2022 (10) TMI 560 - AT - Income Tax

Addition on account of share application/ premium received - assessee received the amount as share application money/share premium from a venture capital fund investing in start-up companies - HELD THAT - It is not in dispute that the amount received by the assessee is duly reflected in the Balance Sheet of IL FS as investment. There is also no dispute that the transaction between the assessee and IL FS received clean chit in internal report of Income Tax Department . Also not in dispute that no adverse view was taken by the Assessing Officer in respect of aforesaid fresh amount received by the assessee from IL FS. It is furthermore not in dispute that IL FS is registered with SEBI as a Venture Capital Fund. Impliedly, the transactions of IL FS with the assessee were in the normal course of business of IL FS as a Venture Capital Fund. Furthermore, it is not in dispute that shares have been allotted by the assessee to IL FS. Sr. DR for Revenue did not dispute that issue was squarely covered in favour of assessee and against Revenue, by aforesaid order of CIT vs. Vrindavan Farms (P) Ltd. . 2015 (11) TMI 279 - DELHI HIGH COURT and in the case of Hindon Forge (P) Ltd. 2020 (12) TMI 124 - ITAT DELHI . Sr. DR for Revenue also did not dispute the legal contention of Ld. Counsel for the assessee, that proviso to section 68 of IT Act inserted by Finance Act, 2012 w.e.f. 01/04/2013 had no application for Asst. Year 2012-13 to which this appeal pertains. Further, loss in the hands of IL FS is duly explained by the contention made from the assessee s side that IL FS, as a Venture Capital Fund, did not sell investments in sufficient quantities in Asst. Year 2012-13 and 2013-14; which was not disputed by Ld. Sr. DR for Revenue. Thus we are of the view that the Ld. CIT(A) and the AO erred in taking an adverse view regarding creditworthiness of IL FS and regarding genuineness of transaction of the assessee with IL FS. Accordingly, we direct the Assessing Officer to delete the aforesaid addition.

Summary

Issues:
Appeal against order of Ld. CIT(A) for Assessment Year 2012-13 - Additions on account of share application/premium received - Creditworthiness of IL & FS - Interest charged under sections 234A, 234B, and 234C.

Analysis:

A. Additions on Account of Share Application/Premium Received:
- The Assessing Officer made an addition of Rs.99,88,082/- in the assessment order under section 143(3) of the Income Tax Act, 1961.
- The amount was received from IL & FS as share application money/share premium.
- The Ld. CIT(A) confirmed the addition, stating the assessee failed to prove creditworthiness.
- The appellant filed the present appeal against the CIT(A)'s order.
- Various documents were submitted during the appellate proceedings, including orders from different courts and internal reports.

B. Creditworthiness of IL & FS:
- The Ld. Counsel argued that the issue of creditworthiness was resolved in a subsequent assessment year without adverse views.
- The entire amount received was reflected in IL & FS's accounts, showing it as an asset.
- Details of shares allotted against the amount were provided, along with investment details of IL & FS.
- Legal provisions and court orders were cited to support the appellant's case.

C. Decision and Rationale:
- The Tribunal found that the amount received was duly reflected in IL & FS's balance sheet and transactions were verified by the Income Tax Department.
- No adverse views were taken in subsequent years, and IL & FS was registered with SEBI as a Venture Capital Fund.
- The Tribunal held that the CIT(A) and AO erred in questioning the creditworthiness and genuineness of the transaction.
- The AO was directed to delete the addition of Rs.99,88,082/-, and relevant interest under sections 234A, 234B, and 234C was to be recomputed.

D. Interest Charged Under Sections 234A, 234B, and 234C:
- The AO was directed to recompute interest in accordance with the law.
- Ground 4 of the appeal was treated as partly allowed for statistical purposes.

E. Conclusion:
- The appeal was partly allowed for statistical purposes, with the addition of Rs.99,88,082/- being deleted.
- Ground 2 of the appeal was considered academic and not decided.
- Interest under sections 234A, 234B, and 234C was to be recomputed by the AO.

This detailed analysis covers the issues raised in the appeal and the Tribunal's decision on each aspect, providing a comprehensive understanding of the judgment.