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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 ..... ted 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. 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) cannot be applied for making addition even under section 68. In the present case, the overwhelming evidence proves that the 'nature' of receipt is share premium and share application money. The audited accounts of both parties, the statutory since it was the department which claimed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eason to reverse the findings of CIT(A) and accordingly, the same is upheld. Addition of interest of bank fixed deposits netting of against closing work in progress account - HELD THAT:- 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. [ 1998 (12) TMI 4 - SUPREME COURT] and CIT Vs. Karnal Co-operative Sugar Mills Ltd. [ 1999 (4) TMI 7 - SUPREME COURT] . 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. Addition u/s 14A - addition of expenses re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, methacrylate, resins, alkide resins, melamine, polyesters, such as polyethylene, terephihallate and polyethylene, sphathalate or any other or new substances being improvements upon, modifications of our being derived from additions to petrochemicals or other/products or resulting for many processes. The AO during the course of the assessment proceedings noticed that the assessee has introduced/received share application money on 25-03-2011 amounting to ₹4,47,10,385/-. The share application money was pending allotment of shares in the Balance Sheet as on 31-03-2011. The assessee has received this amount from Orange Mauritius Investments Ltd., of Republic of Mauritius. AO noted that the authorized share capital of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4171000 4 M/s. Sparrow Exports Pvt. Ltd., 16.08.2010 18.10.2010 09.12.2010 21.02.2011 70000 700000 69300000 990 70000000 5 M/s. Bhusan Profiles Pvt. Ltd., 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 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 31-03-2011. 6. The assessee replied the show cause notice of the AO and point-wise reply filed by the assessee vide letter dt. 12-02-2014 is as under: 1. Copy of show cause notice dated 03.02.2014 issued u/s. 143(2) 142(1) of the I.T. Act, 1961 by Ld.AO; 2. Copy of assessee s submissions dated 12.02.2014 filed in response to notice dated 03.02.2014 along with relevant annexures. i.PAN and complete address of the investors ii.Copies of confirmations of accounts from investors iii.Acknowledge copy of return of income of investors iv.Copies of bank statement of the appellant company v.Copies of FIRC issued by RBI in the case of NR investors vi.Copies of letter issued by RBI allotting UIN No. in the case of NR investors vii.Copies of letter issued by RBI in case of NR investors in connection with FCGPR viii.Copy of Minutes recorded in the Board Meeting held for allotment of shares to investors ix.Copies of Share Application form received from investo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porting other auxiliary Plant and Machinery. The key estimated figures of both BOPP lines which have been estimated for the project in 2009 are attached herewith as annexure A.From the said projects it was expected to derive substantial revenues. It is a prerogative of the board of directors of a company to decide the premium amount and it is the wisdom the shareholder whether they want to subscribe to such premium or not. It is the prospects of business which decides the share price and it cannot be objected at any imagination. 8. In view of the above documentation and explanation, the assessee contended that the genuineness and source of transactions can be verified and from the above documents it can safely be concluded that the share application money received is genuine and source is explained. It was also stated that the entire transaction has been done through banking channels duly recorded in the books of account of assessee and duly reflected in the financial statements of the assessee. But the AO noted that the share premium charged by the assessee is supported by Valuation Certificate of M/s. Sanjaykumar Jhabburam Co., of Ahmedabad being independent val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umentary evidences have been placed on record by the appellant-company to establish the nature and the genuineness of the transaction and the source of the money received after fulfilling all the mandatory requirements of RBI. The entire transaction is only through banking channels. The identity of the party, the financial capacity and the source have been fully explained by the appellant-company. The two cases referred to in the assessment order cannot be made the basis for such addition having regard to the correct factual position of the case here. In the case of Shreelekha Banerjee it was held by the Hon'ble Supreme Court that addition for unexplained cash credit would be justified if the appellant fails to offer any explanation or explanation offered by the appellant is not found satisfactory by the Assessing Officer. In the present case the appellant-company has provided satisfactory explanation which is supported by documentary evidences. The Assessing Officer has also referred to the Hon'ble Bombay High Court decision in the case of Major Metals Ltd. For ready reference, the relevant part of the head-note of this case is reproduced below:- Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly 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 the following remark given at para-2 of the remand report. In this case, the appellant has been able to prove the source of the credit but the appellant has not mentioned anything about the nature of the transaction . From this remark of the Assessing Officer it is clear that the Assessing Officer himself has not disputed the identity, creditworthiness and the source of the credits by way of share application money. As a matter of fact, A.O. has only disputed the reasonableness of the share premium charged. It is noted that he has not made any addition with regard to the credit equivalent to the valuation of the shares as determined by him. The Assessing Officer has time and again reiterated in his order and the remand report that the appellant has not mentioned