2021 (12) TMI 1209 - AT - Income Tax

Addition on account of share premium as income from other sources - addition of share capital and premium as unexplained cash credit u/s 68 - character and nature of receipt - admissibility of additional evidence under rule 29 of the Rules - HELD THAT - Additional evidence filed in the form of Revenue s paper book which mainly contains the CBI charge sheets, statements recorded before CBI under section 161 of CrPC and 164 CrPC before Magistrate, correspondences between the companies and the Govt. of Andhra Pradesh, documents procured from various State Govt. Authorities i.e. Govt. of Andhra Pradesh, statements recorded by the AO during the penalty proceedings, various documents containing allotment of land etc., in our view, are not relevant for deciding the issues before us i.e. addition of share premium under section 56 of the Act and share capital and share premium u/s 68 because the entire details relating to facts and tax laws are available in the orders of the lower authorities i.e. assessment order and the order of CIT(A) and assessment records. Hence, we do not admit these additional evidences and reject the application filed by Revenue under rule 29 of the Rules. Addition u/s 56 - lower authorities had made an addition under the head income from other sources without mentioning the relevant section under which the addition is sought to be made. If the same is to be considered as an addition made u/s 56(1) of the Act, then the receipt should be income - lower authorities had categorically accepted to the fact that the nature of receipt was only share capital and share premium from the investor companies. Their only allegation is that these investor companies had paid share capital and share premium to the assessee company and that the share capital component at par value is acceptable and reasonable, but the premium component at ₹ 350/- per share was not justifiable since assessee is a nascent company. Provisions of section 56(1) of the Act are general provisions and gets triggered for a receipt having the character of income u/s 2(24) of the Act and not getting taxed under Chapter IV A to IV E of the Act. Though the ld. Special Counsel for the Revenue argued the case on the basis of applicability of provisions of section 68 of the Act, but that was not the section in which, the addition was sought to be made by the lower authorities. Hence it results in a situation wherein, the ld. Special Counsel for the Revenue is only trying to improve the case of the lower authorities before us, which is impermissible in law , as this tribunal does not have power of enhancement. We find that the provisions of section 68 of the Act , either way, falls in Chapter VI of the Act under the heading Aggregation of Income . It becomes income of the assessee only by way of deeming legal fiction. We find that the residuary head Income from Other Sources falls in Chapter IV F of the Act. Hence what is added u/s 68 of the Act cannot be treated as income from other sources. The provisions of Income from Other Sources starts from section 56 and ends with Section 59 of the Act. Section 68 of the Act falls in totally different chapter altogether. We hold that Income from other sources is mutually exclusive to section 68. We find that the ld. CIT(A) having co-terminus powers could have enhanced the assessment by invoking the provisions of section 68 of the Act in the instant case, which was not done by him. This goes to conclusively prove that both the lower authorities were thoroughly convinced of the fact that the assessee company had duly proved the three necessary ingredients of section 68 of the Act viz. (i) identity of the investors ; (ii) creditworthiness of the investors and (iii) genuineness of transactions. Either way, on merits, it could be seen from the aforesaid submissions of the ld. AR that assessee had indeed duly proved the three necessary ingredients of section 68 of the Act in the instant case, in view of the fact that those factual submissions remain uncontroverted by the revenue before us. Hence we hold that the provisions of section 68 of the Act are not applicable in respect of addition in the facts and circumstances of the instant case. Hence all the case laws that were relied upon by the ld. Special Counsel for the Revenue in the context of provisions of section 68 of the Act, need not be gone into at all, as they are not germane to the issue before us. As first the receipt of share capital and share premium should be income u/s 2(24) of the Act. It is trite law that the receipt of share capital and share premium are only capital receipts, not chargeable to tax at all under any of the provisions of the Act, atleast for the year under consideration. Hence a receipt , once it is not chargeable to tax at all under any of the provisions of the Act, it cannot be brought to tax under the head Income from other sources . Receipt of share capital and share premium had been construed to be capital receipts not chargeable to tax by the decision of the Hon ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd., 2014 (10) TMI 278 - BOMBAY HIGH COURT -We find that this decision was accepted by the CBDT and instruction No.2/2015 dated 29/01/2015 was issued by CBDT to all its Field Officers to accept the said decision. - Thus we hold that the addition made under the head income from other sources is hereby directed to be deleted. Accordingly, the grounds raised in this regard are allowed. Addition u/s 68 - The assessee cannot be held responsible for enquiries conducted by the Mumbai Investigation Wing at the wrong address. However, the assessee had furnished all the relevant details that were called for by the ld. AO with regard to the said investor company. All the eight entities had filed their income tax returns regularly, which fact had been acknowledged by the ld. AO by himself. The bank statement of all the investors were furnished before the ld. AO wherein it could be seen that the immediate source of credit for those investor companies were not cash deposits and were either mere fund transfers received in their regular course of business or out of their available bank balances. Hence, the creditworthiness of all investor companies is also proved by the assessee. All the transactions had been routed through regular banking channels. The assessee had also furnished the copy of share certificates together with the relevant share application form in respect of all the eight investor companies. Six out of eight investor companies had indeed confirmed the fact of having made investments in the assessee company at a premium of ₹ 350/- per share. We hold that when all the relevant details of the investor companies were indeed furnished by the assessee company, merely because the share subscribers could not be found at the given address when sought to be verified by the revenue at the relevant point in time, it does not mean automatically that adverse inference could be drawn on the assessee and conclude that assessee had indeed routed its undisclosed income in the form of share capital and share premium in the names of the various investor companies. In any case, the nature of receipt being share capital and share premium had not been doubted by the Revenue in the instant case. We find that the assessee duly proved the nature and source of credit being share capital and share premium as contemplated in Section 68 of the Act. The law is very well settled that the receipt of share capital and share premium would only be capital receipt and cannot be brought to tax as income of the assessee - Decided in favour of assessee. Revision u/s 263 - AO has not examined Genuineness of the investment by the Carmel Asia - HELD THAT - the issue which is sought to be revised by the ld. CIT by invoking revision jurisdiction u/s.263 of the Act in the instant case, was already the subject matter of addition made in the hands of the Caramel Asia Holdings Ltd., (holding company of the assessee). In any case, in the scrutiny assessment order passed in the hands of the assessee company for A.Y.2008-09 u/s.143(3) of the Act dated 31/12/2010, the ld. AO had given a categorical finding on more than one occasion at several places of his order, that the receipt of share capital at par value from the promoters category (which includes the holding company i.e. Caremel Asia) and outsiders category are accepted as genuine and reasonable. This has been admittedly done by the ld. AO after considering all the relevant documents with supporting evidences furnished by the assessee company including the direct confirmations filed by those investor companies before the ld. AO in response to the notices issued u/s.133(6) or summons u/s.131 of the Act. Hence, the ld. AO in the light of these supporting documents had indeed taken a possible view. We find that the ld. CIT by invoking his revisionary powers is only trying to substitute his view in place of the view already taken by the ld. AO. This is not permitted in the light of the decision of the Hon ble Bombay High Court in the case of Gabriel India Ltd. 1993 (4) TMI 55 - BOMBAY HIGH COURT . The main case of the ld. CIT in his revision order is only directing the ld. AO to examine source of source. We hold that the assessee is not bound to establish the source of source of the investor company - we hold that the order of the ld. AO is neither erroneous nor prejudicial to the interest of the Revenue for A.Y.2008-09, warranting revision u/s.263 - Decided in favour of assessee.

