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TMI Blog2019 (3) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... or advances given by the assessee - HELD THAT:- the assessee had filed the details of loans and advances given and from the said details, the contention of the assessee was found to be in order to the effect that interest fee loans or advances given by the assessee is at 22,10,18,973/- only as against the amount of 30,05,18,9737- considered by the A.O. Therefore, after considering the balance sheet. The own fund (i.e. share capital and surplus) of the assessee was 27,43,62,742/- against which the interest free advances given by the assessee was Rs, 22,10,18,973/-. Thus. this establishes that the interest free funds have been given by the assessee out of its own funds. As relying on RELIANCE UTILITIES & POWER LTD. [2009 (1) TMI 4 - BOMBAY HIGH COURT] CIT-A rightly allowed this ground. - Decided against revenue X X X X Extracts X X X X X X X X Extracts X X X X ..... n.com 185 (Bom HC). It was submitted that premium received by the assessee was unreasonable as the shares were issued at unjustifiable amount of premium and the entire transactions were not genuine. Therefore, Ld. CIT(A) had erred in deleting the additions on account of unexplained cash credit u/s 68 of the I.T. Act. 7. On the other hand, Ld. AR relied upon the orders passed by the Ld. CIT(A) and reiterated the same arguments as were raised by him before Ld. CIT(A). It was submitted that assessee company had issued 550 number, 1% non-cumulative, non-convertible preferential shares to an individual namely Anuj Joshi and the total consideration received for the issue of preference share capital includes security premium, therefore additions made on account of security premium received by the assessee on the ground that such premium is not justifiable, is without any basis. It was submitted that the assessee had duly proved the source of funds of the investor for making the investment. It was also submitted that identity, creditworthiness of investor as well as genuineness of the transctions had already been proved by placing on record the documents containing name, address and PAN n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 per share at premium of ₹ 49,900/- per share to an individual namely Shri Anuj Joshi. Thus, the total consideration received on issue of preference share capital was ₹ 2,75,00,000/-being preference share capital of ₹ 55,000/- and security premium of ₹ 2,74,45,000/-. 6.6. It is noted that the AO has made the addition of ₹ 2,74,45,000/- on account of unexplained cash credit u/s 68 of the Act. The AR has vehemently opposed the additions. The Appellant has stated in its submission that the action of the AO in making the addition is arbitrary. The Appellant submitted that it has discharged its onus to prove the identity and creditworthiness of the investor as well as genuineness of the transaction. In order to discharge the onus caste by section 68 of the Act, the Appellant has filed various documents which are stated as under: (i) Name, addresses and PAN of Shri Joshi (investor) (ii) Application made by Shri Joshi for allotment of preference shares (iii) Minutes of meeting of the Boards of Directors held on 08.10.2010 granting approval for issuing preference shares to Shri Joshi (iv) Relevant extract of bank statement highlighting the share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant company in the assessment year 2008-09 an amount of ₹ 4,75,00,000/-. During the course of assessment proceeding for the assessment year 2008-09, Mr. Joshi was summoned to Income Tax Office wherein he confirmed that he has invested in the shares of the Appellant and he filed the relevant documents as asked by the AO. After considering his statement, the amount received from him has been duly accepted by the AO. Therefore, in the light of the facts that the AO has already verified the investor the identity of the investor is proved beyond any doubt. 6.9 Coming to the creditworthiness of the investor, the Appellant explained that Shri Joshi had an investment in the shares of M/s. Prime Focus Ltd (a listed company) which has been sold for a consideration of ₹ 2,84,10,384/- and out of the said sales proceeds, an amount of ₹ 2,75,00,000/- has been invested in the Appellant Company. In order to prove the same, the Appellant filed (i) broker contract issued by M/s. Centrum Broking Limited showing the shares sold by Shri Joshi for a consideration of ₹ 2,84,10,384/- (ii) Party ledger account issued by M/s. Centrum Broking Limited highlighting the amount of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law, the Tribunal was justified in disagreeing with invocation of Section 68 of the Act to tax share premium?" The above question has been answered by the Hon'ble High Court as under: "Before the Tribunal, the Revenue raised a new plea viz- that the so called share premium has also to be judged on the touchstone of Section 68 of the Act which provides for cash credit being charged to tax. The impugned order of the Tribunal allowed the issue to be raised before it for the first time, 'ing the objection of the respondent assessee, urged order examined the applicability of Section 68 of the Act on the parameters of the the subscriber to the share capital, genuineness of the transaction and the capacity of the to the share capital. It found that the identity of the subscribers was confirmed by virtue of assessing Officer issuing a notices under Section 133(6) of the Act to them. Furiker, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gagandeep Infrastructure Pvt. Ltd [ITA NO. 1613 OF 2014] wherein the Hon'ble High Court has held that We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it -was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to 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 of Section 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 Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactions, but had made the additions merely on the presumption that the premium received by the assessee is unjustified and unreasonable. Whereas, the AO had lost sight of the fact that the said fact cannot be a ground for making the addition for share premium received by the assessee because, what section 68 of the Act, pre-supposes to charge to the Income Tax, is the sum found to be credited in the books of the asseseee if, (i) the nature and source of the same is not explained by the assessee, (ii) the explanation offered by the assessee is not found satisfactory by the AO. It further states that where the assessee is a private company and the some show credited consists of share application money, share capital, share premium or any such amount by whatever name called, then any explanation offered by such assessee company shall be deemed to be not satisfactory, unless the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum, so credited, which is found to be satisfactory by the AO. Therefore, in such circumstances, what assessee needs to prove is, (1) nature of recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m per share and also the name of the allottee. The assessee also filed its annual return of with ROC in form No. 20B disclosing the details of accounts of number of shares, face value and premium of share, name and address of shareholders. The AO during the course of assessment proceedings issued notice