2021 (4) TMI 486 - AT - Income Tax

Addition on account of share capital and share premium as unexplained cash credit u/s 68 - no replies were received from the said competent authority before the completion of assessment - AO observed that the assessee did not furnish the details of source of funds for OMIL and accordingly concluded that the assessee had not proved the creditworthiness of OMIL to make investment in assessee company - HELD THAT - We find that the ld CIT-A had deleted the addition made in the year under consideration by placing reliance on the order of his predecessor for Asst Year 2011-12 wherein, on similar facts and circumstances in respect of share capital and premium received from the same party i.e OMIL, the addition made u/s 68 of the Act was deleted. We find that the ld CIT-A had also observed that reference made to CBDT Foreign Tax Division had not brought out any adverse remarks on the bonafides of OMIL and transactions carried out by them with the assessee. We also find that this tribunal in assessee s own case for the Asst Year 2011-12 2019 (4) TMI 1422 - ITAT MUMBAI had deleted the same addition u/s 68 of the Act in respect of share capital and share premium received from OMIL wherein held documentary evidences, arguments of both the sides clearly established that this transaction carried out by assessee receiving share application money party seems to be genuine and explained. AO has not carried out any further inquiry except the fact recorded that there is no authorized share capital to that extent and moreover, AO also noted that there is unjustifiable amount of share premium and hence, entire transactions is not genuine - We have noted that for the purpose of section 68 of the Act, three requirements are required to be fulfilled which is the genuineness of transaction, source of money i.e. creditworthiness of the party and identity of the party. According to us, the assessee has fulfilled all the three ingredients of section 68. Share premium can only be added under section 56(2)(vii)(b) which was inserted by the Finance Act, 2013 with effect from 01.04.2013 i.e. for and from the AY 2013-14 - w.e.f A. Y. 2013-14 for closely held companies share premium or share capital is deemed to be normal income if shares are issued exceeding fair market value of shares. But, in any case the amendment will apply for and from AY 2013-14 and not to earlier Assessment Year because the amendment is prospective and not retrospective. Hence, on the issue of share premium, the provisions of section 56(2) (viib) cannot be applied for making addition even under section 68. Assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 and no addition can be made on this account. CIT(A) has rightly deleted the addition and we confirm the same. These two common issues of Revenue s appeal are dismissed. Disallowance on account of depreciation on intangible assets - AO observed that the assessee had shown addition of intangible assets as rights in infrastructure and claimed depreciation thereon during the year under consideration - AO had denied depreciation on the only ground that the assessee had self-contradicted its claim by saying that such rights were intangible assets on one hand and by claiming depreciation at the rate applicable to factory building on the other hand - HELD THAT - We find that the ld CIT-A had granted relief to the assessee by categorically holding that the rights in infrastructure acquired by the assessee in VITP is having direct nexus with effective utilization of its factory premises in its Textile Park. This factual finding has not been controverted by the revenue before us . Either way, the incurrence of expenditure towards acquiring rights in infrastructure in VITP has not been doubted by the revenue. The only issue is the rate of depreciation thereon. The ld CITA had also observed that the assessee is eligible for 25% depreciation but had claimed only 10% and accordingly deleted the disallowance made by the ld AO. Hence we do not deem it fit to interfere in the order of the ld CITA. Accordingly, the Ground No. II raised by the revenue is dismissed. Addition u/s 56(2)(viia) - assessee had acquired shares of VITPL at a price less than fair market value of such shares - assessee became member in Vraj Integrated Textile Park Ltd (VITPL) formed on the basis of Scheme of Integrated Textile Park (SITP) of Ministry of Textiles, Government of India - HELD THAT - We find that the ld CIT- A by placing reliance on the decision of his predecessor in assessee s own case for the Asst Year 2011-12 2019 (4) TMI 1422 - ITAT MUMBAI on the similar set of facts , deleted the addition made u/s 56(2)(viia) of the Act as held entire reserves and surplus appearing in the balance sheet as on 1.4.2010 are only on account of the grant received from the Government of India and not on the basis of any business profit earned by the company - there can be no inference that the shares of VITPL have been acquired by the assessee at a price which is less than its fair market value. Hence, we find no reason to reverse the findings of CIT(A) and accordingly, the same is upheld. - Decided against revenue.

