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TMI Blog2018 (7) TMI 214X X X X Extracts X X X X X X X X Extracts X X X X ..... see companies. Since the issues are common and connected and the appeals were heard together these are being consolidated and disposed of together by this order. 2. One common issue raised in ITA No. 32/Nag/2017 and ITA No. 34/Nag/2017 is that the ld. Commissioner of Income Tax (Appeals) erred in deleting the addition of share application money without appreciating that the assessee failed to establish the identity, creditworthiness and genuineness of the transaction. 3. Since the facts are identical, we are referring to facts and figures of ITA No. 32/Nag/2016. 4. In this case, the Assessing Officer noted that on perusal of the balance sheet, it is found that the assessee has received share application money of Rs. 1,24,75,000/-. Hence, the Assessing Officer noted that in the assessment proceedings, the assessee was asked to explain about the share premium receipt considering the fact that the assessee company has not done any significant business. The assessee company gave details showing name of the companies who had given the share application money, their address, their PAN number, share application receipt number, number of shares allotted to them and amount appropriated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmitted the necessary documents in respect of each corporate entity as under: a) Request for issue of shares. b) Bank statement c) PAN card d) Certificate of incorporation e) General Board Resoulution for purchase of shares and securities. f) Acknowledgement of Return of Income Tax Act, 1961 g) Balance sheet & Profit and loss account. 6. The ld. Commissioner of Income Tax (Appeals) also obtained remand report from the Assessing Officer. The ld. Commissioner of Income Tax (Appeals) thereafter noted that in a similar case, the same issue was considered and the decision was allowed in favour of the assessee. He concluded as under: 4.5. I find that in case of Sterlight Fincom Pvt. Ltd the appellant has provided the AO with adequate details establishing identity, creditworthiness and genuineness of transaction of documents pertaining to transfer of share, bank statements, PAN Card details, acknowledgment of return of income etc. has been provided by the appellant to the AO before finalizing of assessment order. The AO neither during the course of original assessment proceedings nor during the course of appellate proceedings has rebutted the assertion made by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the parties. The assessing officer wanted to verify the details submitted by examining the Director/Principal Officer of the investing companies. The Assessing Officer has drawn adverse inference because he noted that assessee has neither produced the concerned parties nor their directors, though he accepted that confirmation from them were duly produced. The ld. Commissioner of Income Tax (Appeals) has given a finding that the assessee has given all the necessary details required to discharge its onus. He has observed that the Assessing Officer neither during the course of original assessment proceedings nor during the course of appellate proceedings has rebutted the submissions of the assessee in any manner. He observed that the Assessing Officer has not been able to provide any evidence that the investing companies were engaged in providing accommodation entries or that the money that has been invested in the assessee company belongs to the assessee itself. Thereafter, referring to the several case laws, the ld. Commissioner of Income Tax (Appeals) deleted the addition. 9. Upon careful consideration, we find that we may gainfully refer to the provisions of section 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation ofSection 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the preproviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace with effect from 1st April, 2013. Therefore, it is not applicable for the subject Assessment year 2012-13. So for as the pre-amended Section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the Respondents- Asessee before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium to tax. Similarly, the CIT(A) an consideration of facts, found that Section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not urge the issue of Section 68 of the Act before the Tribunal. 9(b) It is further pertinent to note that the definition of income as provided under Section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from 1st April, 2013 and thus, would have, no application to the share premium received by the Respondent - Assessee in the previous year relevant to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs of the investing companies. 15. Thus, we find that deletion of addition by the ld. Commissioner of Income Tax (Appeals) in this case is in confirmity with the expositions of the Hon'ble Jurisdiction High Courts as above. Accordingly, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals) and hence we uphold the same. 16. One common issue raised in all the appeals reads as under: Grounds of appeal 1. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in deleting the addition without appreciating that the assessee has purchased the shares from PPSL at discounted rate being a group concern company. 2. On the facts and in the circumstances of the case, the Ld. CIT(A) erred in not appreciating the facts that the share1' transaction is artificially designed to pass on the benefit of share transaction from entity to entity. Since the facts are identical, we are referring to facts and figures of ITA No. 407/Nag/2016. 17. In this case, the assessee's are corporate entities. During the course of assessment proceedings on perusal of balance sheet of the assessee the assessing officer found that the assessee had made inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arisen out of business taxable u/s. 28(iv) of the IT Act. It was further submitted that even if it is presumed that assessee has benefited by the so-called concession in share price, section 28(iv) does not permit to tax such benefit that accrues to the assessee. It was submitted that the benefit must arise from the business or exercise of profession. It was further submitted that the assessee continues to hold these shares as investment only. However the assessing officer was not convinced. He held that the assessee's contention that the receipt on account of share transactions should be treated as capital in nature, is not acceptable. He held that the said transactions do not qualify for the claim of capital gain/loss as per the provision in view of the fact that these transactions are off market transaction and not share market transaction. He further observed that the assessee's contention of having no business relations with the parties is not acceptable. He referred to the enquiry made and observed that many group companies have given corporate guarantees to PPSL for term loan. He held that there was business relation between the assessee and PPSL. Hence, the assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Assessing Officer to the total income of the assessee within the meaning of section 28(l)(iv) of the I.T.Act" The bench has decided the issue in the following manner: "This brings us to whether the difference in question can be considered as income under s. 28(iv)? The section read as follows: "28. The following income shall be chargeable to income-tax under the head 'Profits and gains of business or profession',- (iv) the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession." Circular explaining the provisions of new s. 28(iv) at cl. 82 states as follows: "Assessment of the value of any benefit or perquisite arising from business or exercise of a profession, as income from business or profession. 