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TMI Blog2019 (4) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the case in deleting the addition of Rs. 4,47,10,385/- on account of introduction of share application money treated as unexplained credit u/s. 68 of the Income Tax Act, 1961. II. The Learned CIT(A) has erred on facts and circumstances of the case in deleting the addition of Rs. 23,47,38,900/- on account the share premium collected on issue of shares treated as unexplained credit u/s. 68 of the Income Tax Act, 1961". 3. Briefly stated facts are that the assessee-company was setting up BOPP line in the previous year 2010-11 relevant to the AY. 2011-12. The main activity which were going on over a building, commissioning and setting up of plant for manufacturing a BOPP film. The company is in the process of carrying on business as manufacturers, importers, exporters, buyers, sellers, suppliers, distributors, stockiest, designers of and dealers in polymers, monomers, elastomers and resins of all types, grades and copolymer formulations and in all forms such as resins/chips, powder, flakes, granules, films, sheets, tubes, pipes, fibres, laminates or as processed goods and including specifically polyethylene, polypropylene, polyethylene polystyrene, polyvinyl acetate, methacry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.08.2010 18.10.2010 09.12.2010 21.02.2011 35000 350000 34650000 990 3535000000 6 M/s. Shanti Educational Initiatives Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 5500 55000 5445000 990 5500000 7 Chiripal Textile Mills Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 30000 300000 29700000 990 30000000 8 Dindayal Processors Pvt. Ltd 16.08.2010 18.10.2010 09.12.2010 21.02.2011 35000 350000 34650000 990 35000000 9 M/s. Prakash Calender Pvt. Ltd., 16.08.2010 18.10.2010 09.12.201021.02.2011 30000 300000 29700000 990 30000000 10 M/s. Vijay Shubham Contrade Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 1000 10000 990000 990 1000000 Total 237110 2371100 234738900 990 237110000 5. The AO issued show cause notice and notice u/s. 142(1) requiring the assessee to explain and file the details like confirmation of account from all the above parties along with complete address, PAN details, proof of filing of returns, source of funds supported by bank statements, justification of premium charges, copies of minutes recorded of the Board meeting, copies of share application form, copies of share certificate, n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company incorporated under the Companies Act, 1956. The company is promoted by Chiripal Group of Industries, Ahmedabad. CPFL has proposed to set up imported BOPP Line of 3 Layers of 8700 MM width to manufacture BOPP film of specialty to commodity grade in range of 10 microns to 60 microns at an installed capacity of 38775 TPA. The project is to be set up at Vraj Integrated Textile Park Ltd., Bidaj Village, Kheda District in Gujarat for manufacture of BOPP Films at an installed capacity of 38775 TPA at a cost of project of Rs.24147.61 Lacs. The company also proposed to go for expansion and install 2ndline of BOPP films at an installed capacity of 34200 TPA at a cost of project of Rs. 21565.46 Lacs. With respect to 1st BOPP Line, KBC Bank Dutshland AG, Germany has financed (unsecured loan) the transaction for purchase of BOPP Line and importing other auxiliary Plant and Machinery. For Domestic plant and machinery CPFL has proposed for financial assistance in the form of Term Loan of Rs. 8378.93 Lacs from Indian banks.With respect to 2nd line, CPFL has proposed for financial assistance in the form of Term Loan of Rs. 5755 lacs for 2nd line. Also the KBC Bank Duetshland AG, Germany ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul consideration to the entire facts and circumstances relating to the share application money of Rs. 4,47,10,385/- and have considered the reasoning contained in the assessment order in support of this addition as also the cases cited by the Assessing Officer and also considered the submissions of the appellant-company as reproduced above. I am of the view that the addition has been made by the Assessing Officer without allowing adequate opportunity and without examining the correct factual position. As mentioned above, primarily the addition has been made on the assumption that the appellant-company was debarred from receiving the aforesaid share application money unless first the authorized share capital is increased. From the factual position explained in the statement of facts it is clear that there was no necessity for increasing the share capital for allotting 1,98,000 shares to M/s. Orange Mauritius Investments Ltd. the said shares were ultimately allotted on 11th July, 2011 i.e. during the previous year relevant to the subsequent assessment year. The shares are of the face value of Rs. 10/- with a premium of Rs. 990/- per share. Comprehensive documentary evidences have bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - and the same is deleted. Ground of Appeal No. 2 is allowed". 