Summary

Issues Involved:
1. Deletion of addition of ?19,80,00,000/- on account of share capital and share premium as unexplained cash credit under Section 68 of the Income Tax Act.
2. Deletion of disallowance of ?17,29,780/- on account of depreciation on intangible assets.
3. Deletion of addition of ?6,12,92,931/- under Section 56(2)(viia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?19,80,00,000/- as Unexplained Cash Credit under Section 68:
The first issue was whether the Commissioner of Income Tax (Appeals) [CIT(A)] was justified in deleting the addition of ?19,80,00,000/- made by the Assessing Officer (AO) as unexplained cash credit under Section 68 of the Income Tax Act. The assessee received ?19.80 crores from Orange Mauritius Investments Ltd (OMIL) as share capital and share premium. The AO questioned the intrinsic value of shares and the creditworthiness of OMIL. The CIT(A) deleted the addition, relying on a similar decision for the previous assessment year (2011-12), where the tribunal had deleted a similar addition. The tribunal held that the assessee had provided sufficient evidence to prove the identity, creditworthiness, and genuineness of the transactions, including documents such as the Tax Residency Certificate (TRC) of OMIL, compliance documentation with the Reserve Bank of India (RBI), and audited financial statements. The tribunal cited the Bombay High Court's decision in the case of CIT vs. Gagandeep Infrastructure (P) Ltd., which held that the genuineness of the transaction, identity, and creditworthiness of the investor were adequately proved. Hence, the tribunal upheld the CIT(A)'s decision to delete the addition.

2. Deletion of Disallowance of ?17,29,780/- on Account of Depreciation on Intangible Assets:
The second issue was whether the CIT(A) was justified in deleting the disallowance of ?17,29,780/- made on account of depreciation on intangible assets. The AO denied depreciation on the rights in infrastructure acquired by the assessee, arguing that they did not fall under the list of intangible assets eligible for depreciation under Section 32(1)(ii) of the Act. The assessee contended that these rights were for the usage of common infrastructure and administrative facilities, directly linked to the effective utilization of its factory premises. The CIT(A) found that the rights in infrastructure had a direct nexus with the effective utilization of the factory premises and were eligible for depreciation. The tribunal upheld the CIT(A)'s decision, noting that the expenditure incurred for acquiring these rights was not doubted by the revenue, and the rate of depreciation claimed was appropriate.

3. Deletion of Addition of ?6,12,92,931/- under Section 56(2)(viia):
The third issue was whether the CIT(A) was justified in deleting the addition of ?6,12,92,931/- made under Section 56(2)(viia) of the Act. The assessee acquired shares in Vraj Integrated Textile Park Ltd (VITPL) at face value, which the AO claimed was below the fair market value. The CIT(A) deleted the addition, relying on the decision of his predecessor for the assessment year 2011-12, where it was held that the reserves and surplus in VITPL's balance sheet were entirely due to government grants and not business profits. The tribunal upheld the CIT(A)'s decision, noting that the shares were acquired at face value and the fair market value did not exceed this amount. The tribunal emphasized that the reserves were due to government grants, and there was no basis to infer that the shares were acquired at less than their fair market value.

Conclusion:
The tribunal dismissed the revenue's appeal on all grounds, upholding the CIT(A)'s decisions to delete the additions and disallowances made by the AO. The tribunal relied on previous decisions in the assessee's own case and relevant case law to conclude that the assessee had adequately proved the genuineness, identity, and creditworthiness of the transactions and that the depreciation and share valuations were appropriately claimed.