2019 (1) TMI 1328 - AT - Income Tax

Unexplained cash credit u/s 68 - Addition made towards share premium - notice issued u/s 133(6) to the share subscribers independently - Held that - All the share subscribers are duly assessed to income tax and the transaction with the assessee company are duly routed through banking channels and are duly reflected in their respective audited balance sheets which are also placed on record before us. In any case, once the receipt of share capital has been accepted as genuine within the ken of section 68 there is no reason for the AO to doubt the share premium component received from the very same shareholders as bogus. We held that all the three necessary ingredients of section 68 had been duly complied with by the assessee with proper documentary evidences. We find that notices issued u/s 133(6) have been duly complied with. The only grievance of the AO was that the assessee could not produce the directors of the share subscribing companies. In our considered opinion, for this reason alone, there cannot be any addition u/s 68 as held by the Hon ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. 1986 (3) TMI 3 - SUPREME COURT . - Decided in favour of assessee.

Issues Involved:
1. Justification of deletion of addition made towards share premium.
2. Compliance with section 68 of the Income Tax Act.
3. Applicability of section 56(2)(viib) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Justification of Deletion of Addition Made Towards Share Premium:
The core issue in this appeal was whether the deletion of the addition of ?2,70,45,800 towards share premium by the CIT(A) was justified. The assessee raised share capital and share premium from four corporate entities. The Assessing Officer (AO) questioned the genuineness of the share premium due to the lack of substantial business activity by the assessee and the identical nature of the replies from the shareholders. Despite the AO's concerns, the CIT(A) noted that the assessee provided comprehensive documentary evidence, including income tax returns, bank statements, and audited financial statements of the shareholders, which proved the identity, creditworthiness, and genuineness of the transactions. The CIT(A) found that the AO had a predetermined mindset and failed to establish any falsity in the documents provided by the assessee.

2. Compliance with Section 68 of the Income Tax Act:
Section 68 deals with unexplained cash credits. The AO accepted the share capital of ?54,200 but doubted the share premium. The CIT(A) observed that the assessee had met all three conditions of section 68: identity, creditworthiness, and genuineness of the transactions. The share subscribers were regularly assessed to income tax, and their investments were reflected in their audited accounts and income tax returns. The CIT(A) highlighted that the notices issued under section 133(6) were duly complied with by the shareholders, and their bank statements showed no cash deposits before issuing cheques to the assessee. The Tribunal upheld the CIT(A)'s findings, emphasizing that the documentary evidence provided by the assessee was substantial and there was no reason to doubt the share premium when the share capital was accepted as genuine.

3. Applicability of Section 56(2)(viib) of the Income Tax Act:
Section 56(2)(viib), introduced by the Finance Act, 2012, effective from April 1, 2013, deals with the taxation of share premium exceeding the fair market value of shares. The CIT(A) and the Tribunal both concluded that this provision was not applicable for the assessment year 2012-13. The Tribunal reiterated that the share premium received by the assessee could not be taxed under section 68 of the Act for the relevant assessment year, as the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the share subscribers. The Tribunal referenced several judicial precedents, including decisions from the Bombay High Court and the Delhi High Court, which supported the view that share premium could not be taxed under section 68 if the necessary conditions were met.

Conclusion:
The Tribunal dismissed the revenue's appeal, affirming the CIT(A)'s decision to delete the addition towards share premium. The Tribunal found that the assessee had provided adequate documentary evidence to substantiate the share premium, and the AO's concerns were not sufficient to warrant an addition under section 68. The provisions of section 56(2)(viib) were also deemed inapplicable for the assessment year in question. The Tribunal's decision was based on a thorough examination of the facts and relevant judicial precedents.

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