10. Further, the CIT(A) deleted the addition of share premium added by the AO u/s. 68 amounting to Rs. 23,47,38,900/- by observing in paras 9.17 to 9.20 as under: "9.17. I have carefully considered the factual position pertaining to the share application premium of Rs. 23,47,38,900/- vis-à-vis the provisions of section 68 of the I.T. Act. I have also duly considered the legal position as emerging from the various judicial pronouncements relied upon by both the A.O. and the appellant. There is no dispute about the proposition that the primary onus u/s. 68 of the I.T. Act is cast upon the appellant to prove and establish the following:- i) Identity of the creditor ii) Financial capacity of the creditor to advance the money, and iii) Nature and genuineness of the transaction. 9.18. After going through the various documentary evidences which have been brought on record there is no dispute whatsoever that the appellant-company has successfully and fully established the aforesaid three legal requirements. As a matter of fact, even the Assessing Officer has not disputed this fact which is apparent from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies Act. 9.19 It may be mentioned that section 56(vii)(b) has been inserted in the Income-tax Act with effect from 1.4.2013 and, therefore, it has no applicability in respect of the assessment year under appeal. Further, this section permits the Assessing Officer to bring to the charge of tax income under the head "Income from other courses" if certain conditions are satisfied. On the contrary, the present addition has been made u/s.68 of the I.T. Act. Similarly, section 56(v) referred to by the Assessing Officer permits the Assessing Officer to bring to the charge of tax certain money under the head "Income from other sources". This provision is applicable whenever any sum or money exceeding the prescribed limit is received without consideration by an individual or a HUF. Obviously, this provision is totally irrelevant in the present case. Lastly, the Assessing Officer has tried to draw support from the provisions of section 78(2) of the Companies Act, which is as under:- "78. Application of premiums received on issue of shares. (1) Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly show that the nature of the receipt has been fully explained by the appellant-company as share premium actually received. There may be a difference of opinion regarding the basis on which the amount of share premium is calculated. The appellant-company in its reply dated 10th September, 2015 in response to the remand report has explained in detail the methodology adopted for estimating the share premium per share. A detailed chart has also been given summarizing the position contained in the audited financial statements for the financial years 2010-11 to 2013-14. On this basis of these parameters it has been rightly contended by the appellant-company that the share premium has been determined on the basis of the projected cash-flow method. In any case, a company is free to determine the share premium at the time of issue of shares and it is for the share subscribers to decide whether they would like to subscribe the shares at the demanded share premium. Insofar as the statutory requirements of section 68 are concerned, the appellant-company has fully discharged its onus and nothing more could have been done by it. Even the Assessing Officer has issued notice u/s.133(6) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y should be established and credit worthiness of the party should be proved. We find that the assessee entered into share holder agreement dated 15.03.2011 with Orange Mauritius Investment Ltd. is to be allotted 1.98 lakh shares of Rs. 10 each at a premium of Rs. 990 by the assessee company. The allotment of equity shares was to be made by the assessee company to the investor on receipt of full payment of Rs. 19.8 crores. We also find that the assessee has filed all the requirements complying with RBI guidelines by filing FIRE with RBI and also filed unique identification No. from RBI. Further, it has also filed FCGPR with RBI in this connection. Hence, there was no requirement of increasing the authorized share capital as the assessee was having sufficient authorized share capital to issue shares to the investor. During the year under consideration, the assessee received fund of Rs. 4,47,10,385/- on 25.03.2011 out of total investment of Rs. 19.80 crores. The balanced funds were remitted by the investor in subsequent years, which is already mentioned in FCGPR attached in assessee's paper book. We find from the case records and the assessment order and the order of CIT(A) that the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 68 of the Act, three requirements are required to be fulfilled which is the genuineness of transaction, source of money i.e. creditworthiness of the party and identity of the party. According to us, the assessee has fulfilled all the three ingredients of section 68 of the Act. We also noted that share premium can only be added under section 56(2)(vii)(b) of the Act which was inserted by the Finance Act, 2013 with effect from 01.04.2013 i.e. for and from the AY 2013-14. We will dealt with the case laws in the next part of this order which was cited before us by both the sides. 