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TMI Blog2018 (10) TMI 1393X X X X Extracts X X X X X X X X Extracts X X X X ..... h supports the case of the assessee is that the assessee had received funds in the earlier years and not during the year under consideration. During the year under consideration, the assessee has transferred the funds to “preference shares account” and “shares premium” account by passing journal entries. There should not be any doubt that the provisions of sec.68 shall apply only in the year in which the cash credit was found. There is no justification in assessing the alleged excess premium as income of the assessee. Accordingly we are of the view that the CIT(A) was justified in deleting the impugned addition and accordingly we uphold his decision. - Decided against revenue. - I.T.A. No. 6146/Mum/2016 - - - Dated:- 31-8-2018 - Shri B.R. Baskaran (AM) And Shri Ramlal Negi (JM) For The Assessee : Shri Rakesh Mohan For The Department : Shri Abhijit Patankar ORDER Per B.R. Baskaran (AM) : The appeal filed by the Revenue is directed against the order dated 19.7.2016 passed by the learned CIT(A)-4, Mumbai and it relates to A.Y. 2011- 12. The Revenue is aggrieved by the decision of the learned CIT(A) in deleting the addition of excess premium rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further, another major difference is that Preference Shares does not participate in the profits of the company. We have tabulated below salient features of Preference Shares vis-avis equity shares: Basis of difference Preference share Equity Share Rate of dividend The rate of dividend on preference share is fixed. The rate of dividend on equity share is changed from year to year depending upon the availability of profits. Payment of dividend They have a right to receive dividend before any divided is paid on equity shares Dividend on equity shares is paid, after any dividend is paid on preference shares. Participation in management Preference shareholders are not entitled to participate in management. Equity share holders are entitled to participate in management. Winding up On the winding up, they have a right to return of capital ahead (before) of the capital returned on equity shares ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares should be made on the basis of returns received by the investor from such instruments. It was submitted that investor shall receive ₹ 750 per share after expiry of five years period, which would give a return of approximately 10 % per annum. Accordingly, it was submitted that premium of ₹ 490/- is justified. 3. The Assessing Officer was not convinced with the contention of the assessee. He noticed that the assessee has been incurring losses from last two years. He also took the view that the claim of redemption of preference shares at ₹ 750/- per share is also not acceptable for the reason that any expectation based on future cannot be reckoned for taking decision at present. Accordingly, the Assessing Officer took the view that the fair market value of unquoted shares should be determined on the basis of balance-sheet of the assessee. Accordingly, the Assessing Officer arrived at fair market value of the shares at ₹ 38/- per share. Accordingly, the Assessing Officer took the view that reasonable premium should have been ₹ 28/- per share. Accordingly, Assessing Officer took the view that excess premium of ₹ 462/- per share which worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not given any basis for charging high premium. The Ld D.R submitted that in an identical case, the Mumbai bench of Tribunal has confirmed assessment of excess premium in the case of Varsity Education Management P Ltd (ITA No.486/Mum/2015 dated 11.01.2017). He submitted that the Tribunal, in the abovesaid case, took note of the fact that the book value of shares was NIL and hence there was no basis for receiving share premium of ₹ 1030/- per share. The Ld D.R submitted that the Tribunal has also referred to the decision rendered by Hon ble Bombay High Court in the case of Major Metals Ltd (207 taxman 185) and also the decision rendered by the Tribunal in the case of Angel Pipes and Tubes (P) Ltd (2014)(50 taxmann.com 128). Accordingly, the Ld DR submitted that the decision rendered by Ld CIT(A) should be reversed. 6. The Ld A.R submitted that the assessee has received the funds towards preference shares in the earlier years and during the year under consideration, the assessee has only allotted the shares. He submitted that the provisions of sec.68 shall apply only in the year in which the funds were received. During the year under consideration, the assessee h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 76 ITR 169)(SC). Accordingly the Ld A.R submitted that the decision rendered by Hon ble Bombay High Court in the case of Major Metals (supra) cannot be taken support of. Accordingly, the Ld A.R submitted that there is no reason to interfere with the decision rendered by Ld CIT(A). 8. We have heard rival contentions and perused the record. We notice that the assessee has issued Non-convertible Redeemable Preference Shares to its holding company named M/s Sahara India Commercial Corporation Ltd @ ₹ 500/- per preference share against the face value of ₹ 10/- per share. The share premium on the preference shares so issued worked out to ₹ 490/- per share. The AO took the view that the share premium amount is on the higher side. Based on the net asset value of the assessee, the AO worked out the value of shares at ₹ 38/- per share. Accordingly the AO has taken the view that the share premium should have been charged at ₹ 28/- and accordingly assessed the excess premium as income of the assessee. 9. We notice that the AO has failed to appreciate the fact that the Preference Shares and Equity shares stand on different footing, which has been explained by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .R contended that the AO has not invoked the provisions of sec.56(2)(viib) of the Act. Since the assessing officer did not specify any section of the Act under which he assessed the alleged excess premium, the Ld D.R contended that the AO has presumably invoked the provisions of sec.68 of the Act. Accordingly, the Ld D.R submitted that the assessee is required to prove the nature and source of the receipts. The Ld D.R submitted that in the instant case, the nature was not proved. 12. Thus, it is the case of the revenue that the nature of receipt was not proved by the assessee. There is no dispute that the Source has been proved. There is no dispute with regard to the fact that the assessee has received the impugned funds by way of Share Premium on issue of preference shares. In the books of accounts also, the assessee has credited share premium account only with the amount received. Hence, according to the assessee, the nature of receipt is Share premium received on issue of preference shares. We have noticed earlier, the assessee has received the money on issue of Nonconvertible and Redeemable preference shares, meaning thereby, the assessee has to return the mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noticed that the AO has considered the share premium amount as excess in nature, only for the reason that it is in excess of Book value of shares. We have noticed that the book value of shares would value only Equity shares and not Preference shares . Hence, the very basis on which the AO determined the excess premium should, in our view, is not sustainable. In any case, the assessee has shown that the transaction is a commercial transaction involving receipt of money @ ₹ 500/- per share and repayment of the same @ ₹ 750/- per share after a period of five years. Yet another point, which supports the case of the assessee is that the assessee had received funds in the earlier years and not during the year under consideration. During the year under consideration, the assessee has transferred the funds to preference shares account and shares premium account by passing journal entries. There should not be any doubt that the provisions of sec.68 shall apply only in the year in which the cash credit was found. 16. In view of the foregoing discussions, we are of the view that there is no justification in assessing the alleged excess premium as income of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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