9911796707
TMI Blog2021 (4) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... find that this tribunal in assessee s own case for the Asst Year 2011-12 [ 2019 (4) TMI 1422 - ITAT MUMBAI] had deleted the same addition u/s 68 of the Act in respect of share capital and share premium received from OMIL wherein held documentary evidences, arguments of both the sides clearly established that this transaction carried out by assessee receiving share application money party seems to be genuine and explained. AO has not carried out any further inquiry except the fact recorded that there is no authorized share capital to that extent and moreover, 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. Share premium can only be added under section 56(2)(vii)(b) which was inserted by the Finance Act, 2013 with effect from 01.04.2013 i.e. for and from the AY 2013-14 - w.e.f A. Y. 2013-14 for closely held comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of Scheme of Integrated Textile Park (SITP) of Ministry of Textiles, Government of India - HELD THAT:- We find that the ld CIT- A by placing reliance on the decision of his predecessor in assessee s own case for the Asst Year 2011-12 [ 2019 (4) TMI 1422 - ITAT MUMBAI] on the similar set of facts , deleted the addition made u/s 56(2)(viia) of the Act as held entire reserves and surplus appearing in the balance sheet as on 1.4.2010 are only on account of the grant received from the Government of India and not on the basis of any business profit earned by the company - there can be no inference that the shares of VITPL have been acquired by the assessee at a price which is less than its fair market value. Hence, we find no reason to reverse the findings of CIT(A) and accordingly, the same is upheld. - Decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... etails , certificate of incorporation of OMIL, Tax Residency Certificate (TRC) of OMIL, Registration details of OMIL with SEBI as foreign institutional investor, amount and date of receipt, compliance documentation with Reserve Bank of India (RBI) for bringing funds from abroad, Foreign Inward Remittance Certificate (FIRC) etc, copy of audited financial statements of OMIL wherein the investment made in assessee company is duly reflected, copy of bank statement, copies of share application forms, share certificate issued to investor, copy of Form 2 filed with Registrar of Companies (ROC) for allotment of shares at premium and Annual returns filed with ROC. We find that the assessee had also furnished detailed submissions in support of the statement of facts for the year under consideration by reproducing the relevant extracts of questions raised by the ld AO during the course of assessment proceedings and its detailed replies submitted. The assessee pleaded that pursuant to the aforesaid documents submitted and explanations given thereon, all the three necessary ingredients of section 68 of the Act i.e identity of the investor, creditworthiness of the investor and genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Ltd. of Republic of Mauritius, the same was received by assessee on 25.03.2011. This share money was pending allotment as on 31.03.2011 in the balance sheet. From the assessment order it is noticed that the allegation of the AO that the authorized share capital of the assessee was only ₹ 3 crore out of which the assessee company is already issued share capital worth ₹ 1,78,71,100/- as on 31.03.2011 and subsequently also the company has not increased authorized share capital or filed any application for increasing the authorized share capital. The allegation of the AO as that out of the balanced authorized share capital, the assessee could have issued and allotted the shares to Orange Mauritius Investment Ltd. to the extent of ₹ 1,21,28,900/- only. This allegation of the AO, according to us and the facts of the case, that the assessee is not having sufficient authorized share capital and the whole allegation for treating the investment transaction as unexplained, is without any basis. From the factual position, according to us under the Income Tax Act, there is no requirement for increasing the share capital for allotment of shares of 1.98 lakhs to Orange Mauriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... means that the assessee has established the nature and genuineness of transaction and the source of the money after fulfilling all the mandatory requirement of the 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 caserecords, 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 meeting for allotment of shares 59-64 5 Share application from received from investor 74-75 6. Share allotment certificate issued to investor 87 7. Response to notice issued under section 133(6) of the Income Tax Act. 846-856 6. M/s Shanti Educational Initiatives Ltd. 5,500 5,445,000 1. PAN and complete address 20 2. Confirmation of Accounts 23 3. Return of income 30 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 68-69 6. Share allotment certificate issued to investor 84 7. Res ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO has simply relied on the provisions of Section 56(2)(viib) of the Act for treating the share premium as unexplained. We find that Clause (viib) of sub section (2) of section 56 was inserted vide finance Act, 2013 w.e.f 01 .04.2013 i.e. for and from A. Y. 2013-14 to provide that where a closely held company issues its shares at a price which is more than its fair market value then the amount received in excess of fair market value of shares will be charged to tax in the hand of the company as income from other sources. This amendment was made keeping in view the practice of closely held companies to brought in undisclosed money of promoters/directors by issuing shares at high premium which is normally over and above the book value of share of the company, and moreover which escaped the provisions of section 68 of the Act. Moreover, in case of many closely held companies and even in new companies promoters used to issue share at premium with the main purpose of keeping share capital low, yet capital base stronger so that breakup 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in case of Gagandeep Infrastructure P. Ltd. (supra) squarely applies to the assessee's case. The decision of Hon'ble Jurisdictional High Court in case of CIT vs. Green Infra Ltd [2017] 392 ITR 7 (Bombay) is squarely applicable to the case of the assessee. Despite being