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TMI Blog2018 (11) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... are substantially interested, as it exceeds the fair market value of the shares. If one accepts the Ld CIT-DR's contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time. As explained that it is a settled law that where two views are possible, the view favorable to the assessee should be adopted as held in case of CIT Vs. Vegetable Products Ltd.[1973 (1) TMI 1 - SUPREME COURT]. We are of the view that the assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 and no addition can be made on this account. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. - Decid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -7(3)(2)/651/2015-16, order dated 03.01.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-7(3)(2), Mumbai (in short DCIT/ AO ) for the A.Y. 2012-13 vide order dated 30.03.2015 under section 143(3) of the Income Tax Act, 1961 (hereinafter the Act ). 2. The first issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO in respect of share premium charged by assessee as unexplained credit under section 68 of the Act. For this Revenue has raised the following ground No. 1 to 3: - 1. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is right in deleting addition of ₹ 598,44,01,500/- u/s 68 of the Act made on account of charging share premium of nearly Rs. one lakh each on 59,850 cumulative compulsory convertible preference shares of face value of ₹ 10/ - each allotted to M/s. Piramal Estates Put Lid without appreciating that the assessee company was not worth such a huge premium and nature and genuineness of the share transaction is not satisfactory. 2. On the facts and in the circumstances of the case and in law, whether charging share premium of nearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t had received share premium of ₹ 99,990/- per share for shares with a face value of t 10/- each, itself would be a good and sufficient reason to charge the said premium to tax under section 68 of the Act. On the other hand, the ARs sought to demonstrate that they had more than adequately discharged the onus of proving the identity and creditworthiness of the share applicant as also the genuineness of the transaction. Further, the ARs' have argued that there was no provision in the Act under which the said share premium could be charged to tax. There was hence no scope for making any addition under section 68 as made by the AO. 3.3.1 Let me now examine the factual issues of this case. Though the AO's order is completely silent with regard to the notice issued under section 133(6) of the Act, the ARs' have demonstrated that they had filed considerable documentation in response thereto. As there was only one shareapplicant viz. PEPL and that entity too was a group company, the appellant had filed complete details of the name and address of the applicant, its PAN, its return in form no. 2 filed with the RoC its return of income. These documents have been re-fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing an appeal for AY 2012-13. The said amendment is accordingly not discussed any further, it being inapplicable to the case at hand. Suffice to say that there exists no explicit legislative sanction to bring to tax any share premium insofar as the assessment year under consideration is concerned. Having dealt with the legislative aspect, let me now examine the various judicial pronouncements on this issue. 3.3.3 The Hon'ble Supreme Court has had occasion to go into this very matter. In the case of CIT v. Allahabad Bank Ltd. (73 ITR 745), it had been held that the share premium account had to be included in the paid up capital account, thus leading to share premium being treated on a par with the paid up capital. Further, in the case of CIT v. Standard Vacuum Oil Co. (59 ITR 865), it had been held that premium realized on issue of shares is not in the nature of a revenue receipt and is hence not chargeable to tax. It would hence become dear that as held by the Hon ble Supreme Court, not just the paid up capital but also the share premium is not chargeable to tax, both being not in the nature of revenue receipts. The Hon ble High Court too of Bombay had occasion to go into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment order and stated that when there is negative net worth of the assessee company in view of huge loss suffered by it regularly during these two assessment years i.e. AY 2011-12 and 2012- 13. He stated that the charging of premium on CCPS amounting to ₹ 99,990/- is without any basis and nature and source of credit is not proved. On the other hand, the learned Counsel for the assessee Shri Yogesh Thar made detailed submissions and heavily relied on the order of CIT(A). 5. We have heard rival contentions and gone through the facts and circumstances of the case. The facts of the case are that the assessee company issued 59,850 1% NCCPs having face value of 10/- at a premium of ₹ 99,990/- to PCPL. These shares were issued in two tranches of 20,000 and 39,850/- shares respectively. In respect of first tranche of issue of shares was applied by PCPL and money for the same was received in earlier year i.e. year ended 31st March 2011, which was disclosed as application money received pending allotment under the current liabilities in the FY ended 31.03.2011. The second tranche was received in the previous year 2011-12 relevant to AY 2012-13. The assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oked into for the purpose of section 68 of the Act. The facts in that case were that equity shares were issued in the year under consideration to the promoters as well as three new parties. Both these classes of shareholders were issued equity shares. Promoters were issued shares at par whereas premium of ₹ 4901- per share was charged from the new parties and for this the Tribunal has made specific note of the following: Despite making such huge investment in the company, the company did not know the