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TMI Blog2020 (8) TMI 143X X X X Extracts X X X X X X X X Extracts X X X X ..... d No.1 raised by the revenue. Addition on account of consultancy fees - A.O. without appreciating the accounting system came to a conclusion that since the invoice has been raised irrespective of time period and usage of software, the full amount needs to be accounted as income for appellant company and thereby made an addition shown as Current Liability in the appellant s books - HELD THAT:- The assessee has accounted for one time Activation Fees and Customization Fees as current year s Income and 15 days Contract Income for use of software as the fees of the appellant company based on the accrual system of accounting. On the other hand the Assessing Officer went on the basis of Invoices raised during the year and as such treated the same as Income of the Appellant Company for current Assessment Year without understanding the concept of accrual basis and he simply made an addition based on the Invoices raised. The ld. CIT(A) also confirmed the addition citing the reasons that agreements were not before the authorities below by ignoring the facts of the case. Hence the issue is restored to the AO for limited purpose of examining whether accounted for in the next year or not an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,89,0387- as a genuine transaction by treating the Discounted Cash Flow Method valuation at ₹ 230.40 and ₹ 2,457.12 for Equity Shares and Compulsory Convertible Preference Shares of ₹ 10/- respectively as correct, which were based upon the hypothetical data and never been materialized and further not considering the fact (a) that premium on equity shares, Compulsory Convertible Preference Shares allotted to M/s Seed Fund 2 International Mauritius and M/s Seed Fund 2 India were charged at ₹ 2907- ₹ 24,978 and ₹ 25,312/-respectively on actual allotment (b) that earning per shares was less than face value of ₹ 10/-. 3. On the facts and in the circumstances of case and in law, whether the Ld CIT{A) erred in not considering violation of provisions and procedures laid down in section 78(2) and Section 100 to 102 of the companies Act, 1965 in respect of utilization of share premium money by the assesses company and thereby it lost its character as share premium and become trading receipts taxable u/s 56(1) of the Income Tax Act, 1961. 4. On the facts and in the circumstances of case and in law, whether the Ld CIT(A) erred in relying on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits in the hands of the company and liable to be taxed as income from other sources under section 56(1) of the I.T.Act, 1961 and which was very much available before the new section 56(2) brought into statute book. Accordingly, the same was added u/s 56(1) as income from other sources. Without prejudice the Ld. AO also recorded a finding that the said sum may also be added u/s 68 as assessee has failed to prove the identity, genuineness and creditworthiness of the investors. The share premium ₹ 2,49,89,038/- credited through reserve and surplus account was added as unexplained cash credit u/s 68 of the I.T.Act, 1961. 4. In the appellate proceedings, the Ld.CIT(A) allowed the appeal of the assessee by observing and holding as under;- 3.3 Decision- I have carefully considered the AO s order as well the AR s submissions. The arguments from both the sides are discussed herewith in detail. 3.3.1 Firstly, the AO has clearly mentioned at paragraph no. 5 on page no s, 6 and 7 of his order that he had made two references to the tax authorities in Mauritius and the UK. These references had been made under section 90 of the Act and had been accordingly made through the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s exceeding the face value of such shares has to be charged to tax under the said provision, unless the consideration has been received from a venture capital company or a venture capital fund. The ARs' argument is that while SFI is a registered venture capital fund (as seen from the certificate of registration granted by SEBI forming part of the paper-book, it having been filed before the AO as well), SFM is neither a venture capital fund nor a venture capital company. As such, the share premium paid by SFM has to be charged to tax under section 56(2)(viib) of the Act, it at all. As pointed out before me by the ARs, the said provision of section 56(2)(viib) of the Act has been inserted by the Finance Act 2012 with effect from 1st April 2013. As such, it would be / applicable only from AY 2013-14 onwards, while the assessment year under consideration is seen to be AY 2012-13. Clearly, the AO has no basis for invoking the provisions of section 56(2)(viib) of the Act read in the under consideration. 