13. As regards to the addition of share application money of Rs. 23,47,38,900/- by the AO and deleted by CIT(A), the facts relating to this dispute is that the assessee has issued 2,37,100 shares to ten different shareholders along with evidences filed by assessee are as under: - Ground of Appeal No. (ii)- Share Premium on issue of shares - Rs. 23,47,38,900 1. M/s Desert Diamond General Trading LLC 12,977 12,847,230 1. PAN and complete address 20 377 2. shareholder's agreement 378-413 3. S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts 21 3. Return of income 28 4. Letter issued by RBI in connection with FCGPR 52-53 5. Minutes recorded in board meeting for allotment of shares 59-67 6. Share application from received from investor 70-73 7. Share allotment certificate issued to investor 89-90 7. Notice 01.11.2013, 24.12.2013 and 04.02.2014 issued under section 133(6) of the Income Tax Act. 828-833 8. Response to notice issued under section 133(6) of the Income Tax Act. 834-845 5. M/s BhushanPetrofils Pvt. Ltd. 35,000 34,650,000 1. PAN and complete address 20 2. Confirmation of Accounts 22 3. Return of income 29 4. Minutes recorded in board meetin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Return of income 32 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 78-79 6. Share allotment certificate issued to investor 86 7. Response to notice issued under section 133(6) of the Income Tax Act. 857-865 9. M/s Prakash Calendar Pvt. Ltd. 30,000 29,700,000 1. PAN and complete address 20 2. Confirmation of Accounts 26 3. Return of income 33 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 80-81 6. Share allotment certificate issued to investor 85 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eakup value and market value is high. This leads to advantage of low cost of servicing share capital and also improved prospects to issue share at premium in future by way of initial issue of offering by promoters. One more practical advantage was to save on account of cost of fees payable on increase of authorized capital. When shares are issued at premium, number of shares and authorized capital increase lesser in comparison of capital raised by way of capital and premium. These provisions are deeming provisions as otherwise share premium and capital is a capital receipt which cannot be taxed as income. However, w.e.f A. Y. 2013-14 for closely held companies share premium or share capital is deemed to be normal income if shares are issued exceeding fair market value of shares. But, in any case the amendment will apply for and from AY 2013-14 and not to earlier Assessment Year because the amendment is prospective and not retrospective. Hence, on the issue of share premium, the provisions of section 56(2) (viib) of the Act cannot be applied for making addition even under section 68 of the Act. 15. Now let us go through the decision relied on by the assessee of Hon'ble Bombay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the addition of share premium under section 68 of the Act cannot be sustained. We hereunder reproduce the relevant paragraph of the decision of Hon'ble Jurisdictional High Court in ease of Green Infra (supra) for ready reference: 3.Regarding question no.(ii): (a) 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, overruling the objection of the respondent-assessee. (b) The impugned order examinedthe 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 subscriberswas 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 this identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is apparent is not real, it is the onus of the department to prove that it was Assessee's own money which was routed through a third party. Only then can the provisions of section 68 of the Act be invoked. This aspect is considered in the decision of Mumbai Tribunal in case of Green Infra Ltd. Vs. ITO (2013) 145 lTD 240, wherein Tribunal has held that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders 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). 19. 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further evident from a parallel amendment in section 56(2) of the Act which brings in its ambit so much of the share premium as charged by a company, not being a company in which the public 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) 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. 22. 