2022 (9) TMI 1314 - AT - Income Tax

Addition on account of share premium treated as income from other sources u/s 56(1) - HELD THAT - As in assessee s own case for assessment year 2010 11 by following earlier decision for the assessment year 2009 10, rendered similar findings. D.R. could not show us any reason to deviate from the aforesaid decisions and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided by the Co ordinate Bench of the Tribunal in assessee s own case for preceding assessment years. It is also to be noted that during the year under consideration, premium per share was collected in comparison to premium of Rs.490, per share and Rs.466, per share in assessment year 2009 10 and 2010 11 respectively. Thus, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue. As a result, grounds raised by the Revenue are dismissed.

Issues Involved:
1. Deletion of addition of Rs.63,98,16,405/- made by the Assessing Officer on account of share premium treated as income from other sources under section 56(1) of the Income Tax Act, 1961.
2. Reliance on the decision of ITAT in the assessee's own case for AY 2009-10 without finality since the department's appeal was pending before the Hon'ble Bombay High Court.
3. Failure of the assessee to furnish authentic documentary evidence justifying the basis of charging premium.
4. Lack of assets in the form of patents, copyrights, intellectual property rights to justify the share premium.
5. Financial worth of the assessee to fetch such premium and the alleged violation of Section 78(2) of the Companies Act, affecting the character of share premium and its taxation under Section 56(1) of the Income Tax Act.

Detailed Analysis:

Issue 1: Deletion of Addition under Section 56(1)
The central issue in the appeal was the deletion of an addition amounting to Rs.63,98,16,405/- made by the Assessing Officer, treating the share premium as income from other sources under section 56(1) of the Income Tax Act, 1961. The assessee had issued shares at a premium, which the Assessing Officer deemed unjustified due to the company's consistent losses and lack of substantial assets. However, the learned CIT(A) allowed the appeal based on the decision of the Tribunal in the assessee's own case for the preceding year, which recognized the share premium as a capital receipt, not taxable under section 56(1).

Issue 2: Reliance on Previous ITAT Decision
The Revenue contended that the learned CIT(A) erred in relying solely on the ITAT's decision for AY 2009-10 without considering that the department's appeal against that decision was still pending before the Bombay High Court. Despite this, the Tribunal upheld the learned CIT(A)'s reliance on its previous decision, emphasizing the consistency in judicial decisions and the absence of any change in facts or law.

Issue 3: Documentary Evidence for Share Premium
The Assessing Officer argued that the assessee failed to provide authentic documentary evidence to justify the high share premium, especially given the company's consistent losses. The Tribunal, however, noted that the valuation was done using the Discounted Cash Flow (DCF) method, which was a commercial decision by the company's Board of Directors. The Tribunal found no fault in the assessee's method of valuation and upheld the CIT(A)'s decision.

Issue 4: Lack of Substantial Assets
The Revenue argued that the assessee did not possess significant assets like patents or intellectual property that could justify the high share premium. The Tribunal referenced its earlier decision, which acknowledged that the valuation and premium were commercial decisions made by the Board of Directors and were subscribed to by credible entities, including public sector undertakings, thus validating the premium charged.

Issue 5: Financial Worth and Section 78(2) Violation
The Revenue claimed that the assessee lacked the financial worth to fetch such a premium and that the funds had been misused, violating Section 78(2) of the Companies Act. The Tribunal dismissed these claims, reiterating that the share premium was a capital receipt and not taxable under section 56(1). The Tribunal also emphasized that the transactions were genuine, involving credible subscribers, and there was no evidence of funds being misused.

Conclusion:
The Tribunal upheld the CIT(A)'s decision to delete the addition made by the Assessing Officer, reiterating that the share premium was a capital receipt and not taxable under section 56(1). The appeal by the Revenue was dismissed, affirming the consistency in judicial decisions and the commercial prudence exercised by the assessee in charging the share premium. The Tribunal found no infirmity in the CIT(A)'s order, providing a detailed rationale for its decision based on previous judgments and the specifics of the case.

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