Summary

Issues Involved:
1. Addition of share premium under the head "income from other sources."
2. Addition of share capital and share premium under Section 68 of the Income Tax Act, 1961.
3. Invocation of revision jurisdiction under Section 263 of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Addition of Share Premium Under the Head "Income from Other Sources":

The appellate tribunal addressed the addition of ?277.57 crores made by the Assessing Officer (AO) under the head "income from other sources" concerning the share premium received by the assessee company. The AO doubted the justification for the premium of ?350 per share, alleging it was not justifiable for a nascent company. The tribunal noted that the AO accepted the receipt of share capital at face value as genuine but questioned the premium component.

The tribunal emphasized that the nature of the receipt being share capital and share premium does not change, and such receipts are capital in nature, not chargeable to tax under any provisions of the Act for the year under consideration. The tribunal relied on several judicial precedents, including the Bombay High Court's decision in Vodafone India Services Pvt. Ltd. (368 ITR 1), which was accepted by the CBDT. The tribunal concluded that the share premium could not be taxed as income under Section 56(1) of the Act, as it is a capital receipt.

2. Addition of Share Capital and Share Premium Under Section 68:

The tribunal examined the addition of ?15 crores made under Section 68 of the Act, which pertains to unexplained cash credits. The AO added the share capital and share premium received from eight investor companies, doubting their genuineness and creditworthiness. The assessee provided extensive documentation to prove the identity, creditworthiness, and genuineness of the transactions, including PAN cards, bank statements, board resolutions, and audited financial statements of the investor companies.

The tribunal found that the assessee had discharged its initial burden of proof under Section 68 by providing sufficient evidence. The tribunal noted that the AO did not conduct adequate independent inquiries to disprove the assessee's claims. The tribunal cited several judicial precedents, including the Delhi High Court's decision in CIT vs. Vrindavan Farms (P.) Ltd., to support its conclusion that the addition under Section 68 was not justified. The tribunal directed the deletion of the addition of ?15 crores.

3. Invocation of Revision Jurisdiction Under Section 263:

The tribunal addressed the revision order passed by the Commissioner of Income Tax (CIT) under Section 263, which directed the AO to examine the receipt of share capital from Caramel Asia Holdings Pvt. Ltd. (holding company of the assessee). The CIT alleged that the AO did not examine the genuineness and capacity of Caramel Asia to invest ?23.52 crores in the assessee.

The tribunal found that the AO had indeed examined the receipt of share capital during the original assessment proceedings, and the assessee had provided confirmation from Caramel Asia, including details of the investment. The tribunal noted that the issue of the source of funds for Caramel Asia had already been addressed in the reassessment orders for A.Y. 2007-08 and 2008-09 in the hands of Caramel Asia, where the additions were ultimately deleted by the Bangalore Tribunal.

The tribunal concluded that the CIT's invocation of revision jurisdiction under Section 263 was not justified, as the AO had already taken a possible view based on the evidence provided by the assessee. The tribunal quashed the revision order, holding that the AO's order was neither erroneous nor prejudicial to the interest of the Revenue.

Conclusion:

The tribunal allowed the assessee's appeals, directing the deletion of the additions made under the head "income from other sources" and under Section 68 of the Act. The tribunal also quashed the revision order passed under Section 263, concluding that the AO's original assessment was not erroneous or prejudicial to the interest of the Revenue.