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TMI Blog2014 (11) TMI 479X X X X Extracts X X X X X X X X Extracts X X X X ..... by filing copies of share application forms and Form No. 2 filed with the Registrar of Companies. The amendment has been brought in the Income Tax Act under the head "Income from other sources" by inserting Clause (viib) to Sec. 56 of the Act wherein it has been provided that any consideration for issue of shares, that exceeds the fair value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be treated as the income of the assessee but the legislature in its wisdom has made this provision applicable w.e.f 1.4.2013 i.e. on and from A.Y. 2013-14 - the transaction has to be considered in the light of the provisions of Sec. 68 of the Act - the assessee has given details of names and addresses of the shareholders, their PAN Nos, the bank details and the confirmatory letters - the initial burden of proof as rested upon the assessee has been successfully discharged by the assessee - Even if it is held that excess premium has been charged, it does not become income as it is a capital receipt - The receipt is not in the revenue field - if the identity is proved, no addition can be made u/s. 68 of the Act – the order of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration was filed on 25.9.2008 declaring loss at ₹ 1,24,191/-. The return was processed u/s. 143(1) of the Act and thereafter it was selected for scrutiny assessment and statutory notices were issued and served upon the assessee. 4.1. During the course of the scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has shown income from dividend only. The AO further noticed that the issued, subscribed and paid up capital of the assessee was increased from 2,50,000/- to ₹ 83,75,000/-. It was noticed that the assessee has collected share premium at ₹ 6,69,75,000/-. The AO further observed that the entire increase in the share capital was invested in shares of M/s. Omni Infrastructure Pvt. Ltd. The assessee was asked to furnish the details with supporting evidences of the subscribers to the share capital and also the premium received. The assessee was also asked to justify the charging of premium of ₹ 190/- per share. The assessee furnished list of shareholders, their share holding pattern as on first and last day of the balance sheet, copies of share certificates issued, copy of share application form, Form No. 2 filed with Registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ructure P. Ltd. 1,95,00,000 Parshwanath Buildcon P. Ltd. 45,00,000 6 (*) Terrain Properties Pvt. Ltd. 1,93,50,000 2,07,50,000 Gangdeep Infrastructure P. Ltd. 95,00,000 Meghraj Properties P. Ltd. 25,00,000 Money Matters Infrastucture P. Ltd. 75,00,000 Parshwanath Buildcon P. Ltd. 1,40,00,000 7. (*) Stroll Properties Pvt. Ltd. 1,78,30,000 3,55,70,000 Rolesoft Mercantile Pvt. Ltd. 10,00,000 Gagandeep Infrastructure P. Ltd. 10,00,000 Meghraj Properties P. Ltd. 5,00,000 Money Matters Infrastructure P. Ltd. 15,00,000 Parshwanath Builcon P. Ltd. 1,50,00,000 4.2. The AO further noticed that all the above-mentioned companies are having common/related Directors, common/related shareholders in one or the other company. On further verification of the deployment of funds by the assessee in purchase of the shares of M/s. Omni Infrastructure Pvt. Ltd., the AO called information from the said company. The AO observed that the said company has collected a huge premium of ₹ 61,46,22,200/-. The AO further noticed that M/s. Omni Infrastructure Pvt. Ltd is a loss making company which does not suggest in any manner for charging of higher premium of ₹ 12,490/- per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plained cash credit within the meaning of Sec. 68 of the Act. The AO further noticed that the assessee has earned dividend income of ₹ 4,748/- and the same has been claimed as exempt u/s. 10(34) of the Act. The AO was of the opinion that Sec. 14A of the Act required the assessee to exclude all direct and indirect expenses attributable for the earning of this exempt income. The assessee was asked to show cause as to why the appropriate disallowance be not made out in respect of expenses incurred for earning the dividend income. In response to which the assessee stated that no expenditure had been incurred for earning exempt income. The AO discarded the statements of the assessee because according to the AO Rule 8D squarely apply for the year under consideration. Accordingly, the AO proceeded to calculate the disallowance u/s. 14A r.w. Rule 8D and computed the disallowance at ₹ 1,88,012/-. 5. Aggrieved by this, the assessee carried the matter before the Ld. CIT(A) in respect of the aforestated two additions made by the AO. Before the Ld. CIT(A), it was strongly contended that the AO is not justified in adding the increase in share capital alongwith share premium as unexp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eved by this, the Revenue is before us and the assessee is in cross objection in respect of the findings of the Ld. CIT(A) for disallowance u/s. 14A r.w. Rule 8D of the Act. 9. The Ld. Departmental Representative strongly relied upon the findings of the AO. It is the say of the Ld. DR that the onus was on the assessee to justify the premium charged on the issue of shares which the assessee has grossly failed and therefore the AO has rightly made additions u/s. 68 of the Act. 10. The Ld. Counsel for the assessee reiterated the facts as they were stated before the lower authorities. 11. We have carefully perused the orders of the lower authorities. In our considered view, the issue of shares at premium is always a commercial decision which does not require any justification. Further the premium is a capital receipt which has to be dealt with in accordance with Sec. 78 of the Companies Act, 1956. Further, the company is not required to prove the genuineness, purpose or justification for charging premium of shares, share premium by its very nature in a capital receipts and is not income for its ordinary sense. It is not in dispute that the assessee had filed all the requisite detail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no addition can be made u/s. 68 of the Act. We draw support from the decision of the Hon'ble Supreme Court in the case of Loevely Exports Pvt. Ltd. 317 ITR 218. We, therefore do not find any error or infirmity in the findings of the Ld. CIT(A). Ground No. 1 is accordingly dismissed. 12. Ground No. 2 in Revenue's appeal and cross objection by the assessee relate to the disallowance made u/s. 14A of the Act r.w. Rule 8D. 13. The assessee has earned dividend income of ₹ 4,748/- which it has claimed as exempt u/s. 10(34) of the Act. The AO has followed the decision of the Hon'ble Jurisdictional High Court in the case of Godrej & Boyce Mfg. Co. Ltd 328 ITR 81. The Ld. CIT(A) has very correctly upheld the findings of the AO that Rule 8D is applicable during the year under consideration. However, at the same time, the Ld. CIT(A) has restricted the disallowance of expenditure to the extent claimed by the assessee at ₹ 1,24,191/-. We, therefore, do not find any error or infirmity in the findings of the Ld. CIT(A) which we confirm. Accordingly the appeal filed by the Revenue is dismissed and so also the cross objection filed by the assessee is also dismissed. 14. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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