2019 (5) TMI 1748 - AT - Income Tax

Addition u/s 68 - share application monies from bodies corporate who were independently assessed to tax - Whether when the share applicant companies have been taxed on the source of funds in their accounts then an addition can be made u/s 68 - HELD THAT - Share applicant company have been assessed to tax u/s 143(3) of the Act and the source of money in question was brought to tax in their hands, we uphold the order of the ld. CIT(A) that no additions can be made in the case of the assessee company. Coming to the argument arise to the Ld. D/R that the share premium received was excessive, we find that no query has been done by the Assessing Officer in this regard. In the case on hand both the companies have proved their identity and have confirmed the transactions and have disclosed the sources and the revenue has assessed the same in their hands. - the facts of the present case are different from the facts on the case of Trenetra Commerce Trade(P) Ltd 2016 (10) TMI 974 - CALCUTTA HIGH COURT as relied upon by revenue - the decisions relied upon by the ld. Counsel for the assessee are applicable to the case on hand, as both the shareholder companies have been assessed tax u/s 143(3) of the Act and in this scrutiny assessment the source of fund had been brought to tax. Thus, we uphold the order of the ld. CIT(A) and dismiss the appeal of the revenue.

Issues Involved:
1. Whether the assessee proved the genuineness of the transaction and the creditworthiness of the share applicants.
2. Whether the share premium received by the assessee was excessive.

Detailed Analysis:

Issue 1: Genuineness of the Transaction and Creditworthiness of Share Applicants

The revenue's appeal challenged the order of the Commissioner of Income Tax (Appeals)-4, Kolkata, which allowed relief to the assessee on the grounds that the share application monies were received from bodies corporate independently assessed to tax, with payments through account payee cheques, and investments confirmed by the respective subscribers. The revenue argued that the assessee failed to prove the genuineness of the transaction and the creditworthiness of the share applicants.

The Departmental Representative emphasized that the assessee company had allotted shares to M/s Aggressive Vincom Pvt. Ltd. and M/s Flabby Sales Pvt. Ltd. at a high premium, and summons issued to the Director of the assessee company for personal appearance and production of investors were not complied with. The revenue relied on various case laws, including CIT vs. Durga Prasad More and Sumati Dayal vs. CIT, to argue that surrounding circumstances and human probability should be considered.

In response, the assessee's counsel submitted that the Director of the assessee company had provided a written reply to the summons, along with all necessary details, including PAN cards, returns of income, and confirmations from the share applicants. The counsel argued that the burden of proof was discharged by the assessee, and scrutiny assessments for the share applicants were completed, with the investments being taxed in their hands.

The Tribunal reviewed the documents furnished by the share applicants, including IT acknowledgments, financial statements, bank statements, and board resolutions. The Tribunal noted that the share applicants were assessed to tax under section 143(3) of the Act, and the source of funds was brought to tax in their hands. The Tribunal referred to its previous decisions in similar cases, such as DCIT vs. M/s. Maa Amba Towers Ltd. and M/s C.P. Re-Rollers Ltd. vs. DCIT, where it was held that once the share applicants are assessed to tax and the source of funds is taxed in their hands, no addition can be made under section 68 of the Act in the hands of the assessee.

Issue 2: Excessiveness of Share Premium

The revenue argued that the share premium received by the assessee was excessive and not justified. However, the Tribunal found that the Assessing Officer did not make any specific query regarding the share premium. The Tribunal distinguished the case of CIT, Kolkata –II vs. Trinetra Commerce & Trade (P) Ltd., where the facts were different, and the identity and creditworthiness of the shareholders were not proved.

The Tribunal referred to several judgments, including the Hon'ble Supreme Court's decision in PCIT vs. Chain House International (P) Ltd., which held that the valuation of share premium is a commercial decision. The Tribunal also cited other case laws supporting the assessee's position that the identity, creditworthiness, and genuineness of the transactions were established.

Conclusion

The Tribunal upheld the order of the Commissioner of Income Tax (Appeals)-4, Kolkata, and dismissed the revenue's appeal. The Tribunal concluded that the assessee had proved the genuineness of the transactions and the creditworthiness of the share applicants, and no addition could be made under section 68 of the Act. The Tribunal also found no merit in the argument regarding the excessiveness of the share premium, as no specific query was made by the Assessing Officer in this regard.

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