whereabouts of those shareholders (para 6, page 10 of the order). Ld counsel stated that no justification for such different issue price even within this relevant year under consideration is brought on record. The Tribunal noted that no doubt the price can be different in genuine transactions as well however the case got aggravated since the shareholders to whom premium was charged could not be traced (para 6, page 10 of the order). The AO deputed an inspector to make field inquiries with respect to the shareholders. The inspector reported that these three new shareholders are not available at the given addresses and their whereabouts are not known. The assesse in that ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bunal holds that the respondent assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital alongwith the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P) Ltd. (supra) to uphold the finding of the CIT(A) and dismissing the Revenue's appeal . 10. Now, in the present case of the assessee, the main crux of the facts that the assessee filed sufficient evidences viz, return of income, share allotment, annua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned order of the Tribunal allowed the issue to be raised before it for the first time, overruling the objection of the respondentassessee. (b)The impugned order examined the applicability of Section 68 of the Act on the parameters of the identity of the subscriber to the share capital, genuineness of the transaction and the capacity of the subscriberto the share capital. It found that the identity of the subscribers was confirmed by virtue of the Assessing Officer issuing a notices under Section 133(6) of the Act to them. Further, it holds that the Revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, it concludes as the entire transaction is recorded in the Books of Accounts and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held by IDFC Private Equity Fund which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. The said decision has been affirmed by Hon'ble Jurisdictional high Court in case of Green Infra Ltd (Supra). 14. The Ld. Counsel for the assessee made another argument that the power of carrying valuation is not envisaged by the Legislature for the purpose of Section 68 of the Act. He argued that, wherever the Legislature intended to give the power to determine the value to the AO, it either prescribes Rule for valuation of a particular thing or vested upon the AO the power to refer to the Valuation officer. The power of AO to make a reference to the Valuation Officer is contained in section 142A of the Act. Section 142A of the Act as it stood for the year under consideration reads as under: 142. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 6911 or the value of any bullion, jewellery or oilier valuable article referred to in section 69A or section 6911 or fair mark ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the fair market value of the shares. If one accepts the Ld CIT-DR's contentions that section 68 of the Act can he applied where the transaction is proved to be that of a share allotment that here the valuation for charging premium is not justified, it will make the provisions of section 56(2)(viib) of the Act redundant and nugatory. This cannot be the intention of the Legislature especially when the amendments in the two sections are brought in at the same time. In view of the matter, the Ld Counsel explained that it is a settled law that where two views are possible, the view favorable to the assesse should be adopted as held by Hon ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192. In view of the above facts and circumstances, we are of the view that the assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 of the Act and no addition can be made on this account. Hence, we are of the view that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income and the only grievances of the department is that the provisions of section 14A of the Act read with Rule 8D of the Rules are to be applied even where the investment has not yield in exempt income. We find that this legal position is now settled that the provisions of section of 14A of the Act cannot be applied in the absence of any exempt income earned in a particular year by the assessee. This position has been settled by the decision of Hon ble Bombay High Court, Nagpur Bench in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered and finally following the judgment of Hon ble Delhi High Court in the case of Cheminvest Limited (supra) held as under: - On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression does not form part of the total income in Section 14A of the Income Tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 208 ITR 1) (SC), which was relied by the Ld. CIT(A), needs consideration. 8. On the facts and in the circumstances of the case and in law, whether the Ld. CIT(A) is right in deleting disallowance of ₹ 9,13,000/- made under section 36(1)(iii) of the Act without appreciating that the assessee company and recipient of the interest free advance M/s Nariman Infrastructure LLP are two different persons for income tax purposes. 21. We find that the CIT(A) has considered the submissions of the assessee that the advance of interest free loan have been made only for the purposes of assessee s business and according to its corporate strategy. We find that the assessee is engaged in the business of real estate and its development. For this purpose it has this amount of ₹ 0.83 crores to Nariman Infrastructure LLP as it has a stake of 50% in Nariman Infrastructure LLP through its 100% subsidiary Piramal Commercial Estates LLP. We find that the CIT(A) has clearly observed that this transaction is on account of principle of commercial expediency, which was never contested by Revenue. Hence, we confirm the order of CIT(A) and dismiss this issue of Revenue s appeal. 22. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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