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TMI Blog2019 (5) TMI 1439X X X X Extracts X X X X X X X X Extracts X X X X ..... he shape of share capital / share premium. Another pertinent observation to be made is that as per Ld. AO s finding, the impugned AY was the initial year of business operation of the assessee company and therefore, it is difficult to accept that the assessee accumulated huge unaccounted money which was ploughed back in the shape of share capital / share premium. It is undisputed fact that the transactions have taken place through banking channels which is evident from the bank statements of the assessee as well as share applicants as placed on record. The entirety of facts would convince us to form an opinion that the assessee was successful in establishing the fulfilment of primary condition of Section 68. Justification of share premium - We find that the assessee, in its investment note, adopted Discounted Cash Flow method to arrive at the valuation of shares. Be that as the case may be, we are of the considered opinion that quantum of premium was matter between assessee company issuing the shares and investor entities and the payment of high premium, in itself, could not be the basis of making addition in assessee s hand unless there was any illegality or restriction, under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reassessment proceedings got triggered pursuant to receipt of certain information from Additional CIT-Range 9(1), Mumbai vide letter dated 28/03/2014 that the assessee received Share Premium amounting to ₹ 12.58 Crores during the impugned AY. On the basis of the same, Ld. AO formed an opinion that the income to that extent escaped assessment accordingly, notice u/s 148 was issued to the assessee on 30/03/2014 which was duly served on assessee. In response, the assessee offered original return of income as filed on 29/09/2009 and sought reasons for reopening which were duly supplied. The objections raised by the assessee challenging reopening were duly disposed-off by way of speaking order on 05/02/2015. Accordingly, the assessee was directed to demonstrate the fulfilment of primary ingredients of Section 68. 2.3 During reassessment proceedings, it transpired that the assessee issued 6,62,500 equity shares of face value of ₹ 10/- each to 20 share applicants at premium of ₹ 190/- per share. Accordingly, the amount, so received, on account of Share Capital Share premium aggregated to ₹ 66.25 Lacs and ₹ 1258.75 Lacs respectively. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Ld. AO to form a belief that the party did not exist at the given address. Therefore, the assessee s claim in respect of identity of none of the parties, in the opinion of Ld. AO, could be relied upon. 2.7 Proceeding further, Ld. AO opined that creditworthiness of the parties could not be established since the assessee did not file the details of respective shareholders / directors. The examination of financial statements reveals that most of the entities were loss making entities and did not have any significant fixed assets or employees. The details of business activities were not available and the turnover was meagre. At the same time, an observation has been made in para 8.1 that these entities had substantial money in Securities Premium Account / Other Liabilities which is the source of funds to make further investments in other entities including investment in assessee company. Therefore, these entities were terms as merely routing entities and there was no semblance of any genuine business activity and further the facade of the company was created so as to impart a genuine character to the sham transactions. 2.8 The Ld. als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee placed on record sufficient documentary evidences to establish the identity of the investors, creditworthiness of the investors and genuineness of the transactions and therefore, the additions were not justified. Reliance was placed on catena of judicial pronouncements including the decision of Hon ble Apex Court rendered in CIT Vs. Lovely Exports (P) Ltd. [319 ITR 5] Hon ble Bombay High Court rendered in CIT Vs. Gagandeep Infrastructure P. Ltd. [80 Taxmann.com 272] in support of various submissions. 