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TMI Blog2019 (8) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... ging Director Shri M. Kiran Kumar and M/s Kothari Credit India Pvt. Ltd. According to the Ld. counsel, the Assessing Officer made contradictory observation on the ground that the valuation of the shares was not done properly. Moreover, the Assessing Officer also found that the share premium received by the assessee has to be assessed under Section 68 of the Income-tax Act, 1961 (in short 'the Act') as unexplained credit. According to the Ld. counsel, if the share premium was considered to be excess of fair market value of the shares, then the question of application of Section 68 does not arise for consideration. In this case, according to the Ld. counsel, the Assessing Officer proceeded mainly on the ground that the valuation of shares was inflated for receiving the share application money. Alternatively, he also found that it is an unexplained credit. According to the Ld. counsel, once the Assessing Officer accepted the transaction as genuine and computes the fair market value of the share and determines the excess amount as income of the assessee company under Section 56(2)(viib) of the Act, the provisions of Section 68 of the Act cannot be invoked for assessing the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 590 per share is not excessive. The face value of share is Rs. 10/-. Therefore, including the price of Rs. 1590/-, the shares were allotted at Rs. 1600/-to M/s Kothari Credit India Pvt. Ltd. Hence, according to the Ld. counsel, the share premium cannot be considered to exceed fair market value of the shares. 4. The Ld.counsel for the assessee further submitted that the Assessing Officer as well as the CIT(Appeals) on the basis of the statement recorded from Shri Mahendra Sethia of Kolkata, the found that the money received in the guise of share premium is nothing but an accommodation entry and it is not for share premium. According to the Ld. counsel, the statement recorded under Section 131 of the Act is not an admissible piece of evidence under the Income-tax Act. The Assessing Officer or the authorities under the Act are not obliged to administer oath to the deponent. Therefore, according to the Ld. counsel, such a statement alone cannot be basis for making any addition. According to the Ld. counsel, Shri Mahendra Sethia from whom the statement was said to be recorded under Section 131 of the Act was not connected with M/s Kothari Credit India Pvt. Ltd., therefore, the statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of investment in the equity shares of the assessee-company by M/s Kothari Credit India Pvt. Ltd. as accommodation entry. 5. Referring to the judgment of Madras High Court in the assessee's own case for assessment year 2007-08, the Ld.counsel for the assessee submitted that an identical share premium amount was received by the assessee. Initially the Assessing Officer disallowed the claim of the assessee by making similar observation as it is made in the impugned orders. The CIT(Appeals), however, reversed the same and allowed the claim of the assessee. On further appeal by the Revenue, this Tribunal found that it is only accommodation entry. However, on appeal filed by the assessee before the High Court, the High Court reversed the order of this Tribunal and found that so long as the proof and identity of the investor and the payment received from him is through doubtless channel like that of banking channel, the receipt in the hands of the assessee towards share capital or share premium does not change its colour. The High Court further held that the money so invested in the assessee-company would still be the money available and belonging to the investors. The High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of the shares. In the case of M/s Kothari Credit India Pvt. Ltd., according to the Ld. D.R., the Assessing Officer found that M/s Kothari Credit India Pvt. Ltd. provided accommodation entry to various companies and the assessee-company is also one of the companies which received accommodation entry. According to the Ld. D.R., the Assessing Officer placed his reliance on the statement recorded from Shri Mahendra Sethia under Section 131 of the Act. Shri Mahendra Sethia has clearly stated that accommodation entry was given to the assessee-company. According to the Ld. D.R., Shri Mahendra Sethia explained that they signed the share transfer documents without filling up the transferee name. In view of the statement of Shri Mahendra Sethia, according to the Ld. D.R., it is obvious that the assessee-company received only accommodation entry. Therefore, according to the Ld. D.R., the entire transaction was bogus. Hence, according to the Ld. D.R., the Assessing Officer found that it is an unexplained credit in the accounts of the assessee-company, therefore, the addition was made under Section 68 of the Act. 8. The Ld. D.R. further submitted that alternatively, the Assessing Officer f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king any addition either under Section 68 or Section 56(2)(viib) of the Act. Therefore, the addition made by the Assessing Officer cannot be sustained. 