2018 (7) TMI 1480 - AT - Income Tax

Addition u/s 68 - CIT-A adding share application/premium money of ₹ 31.69 crores to be both genuine and creditworthy - Held that - We find considerable merit in the Revenue s instant argument. It has come on record that the above investor entities had meagre incomes mainly from share transfers only from one account to another, no business activity or fixed assets, their common directors had failed to file any response to Assessing Officer s repeated notices, as well as the fact that the assessee s bank account had seen corresponding deposits followed by frequent withdrawals in the relevant accounting period(supra). CIT(A) has failed to consider all these relevant facts whilst accepting the assessee s contentions going by only documentary evidence on record without applying human probabilities test hereinabove We therefore conclude that the CIT(A) s findings do not deserve to be concurred with par se on merits qua genuineness and creditworthiness aspect. oming to the CIT(A) s finding that such kind of a share premium is not taxable as revenue receipt, as per hon ble apex court s decision in Vodafone case (2012 (1) TMI 52 - SUPREME COURT OF INDIA) we are of the view that there is no dispute about the said settled legal position. The question that is involved in this appeal is altogether on a different footing. The assessee has failed to prove the genuineness and creditworthiness of its share premium in view of the above overwhelming circumstances raising serious doubts in view of multiple factual aspects hereinabove. We therefore are of the opinion that the hon ble apex court s decision would apply only if the assessee satisfies all the relevant parameters of identity, source, genuineness and creditworthiness of the amounts received from investor entities only and not in isolation. The CIT(A) s findings are therefore contrary to section 250(6) of the Act - thus we leave it open for the Assessing Officer to examine the entire issue once again - Revenue s appeals allowed for statistical purposes.

Summary

Issues Involved:
- Appeal against CIT(A)'s orders reversing Assessing Officer's action of adding share premium in assessment orders under section 143(3) of the Income Tax Act, 1961.

Analysis:

1. Identification of Genuine Share Premium:
The case involved two Revenue's appeals against CIT(A)'s orders reversing Assessing Officer's action of adding share premium in assessment orders. The Assessing Officer observed discrepancies in the share premium transactions, including common directors among investor entities, nominal incomes, and sudden credit and withdrawals in bank accounts. The CIT(A) reversed the Assessing Officer's decision, emphasizing that the share premium was received through proper banking channels, by account payee cheques, and from identifiable investors with adequate capacity to invest. The CIT(A) also referred to CBDT's instruction and the Vodafone case to argue that share premium is a capital receipt and not taxable as income. However, the Tribunal found merit in the Revenue's argument, highlighting the lack of response from investor entities and the need to assess the genuineness and creditworthiness of the share premium. The Tribunal concluded that the CIT(A)'s findings did not adequately address the doubts raised by the circumstances, and the issue required further examination by the Assessing Officer.

2. Taxability of Share Premium:
The CIT(A) contended that share premium is a capital receipt and does not give rise to income, citing CBDT's instruction and the Vodafone case. However, the Tribunal clarified that while the legal position regarding the taxability of share premium is settled, the issue at hand was the genuineness and creditworthiness of the share premium received. The Tribunal emphasized that the CIT(A) should have considered all relevant facts, including the lack of business activities or fixed assets in investor entities and the suspicious banking transactions. The Tribunal held that the CIT(A)'s decision did not align with the requirements of the Income Tax Act and instructed the Assessing Officer to re-examine the issue after thorough inquiries, providing the assessee with ample opportunities for hearing.

3. Application of Section 68 of the Income Tax Act:
The Assessing Officer had made additions under section 68 of the Income Tax Act concerning unexplained share application money. The CIT(A) reversed these additions, stating that the Assessing Officer's decision lacked proper findings and logic. However, the Tribunal found that the CIT(A) did not sufficiently address the concerns raised by the Assessing Officer regarding the genuineness and creditworthiness of the share premium. The Tribunal noted discrepancies in the investor entities' financial activities and the lack of response to notices, leading to the conclusion that the share premium might not be genuine. Consequently, the Tribunal allowed the Revenue's appeals for statistical purposes, indicating the need for further examination of the issue by the Assessing Officer.

Overall, the judgment highlighted the importance of establishing the genuineness and creditworthiness of share premium transactions, even if they are considered capital receipts, and emphasized the need for thorough investigations to determine the tax implications accurately.