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2020 (11) TMI 693 - AT - Income TaxUnexplained share capital - share premium and share application money made u/s.56(1) / u/s 68 - AO has said that since the premium charges are in excess of intrinsic value of the shares, the provisions of Section 68 of the Act could also be applied - Quantum addition deleted by CIT-A - HELD THAT - This issue has been dealt with in length in the appellate order, wherein the Ld.CIT(A) has categorically held that the provisions of Section 56(1)(viib) of the Act are not applicable to the year under consideration, since new provision is introduced by the Finance Act, 2012, which is effective from AY.2013-14. CIT(A) after considering the assessee s contentions and submissions has given finings that the provisions of Section 68 of the Act were also satisfied by the assessee. Ld.CIT(A) has noted as assessee has filed the confirmation letters, copies of ITRs, copies of bank statements of five parties, who invested share capital. Besides, the assessee has filed the allotment letters, returns as filed with the AO along with Board s resolution for allotment of shares. Under these circumstances, we do not find any reason to interfere with the order of Ld.CIT(A), which otherwise appears to be quite reasoned and correct. - Decided in favour of assessee.
Issues Involved:
1. Deletion of quantum addition of ?2,15,00,000/- made by the AO without examining the source and credibility of the share applicants. 2. Non-consideration of the nature of profit projection by the assessee in relation to share premium receipts. 3. Applicability of Section 56(1) and Section 68 of the Income Tax Act concerning share premium and share application money. Detailed Analysis: Issue 1: Deletion of Quantum Addition of ?2,15,00,000/- The Revenue challenged the CIT(A)'s decision to delete the addition of ?2,15,00,000/- made by the AO on account of share premium and share application money. The AO had questioned the genuineness and creditworthiness of the share applicants, leading to the addition under Section 56(1) of the Income Tax Act. The AO bifurcated the total receipts into share capital and share premium, rejecting the assessee's share valuation report due to sustained losses and lack of justification for premium. The AO assessed the entire share application money and share premium as 'income from other sources' under Section 56(1) and also considered invoking Section 68 due to the failure to prove the genuineness of the investors. Issue 2: Non-Consideration of Profit Projection The Revenue contended that the CIT(A) erred by not considering the nature of profit projection shown by the assessee's business earlier and in the future while deciding on the share premium receipts. The AO had made the addition primarily on the grounds that the shares were issued at a premium despite the assessee incurring losses, which lacked commercial prudence. Issue 3: Applicability of Section 56(1) and Section 68 The CIT(A) allowed the assessee's appeal, observing that share premium is a capital receipt and not taxable as income unless expressly provided in the Act. The CIT(A) cited several decisions, including Vodafone India Services Pvt. Ltd., to support that share premium is not taxable as income. The CIT(A) noted that Section 56(2)(viib), which taxes share premium received in excess of fair market value, was applicable from AY 2013-14 onwards and not for the assessment year under consideration (AY 2012-13). The CIT(A) also examined the applicability of Section 68, which deals with unexplained cash credits, and concluded that the assessee had fulfilled the conditions by providing necessary details like confirmation letters, ITR copies, audited accounts, and bank statements of the share applicants. Conclusion: The Tribunal upheld the CIT(A)'s decision, agreeing that the provisions of Section 56(2)(viib) were not applicable for the assessment year under consideration. The Tribunal also found that the assessee had satisfied the conditions under Section 68 by providing adequate documentation to prove the identity, creditworthiness, and genuineness of the transactions. Consequently, the appeal of the Revenue was dismissed, and the order of the CIT(A) was affirmed.
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