2023 (11) TMI 235 - HC - Income Tax

Addition u/s 68 - undisclosed income - investment made in shares issued at premium - HELD THAT - The triple test u/s 68 requires an assessee to prove identity, creditworthiness, and the genuineness of the subject transaction. In this case, concededly, there is no dispute with regard to the identity of the investor. As indicated above, Adhyay was the investor. The fact that Rs. 20 crores have been invested via banking channels is not in dispute. Also not disputed that the respondent/assessee justified the premium that it had charged qua the shares by producing a valuation certificate of the Chartered Accountant. The valuation was made based on the Net Asset Value Method (NAVM). The valuation revealed that the shares of the respondent/assessee were worth Rs.200.52 per share. We find from the assessment order that the AO has taken note of the fact that if other methods were used, the valuation would have been much higher. There was on record a justification concerning the premium that the respondent/assessee received for its shares. AO asked himself the wrong question and proceeded thereafter on the wrong path. It is important to highlight, something which the Tribunal has noted, that in a query put by the AO to the representative of Adhyay, what was revealed is that it had a net worth of more than Rs.100 crores. What has come through on perusal of the record is that the respondent/assessee has furnished the details of the cheque payments and therefore, there was enough and more material available with the AO to make further inquiry into the matter. AO, instead of making further inquiries, seems to have been burdened by the fact that the premium charged was high, which, according to us, was not the correct test for making an addition u/s 68 - Decided in favour of assessee. Deduction u/s 80IB - inclusion of CENVAT Credit in the profits of assessee for the purposes of arriving at the deduction - HELD THAT - CIT(A) went into a detailed analysis of the issue at hand and correctly drew a distinction between the CENVAT credit, which is made available to a manufacturer against the duty drawback, and the Duty Entitlement Pass Book (DEPB) certificates issued to an exporter. DEPB are incentive profits which are made available to an exporter who may not necessarily be a manufacturer and therefore, possibly, being ineligible for deduction u/s 80IB of the Act. Both CIT(A) as well as the Tribunal have taken note of Dharam Pal Prem Chand Ltd. 2008 (11) TMI 231 - DELHI HIGH COURT - No substantial question of law.

Summary

Issues:
The judgment concerns two main issues for Assessment Year 2007-08:
1. The sustainability of the deletion of addition made under Section 68 of the Income Tax Act regarding the investment made in shares issued at a premium by the respondent/assessee.
2. The erroneous inclusion of CENVAT Credit in the profits of the respondent/assessee for the purposes of arriving at the deduction available under Section 80IB of the Act.

First Issue - Deletion of Addition under Section 68:
The appellant/revenue challenged the deletion of addition under Section 68 concerning the investment in shares issued at a premium. The appellant argued that the investment in shares by Adhyay Equi Pref Private Limited, amounting to Rs. 20 crores, was undisclosed income. The appellant emphasized discrepancies in the credit balance of Adhyay's account before and after the investment. However, the court found that the respondent/assessee had proven the identity of the investor, the investment was made via banking channels, and a valuation certificate justified the premium charged for the shares. The court noted that the AO did not conduct further inquiries despite the available material, and emphasized that the high premium alone was not sufficient grounds for addition under Section 68.

Second Issue - Inclusion of CENVAT Credit in Profits for Section 80IB Deduction:
The appellant argued that the CENVAT credit availed by the respondent/assessee did not qualify as income derived from an industrial undertaking for claiming a deduction under Section 80IB. The appellant contended that the CENVAT credit should have a direct nexus with the profits of the industrial entity. However, the court found that the CIT(A) ruled in favor of the respondent/assessee, distinguishing between CENVAT credit and DEPB certificates. The court noted that DEPB certificates are "incentive profits" for exporters, possibly ineligible for Section 80IB deduction. The court cited relevant judgments, including one by a coordinate bench and the Supreme Court, to support its decision.

Conclusion:
The court found no substantial question of law for consideration on either issue. It upheld the Tribunal's order, stating that it was not a fit case for interference. The appeal was disposed of accordingly.