2021 (1) TMI 1078 - AT - Income Tax

Addition u/s 68 - share premium received - HELD THAT - The assessee justified the share premium by referring to the turnover of the assessee company and the profit declared. The AO has not stated the reason as to why he is of the opinion that the share premium charge is excessive. We are of the considered opinion that the assessee has proved the identity and creditworthiness of the creditors as well as the genuineness of the transaction. Moreover, the Tribunal has held that no addition can be made of share premium only, in the case of M/s. Gateway Enclave Pvt. Ltd. 2019 (5) TMI 419 - ITAT KOLKATA and in the case of M/s. Savera Towers Pvt. Ltd. 2019 (5) TMI 419 - ITAT KOLKATA . Consistent with the view taken therein, we delete the addition u/s 68 of the Act and allow the appeal of the assessee.

Summary

Issues Involved:
1. Addition of share premium as unexplained cash credit under Section 68 of the Income Tax Act, 1961.

Detailed Analysis:

Issue 1: Addition of Share Premium as Unexplained Cash Credit under Section 68 of the Income Tax Act, 1961

Background:
The assessee, engaged in the business of dealing and trading in commodities and commodity derivatives, issued 1,25,000 shares at a premium of ?190/- each during the assessment year 2012-13. The assessee provided detailed documentation regarding the share capital raised, including shareholder information, bank statements, audited accounts, and minutes of board meetings. However, notices issued under Section 131 of the Act to the share applicant companies were not complied with, leading the Assessing Officer (AO) to pass a best judgment assessment under Section 144(1) of the Act. The AO added ?2,37,50,000/- as unexplained cash credit under Section 68, questioning the genuineness of the share premium.

First Appellate Authority's Findings:
The CIT(A) called for a remand report, during which fresh summons were issued under Section 131. Representatives of the share allottee companies appeared before the AO, who still doubted their credibility and the genuineness of the transactions. The CIT(A) upheld the AO's order, relying on the Supreme Court decision in Pr. CIT (Central-1) vs. NRA Iron & Steel Pvt. Ltd.

Tribunal's Findings:
The Tribunal noted that all share allottee companies are registered NBFCs with the RBI, and their identity cannot be doubted. The companies had filed income tax returns and responded to Section 131 notices. The AO did not provide cogent reasons for doubting the credibility of the representatives or the genuineness of the transactions. The net worth of each NBFC was significantly higher than the amount invested in the assessee company, and the turnover and profits justified the share premium.

Legal Precedents:
The Tribunal referred to several case laws, including:
- ITO vs. M/s. Savera Towers Pvt. Ltd.: The ITAT held that share premium cannot be taxed under Section 68 if the identity, genuineness, and creditworthiness of the share subscribers are proven.
- Pr. CIT vs. Apeak Infotech: The Bombay High Court ruled that share premium is a capital receipt and cannot be taxed as income.
- CIT vs. Tata Chemicals Ltd.: The court held that the High Court can only decide a question if it was raised before the Tribunal.
- CIT vs. Orissa Corporation Pvt. Ltd.: The Supreme Court held that non-production of directors alone cannot justify an addition under Section 68.

Conclusion:
The Tribunal concluded that the assessee had proven the identity and creditworthiness of the creditors and the genuineness of the transactions. The AO did not provide valid reasons for considering the share premium excessive. The Tribunal held that no addition can be made solely on the share premium, consistent with previous ITAT decisions in similar cases. The appeal of the assessee was allowed, and the addition under Section 68 was deleted.

Final Order:
The appeal of the assessee is allowed, and the addition of ?2,37,50,000/- as unexplained cash credit under Section 68 is deleted.

Date of Judgment:
Kolkata, the 27th January, 2021.