2019 (7) TMI 745 - AT - Income Tax

Unexplained credit u/s. 68 - addition of share premium being in excess of NAV - HELD THAT - The AO had has accepted the share capital and part share premium and while arriving to the said conclusion he held that the net asset value as per equity share of assessee was ₹ 30.58 per share and, therefore, balance sum was brought as income u/s. 68. We further note that AO had invoked provision to section 68 and section 56(2)(viia) and (viib). But none of the provisions are applicable to the instant assessment year i.e. 2011-12 and infact they are applicable only for the assessment year 2013- 14. Keeping in view of the facts and circumstances of the case and respectfully following the aforesaid precedents including the ITAT, Mumbai decision in the case of ACIT vs. Goldmohur Design Apparel Park Ltd. 2018 (9) TMI 525 - ITAT MUMBAI and ACIT vs. Spectrum Coal and Power Ltd. 2018 (1) TMI 1032 - ITAT DELHI in which various case laws of the Tribunal, as well as Hon ble High Courts have been followed by the Tribunal, we are of the considered view that the addition in dispute on account of part share premium u/s. 68 which is not made in accordance with law and therefore, the same is hereby deleted. - Decided in favour of assessee

Issues Involved:
1. Addition of ?1,12,17,750/- on account of share premium as unexplained credit under Section 68 of the Income Tax Act, 1961.
2. Invocation of Section 56(2)(viib) of the Income Tax Act, 1961.

Detailed Analysis:

1. Addition of ?1,12,17,750/- on Account of Share Premium as Unexplained Credit under Section 68 of the Income Tax Act, 1961:

The Assessee filed its return of income for the assessment year 2011-12, declaring a total income of ?33,93,309/-. The case was taken up for scrutiny, and the Assessing Officer (AO) observed that the Assessee received a share application money of ?1,25,00,000/- for the allotment of 12,500 equity shares at a premium of ?990 per share. The AO questioned the justification for such a high premium as the Net Asset Value (NAV) was ?20.58 per share. The Assessee argued that the premium amount was a commercial decision made by the Board of Directors based on the company's present business status and future prospects.

The AO, relying on the legislative intent and the decision of the Hon'ble Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd., added the sum of ?1,21,17,750/- as unexplained credit under Section 68 of the Act. The Ld. CIT(A) upheld the AO's decision, leading to the Assessee's appeal before the Tribunal.

The Tribunal noted that the AO accepted the share capital and part share premium but brought the balance sum as income under Section 68 of the Act. The Tribunal further observed that the provisions of Section 68 and Section 56(2)(viia) and (viib) were not applicable for the assessment year 2011-12, as they were effective from the assessment year 2013-14.

The Tribunal referred to several judicial precedents, including the ITAT Mumbai's decision in the case of ACIT vs. Goldmohur Design & Apparel Park Ltd., which held that the amendment to Section 68 is prospective and applicable from the assessment year 2013-14. The Tribunal also cited the ITAT Delhi's decision in ACIT vs. Spectrum Coal and Power Ltd., which held that the provisions of Section 56(2)(viib) were effective from the assessment year 2013-14 and not applicable to earlier years.

Based on these precedents, the Tribunal concluded that the addition of ?1,21,17,750/- under Section 68 of the Act was not in accordance with the law and deleted the same.

2. Invocation of Section 56(2)(viib) of the Income Tax Act, 1961:

The AO invoked the provisions of Section 56(2)(viib), which deals with the taxation of share premium exceeding the fair market value. However, the Tribunal noted that this provision was effective from the assessment year 2013-14 and not applicable to the assessment year 2011-12. The Tribunal referred to multiple judicial decisions, including the ITAT Mumbai's decision in DCIT vs. Varsity Education Management (P) Ltd., which held that the amendment to Section 56(2)(viib) applies prospectively from the assessment year 2013-14.

The Tribunal also cited the ITAT Mumbai's decision in M/s Jayneer Infrapower and Multiventures (P) Ltd. vs. DCIT, which stated that even if the share premium is excessive, it cannot be taxed under Section 68 during the assessment year 2012-13, as the nature and source of the same were fully explained.

In conclusion, the Tribunal held that the invocation of Section 56(2)(viib) was not applicable for the assessment year under consideration and deleted the addition made on account of share premium.

Conclusion:

The Tribunal, after considering the submissions and judicial precedents, held that the addition of ?1,21,17,750/- under Section 68 of the Act was not in accordance with the law and deleted the same. The Tribunal also concluded that the provisions of Section 56(2)(viib) were not applicable for the assessment year 2011-12. Therefore, the appeal filed by the Assessee was allowed.

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