3.3.4 Fourthly, the AO has explained the basis for his invoking of the provisions of section 68 of Act at paragraph no. 11 on page nos. 10 and 11 of the order under appeal. He ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... share premium received by the appellant as income from other sources under section 56(1) of the Act does not at all flow from them. 3.3.5 Fifthly, the AO has taken an alternate ground by invoking the provisions of section 68 of the Act. At paragraph no. 22.3 on page no. 19 of his order, the AO has given the details furnished by the appellant viz. copy of account of the investor-company along with its name and addresses. But the issue of genuineness and creditworthiness of the investor has - according to the AO - not been addressed. In this context, it would be noteworthy to see the documentation filed by the appellant earlier before the AO and now before me. Firstly, it has filed a copy of the PAN card of SFM along with a copy of the first page of its relevant return of income. It has also filed audited financial statements of SFM for the financial year ending 30th June 2012, it being a Mauritian company. As per the Statement of Financial Position (roughly equated with the balance sheet), while the total assets of SFM were US$ 17.93 million, its total liabilities were only US$ 0.012 million, placing its net asset base at US$ 17.92 million. At an exchange rate of ₹ 67 pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ench of the Hon'ble Tribunal had occasion to examine this very issue once more in the case of Green Infra Ltd. v. ITO (38 Taxmann 253). It had cited the judgments of the Hon'ble Supreme Court discussed earlier in this order. It had then examined the facts of that case and stated that a non esf and a zero balance company asking for premium of ? 490A per share with a face value of ? 10A defies commercial prudence. Nevertheless it had concluded that it was the prerogative of the Board of the assessee-company to decide the quantum of the premium and it was the wisdom of the share-holders to invest on those terms. Thus, the Revenue was barred from charging the said premium to tax in the absence of any explicit legislative sanction. As has already been seen in the matter under consideration, the appellant-company is far from being a non company or a zero balance one. ft was in possession of assets far in excess of the premium charged even on the day of the charge of such premium. In these circumstances, there would be all the more reason for not charging to tax the share premium collected by the appellant. 3.3.7 In view of the detailed discussion in the preceding sub-pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ategory. The Ld. AO assessed the share premium received as income from other sources by holding that this is nothing but profits received by the assessee. Alternatively, the Ld. AO has also recorded findings in the reassessment order that said receipt can also taxed as unexplained cash credit in the books of the assessee company. The Ld.CIT(A) has passed a very reasoned and speaking order justifying the deletion of additions by dealing with all the issues as raised by the revenue including the provisions of section 78 of the Companies Act . Therefore we do not find any infirmity or defect legal or otherwise in the order of the Ld.CIT(A) and hence the conclusion drawn by the Ld.CIT(A) is affirmed by dismissing the ground No.1 raised by the revenue. 6. In the result the appeal of the assessee is allowed. C.O No.270/Mum/2018 7. The assessee has also filed CO and raised the various grounds of appeal which are reproduced as under:- 1) On the facts and circumstances of the case, the learned Assessing Officer erred in passing the Assessment order u/s.143(3) on 10.11.2015 which is time-barred as per the provisions of the Act. 2) On the facts and circumstances of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s Angel Share broking 4.1 AO's case - The AO noticed that the appellant had received ₹ 3.8 lakhs M/s Angel Share broking (hereinafter referred to as the 'Angel') for providing assistance in the share market on a day to day basis. While invoices of ₹ 3. lakhs had been raised by the appellant, the total revenue accrued on this account was shown to be f 2.21 lakhs as per note no. 13 of the balance sheet of the appellant. The AO had accordingly sought to bring to tax balance amount of ₹ 1.58 lakh on accrual basis. 4.2 Appellant's contentions - The ARs contended that the contract was for use of the appellant's software by Angel at the rate of ₹ 5 lakhs per annum i.e. ₹ 0,41 lakh per month. As the contract had been entered into in the month of March 2012 the actual realisation amounted to only ₹ 0.41 lakh for the month of March 2012 apart from activation fees of ₹ 1 lakh and customisation fees of ₹ 0.8 lakh totalling ₹ 2.21 lakhs on accrual basis, the balance of ₹ 2.79 lakhs being relevant to FY 2012-13 corresponding to AV 2013-14. The AO had however misunderstood this transaction and had made an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of days and thereby disallowed ₹ 6,48,859/-. 15. In the appellate proceedings, the Ld.CIT(A) sustained the additions by observing and holding as under:- 5.3 Decision:- I have carefully considered the AO s order as well as the AR s submissions. It is clear that the appellant had suo motu allowed only a portion of the expenditure to the extent that the appellant-company had commenced its operations in the last month of the relevant previous year, such heads being preparation of legal agreements, ROC payments, bank formality-related payments, other reports etc. The AO s action of capitalization of the balance payment after fractionally allowing the expenditure to the extent of number of days for which the company commenced and conducted operations during the relevant previous year is thus quite fair and just. His action of adding back an amount of ₹ 6,48,859/- is hence sustained. 16. After hearing both the parties we note that the Legal and Professional charges paid by the appellant company does not directly or indirectly pertain to the Product development cost nor does it give the benefit of enduring nature but it s a normal routine business expenditure incu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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