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2022 (12) TMI 935 - AT - Income TaxAddition u/s 68 - difference in share premium amount - as per AO instead of following method of Fair Market Value of shares as prescribed under Rule 11UA of the Income Tax Rules, 1962, the assessee has worked out the value of shares based on the NAV method - HELD THAT - All the Five investing companies are shell/conduit companies having no business of its own , and are merely created to launder money in order to convert unaccounted money of the investing companies under the garb of share capital/share premium to bring it into the books of the invested company under the farce shell of legitimate share capital and share premium , with an intent and view to defraud revenue and evade taxes. Thus, what is apparent is not real. We hold that the share capital including share premium raised by the assessee company, to the tune of Rs. 1,51,20,000/- from these five investing companies based at Kolkatta , is infact the undisclosed income of the assessee which was inducted by way of share capital and share premium in the assessee company by laundering through these five investing companies based at Kolkatta, and the assessee company fails to prove the creditworthiness of these five investing companies as well genuineness of these transactions, and the requirements of Section 68 read with newly inserted proviso are not fulfilled/satisfied, and hence we uphold the appellate order passed by ld. CIT(A) which in turn confirmed the addition made by the AO in the assessment order, to the tune of Rs. 1,51,20,000/- u/s 68 read with Section 115BBE of the 1961 Act. Addition u/s 56(2)(viib) with respect to 170000 equity shares of Rs. 10 face value issued by the assessee company at an issue price of Rs. 90 per share including share premium of Rs. 80 per share , issued by the assessee company during the year under consideration to thirteen investors - In a case of closely held company in which public is not substantially interested , which receives in any previous year , from any person resident any consideration for issue of shares that exceeds the FMV of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares, shall be treated as income from other sources and brought to tax. There are certain exceptions provided in Section 56(2)(viib). The Explanation to Section 56(2)(viib) provide the manner of computation of Fair Market Value. The method prescribed as is provided under Section 56(2)(viib) are provided in Rule 11UA of Income-tax Rules , 1962. There was amendment in Rule 11UA by Income-tax(Fifteenth Amendment Rules, 2012, w.e.f. 29.11.2012. The assessee has received consideration for issue of shares in May/June, 2012, but the date of allotment of shares is not furnished by the assessee . AO has computed Fair Market Value of shares at Rs. 25.29 per equity shares, but the AO has not furnished any details/break-up of the working to arrive at FMV of Rs. 25.29 per equity shares. The assessee has worked out FMV of Rs. 87 per equity share. No valuation report is furnished by the assessee. The valuation as determined by the assessee of Rs. 87 is on NAV basis. The assessee raised in the year 2009-10 ( date of incorporation of the assessee 23.06.2009) share capital by issuing equity shares of Rs. 10 each at share premium of Rs. 65 per share , to three Kolkatta based investing companies, which held more than 80% of share capital of the assessee, but while submitting the list of shareholders as at 31.03.2011 , these three companies are not reflected as shareholders. The assessee has not given any explanation for the same. The assessee s valuation of Rs. 87 per share as FMV vis- -vis face value of Rs. 10 per share , is mainly/majorly attributable to share premium received from these three investing companies based at Kolkatta in the year 2009-10. Three investing companies are untraceable - The issue has not been comprehensively dealt with by the authorities below. In our considered view, this matter need to be restored back to the file of the AO for fresh determination of income chargeable to tax u/s 56(2)(viib), after giving opportunity of being heard to the assessee. Thus, this issue is restored to the file of the AO for fresh denovo adjudication, after giving proper opportunity to the assessee. The assessee shall be allowed by AO to submit evidences/explanation in its defence, which shall be adjudicated by AO on merits in accordance with law. Appeal filed by assessee partly allowed for statistical purposes.
Issues Involved:
1. Legality of the assessment framed on income of Rs. 2,61,36,540/-. 2. Validity of the assessment framed in the absence of proper issue and service of notice under Section 143(2). 3. Justification of the addition of Rs. 1,10,00,700/- under Section 56(2)(viib). 4. Nature of the share premium amount and its classification as capital receipts. 5. Accuracy of the valuation of shares as per Rule 11UA. 6. Justification of the addition of Rs. 1,51,20,000/- under Section 68. 7. Application of both Section 56(2)(viib) and Section 68 to the same transaction leading to double addition. 8. Correctness of the findings and observations of the assessing officer. 9. Right to take any fresh ground of appeal. Detailed Analysis: 1. Legality of the Assessment Framed on Income of Rs. 2,61,36,540/-: The assessee challenged the legality of the assessment framed on income of Rs. 2,61,36,540/-. The tribunal upheld the assessment, confirming the additions made by the AO under Section 68 and Section 56(2)(viib). 2. Validity of the Assessment Framed in the Absence of Proper Issue and Service of Notice under Section 143(2): The assessee contended that no notice under Section 143(2) was served. However, this ground was not pressed by the assessee during the tribunal hearing and was subsequently dismissed. 3. Justification of the Addition of Rs. 1,10,00,700/- under Section 56(2)(viib): The AO made an addition of Rs. 1,10,00,700/- under Section 56(2)(viib), considering the excess share premium charged over the Fair Market Value (FMV) of the shares. The assessee argued that the FMV of shares was Rs. 87 per share based on the NAV method, while the AO determined the FMV at Rs. 25.29 per share. The tribunal noted that the AO did not provide a detailed working for the FMV and remanded the issue back to the AO for fresh adjudication. 4. Nature of the Share Premium Amount and its Classification as Capital Receipts: The assessee argued that the share premium amount should be considered as capital receipts and not income. The tribunal found that the assessee failed to justify the share premium charged and upheld the addition under Section 56(2)(viib) for the excess amount over the FMV. 5. Accuracy of the Valuation of Shares as per Rule 11UA: The AO determined the FMV of the shares at Rs. 25.29 per share, while the assessee claimed it to be Rs. 87 per share based on the NAV method. The tribunal noted discrepancies in the AO's valuation method and remanded the issue for fresh determination by the AO. 6. Justification of the Addition of Rs. 1,51,20,000/- under Section 68: The AO made an addition of Rs. 1,51,20,000/- under Section 68, considering the share capital raised from five corporate entities as unexplained cash credits. The tribunal upheld the AO's addition, noting that the assessee failed to prove the creditworthiness and genuineness of the transactions with the five investing companies, which were found to be shell/conduit companies engaged in money laundering activities. 7. Application of Both Section 56(2)(viib) and Section 68 to the Same Transaction Leading to Double Addition: The tribunal held that Section 68 and Section 56(2)(viib) are mutually exclusive. Once the AO made additions under Section 68, the same amount could not be added under Section 56(2)(viib). The tribunal upheld the addition under Section 68 and deleted the addition under Section 56(2)(viib) for the same transaction. 8. Correctness of the Findings and Observations of the Assessing Officer: The tribunal found that the AO's findings and observations regarding the addition of Rs. 1,10,00,700/- and Rs. 1,51,20,000/- were correct and justified, based on the evidence and explanations provided by the assessee. 9. Right to Take Any Fresh Ground of Appeal: The assessee reserved the right to take any fresh ground of appeal before the hearing. However, no new grounds were introduced during the tribunal proceedings. Conclusion: The tribunal upheld the addition of Rs. 1,51,20,000/- under Section 68, considering the share capital raised from five corporate entities as unexplained cash credits. The issue of addition under Section 56(2)(viib) was remanded back to the AO for fresh determination. The tribunal dismissed the ground regarding the non-service of notice under Section 143(2) and upheld the findings and observations of the AO. The appeal was partly allowed for statistical purposes.
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