anything about the nature of the transaction. In my view, this is not a correct observation by the Assessing Officer. It has been again and again submitted by the appellant that the nature of the transaction is share applicat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on those shares shall be transferred to an account, to be called the share premium account ; and the provisions of this Act relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid- up share capital of the company. (2) The share premium account may, notwithstanding anything in sub- section (1), be applied by the company- (a) in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares; (b) in writing off the preliminary expenses of the company; (c) in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company; or (d) in providing for the premium payable on the redemption of any redeemable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermine 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 the I.T. Act (though incorrectly denied by him) and all the share subscribers have directly replied to the Assessing Officer in response to the notices. It is also noted that the Assessing Officer has himself accepted the genuineness of the share subscription by accepting the share application money to the extent of the face value. This itself shows that the transaction has been considered to be genuine by the Assessing Officer. Considering the totality of the facts and circumstances as also the legal position vis- -vis section 68 of the I.T. Act, I find no justification for the addition of ₹ 23,47,38,900/- and the same is therefore deleted. Ground of Appeal No. 3 is allowed . 11. We have heard rival contentions and gone through the facts and circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sufficient authorized share capital to issue shares to the investor. During the year under consideration, the assessee received fund of ₹ 4,47,10,385/- on 25.03.2011 out of total investment of ₹ 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 assessee has filed complete paper book in respect to these investments like the following details: - Sl. No. Name of the shareholders No. of share Amount of premium Details submitted Particulars Paper Book 1 Paper Book 2 Paper Book 3 Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RBI. To prove the genuineness of transaction, the assessee has filed the details that the entire transaction is done through banking channels only. The identity of the parties, the financial capacity and the sources, has fully been explained by the assessee company. According to us, in the given facts and circumstances of the case records, documentary evidences, arguments of both the sides clearly established that this transaction carried out by assessee receiving share application money party to the extent of ₹ 4,47,10,385/- seems to be genuine and explained. Further, the AO has not carried out any further inquiry except the fact recorded that there is no authorized share capital to that extent and moreover, the AO also noted that there is unjustifiable amount of share premium and hence, entire transactions is not genuine. We have noted that for the purpose of 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80 1. PAN and complete address 20 431 2. Letter issued by RBI in connection with FCGPR 52-53 3. Minutes recorded in Board Meeting for allotment of shares 56-58 4. shareholder's agreement 432-465 708-741 5. Share application form received from investor 466-467 742-743 6. FIRC issued by bank 46-47 468 7. Share Allotment certificate issued to investor 469 744 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. M/s Chiripal Textile Mills Pvt. Ltd 30,000 29,700,000 1. PAN and complete address 20 2. Confirmation of Accounts 24 3. Return of income 31 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 76-77 6. Share allotment certificate issued to investor 88 7. Notices dated 01.11.2013, 24.12.2013 and 04.02.2014 issued und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 80-81 6. Share allotment certificate issued to investor 85 7. Notices dated 01.11.2013, 24.12.2013 and 04.02.2014 issued under section 133(6) of the Income Tax Act. 802-805 8. Response to Notice issued under section 133(6) of the Income Tax Act. 806-815 10. M/s Vijay Subham Contrade Pvt. Ltd. 1,000 990,000 1. PAN and complete address 20 2. Confirmation of Accounts 27 3. Return of income 34 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 High Court in case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680 (Bom) which reads as under:- (c) Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent assessee had established the identity, genuineness and capac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (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 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 T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 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: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ITR 192. In view of the above facts and circumstances, we are of the view that the assessee has discharged its onus by adequately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the fair market value in excess of ₹ 50,000/- i.e. amounting to ₹ 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt cannot be taken into account while determining the fair market value of shares under Rule 11UA. In the submissions 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 ₹ 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 ₹ 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 als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted from the from No. 26AS that the assessee has received interest of ₹ 48,30,629/- on account of FDR. During the year, the AO noted that this received of interest was not offered to tax but adjusted against 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 30. The next issue in this appeal of Revenue is against the order of CIT(A) deleting the addition of expenses relatable to exempt income being interest and other charges to bank capitalized in the capital work in progress account by invoking 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 ₹ 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 ₹ 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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