2024 (5) TMI 710 - HC - Income Tax

Addition u/s 68 - shares of the assessee companies issued at huge premiums - reliance on documentation between the five individuals who are allotted shares without premium and the assessee company - whether the summons issued under Section 131 were served/received by the assessee? - HELD THAT - The assessee has not taken a definite stand on the said issue as before the CIT(A), the assessee contended that the notice was received after receiving the assessment order. The said averments is absolutely vague since the assessee has not given the date on which they had received the notice nor the date they received the assessment order dated 23.03.2015. In the supplementary affidavit in paragraph 4 the assessee would state that the notice dated March 03, 2015 issued under Section 131 of the Act was never served on the assessee company and as such no compliance could be made on the same. This appears to be a contrary stand taken by the assessee to that of the stand taken by the CIT(A). In any event, the averment made by the assessee, before the CIT(A) at the first instance, stating that the notice was received after receiving the assessment order is a vague statement and appears to have not been established by producing documents before the CIT(A). Therefore, we have to necessary hold that there has been noncompliance of the summons issued under Section 131 of the Act. How the valuation was arrived at for charging a premium of Rs. 4990/- per share ? - The CIT(A) while examining the case of the assessee took note of the factual position which is not in dispute namely the assessee was a newly incorporated company and it was in the first year of its operation that to a broken year. The CIT(A) on examining the facts found that the assessee company had no track record or asset base for demanding astronomical high premium per share at Rs. 4990/- defying all commercial and financial prudence and logic. Further the CIT(A) on facts found that there was no noticeable business activity or book value/earnings per share which can justify the very high share premium. The assessee made investments in land by raising share capital for which the cost of land was very low and would fetch good sale price at high profits after its development. The learned tribunal referred to the objects of the companies as contained in the Memorandum of Association and found that there is no reference to the activities of development of land or dealing in land as claimed by the assessee and the main object is dealing with merchandise and articles of all kinds with no reference to dealing or development of the land. As five individuals referred to the agreement for sale as could be seen from the covenants therein a part payment of Rs. 10,911/- alone has been paid as against the sale consideration which was fixed at Rs. 14,50,911/-. The agreement does not appear to give any right nor the five individuals were put in possession of the land in question as the seller agreed to put the five individuals in possession after executing the sale deed and registering the sale in jurisdictional Sub Registrar s office. The sale transaction between the five individuals and the alleged land owners appears to have not taken place and out of the land owners who have stated to have signed the agreements for sale dated 22.07.2011, two of them are stated to have executed to a deed of conveyance in favour of the assessee dated 28.04.2014. In the Memorandum of Understanding dated 28.02.2012 which precedes the deed of conveyance, it is stated that the assessee will allot pari passu shares of Rs. 10/- each at par to the parties of the first part who are the five individuals which shall be in turn deemed to be the consideration to acquire the said interest in the land parcels. The effects of these documents were considered by the tribunal and it was not satisfied with the genuineness of the transaction more importantly noting that the assessee itself has claimed that there is no noticeable business activity during the year. Thus, the tribunal ultimately concluded that the assessee has failed to establish the basic ingredients required to be established under Section 68 of the Act. Decided against assessee.

Summary

Issues Involved:
1. Examination of facts/issues not in contention before the Assessing Officer.
2. Opportunity for the appellant to file documents and submissions.
3. Doubting identity and creditworthiness of subscribers due to non-compliance with notice u/s 131.
4. Erroneous, perverse, and contrary findings of the Tribunal.
5. Rejection of genuineness of share subscription based on possible future use of property.
6. Doubting creditworthiness based on investment in immovable property using share premium.
7. Consideration of transfer of rights under an agreement for sale as part of share allotment.

Summary:

Issue 1: Examination of facts/issues not in contention before the Assessing Officer
The Tribunal examined issues not raised before the Assessing Officer. The assessee argued that the Tribunal should not have examined these issues without providing an opportunity to counter them. The court held that the Tribunal's examination was justified as the facts and circumstances necessitated it.

Issue 2: Opportunity for the appellant to file documents and submissions
The assessee contended that the Tribunal did not provide an opportunity to file documents, violating principles of natural justice. The court found that adequate opportunity was provided during the proceedings, and the assessee failed to utilize it properly.

Issue 3: Doubting identity and creditworthiness of subscribers due to non-compliance with notice u/s 131
The Tribunal doubted the identity and creditworthiness of subscribers due to non-compliance with notice u/s 131. The court upheld this view, noting the failure of the assessee to produce directors or employees of the share applicants, thus questioning the genuineness of the transactions.

Issue 4: Erroneous, perverse, and contrary findings of the Tribunal
The assessee claimed that the Tribunal's findings were erroneous and contrary to law. The court disagreed, stating that the Tribunal's findings were based on a thorough examination of facts and applicable legal principles.

Issue 5: Rejection of genuineness of share subscription based on possible future use of property
The Tribunal rejected the genuineness of share subscriptions based on the possible future use of the property acquired using the premium. The court supported this rejection, emphasizing the lack of a proven track record and the improbability of the transactions.

Issue 6: Doubting creditworthiness based on investment in immovable property using share premium
The Tribunal doubted the creditworthiness of shareholders based on their investment in immovable property using share premium. The court affirmed this doubt, noting the absence of substantial business activity and the speculative nature of the investments.

Issue 7: Consideration of transfer of rights under an agreement for sale as part of share allotment
The assessee argued that the transfer of rights under an agreement for sale should be considered part of the share allotment. The court found no merit in this argument, highlighting the lack of evidence to support the genuineness and creditworthiness of the transactions.

Conclusion:
The court dismissed the appeal, holding that no substantial question of law arose for consideration. The Tribunal's findings were upheld, and the assessee's contentions were rejected based on a detailed examination of facts and legal principles.