3.3 After considering the assessee s submissions and material on record, Ld. CIT(A) concurred with assessee s stand / submissions and deleted the additions by making following observations: - 6.8 On an analysis of the facts on records, it is seen that the share capital and premium of ₹ 13,25,00,000/- has come from different shareholders. It is noted that these shareholders are existing shareholders and had confirmed that they had contributed to the share capital of the assessee company. The next aspect is their creditworthiness. The assessee has filed copy of PAN card, bank statement, balance sheet and P L account, Share Application Form, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to 6.11 of the impugned order: - No. Title Judicial Authority Citation 1. Oasis Hospitality Pvt. Ltd. Vs. CIT Hon ble Delhi High Court 2011 333 ITR 119 2. CIT Vs. Creative World Telefilms Ltd. Hon ble Bombay High Court 2011 333 ITR 100 3. CIT Vs. P.Mohankala Hon ble Supreme Court 2007 291 ITR 278 4. CIT Vs Stellar Investment Ltd. Hon ble Delhi High Court 1991 192 ITR 287 5. CIT Vs Gangeshwari Metal Pvt. Ltd Hon ble Delhi High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Major Metals Ltd. Vs UOI Hon ble Bombay High Court 19 Taxmann.com 176 2012 3. CIT Vs. Nova Promoters Finlease (P) Ltd. Hon ble Delhi High Court 18 Taxmann.com 217 2012 4. CIT Vs. Frostair (P.) Ltd. Hon ble Delhi High Court 26 taxmann.com 11 2012 5. CIT vs. Nipun Builders Developers (P.) Ltd. Hon ble Delhi High Court [2013] 350 ITR 407 6. CIT vs. Precision Finance (P.) Ltd. Hon ble High Court of Calcutta 208 ITR 465 1995 7. Pr.CIT Vs. NDR Promoters Pvt.Ltd. Hon ble Delhi High Court ITA No.49 of 2018 dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter between the assessee and investee company and there was no illegality in commanding higher share premium on shares. Arguments have been made to submit that the provisions of Section 56(2)(viib) were applicable only from AY 2013-14 and the same were not retrospective in nature. In the above background, attention has been drawn to the fact that case laws being relied upon by Ld. CIT-DR were distinguishable on facts. 4.3 Reliance has been placed on following judicial pronouncements to support the various submissions: - No. Case Law Judicial Authority Citation 1. Pr.CIT Vs. M/s. Paradise Inland Shipping Pvt.Ltd. Hon ble High Court of Bombay at Goa Tax appeal No.66 of 2016 dated 10/04/2017 2. Orient Trading Co. Ltd. Vs. CIT Hon ble High Court of Bombay (1963) 49 ITR 0723 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provided new addresses of these 3 investors to Ld. AO. However, the same were completely disregarded and termed as mere after thought aimed at camouflaging non-genuine transactions, factually incorrect and devoid of any merit. No further inquiries / investigations etc. was carried out against these 3 entities whereas no inquiry, at all, was made in rest of the cases. It is important to observe that the moneys were received by the assessee in financial year 2008-09 whereas the notices were sent in the year 2014-15 i.e. after a period of 5 years and therefore, there was every possibility of change of office address by the investors. Therefore, the conclusions drawn by Ld. AO on half-baked investigation, in our opinion, were incomprehensible. Once primary onus was discharged by the assessee, it was obligatory on the part of the revenue to negate the assessee s submissions by bringing on record cogent material to establish that the assessee s unaccounted money was routed back into the accounts by way of share capital / share premium. Nothing on record suggest that any such material was brought on record by Ld. AO. It is trite law that no additions could be made merely on the basis of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king feature was that most of the investors had reflected meagre income during assessment year under dispute. The two companies in Mumbai as well as Guwahati were found to be nonexistent. With respect to Kolkata Companies, the response came through DAK only and nobody appeared. Further, the bank statements were not produced in most of the cases to establish the source of funds for making huge investments. The totality of factual matrix would reveal that extensive inquiries were made by Ld. AO to bring the matter to a logical conclusion. However, the same are not the facts in the present case as noted by us in para 5.1 above. Therefore, the stated case of Hon ble Apex Court, in our respectful submission, do not apply to the facts of the case in hand and hence distinguishable. 5.4 Another case law of Hon ble Bombay High Court, as relied upon by Ld. CIT-DR, rendered in Konark Structural Engg. P Ltd Vs DCIT [supra] was rendered in a situation wherein the creditworthiness of the investor as well as genuineness of the transactions could not be proved by the assessee. The summons was returned back and the transactions were between related parties. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by Ld. CIT-DR, in our opinion is distinguishable on facts and circumstances. 