2024 (8) TMI 530 - AT - Income Tax

Addition u/s 68 - unexplained share capital and premium - assessee s own unaccounted money which has flown back to it in the form of premium on share allotment - HELD THAT - We are of the considered view that assessee has filed all details regarding the identity of the shares allottees viz. their PAN card, copies of pass ports, acknowledgement of income tax returns, copies of bank statements from which the share allotment premium has been given. Further, it is also notable fact that the share allottees or not unknown third parties but have been appointed as Directors on the Board of the assessee company. Accordingly, in our considered view, this is not a fit case for invoking the provisions of Section 68 of the Act, looking into the instant facts. In the case of Enrich Agro Food Products (P.) Ltd. 2023 (1) TMI 487 - DELHI HIGH COURT held that where assessee-company received share capital including share premium from an investor and during assessment proceedings assessee had furnished documents so as to establish identity and creditworthiness of investor and genuineness of transaction and also valuation report of CA for premium amount, impugned addition made u/s 68 in respect of such share capital and premium amount was unjustified. In the case of Kunjal Synergies (P.) Ltd. 2024 (3) TMI 103 - ITAT KOLKATA ITAT held that where assessee-company had raised Share capital/share premium by issuing equity shares to five subscribers at a premium of Rs. 990 per share and assessee had filed all evidences consisting of copies of ITRs, audited accounts, certificates of incorporation, Memorandum and Articles, Annual Returns etc., to prove identity and creditworthiness of share subscribers, impugned addition made under section 68 was to be deleted. Assessee appeal allowed.

Summary

Issues Involved:
1. Classification of share premium as capital receipt.
2. Applicability of Section 56(2)(viib) for AY 2011-12.
3. Compliance with Section 68 regarding share capital and premium.
4. Verification of genuineness and creditworthiness of share allottees.
5. Justification for share premium valuation.

Issue-wise Detailed Analysis:

1. Classification of Share Premium as Capital Receipt:
The Assessee contended that the premium received on the issuance of shares should be classified as a capital receipt. The Ld. CIT(A) disagreed, stating that the premium amount was unjustified compared to the book value of the company and treated it as unexplained income under Section 68 of the Act. The Tribunal, however, found that the Assessee had provided sufficient documentation to establish the identity and creditworthiness of the share allottees, and thus, the premium should not be treated as unexplained income.

2. Applicability of Section 56(2)(viib) for AY 2011-12:
The Assessee argued that Section 56(2)(viib), which pertains to the taxation of excessive share premium, was introduced starting from AY 2013-14 and thus, was not applicable for AY 2011-12. The Tribunal did not explicitly address this argument, focusing instead on the compliance with Section 68 and the genuineness of the transactions.

3. Compliance with Section 68 Regarding Share Capital and Premium:
The Assessing Officer (A.O.) added the share premium to the total income of the Assessee under Section 68, citing a lack of response from the shareholders and insufficient explanation for the premium. The Tribunal, however, noted that the Assessee had provided comprehensive details, including PAN cards, passports, income tax returns, and bank statements of the share allottees, thereby fulfilling the requirements under Section 68.

4. Verification of Genuineness and Creditworthiness of Share Allottees:
The A.O. questioned the genuineness and creditworthiness of the share allottees due to their non-response to notices. The Assessee explained that the notices were sent to incorrect email addresses. The Tribunal found that the Assessee had sufficiently demonstrated the identity and creditworthiness of the allottees, who were also directors of the company, through various documents and banking records.

5. Justification for Share Premium Valuation:
The Ld. CIT(A) dismissed the Assessee's justification for the share premium, stating that no detailed working or scientific method was provided to support the premium amount. The Tribunal, however, referenced multiple judicial precedents where the identity, creditworthiness, and genuineness of investors were deemed sufficient to justify share premiums. The Tribunal concluded that the Assessee had adequately demonstrated these factors, making the addition under Section 68 unjustified.

Conclusion:
The Tribunal allowed the appeal, finding that the Assessee had provided all necessary documentation to establish the identity, creditworthiness, and genuineness of the share allottees. The Tribunal held that the provisions of Section 68 were not applicable in this case, and the addition of the share premium to the Assessee's income was not justified. The appeal of the Assessee was allowed, and the order was pronounced in open court on 22/05/2024.