2019 (9) TMI 338 - AT - Income Tax

Additions u/s 68 - Addition under the head Other current liability - HELD THAT - The details of receipt of share application money on various dates. The assessee had applied to the Registrar of Companies for increase in authorized share capital of 32,90,000 equity shares and application money received from various share applicants was converted into equity shares under Board Resolution allotting shares to the various share applicants. No case has been made out by the revenue for invoking the provisions of section 68. As far as invoking the provisions of section 56(2)(viib) - as rightly contended by assessee, those provisions are applicable only for receipt of consideration for issue of shares from a resident and not in the case of a non-resident. In the present case, the consideration for issue of share application money was received from non-residents. Secondly, those provisions are applicable only when the shares are issues over and above the face value of such shares. Admittedly, the shares have been subscribed at face value and there is no premium whatsoever. There is no other basis on which the addition made by the AO and confirmed by the CIT(Appeals) can be sustained. Addition made by the AO and confirmed by the CIT(A) is unsustainable and the same is directed to be deleted. - Decided in favour of assessee.

Summary

Issues:
1. Correctness of addition of ?5,09,04,876 made by the Assessing Officer (AO).

Analysis:
The only issue in this appeal is the correctness of the addition of ?5,09,04,876 made by the Assessing Officer. The AO added this amount under the head 'income from other sources' due to the assessee receiving share application money in excess of the authorized share capital. The AO contended that this act was not in accordance with the law, leading to the money being considered as income of the assessee.

The assessee argued that the provisions of section 56(2)(viib) do not apply as they received share application money, not shares, and no premium was charged. Additionally, since the money was received from non-residents, the provisions related to shares issued to residents were not applicable. The assessee provided details of the share applicants, their creditworthiness, and the genuineness of the transaction. They also mentioned their intention to increase the authorized share capital and submitted Foreign Inward Remittance Certificates as evidence.

The AO, however, maintained that the money received in excess of the authorized share capital could only be classified as 'income from other sources.' The AO emphasized that the lack of effort to increase the authorized share capital over ten years was not acceptable. The CIT(A) affirmed the AO's decision without addressing the assessee's contentions, leading to the appeal before the Tribunal.

Upon review, the Tribunal found that the revenue authorities failed to establish a case for invoking section 68 of the Act. Regarding section 56(2)(viib), the Tribunal agreed with the assessee that the provisions were not applicable as the consideration was received from non-residents and no premium was charged for the shares. Consequently, the addition made by the AO and confirmed by the CIT(A) was deemed unsustainable and directed to be deleted. As a result, the appeal by the assessee was allowed.

In conclusion, the Tribunal ruled in favor of the assessee, highlighting that the provisions of section 56(2)(viib) did not apply in this case, and the addition made by the revenue authorities was unjustified, leading to its deletion.