2018 (4) TMI 435 - AT - Income Tax

Addition made on account of premium received by the assessee - Addition u/s 68 - Held that - We find that the assessee had received share premium money at the rate of 10, 000/-per share, that the AO made an addition of ₹ 2. 97 crores to the income of the assessee invoking the provisions of section 68 of the Act, that it had obtained a valuation report from a CA about the market value of the shares, that the earning per share of the assessee was more than ₹ 40,000/- that it had charged premium of ₹ 10,000/- only per share, that the existing director said purchase the shares. In our opinion, once a valuation report this opted by an assessee from a professional it has to be given due weightage, until and unless it is proved that same was factually incorrect or was obtained by fraud. It had charged 1/4th premium, as compared to the earning per share. Order of the FAA does not suffer from any legal or factual infirmity. So, upholding the same, we decide the effective ground of appeal against the AO. - Decided in favour of assessee.

Summary

Issues:
1. Appeal against deletion of addition on account of premium received by the assessee.

Detailed Analysis:

Issue 1: Appeal against deletion of addition on account of premium received by the assessee
The Assessing Officer (AO) challenged the order of the CIT(A)-2, Mumbai, which deleted the addition made on account of premium received by the assessee. The AO observed that the assessee had received premium money as share application money and questioned the justification behind such a high premium. The AO invoked section 68 of the Act and disallowed the sum received from subscribers as premium. However, the First Appellate Authority (FAA) held that the AO had not considered the submissions and valuation report of the Chartered Accountant provided by the assessee. The FAA noted that the valuation report indicated a higher value for each equity share compared to the premium charged. The FAA also highlighted that no loss was incurred by the company and questioned the AO's objection to the premium charged. The FAA referred to a Tribunal order in a similar case and concluded that the addition made by the AO was not sustainable.

The Departmental Representative (DR) supported the AO's order, emphasizing the abnormality of the premium charged by the assessee. On the other hand, the Authorized Representative (AR) argued that the assessee had obtained a valuation report from an authorized person, and the shares were purchased by existing directors. The AR presented financial figures to support the legitimacy of the premium charged per share. Upon hearing both sides, the Tribunal found that the assessee had received share premium money at a reasonable rate, had obtained a valuation report, and had charged a premium per share lower than the earnings per share. The Tribunal emphasized the importance of giving due weightage to a professional valuation report unless proven factually incorrect or obtained fraudulently. Referring to a similar case, the Tribunal concluded that the Revenue authorities erred in treating the share premium as income of the assessee under section 56(1) of the Act. The Tribunal directed the AO to delete the addition made, thereby dismissing the appeal filed by the AO.

In a subsequent decision, the Hon'ble Bombay High Court upheld the Tribunal's order, emphasizing the confirmation of subscriber identity, genuineness of transactions, and subscriber capacity. The Court noted that the Department failed to show any perversity in the factual findings of the Tribunal. Consequently, the Tribunal's decision on the non-applicability of section 68 of the Act was upheld, confirming the legitimacy of the premium received by the assessee.

In conclusion, the Tribunal and the High Court found in favor of the assessee, upholding the deletion of the addition made on account of premium received, based on the valuation report, financial evidence, and the legitimacy of the transaction. The appeal filed by the AO was dismissed, and the FAA's order was upheld.