6.1 In the present case, so far as the identity of the investors, their creditworthiness genuineness of the transactions is concerned, we find that all the investors were having Permanent Account number and were duly filing their Income Tax Returns. The audited financial statements were placed on record. The share applicants had confirmed the investments. In fact, it is the finding of Ld. AO that the investment in the shape of share capital as well as share premium was made by these entities out of their respective unsecured loan / reserves / other liabilities / share premium account which contradicts / negate the stand of Ld. AO that the entities were showing meagre profits and had no source to make the stated investments. Nothing on record suggest that any money got exchanged between the assessee and the investor entities which flew back in the shape of share capital / share premium. Another pertinent observation to be made is that as per Ld. AO s finding, the impugned AY was the initial year of business operation of the assessee company and therefore, it is difficult to accept that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereon including balance sheet, Profit and Loss Account and schedules for the year ended 31.03.2010 ( j ) The Bank Statement highlighting receipt of the amount by way of RTGS. ( k ) Banks certificate certifying the receipt of the amount through Banking channels. 6. On going through the documents which have been produced which are basically from the public offices, which maintain the records of the Companies. The documents also include assessment Orders for last three preceding years of such Companies. 7. The Appellants have failed to explain as to how such Companies have been assessed though according to them such Companies are not existing and are fictitious companies. Besides the documents also included the registration of the Company which discloses the registered address of such Companies. There is no material on record produced by the Appellants which could rebut the documents produced by the Respondents herein. In such circumstances, the finding of fact arrived at by the authorities below which are based on documentary evidence on record cannot be said to be perverse. Learned Counsel appearing for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer, if he so desired, ought to have allowed the Assessee to cross examine such persons in case the statements were to be relied upon in such proceedings. Apart from that, the voluminous documents produced by the Respondents cannot be discarded merely on the basis of two individuals who have given their statements contrary to such public documents. 10. We find no infirmity in the findings arrived at by the ITAT as well as CIT Appeals on the contentions raised by the Appellants-Revenue in the present case and, as such, the question of interference by this Court in the present proceedings under Section 260A of the Income Tax Act would not at all be justified. Apart from that, as rightly pointed out by the learned Counsel appearing for the Respondents, the CIT Appeals had also noted that proceedings under Section 147 of the Income Tax Act cannot lead to re- verification of the records. These findings of the CIT Appeals have not been assailed before the Income Tax Appellate Court. 11. In such circumstances, we find that there is no case made out by the Appellants- Revenue for any interference in the impugned Orders passed b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue to add the same to the assessee's income as unexplained cash credit. 6.3 So far as the justification of share premium is concerned, we find that the assessee, in in its investment note, adopted Discounted Cash Flow method to arrive at the valuation of shares. Be that as the case may be, we are of the considered opinion that quantum of premium was matter between assessee company issuing the shares and investor entities and the payment of high premium, in itself, could not be the basis of making addition in assessee s hand unless there was any illegality or restriction, under law, towards receipt of high share premium. Our view is in line with the decision of Hon ble High Court of Madhya Pradesh rendered in Pr.CIT Vs. Chain House International Pvt. Ltd. [supra] as confirmed by Hon ble Supreme Court by dismissal of revenue s Special Leave Petition reported at 103 Taxmann.com 435 , wherein it has, interalia, been held that It was the prerogative of the Board of Directors to decide the quantum of premium and it was the wisdom of the shareholders whether they wanted to subscribe to the shares at such a premium. The relevant observation of the Hon ble Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferences drawn by him were not justified at all in the circumstances of the case. Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was whether the amount invested by the share applicants were from legitimate sources. The objective of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants' particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it worthwhile to make any further enquiry but based his order on the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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