TaxTMI 
TaxTMI 
2025 (7) TMI 942
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....der consideration, the assessee had issued 6,36,366 equity shares of face value of Rs. 10/- each at a premium of Rs. 100/- per share aggregating to Rs. 7,00,00,260/- including alleged issue of 2,72,728 equity shares to its Holding Company ie. Equirus Capital Put. Ltd. The share premium was credited to the 'Securities Premium account' under the head 'Reserves and Surplus' in the Balance Sheet. 2. The appellant also issued 1,00,000 0% redeemable preference shares of Rs. 10/- each at a premium of Rs. 990/- per share. The assessee has redeemed 40,000 share of redeemable preference share of Rs. 10/- each at a premium of Rs. 990/- during the relevant assessment year. 3. The Ld. Assessing Officer found the share premium of Rs. 2,45,45,520/- on 2,72,728 equity shares and that of Rs. 5,94,00,000/- on 60,000 preference shares as huge and accordingly, doubted the genuineness of the transaction and also invoked the provisions of section 56(1) of the Act. AO's Contentions: 1. Addition of a sum of Rs. 8,39,45,520/- was made u/ s, 68 of the Act as unexplained cash credit on the ground that the appellant has not proved the identity, creditwor....
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....o 55-96 of Paper Book) b. Copy of Board Resolution for allotment of equity and preference shares; (Page no 101-102 of Paper Book) c. Ledger Confirmation of the shareholders (Page no 97-98 of Paper Book) d. Form No. 2 for allotment of shares; (Page no 103-118 of Paper Book) e. Justification of the share premium received, and (Page no 119-126 of Paper Book) f. Details of profitability of the appellant company in the previous years. (Page no 120 of Paper Book) 3. As a matter of fact, the appellant company has strived hard and increased Its profitability in subsequent years which shows the company is taking earnest efforts to increase its profitability, which is produced below for Your Honour's reference- Assessment Year Gross Revenue Net profit 2014-15 8,16,20,337 2,20,38,051 2015-16 9,63,56,936 1,13,40,418 Onus to prove genuineness u/s 68 of the Act- 4. It is submitted that the company is required to prove the genuineness, purpose or justification for charging a premium on shares. Issuance of shares at a premium is only a manner of funding whereby the required funds to be issued are....
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....unt credited to the books of accounts and is not obligated to explain the source through which the said share application money was received by the said applicant company. In this regard, attention is invited to the following judicial precedents wherein it is observed that no addition can be made u/s. 68 for failure on the part of assessee to explain the source of source and that in such cases addition if any has to be made in the case of such share applicants. a. CIT v. Gagandeep Infrastructure Put.Ltd [2017] 80 taxmann.com 272 (Bom.) The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. Thus, it would be effective only from the assessment year 2013-14 onwards and not for the subject assessment year. In fact, before the Tribunal, it was not even the case of the Revenue that section 68 as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-4-2013 was its normal meaning. The Parliament did not introduce to proviso of section 68, with retrospective effect nor does the proviso to introduced states that it was introduced 'for removal of doubts' or....
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.... the books of accounts and not the source of source. Further, the appellant has discharged its onus to prove the identity, genuineness & creditworthiness of the investor as envisaged u/s 68 of the Act and hence, the addition made u/s 68 of the Act is uncalled for. High Share premium cannot be base for addition u/s 68 9. The appellant company has issued 6,36,366 equity shares of Rs. 10 each at a premium of Rs. 90 per share and 1,00,000 0% redeemable preference shares of Rs. 10 each at a premium of Rs. 990 per share. Both the shares have difference rights as per the companies Act. The equity shares cannot be redeemed once it is issued, while the preference shares must be redeemed within ten years' time therefore different premium in both the type of the shares are fully justified. In short the preference share are capital liability of the company which is to be repaid within maximum ten years time. The appellant company was incorporated in FY 2007-08 and during the three years the appellant company made the profits as per the chart given below - Assessment Year Gross Revenue Net profit 2008-09 2,75,343 1,26,593 2009-10 26,29,526 12,71,....
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....o its parent company at a price of Rs. 110/- per share. In view of the same, the price at which the shares are issued to Equirus Capital Put. Ltd. is at the valued price and accordingly, the Id. Assessing Officer has failed to ascertain the actual factual position. With respect to issue of preference shares to Equirus Finance Private Limited the share price is decided mutually between the parties and considering several other factors like future growth of the company, potential of having a private equity investor experience in industry etc. Thus, no disallowance ought to have been made in respect of equity shares issued to the parent company to the extent of Rs. 2,45,45,520/- and preference shares to the tune of Rs. 5,94,00,000/-. 13. Without prejudice to point no. 12, Your Honour would appreciate that the equity shares are being valued in accordance with Rule 11UA of the Income Tax Rules, 1962 read with section 56(2)(viib) of the Act, and accordingly, no addition in respect of the issue of equity shares ought to be made. Your Honour's kind attention is invited on the below calculation of book value of the shares calculated as From the above calculation it can....
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....cial prudence. Therefore, it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. Addition of Share Premium u/s 56 of the Act 17. The appellant submitted that the premium is a capital receipt which has to be dealt with in accordance with section 78 of the companies Act, 1956 and other related provisions of the Act. In this regard reliance is place on the following judicial precedents mentioned below- a. Vodafone India Services (P.) Ltd. v. Union of India [2014] 50 taxmann.com 300 (Bom.) In view of the above, there is substance in the assessee's case that neither the capital receipts received by the assessee on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so-called fair market price of its equity shares and the issue price of the equity shares can be considered as in....
