik that shares were issued for "blessings and efforts" and his goodwill which helped in obtaining aviation license. Under the circumstances, it amounts to a kind of payment/ESOP to the said shareholder without consideration and this vary aspect has been recorded by the Ld. AO in the impugned order. 5.15 So far observation of the Ld. AO that the assessee has adopted a colorable device to evade the tax is concerned, in the fact of the case where the appellant has created a fictitious asset in the nature of goodwill for the apparent objective of enhancing its authorized share capital and issuing the corresponding amount of shares valued at Rs. 20 crore to one of its shareholder is not found to be within the meaning of any colorable device for the reason that this mechanism of transaction is not directly or indirectly reducing the tax implication o n the income of the appellant. It is not the case that the share of Rs. 20 crore issued without consideration to Sh. Surender Kumar Kaushik, one of the directors/shareholder is not susceptible to t....
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....n which under the facts and circumstances of the case, is not justified. She submitted that the director of the assessee company was never produced before the AO. Further, there is no basis of valuation of such goodwill. According to the ld. DR, no such valuation report was ever provided by the assessee to the AO. Referring to the copy of the assessment order, she submitted that the AO at para 5.2 of the order has given a finding that other agencies have also never informed to his office that the assessee company is facing a complaint proceedings of cheating and fraud. Therefore, in absence of production of the director before the AO and in absence of the basis of valuation of such goodwill, the ld.CIT(A) could not have deleted the addition. 9. The ld. Counsel, on the other hand, heavily relied on the order of the CIT(A) in deleting the addition made by the AO. He submitted that the provisions of section 68 of the Act comes into play when there is receipt of money in the books of account of the assessee. However, in the instant case, the amount credited does not constitute any sum of money received from any one and, therefore, the provisions of section 68 are not applicable to t....
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....10. We have considered the rival arguments made by both the sides, perused the orders of the AO and the CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the AO, in the instant case, made addition of Rs. 20 crores to the total income of the assessee u/s 68 of the IT Act being the amount of Rs. 20 crores shown as goodwill and on which shares were issued in lieu of this goodwill to Mr.Surinder Kumar Kaushik. We find, the ld. CIT(A) deleted the addition, the reasons of which are already reproduced in the preceding paragraph. It is the submission of the ld. DR that the assessee could not provide the basis of such goodwill and, therefore, the genuineness of such transaction remained unproved. Further, the assessee could not provide any supportive evidence of work/services rendered for which the goodwill was created. According to the ld. DR, the basis of such valuation at Rs. 20 crores and not at a lower amount or higher amount has not been substantiated. It is the submission of the ld. counsel for the assessee that the provisions of section 68 are not applicable to the facts of the present case since the as....
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.... premium could not be treated as unexplained cash credits u/s 68 of the IT Act. We find, the Revenue challenged this decision of the Hon'ble Madras High Court before the Hon'ble Supreme Court and the Hon'ble Supreme Court dismissed the SLP filed by the Revenue reported in 268 taxmann.com 392. 12.1 We find, the Delhi Bench of the Tribunal in the case of ACIT vs. Shri Suren Goyal (supra), has held that where the assessee has received loan of Rs. 20 lakhs from his father through a journal entry in the books of account and there was no physical transfer of money from the account of his father, addition of the same u/s 68 of the Act is not justified and accordingly the Tribunal dismissed the appeal filed by the Revenue against the order of the CIT(A) deleting the addition made by the AO u/s 68 of the IT Act on account of the journal entry. 13. We find the Kolkata Bench of the Tribunal in the case of ITO vs. Bhagawat Marcom Pvt. Ltd., reported in 178 ITD 684 while deciding somewhat similar case has held that where the assessee company, during the year under consideration issued shares at premium to certain companies in lieu of shares held by the said companies and the said transact....
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....et, we find that the assessee had not raised any share capital by receipt of cash consideration in the instant case. The shares were issued for consideration other than cash in lieu of assessee company making investment in shares in some other company. Effectively, the assessee purchased certain shares from the aforesaid six shareholders and instead of paying cash to them, the assessee company issued shares in its own company to those shareholders. Hence the assessee had made investments in shares of another company for which consideration was settled through issuance of its shares to those shareholders. Now the crucial point is whether the provisions of section 68 could be invoked in the instant case for making investment towards share capital. There was no receipt of any sum as provided u/s 68 of the Act in the instant case. It would be pertinent here to refer to the decision of Hon'ble Supreme Court in the case of Shri H.H. Rama Varma vs. CIT reported in 187 ITR 308 (SC) wherein it was held that 'any sum' means 'sum of money'. We find that ld. CIT(A) had deleted the addition by observing as under: "6. On consideration of the AR's submiss....
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....the said shares of the equivalent value of the debt taken over by it from the companies, i.e., Rs. 11.20 lakhs. Therefore, the question of cash credit does not come in, there being no actual passing or receipt of cash. In other words, the transactions are mere book entries. It was contended that the fact that the entries passed through the cash book could not detract from or efface the essential nature of the entries. It was also urged that the entries were passed through the cash book so that the repayment of loans by the said three companies could be established before the Reserve Bank of India. But, according to Shri Bajoria, that does not mean that it amounts to an artifice employed to deceive any authorities, because the transactions showing the amount as received in cash and paid away spontaneously and simultaneously were not actual but only notional. He, however, stated that, as far as the question of section 68 is concerned, the nature of the transactions and the entries clearly show that no cash, in fact, flowed. It was further stressed that the transactions are above board. No outsider is involved. The entries were made in the books of the concerns of the same gr....
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....cash book ; the question of inclusion of the amount of the entry as unexplained cash credit cannot arise. One of the grounds of the Tribunal for disbelieving the assessee's case is that the adjustment entries were made by notional cash entries with a view to bringing down the debt-and-capital ratio, i.e., that while being discharged of the debt the said companies also jettisoned their assets, i.e., the shares held by them of equivalent sum without achieving the avowed purpose. Here the Tribunal certainly misdirected itself. The ratio to be reduced is of the loan in relation to the share capital and the reserves. Jettisoning the shares had the desired effect of reducing the borrowed capital. Again, as regards the Tribunal's refusal to take notice of the directions of the Reserve Bank, it is not correct for the Tribunal to hold that the said document was a new evidence in the true sense of the term. The assessee has been consistently pleading before the lower authorities that the entries had to be made in order to bring the companies in conformity with the said direction. Moreover, the direction of the Reserve Bank is a public document within the me....