2019 (2) TMI 102 - AT - Income Tax

Addition towards share premium u/s 68 - Held that - As decided in PRINCIPAL COMMISSIONER OF INCOME-TAX VERSUS APEAK INFOTECH, YOGESH INFOTECH, AMPLY INFOTECH, WESTLINE TRADING COMPANY, JASPER COMMERCE, INEX INFOTECH 2017 (9) TMI 1590 - BOMBAY HIGH COURT the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. The definition of income as provided under section 2(24) at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. This court in CIT v. Gagandeep Infrastructure (P.) Ltd. 2017 (3) TMI 1263 - BOMBAY HIGH COURT has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013-14.- Decided in favour of assessee. Disallowance u/s 14A read with Rule 8D - Held that - As there was no exempt income claimed by the assessee in the return of income and accordingly the provisions of section 14A of the Act cannot be made applicable at all . Cases followed - CHETTINAD LOGISTICS PVT. LTD. 2017 (4) TMI 298 - MADRAS HIGH COURT , HOLCIM INDIA P. LTD. 2014 (9) TMI 434 - DELHI HIGH COURT , CHEMINVEST LIMITED 2015 (9) TMI 238 - DELHI HIGH COURT - decided in favour of assessee.

Issues Involved:
1. Deletion of addition towards share premium under Section 68 of the Income Tax Act, 1961.
2. Deletion of disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D.

Detailed Analysis:

1. Deletion of Addition towards Share Premium under Section 68:

The primary issue in this appeal is whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?2,70,75,000 towards share premium under Section 68 of the Income Tax Act, 1961. The assessee company filed its return for the Assessment Year 2012-13 declaring a total income of ?4,70,447. The Assessing Officer (AO) doubted the genuineness of the share premium received due to the lack of substantial business activity by the assessee and issued notices under Section 133(6) to the shareholders, which were duly replied to. However, the AO concluded that the share premium was unexplained cash credit under Section 68 due to non-compliance with summons under Section 131 by the directors of the shareholder companies.

Before the CIT(A), the assessee argued that it had provided substantial documentary evidence to substantiate the share capital and share premium, including income tax return acknowledgments, share application forms, audited financial statements, and bank statements. The CIT(A) observed that the AO had a predetermined mindset and failed to appreciate the evidence provided. The CIT(A) noted that the identity, creditworthiness, and genuineness of the transactions were established beyond doubt, as the shareholders were regularly assessed to income tax, and the transactions were routed through banking channels. The CIT(A) held that the AO's acceptance of the share capital but rejection of the share premium from the same shareholders was inconsistent and deleted the addition.

The Tribunal upheld the CIT(A)'s findings, noting that the assessee had duly complied with the requirements of Section 68 by providing documentary evidence. The Tribunal emphasized that the AO had not found any falsity in the documents provided and that the identity, creditworthiness, and genuineness of the transactions were established. The Tribunal also noted that the directors of the assessee and investor companies had appeared before the AO, and their deposition was refused. The Tribunal concluded that the addition under Section 68 was unwarranted and dismissed the Revenue's appeal.

2. Deletion of Disallowance under Section 14A read with Rule 8D:

The second issue pertains to the deletion of disallowance of ?2,98,571 under Section 14A of the Income Tax Act, 1961 read with Rule 8D. The assessee argued that it had not made any investments using borrowed funds and had not claimed any borrowed cost as an expenditure. Furthermore, the assessee did not claim any exempt income in the return of income, rendering Section 14A inapplicable.

The Tribunal referred to several high court decisions, including CIT vs. Chettinad Logistics (P) Ltd, CIT vs. Holcim India Pvt Ltd, Cheminvest Ltd vs. CIT, and others, which established that Section 14A cannot be applied in the absence of exempt income. Respectfully following these precedents, the Tribunal found no infirmity in the CIT(A)'s order granting relief to the assessee and dismissed the Revenue's appeal on this ground.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, upholding the CIT(A)'s decision to delete the additions towards share premium under Section 68 and the disallowance under Section 14A read with Rule 8D. The Tribunal's decision was pronounced in court on 07.12.2018.

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