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....y in relation to the application of share premium account for certain prescribed purposes and has nothing to do with the utilisation of funds raised through share premium. Even, otherwise without prejudice, even if section 78 is not followed, that ipso facto cannot tantamount to addition in the hands of the appellant company as its income without any authority of law in this regard. 22. Applicability of Section 56(1) of the Act The Ld. Assessing Officer id of the view that amount of Rs. 8,39,45,520/- received by the appellant company in the guise of share premium is treated as Income from Other Sources u/s 56(1) of the Act. In this regard kind attention is invited to the decision of Hon'ble Bombay High Court in case of Vodafone India Services (P.) Ltd. v. Union of India [2014] wherein it was held that with effect from 1-4-2013, the definition of income under section 2(24)(xvi) includes within its scope the provisions of section 56(2)(viib) and the receipt of share premium received was on account of capital nature and the same cannot be taxed u/s 56 of the Act. Your Honour's attention is invited to the fact that the Hon'ble CBDT vide its Instruction No.....
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.... Letter addressed to AO dated 12/02/2015 Letter addressed to AO dated 17/02/2015 Letter addressed to AO dated 14/03/2015 Details of Equirus Capital Private Ltd Details of Equirus Finance Private Ltd Confirmation from Equirus Capital Pvt Ltd Confirmation from Equius Finance Pvt Ltd PAN Card of Equirus Finance Pvt Ltd PAN Card of Equirus Captal Pvt Ltd Resolution of Equirus Securities for Issue of Equity Shares Resolution of Equirus Securities for Issue of Preference Shares Return of allotment Return of allotment Return of allotment Return of allotment Letter to AO dated 14/03/2015 Bank Statement of Equirus securities In order to substantiate that no addition u/s 68 of the Act or any other section could be made by the revenue authorities. Moreover the assessee has also drawn our attention to the fact that he has filed a detailed written submissions as had been incorporated in above paras but the AO as well as CIT(A) has failed to considered the documents and the submissions filed by the assessee. Whereas both the revenue authorities simpl....
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....s primarily for purpose of registration and the period for which the registration was subsist was only an incident and not the dominant purpose" 8. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the disallowance for registration with SEBI and in this regard Ld. AR relied upon the written submissions filed by him before Ld. CIT(A) and the same is reproduced below: Ground No. 5: Addition of Rs. 8,33,332/- u/s 37(1) of the Act Facts - The appellant has incurred a sum of Rs 10,00,000/- as fees towards Portfolio Management Services (PMS) registration fee to Securities Exchange Board of India (SEBI) for the period 29.06.2011 to 28.06.2014. AO's contention - The Ld. Assessing Officer disallowed a proportionate sum of Rs. 8,33,332/- on the ground that the expense was not incurred for the previous year 2011-12 relevant to assessment year 2012-13. The appellant has made advance payment of PMS registration fees and only expenditure incurred during the previous year amounting to Rs. 1,66,668 is allowable as per the provisions of Sec 37(1) of the Act. Appellant's Submission - ....
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....lowed to claim the disallowed expenditure in subsequent years. Penalty proceedings and furnishing Inaccurate u/s.271(1)(c) of the I.T. Act are separately initiated for concealment and particulars of income. 11. After having gone through the orders passed by the AO, we find that the assessee had made advance payment of PMS registration and also expenditure incurred during the previous year amounting to Rs. 1,66,668 @ 27,718/- for sixth month which are found to be allowable as per the provisions of Sec. 37(1) of the Act therefore the balance amount was considered as prepaid amount in advance for subsequent assessment years. Therefore, the same was rightly disallowed and at the same time assessee was given liberty to claim the disallowed expenditure in subsequent years. Thus, in our view the orders passed by the AO and Ld. CIT(A) on this issue are valid and needs no interference, therefore this ground raised by the assessee stands dismissed. Ground No. 7 The Ld. CIT(A) erred in confirming the disallowance of Rs. 80,738/- for foreign travel without appreciating that in the business of the appellant exploratory visits were essential and were for the purposes of busi....
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.... question is as to whether this was for business purpose. It is recorded that the nexus between the foreign travel of 'P' and the business of the assessee has not been established. Normally, it would have been a finding of fact, as argued by the revenue. However, in the present case, the only reason for disallowing the expenditure is that 'P' was neither a director nor an employee. Second reason given is that it has not been established that the assessee had any business in brass during the year or that 'P' is expert in brass sheet or that any agreement was entered into between him and the assessee. There are totally irrelevant considerations. If there is a foreign travel in connection with the business, merely because in the said foreign travel, no business could be transacted or the foreign travel did not result in bagging any contract is not the determinative factor. It is not also necessary that the expenditure on 'P' could be claimed by the assessee only if he was a director or an employee. The relevant factor was as to whether he was sent by the assessee abroad in connection with the business of the assessee. In order to prove this, the assesse....
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....products of the parent company and such an expenses has been incurred mainly on behalf of the parent company, therefore, the same is not allowable. Such a view cannot be sustained, firstly, for the reason that once, the assessee has shown that its employees have undertaken foreign travelling for the purpose of indenting business on which it has earned commission income and also on the business of import and export of goods, then same cannot be doubted until and unless it has been found that these expenses are either personal in nature or it was not for the business purpose at all; secondly, the Revenue cannot decide who should bear the expenses and why the assessee was required to incur such expenses. The decision to incur expenses is upon the assessee, so long as it is for the purpose of business. In this case, the assessee has filed exhaustive details of the foreign travelling expenses along with the evidences on which no infirmity or discrepancy has been found either by the Assessing Officer or by the learned Commissioner of Income-tax (Appeals). Once, the assessee has incurred these expenses, which are fully verifiable and have shown to be for the business purpose, then adverse....