TaxTMI 
TaxTMI 
2023 (6) TMI 133
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....ing the addition of Rs. 49.50 crores under Section-68 of the Act made by the Assessing Officer towards amount received as share premium by holding it as unexplained cash credit and passed a perverse order the facts and circumstance of the case? 4. Whether the provisions of Section 68 are attracted in law to the appellant when the appellant had provided all the details required to prove the credit and consequently passed a perverse order ignoring the material evidence placed before the revenue authorities on the facts and circumstance of the case? 5. Whether the Tribunal was justified in law in holding that the amount of Rs. 49.50 crores is real income of the appellant when the case of the revenue authorities itself is that there has been only layering of amounts and consequently, no amount originated from the appellant or destinated with the appellant to warrant addition to its income under any provisions of the Income tax Act and consequently passed a perverse order on the facts circumstances of the case? 2. Heard Shri. A. Shankar, learned Senior Advocate for the Assessee and Shri E. I. Sanmathi, learned Standing Counsel for the Revenue. 3. Brief facts of the case are, Ass....
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.... * the CIT(A) and the ITAT have failed to appreciate that the AO had no reason to believe that any income of the assessee had escaped assessment. The formation of such a belief is a condition precedent and not a mere formality. Absence of valid reasons is not a mere irregularity but a serious illegality and renders the notice and all proceedings thereon as void in law; * the ITAT ought to have appreciated that the reasons recorded could be at best a reason to suspect and did not constitute any reason to believe that any income had escaped assessment which is a sine qua non for issuance of a notice under Section 148 of the Act; * the authorities failed to appreciate that the assessee has fully explained the nature of investment received from M/s. Walden and addition under Section 68 of the Act could not have been made in the facts and circumstances of this case and the reasons recorded for the second time is absolutely perverse and devoid of factual foundation; * the issuance of second notice is to enlarge the period of limitation and therefore, bad in law; * the addition made under Section 68 of the Act is without jurisdiction when all the essential requirements for pr....
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....ived from M/s. Walden was not satisfactorily explained. In para 12 of his order, he has recorded following two reasons: "a) As could be seen from the above, CPIPL is only a loss making company with no activity at all except for holding land of 20 acres. The positive income shown therein being only interest income. The maximum value of its share at point in time is Rs. 139.36 and if the share premium were to be treated as a loan, the maximum value per share would be Rs. 9.23. The EPS for all the four years shown above is negative and there is no chance of any return on investment from such company. No prudent investor would buy the share of such a company at Rs. 1000/- unless he has nothing to lose. b) It is interesting to note in this scenario that while 500,000 shares were allotted to WPPL at a premium of Rs. 990/- per share, when around the same time 10,00,000 shares were issued to the assessee company's own director, Sri. B.P.Kumara Babu at Rs. 10/- per share which is a true reflection of the state of affairs of the company. This shows that the shares of the assessee company did not deserve any premium pricing." and concluded that the transfer of funds from M/s. Walden ....
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....d equity shares including the investment with the assessee is Rs. 3,022,931,312/-. 15. The first condition is to prove the identity of the investor. The assessee had placed the identity of the investor which is a private limited company on record. The second condition is to prove the capacity of the creditor. The details mentioned in the balance sheet recorded hereinabove prima facie establish that the M/s. Walden had capacity to invest. The third condition is genuineness of transaction. The transfer of funds has been made through bank transactions. Hence, all three aspects must also be held in favour of assessee. 16. It was urged by Shri. Sanmathi that under Section 68 of the Act, if any sum is found credited in the books and assessee's explanation is not satisfactory, the AO can add the said sum as income. Supporting Revenue's case, he argued that assessee had admittedly issued shares at Rs. 10 to its Director Mr. Kumar Babu, whereas in case of M/s. Walden it has collected huge premium though value of share was only Rs. 10. Therefore, the AO was right in adding the sum credited towards the value of shares as income. 17. We may record that, so far as any sum credited consists o....
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....eed to address the issue that if the inquiries, as directed, revealed that share capital infused were actually unaccounted money, whether the same could be taxed in accordance with Section 56(2) (vii b) or not. The ratio of the Constitution Bench decision of the Hon'ble Supreme Court in the case of Vatika Township (P) Ltd. (supra) does not apply in the legal context in which we are deciding these appeals. It is not necessary in these appeals to deal with the question of retroactivity of the aforesaid provisions, for which that authority was cited." 21. We may record that in the above case the High Court of Calcutta has not decided as to whether Section 68 of the Act is retrospective in operation or not. 22. In CIT Vs. Gagandeep Infrastructure Pvt Ltd (Bom) (2017) 394 ITR 680 (Bom), the High Court of Bombay has held as follows: "............In any view of the matter the three essential tests while confirming the pre-proviso section 68 of the Act laid down by the courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submissi....