82. A new cl (iv) has been inserted in s. 28, w.e.f. 1st April, 1964, by s. 7 of the Finance Act, 1964, under which the value of any benefit or perquisite (whether convertible in money or not) arising from business or the exercise of a profession will be chargeable to tax under the head 'Profits and gains of business or profession'. A corresponding amendment has been made to s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in carrying out a profession or while doing business. A benefit that is passed on by one party to another, in addition to cost or sale price, is covered in this proviso. This is clear from the example quoted. In our humble opinion, this section cannot be invoked under the present facts and circumstances. 8.4 Be it as it may the co-ordinate Bench of the Tribunal (F-Bench, Mumbai) in the case of Helios Food Improvers (P) Ltd. (supra) held that s. 28 is a charging section and takes into account the receipts of specified categories of all incomes as well as the receipts which could be generally construed as income in the ordinary sense. But the fact remains that all the receipts mentioned in s. 28 are inherently of income nature except in case of receipt under a given amount of insurance policy. It also states that s. 28(iv) refers to any benefit or perquisite and this means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage if the original transaction is completed as designed. The Bench further observed that the words 'benefit' or 'perquisite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usiness done between the seller and the purchaser of the shares. No case has been made out that privilege or benefit or concession has been passed on by the seller to the buyer as part and parcel of a business transaction. A benefit has been assessed by the CIT(A). Mere purchase of shares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. Thus on this factual matrix, mere purchase of shares, as an investment, with the lock-in-period of holding, for a consideration which is less than the market value, cannot be brought to tax, as a benefit or perquisite under s. 28(iv) of the Act. The assessee has not in this case, secured any benefit or perquisite in consideration of a business transaction undertaken with the sellers of the shares. Thus this issue is decided in favour of the Revenue and against the assessee. " 8. In view of the above discussion and the order of the coordinate Bench of the we do not find any merit in the appeal of the revenue and accordingly uphold the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondents in this behalf are rejected, the fact remains that there is a clear bar for a block period of three years prohibiting the sale of shares. It is axiomatic that the benefit can be said to have arisen to an individual, if only, any person in his place, would have got the differential price, by selling the shares. Irrespective of the willingness or otherwise of the person holding such a share, if the bar operates, it is difficult to imagine that the sale of the shares would take place or that it would yield the differential price. Though we said this with some amount of precession, the Tribunal elaborated the same in detail and took the view that as long as the bar operated, the question of any benefit in the form of differential price, accruing to the respondents, does not arise. We are in agreement with the conclusion arrived at by the Tribunal. 11. The second aspect is as to whether the benefit has, i the respondent. There exists a distinction between the "accrual of income", on the one hand, and "arising of income", on the other. While accrual is almost notional in nature, the other is factual It is too well known that in its complex nature, the Act covers not only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Commissioner of Income Tax (Appeals) by not adjudicating the challenge of the assessee to the validity of reopening has erred and it has caused prejudice to the assessee. 23. We have heard both the counsel and perused the records. We find that in this case, the assessee company has made the investment in shares of PPSL. The assessee has submitted before the authorities below that these shares have not been purchased from PPSL directly but have been purchased from third parties. This submission of the assessee has not been rebutted/disputed by the Assessing Officer. The purchase of the share has been done at a price of Rs. 4/-, as against the face value of Rs. 10/-. The differential amount has been treated by the Assessing Officer as benefit within the meaning of section 28(iv) of the I. T. Act. In this regard, the assessee's submission is that the PPSL was continuously incurring losses and had heavy accumulated losses in the balance sheets of all the earlier years and it continued to do so in the later years also. Under these circumstances, it was submitted that the negative sentiments in the market and considering heavy accumulated losses, it can be said that the price of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the current accounting year which can be said to lead to any income accrued or arisen during the year. If at all the assessee transfers the shares then the probable benefit or profit, if any, in question can be brought to tax in those particular years as long term or short term capital as the case may be. In this regard, from a reading of section 28(iv) of the Act and the corresponding amendment in section 2(24) it is clear that even when the assessee purchases goods or assets at a price lower than the market price, under whatever circumstances the same cannot be brought to tax u/s. 28(iv). 26. Another aspect in this regard is that the assessee have not purchased these shares from PPSL, rather it has been purchased from third parties. No cogent material has been brought on record to prove that these third parties are either related to PPSL or the assessee. The assessee has clearly submitted that there is no business relationship as such between these parties. However, the Assessing Officer has disbelieved these submissions by generally referring to an enquiry which had revealed that some group companies have given corporate guarantees to PPSL for term loan. These unsubstan ..... X X X X Extracts X X X X X X X X Extracts X X X X
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