9911796707
TMI Blog2018 (7) TMI 121X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Inc (a foreign wholly owned subsidiary company). The AO has observed in the assessment order that unexplained amount was credited in the share premium account which was utilized for investment in a company which was not the main business of the assessee; the assessee company was utilized as a conduit for unexplained funds. After hearing the assessee , the AO determined the total income at Rs. 10,45,l7,761/- by making a major addition of Rs. 10,15,86,144/- as unexplained credits in the books u/s 68. 2.1 On appeal, the Ld. CIT(A) dismissed the appeal. On further appeal, this Honble ITAT vide its order In ITA Na. 192/Mds/2016 dated13.06.2016 set aside the order of the Ld. CIT(A) and held as under: "The order passed by the ld. CIT(A) is very cryptic one and he has not discussed... We are unable to appreciate the order of the ld. CIT(A) and accordingly we remit the same to the Id, CIT(A) to give finding on the share purchase agreement entered into by the assessee With foreign company and also relevant allotment of share. Accordingly, we set aside the order of the ld. CIT(A) on this issue and remit the issue back to the ld. CIT(A) for fresh consideration and to pass a detailed spea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany was earlier owned by four foreign shareholders and the assessee purchased their shares for Rs. 11.85 crore. After selling the assessee's 25% of shares worth 2.5 million USD, the promoter shares in the assessee company were reduced to 75%. 3.2 The Ld CIT(A) asked the assesse to explain why a share with a face value of Ra. 10/- per share, was valued at Rs. 166/-. In spite of specific opportunity given, the assessee could not substantiate its exorbitant valuation of shares at Rs. 166/- per share as against the share value worked out at Rs. 48/- per share during the relevant period by the assessee's own Chartered Accountant based on Net Asset method ie after taking into consideration the complete assets and liabilities. The AR's only defence was that the excess share valuation could be assessed u/s 56(2) clause (viib) only with effect from 1.4.2013. The Ld CIT(A) held that although a specific provision was introduced to assess the receipt of share premium disproportionate to the net asset value w.e.f. 1.4.2013, it cannot be said that prior to that amendment, there was no legislative intention u/s 68 to assess such receipt without any basis. Although the assessee may have received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The nature and source of the sum was explained to the CIT(A). 7) The addition under section 68 can only be made when the appellant failed to explain the nature and source of transaction. The appellant having explained the same, the CIT(A) erred in sustaining the addition under section 68 merely on the ground that the shares were issued at huge premium. The assessing officer and CIT (A) erred in considering that the explanation offered by the appellant as not satisfactory. 8) The CIT (A) erred in not considering the submission of the appellant that neither section 56 nor proviso to section 68 apply to the case of the appellant particularly when the those provisions were not part of the Act during the relevant assessment". 5. The Ld AR submitted that during the year ,the assessee entered into a share purchase and share transfer agreement with M/s Carlisle Communications Inc,. USA, who were into similar business as that of the assessee. The shareholding of M/s Carlisle Communications Inc, USA was as under : MaribethcarlisleGolus 270.7925 John Carlisle 270.7925 Julie Carlisle Kane 270.7925 William Carlisle 536.9325 Total 1349.31 Pursuant to the share purchase agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is only applicable to cases where the said consideration for issue of shares is received from a resident. The section is not applicable to the present case since the shares are issued to non residents and also the transactions are much before 01.04.2013. In view of the same, it is submitted that no part of the consideration of Rs. 10,15,86,144/- [2.50 Mm USD] is taxable in the hands of the assessee. 5.2 The assessing officer added the entire sum of Rs. 10,15,86,144/- as unexplained credits under section 68. Section 68 of the Income Tax can be invoked only when the assessee failed to explain about the nature and source of the sums credited in it books of accounts or when the explanation offered by the assessee is not satisfactory. In this case, the assessee provided all the material before the assessing officer (which are part of the paper book) to prove the identity of the new shareholder. The genuineness of the transaction is also established based, since the same arose out of contract between parties through banking channels with KYC norms duly followed. Further, then on residents who have for the share capital and share premium, had adequate source for the sums credited. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any rate, the assessing officer did not reject the non residents received 3.50 Mn USD or that they have invested 2.50 Mn USD. Mere fact that they were liable for tax only for 1 Mn USD in their country does not mean that they had source only for 1 Mn USD The Assessing Officer did riot even give credit for the sources the non resident had even according to his own judgment. Thus, the AO without appreciating full facts erred grossly in holding that the non- residents who have invested into the capital of the assessee did not have source. Without prejudice to the submission that the new shareholders had adequate source, the assessee cannot be called upon to establish the source of the shareholders as per the decision of the Hon'ble Supreme Court in the case of Lovey Exports P Ltd. [2008] 216 CTR 195 (SC). The First proviso to section 68 inserted by Finance Act 2013 with effect from 1.4.2013 is only prospective. Further, the said proviso does not apply where the credit for the shares stand in the name of anon resident. Admittedly ,in the case of the assessee, the new shareholders are non residents. Therefore the proviso is not applicable. At any rate, the non-residents have also admitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upport of its stand. Thus, we now have three different valuations being Rs. 23 per share by Net Asset Method, Rs. 48 per share on the basis of Earnings Capitalisation Method and Rs. 154 per share as per discounted cash flow method. The assessee transferred the shares at Rs. 176per share including the premium. Thus, the assessee has adopted a figure unsupported by any of the valuations also. It is also not known as to which valuation have been produced before the AO. However, it is noticed that neither the AO nor the assessee has applied the prescribed methods for determination of the fair value of the unquoted shares of the assessee company. In the facts and circumstances, we deem it fit to remit this issue back to the AO for a fresh examination. Since, the assesse's shares are not quoted, the AO would examine whether, the valuation of shares done by the assessee is in accordance with the law/rule and proceed to determine the correct value of share and income after affording adequate opportunity to the assessee. The assessee shall place all the materials in its support before the AO and comply to the AO's requirements as per law. The A O is free to conduct appropriate enquiry as de ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