under section 133(6) of the act dated 28.03.2014 requiring the assessee to furnish details in respect of shares issued at premium. The assessee replied and filed following details: - "Annexure1- details of share allotment Annexure 2- form 2 filed for each tranche of allotment filed with RoC Annexure 3- Annual return filed in Form 20B filed with RoC Annexure 4- Details of applicant (including PAN and address) shares allotted, consideration, etc." 6. The AO required the assessee to explain as to why the share premium is not added to the returned income of the assessee. The assessee filed its reply dated 16.03.2015, wherein it is submitted that the return of income filed by PCPL and also audited financial statement for the AY 2012-13. The AO invoked the provisions of section 68 of the act and added share premium of ₹ 598,44,01,500/-, without disputing the face valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 6. page 10 of the order). The creditworthiness of the shareholders was also not proved since the shareholders did not have their own money as every payments made by them towards share money in the favour of the assessee is preceded by deposit in the hank account and the balance maintained regularly by them was miniscule (para 6, page 14 of the order). The confirmations received from three parties were signed by the same person. The assessee in that case could not justify the chargeability of such a huge share premium received from three new shareholder vis-a-vis issuing shares at par to the original promoters within the same relevant year under consideration. To contend that Section 56(2)(viib) r.w.s. 2(24Xxvi) of the Act are placed in statute by Finance Act, 2012 w.e.f. 01-04-2013 and no question can he raised as to the valuation of shares at an huge share premium is not correct as in the instant case, the genuineness of the transaction of raising of share capital inclusive of share premium to the tune of ₹ 300 lacs from these three new shareholders is itself not proved. 8. We have gone through the case laws relied by the Assessee have been distinguished by the Tribunal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference shareholder for the assessment year under consideration and after scrutiny has passed the order u/s 143(3) of the Act around the same date and has neither made any addition nor made any adverse remarks. The AO has not questioned the preference share capital to the extent of the face value but has only questioned the share premium. By this action of the AO himself, the 'nature' of transaction as that of 'preference share allotment' is proved beyond doubt and merely because he feels that the share premium is high the genuineness of the transaction cannot be doubted for the purpose of section 68 of the Act. 11. We find that in the given facts of the case the decision of Hon'ble Jurisdictional High Court in case of Gagandeep (supra) squarely applies to the assessee's case. The decision of Hon'ble Jurisdictional High Court in case of CIT vs Green Infra Ltd 78 taxmann.com 340 is squarely applicable to the case of the assessee. Despite being the specific argument of the CIT-DR that the share premium defies commercial prudence, Hon'ble Jurisdictional High Court has held that genuineness of the transaction is proved since the entire transaction is rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re premium of ₹ 490/ per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. (d) Thus, question no.(ii) as formulated does not give rise to any substantial question of law and thus not entertained". 12. In view of the aforesaid, we are of the view that valuation is not relevant for determining genuineness of the transaction for the purpose of section 68 of the Act. We are of the view that CIT(A) has rightly deleted the addition on account of the share premium relying on the decision of Hon'ble Jurisdictional tribunal in case of Green Infra Ltd. Vs. ITO (2013) 145 ITR 240. It is a settled position that what is apparent is real unless proved otherwise. It is a settled legal position that "apparent is real" and the onus to prove that the apparent is not the real is on the party who claims it to be so as h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such value and report the same to him". 15. We have considered the issue and find that this section does not cover section 68 of the Act. Thus, the Legislature does not envisage any sort of valuation for the purpose of section 68 of the Act. Indeed, valuation of preference shares is a completely different exercise as compared to valuation of equity shares. The AO makes the mention of the reserves and loss while challenging the charge of share premium on preference shares. "Reserves" could be relevant for valuing equity shares. They are not relevant for valuing preference shares. Preference shareholders get priority over the equity shareholders in terms of payment of dividend and during winding up. They get only a fixed rate of dividend. The redemption amount depends on the terms of issue. The conversion depends on the terms of issue. The terms of issue are relevant for valuing preference shares. Even the present Rule 11UA of the Income Tax Rules 1962 are applicable only to section 56(2) of the Act, requires valuation of preference shares by the merchant bankers. The AO has not even attempted to do any sort of valuation of preference shares. His addition is based entirel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and the orders passed by the revenue authorities, we find that Ld. CIT(A) had passed a detailed order while relying upon various judgments cited by the parties and also considering the principles laid down by Hon'ble Supreme Court in the case of Lovely Exports Pvt. Ltd.(supra) and moreover, no new facts have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed. Ground No. 2 16. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) erred in disallowance of interest of ₹ 2,90,96,145/- u/s 36(1)(iii) of the Act. 17. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. 18. Before we decide the merits of the case, it is necessary to evaluate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA 2094/Mum/2013l - ACIT vs Gopal Fabrics fITA 3338/Ahd/2010l 7:6 This view is also supported by the judgment of Hon'ble Bombay High Court in the case of HDFC Bank Limited vs DCIT [383 ITR 0529] wherein it has been held that "The petitioner was possessed of sufficient interest free funds ofRs.2153 crores as against the investment in tax free securities of ₹ 52.02 crores. Consequently, there is a presumption that the investment which has been made in the tax free securities has come out of the interest free funds available with the petitioner. This is so as it has been held by this Court in the petitioner's own case for an earlier Assessment year being HDFC Bank Ltd. (supra). This decision on the above issue has been accepted by the Revenue. This is evidenced by the fact although an appeal has been filed to the Supreme Court with regard to another issue arising from the order in HDFC Bank Ltd. (supra) namely broken period interest, no appeal on this issue as raised before the Tribunal has been challenged before the Supreme Court. 7.7 Therefore, respectfully following the above judgments of the Hon'ble Bombay High Court I am of the view that the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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