TaxTMI 
TaxTMI 
2021 (4) TMI 1024
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....s, 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 forms filed with ROC for this purpose are enclosed herewith. As equal amount....
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....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 have been allotted and not in the hands of the company under any circumstance. 6. However, the AO was not satisfied ....
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....o 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 license the company cannot function thus the question of raising goodwilldoes not arise. Moreover, no satisfactory reply or evidence has been filed which may show that there was....
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....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 instant case the assessee has not used any device to avoid tax, therefore, the said decision is not at all applicable. It was further argued that the provisions of section 68 cannot be invoke....
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.... (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 worthiness of the creditor. 5.6 During the year under consideration, the appellant company is found to have raised share capital. Instead of receiving the consideration amount through Bank, the Company has cls'med to have received Goodwill of the share holders / d....
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....ce 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 cogent evidence/documents which could have proved the existence of the expertise with the director who has been allotted the share of Rs. 20 crore and also the fact that the said director was no more in existence (passed away) and therefore could not be produced for examination. 5.11 In absence of any other cogni....
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....his 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 the tax incidence in the hands of the recipient. 5.16 Based on above finding, the nature of transaction in the present case is self creation/valuation of a fictitious assets in the nature of goodwill by capitalizing the difference in issue price and face value of the shares which is fully disclosed / incorporated in the books of accounts. Source of transaction is not ap....
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.....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 the facts of the present case. He submitted that the assessee has duly explained the source and the nature of the transaction before the AO by giving the details such as name, address, PAN, ITR, etc., of the director to whom such shares were issued on account of goodwill. He submitted that it is the decision of the businessmen to decide and value its goodwill as has been held by the Hon'ble Delhi H....
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....r.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 assessee has not received any actual amount of cash. It is also his submission that the various documents filed before the Ministry of Corporate Affairs such as Forms No.2, 3 and 5 filed with ROC relating to issue of shares for a consideration other than cash was not disputed by the ROC. It is also his submission that addition, if any could have been made in the hands of the shareholder and definitely not in the hands of the assessee. 11. We find some force in t....
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....ther 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 transactions were entered in the books of account of the assessee company by way of journal entries and it did not involve any credit to cash account, therefore, the amount of entry could not be treated as unexplained cash credit u/s 68 of the IT Act. 13.1 We find, the Jaipur Bench of the Tribunal in the case of ACIT vs. Mahendra Kumar Agrawal (supra) has held that in provisions of section 68, the words used are "where any sum is found credited in the books of an assessee." I....
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....estments 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 submission, especially the portion reproduced above, it is seen that section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter system. The AO has not refuted the appellant's claim that shares were allotted in exchange for acquisition of shares by the appellant from the companies which surrendered such shares to the appellant. Though as per the AO to apply section 68 to make the said additi....
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.... 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 group. The shares in question were also of the companies of the group. There was no attempt at hiding the transactions. Nor is it the case of any of the parties to the transaction that there was any passing of cash. Every party unequivocally stated that the transactions were carried into effect merely by way of adjustments of the said loans and the share transfers. Shri A. C. Moitra, the learned advocate for the Revenue, reiterated the grounds on which the Tribunal has affirmed the addition of the amount of Rs. 11....
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....tio 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 meaning of section 74 of the Evidence Act, 1872. Documents of a public nature and public authority are generally admissible in evidence subject to the mode of proving them as laid down in sections 76 and 78 of the Evidence Act. In our view, the effect and import of the transactions is that the assessee took over the liability of the aforesaid non-financial companies to GB and Co. in exchange for the shares as aforesaid. In the premises, we answer all the questions, in the affirmative and in favour of the assessee and against the Revenue." 4.2. It would ....