10. We have carefully gone through the statement said to be recorded from Shri Mahendra Sethia. The assessee claims that a copy of statement was not furnished to them. However, the Assessing Officer has extracted the statement in his order. Even though Shri Mahendra Sethia claims that accommodation entry was given to the assessee-company, it is not his claim that he received money from the assessee-company. In response to question No.19, Shri Mahendra Sethia clarified that it is possible that cash would have been received by any of the group companies and he did not remember clearly. For the purpose of convenience, we are reproducing question No.19 and its answer as follows: "Qn. No.19: Did you receive cash from either M/s Lalithaa Jewellery Mart Pvt. Ltd. or its promoter which was finally routed back to the company as share capital and premium? Ans: It is possible that cash would have been received by any of the group companies. I do not remember clearly." 11. From the above question and answer, the Assessing Officer presumed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esumption and assumption under Section 68 of the Act. Moreover, as rightly submitted by the Ld.counsel for the assessee, the Assessing Officer made addition under Section 56(2)(viib) of the Act in respect of the so-called excess amount. In other words, the Assessing Officer has admittedly treated the transaction as genuine and also admitted the capacity of the person for making investment in the shares of the assessee-company. Therefore, the addition made under Section 68 of the Act cannot stand in the eye of law. 13. Moreover, the Madras High Court in the assessee's own case for assessment year 2007-08, considered an identical issue and observed as follows at para 42:- 42. On the other hand, the legal principle enunciated by the Supreme Court, as noticed supra by us, is that so long as the proof and identity of the investor and the payment received from him is through a doubtless channel like that of a banking channel, the receipt in the hands of the assessee towards share capital or share premium does not change its colour. The money so invested in the assessee-company would still be the money available and belonging to the investors. The consistent principle followed is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, the first limb is valuation to be made as per the prescribed method. In fact, the method for valuation of shares is prescribed under Rule 11UA of the Income-tax Rules, 1962. The second limb is the valuation of the company based on value on the date of issue including its assets. Assets include intangible assets such as goodwill, knowhow, patents, copyrights, trademarks, licences, franchises, etc. The Assessing Officer has not taken into consideration the second limb in explanation to Section 56(2)(viib) of the Act. The second limb provides that when valuation was made by the company, if the Assessing Officer is not satisfied about the valuation, he has to call for material from the assessee how the valuation was made by the assessee-company. Satisfaction of the Assessing Officer as referred in explanation to Section 56(2)(viib) of the Act would be judicial satisfaction of the Assessing Officer. Judicial satisfaction means the Assessing Officer has to take into consideration the well established method of valuation of shares including the assets as explained in Explanation 2 to Section 56(2)(viib) of the Act. It cannot be arbitrary. The Assessing Officer has to take note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidered opinion that the fair rent has to be estimated considering the location of the building, amenities provided and prevailing market value of the land in the locality. Moreover, the Assessing Officer shall also take into consideration the procedure prescribed under Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 and City Municipal Corporation Act. Since such an exercise was not done, the Assessing Officer shall reconsider the matter afresh. Accordingly, the orders of both the authorities below are set aside and the disallowance made under Section 40A(2)(b) of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 21. For the assessment year 2014-15, the assessee has raised two more grounds with regard to disallowance made by the Assessing Officer under Section 36(1)(iii) and 36(1)(va) of the Act. 22. Shri K. Mahendran, the Ld.counsel for the assessee, submitted that the assessee-company entered into an agreement in taking lease of the property at 124, Usman Road, T. Nagar, Chennai to the ext ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Assessing Officer. The Assessing Officer shall reconsider the matter and decide the same in accordance with law after giving a reasonable opportunity to the assessee. 26. Now coming to the disallowance made under Section 36(1)(va) of the Act to the extent of Rs. 31,81,821/-. Admittedly, there was a delay in the payment of employees' contribution to the respective account. The Madras High Court in CIT v. Industrial Security and Intelligence India (P.) Ltd. in TC(A). No.585 & 586 of 2015 found that if both the employees' and employer's contributions were paid to the respective account within the due date provided for filing the return of income, it has to be allowed. Therefore, orders of both the authorities below are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and bring on record the actual date of payment made by the assessee to the Government account and thereafter decide the issue afresh as per the judgment of Madras High Court in Industrial Security and Intelligence India (P.) Ltd. (supra). 27. In the result, all the three appeals filed by the assessee are allowed for statistica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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