2017 (11) TMI 1809 - AT - Income Tax

Addition u/s 56(1) OR 68 - bogus share capital - Share premium received - scope of amendment to sec 56(2)(viib)and year of application - HELD THAT - The provisions of sec 56(2)(viib) are applicable w.e.f. 1st April 2013 and will accordingly apply in relation to AY 2013-14 and subsequent Assessment Years. The income as mentioned in section 56(2)(viib) is included in definition of section 2(24) w.e.f. 01-04-2013. Therefore the provisions of these sections cannot be made applicable prior to that A.Y. 2013-14. It is pertinent to note that the CIT(A) had issued the show cause notice to the assessee to tax the share capital under section 68 of the I.T. Act 1961 as against section 56(1) applied by the AO. AO has made whole addition by invoking section 56 hence the amended provision w.e.f. 01-04-2013 are applicable only on shares premium received on fair market value. In view of these facts it is clear that share premium received cannot be considered as income for the year under consideration by invoking provisions of section 56(1) of the Act. Therefore in our considered view the ld. CIT(A) has rightly deleted the addition. See M/S. MOTISONS BUILDTECH PVT. LTD VERSUS THE ACIT CENTRAL CIRCLE-2 JAIPUR AND VICE-VERSA 2017 (10) TMI 1445 - ITAT JAIPUR - Decided against revenue

Summary

Issues Involved:
1. Legality of the order passed under sections 153A, 153B, and 143(3) of the Income Tax Act, 1961.
2. Addition of Rs. 7,30,487 by disallowing expenses.
3. Addition of Rs. 2,00,00,000 under section 56(1) of the Income Tax Act.

Detailed Analysis:

1. Legality of the Order Passed under Sections 153A, 153B, and 143(3):
The assessee initially contested the legality of the assessment order passed under sections 153A, 153B, and 143(3) of the Income Tax Act, 1961, arguing that the assessment for the A.Y. 2009-10 was not abated and hence could not be reassessed. However, this ground was not pressed during the hearing and was subsequently dismissed.

2. Addition of Rs. 7,30,487 by Disallowing Expenses:
The assessee also contested the addition of Rs. 7,30,487 made by the AO by disallowing the entire expenses incurred during the year. This ground was similarly not pressed during the hearing and was dismissed.

3. Addition of Rs. 2,00,00,000 under Section 56(1):
The Revenue contested the deletion of the addition of Rs. 2,00,00,000 made under section 56(1) of the Income Tax Act, arguing that the assets of the assessee company did not justify the premium charged, and there was no business activity or income shown by the assessee. The AO had added this amount as income, treating the receipt of share capital and share premium as part of a "colorful transaction" to introduce unaccounted money.

AO's Observations:
- The AO observed that the receipt of share capital and share premium was not justified based on the company's assets, business activity, income, or net worth.
- The AO concluded that the premium charged was unjustified and added Rs. 2,00,00,000 as income under section 56(1).

CIT(A)'s Findings:
- The CIT(A) deleted the addition, noting that no scrutiny assessment under section 143(3) was done for A.Y. 2009-10, and the original return was only processed under section 143(1).
- The CIT(A) referenced several judicial decisions, including the Delhi High Court's decision in Kabul Chawla, which held that completed assessments could only be interfered with based on incriminating material found during a search.
- The CIT(A) concluded that since no incriminating material was found during the search, the addition made by the AO was unsustainable.

Judicial Precedents Referenced:
- CIT vs. Kabul Chawla (Delhi High Court)
- Gurinder Singh Bawa vs. DCIT (ITAT Mumbai)
- Anil Kumar Bhatia vs. ACIT (ITAT Delhi)
- Sanjay Aggarwal vs. DCIT (ITAT Delhi)
- Trishul Hi-Tech Industries vs. DCIT (ITAT Kolkata)

Assessee's Arguments:
- The assessee argued that the share premium was justified based on future business plans and the goodwill of the Motisons Group.
- The assessee provided extensive documentation to prove the identity, creditworthiness, and genuineness of the transactions with the investor companies.
- The assessee contended that the AO's addition was based on assumptions and conjectures without concrete evidence.

ITAT's Decision:
- The ITAT upheld the CIT(A)'s decision to delete the addition, agreeing that the AO's addition was not justified in the absence of incriminating material found during the search.
- The ITAT referenced its own decision in a similar case (ACIT vs. Motisons Buildtech Pvt. Ltd) and applied the same reasoning to dismiss the Revenue's appeal.

Conclusion:
- The ITAT dismissed both the assessee's and the Revenue's appeals, upholding the CIT(A)'s order to delete the addition of Rs. 2,00,00,000 made under section 56(1) of the Income Tax Act.

Summary:
The ITAT upheld the CIT(A)'s decision to delete the addition of Rs. 2,00,00,000 made under section 56(1), concluding that the AO's addition was unjustified in the absence of incriminating material found during the search. The ITAT referenced several judicial precedents and its own decision in a similar case to support its conclusion. Both the assessee's and the Revenue's appeals were dismissed.