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 assessee should be adopted as held by Hon'ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. (1973) 88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being different in consideration which is paid less in comparison to the fair market value in excess of Rs. 50,000/- i.e. amounting to Rs. 1,18,67,508/- as taxable in the hands of the assessee company under section 56(2)(viia) of the Act. For this, the AO observed in Para 6.4 as under: - "a. As per the provisions of section 56(2)(vii)(a) of the Act, where a company receives, in any previous year, from any person or persons on or after the 1" day of June, 2010, any property being shares of a company for a consideration which is less than the aggregate fair market value by an amount exceeding fifty thousand rupees shall be chargeable to income tax under the head income from other sources. b. The appellant is company which has either purchased or received on allotment the shares in question after 01.06.2010 which is after the provisions of the said section came into effect. C. The valuation as contended by appellant is not supported by any corroborative evidences. The method as prescribed under the Rule 11UA for valuation of Equity shares of an unlisted company is either Net Asset Valuation Method or the Discounted Cash Flow Method. The appellant's submission is not in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubmissions which have been reproduced above, the appellant-company has provided calculation of fair market value after ignoring the said subsidy and on this basis has contended that the fair market value does not exceed the face value of Rs. 10. During the course of the appellate proceedings, it has been submitted on behalf of the appellant-company, that it is only a matter of presentation in the balance sheet as to how the Government grant is reflected. By following some different method, the Government grant could have been directly reduced from the cost of the assets and if the appellant had followed this method, the fair market value of the shares would have automatically come to a level which is not more than the face value of Rs. 10. It is, therefore, contended that having regard to the entire facts and circumstances and the objective of thescheme of integrated Textile Park no income can be brought to the charge of tax u/s 56(2)(vii)(a) of the IT Act. 9.26 I have carefully considered the facts and circumstances relevant to this issue. I have also duly considered the basis provided in the assessment order for making this addition and also the detailed submissions made on be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or netted off in the capital work in progress account. The AO treated the interest as income from other sourced and assessed the income accordingly. Aggrieved assessee preferred the appeal before CIT(A). The CIT(A) allowed the claim of assessee by observing that the assessee company has earned this interest income from deposits placed with IDBI Bank with the object of availing credit facilities for importing BOPP loan equipment and this interest income is inextricable linked or connected to the setting up of the project of BOPP. This interest income has been derived from fixed deposits placed with bank for availing LC margin against importing plant and machinery and therefore the same is squarely covered by the decision of Hon'ble Supreme Court in the cases of CIT vs. Bokaro Steel Ltd. (236 ITR 315) (SC) and CIT Vs. Karnal Co-operative Sugar Mills Ltd. 243 ITR 2 (SC). We find that even now before us, the Revenue could not dislodge the finding of CIT(A) that the interest earned from FDR's were inextricably linked with setting up of new power plant and therefore interest earned was to be treated as capital receipt. The relevant finding of CIT(A) in para 9.30 reads as under: - "9.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962, hereinafter the Rules, while computing the book profit under section 115JB of the Act. For this Revenue has raised the following ground No. 5:- "V. The learned CIT(A) has erred on facts and circumstances of the case in deleting the addition of Rs. 1,35,671/- being the amount of interest and other charges to bank capitalized in the CWIP account on account of disallowance under section 14A read with rule 8D of the Income Tax Act, 1961 while computing book profit under section 115JB of the Income Tax Act, 1961." 31. At the outset, we find that the AO computed the disallowance of Rs. 1,36,671/- under Rule 8D while computing the book profit under section 115JB of the Act and this issue is now squarely covered by the decision of Special Bench of this ITAT in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR (AT) 313 (Delhi - Trib.) (SB), wherein it is held as under: - "6.22 In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting ..... X X X X Extracts X X X X X X X X Extracts X X X X
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