the specific argument of the CIT-DR that the share premium defies commercial prudence, Hon'ble Jurisdictional High Court has held that genuineness of the transaction is proved since the entire transaction is recorded in the books of the assessee and the transaction has taken place through banking channels. The decision of the Hon'ble High Court has specifically 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 Tribunal after examining the ingredients of section 68 of the Act held 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& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the purpose of section 68 of the Act. We are of the view that CIT(A) has rightly deleted the addition on account of the share premium relying on the decision of Hon'ble Jurisdictional tribunal in case of Green Infra Ltd. (supra). It is a settled position that what is apparent is real unless proved otherwise. It is a settled legal position that "apparent is real" and the onus to prove that the apparent is not the real is on the party who claims it to be so as held by Hon'ble Supreme Court in case of CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 349. 18. 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 that the share premium is not in fact so, despite the statutory forms viz. Form 2 for return of allotment and Form 20B for annual return filed with the ROC all show the 'nature' as share premium. If the Department wants to contend that 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 par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idend and during winding up. They get only a fixed rate of dividend. The redemption amount depends on the terms of issue. The conversion depends on the terms of issue. The terms of issue are relevant for valuing preference shares. Even the present Rule 11UA of the Income Tax Rules 1962 are applicable only to section 56(2) of the Act, requires valuation of preference shares by the merchant bankers. The AO has not even attempted to do any sort of valuation of preference shares. His addition is based entirely on conjectures and surmises. It is settled law that the assessment cannot he made on mere suspicion, conjectures and surmises. 21. Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,600/- as 'rights in infrastructure' and claimed depreciation thereon during the year under consideration. The ld AO observed that this addition does not fall under the list of intangible assets u/s 32(1)(ii) of the Act and accordingly denied the depreciation thereon. We find that the assessee had pleaded that it had acquired 'rights in infrastructure' during the year under consideration and since such rights were for usage of common infrastructure and administrative facilities for plots allotted in Vraj Infrastructure Textile Part (VITP) , the same were akin to and having inextricable link with 'excess and effective utilization of factory building and other facilities' established by the assessee in VITP. We find that the assessee had further pleaded that despite the fact that such rights were shown as 'intangible assets' eligible for depreciation at 25% in the Tax Audit Report, the assessee had adopted rate of depreciation applicable to 'factory building' at 10% and since the assets were acquired in the second half of the year, it had claimed depreciation at the rate of 5% amounting to ₹ 17,29,780/- (3,45,95,600 * 10%* 50%). We find that the ld AO had denied depreciation on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts , deleted the addition made u/s 56(2)(viia) of the Act. We find that this tribunal had also dismissed the revenue's appeal on this ground for the Asst Year 2011-12 in ITA No. 2671/Mum/2016 dated 19.2.2019 by holding as under:- 23. The third issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO by invoking the provisions of section 56(2)(vii)(a) of the Act. For this Revenue has raised the following ground No. 3: - "II. The learned CIT(A) has erred on facts and circumstances of the case in deleting the addition of ₹ 1,18,67,508/- under section 56(2)(viia) of the Income Tax Act, 1961." 24. Brief facts are that the assessee company became member in Vraj Integrated Textile Park Ltd. (VITPL), which is Special Purpose Vehicle, Textile Park formed on the basis of the Scheme of Integrated Textile Park (SlTP) of the Ministry of Textile, Government of India. The main objective of this scheme is to provide state of the art infrastructure and support to the members who are setting up units in the Textile Park. To become a member in the said Textile Park, the assessee was required to subscribe to the share capital being total 2,45,450 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has however not exercised any such option or submitted any such valuation report issued by an accountant. Therefore, the unsigned valuation working without even the basic supporting documents is considered as invalid and not acceptable. e. As regards the mode of receipts of the shores by appellant, the section specifies only 'Receipt of Share'. It does not specify the mode of receipt. Therefore, the mode of receipt of shares can be either by transfer or by allotment. What is important here for invoking the section is the receipt of an asset and not the more of receipt. The appellant admittedly received the shares for a consideration which is below the fair market value as pointed out in the show cause notice. f. In view of the above stated facts and legalities, the amount of ₹ 1,18,67,508 being the difference in the consideration which is paid less in comparison to fair market value in excess of ₹ 50,000 is taxable in the hands of appellant company u/s.56(2)(via9(a) of the Act. g. Accordingly an amount of ₹ 1,18,67,508 is taxed in the hands of appellant under the Head Income from Other Sources." 25. Aggrieved, assessee preferred the appeal bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to facilitate the scheme of Integrated Textile Park mooted by the Ministry of Textiles, Government of India. It is not a profit making entity. The entire reserves and surplus appearing in the balance sheet as on 1.4.2010 are only on account of the grant received from the Government of India and not on the basis of any business profit earned by the company. In these circumstances, in my view, there can be no inference that the shares of VITPL have been acquired by the appellant- company at a price which is less than its fair market value. Considering the entire facts and circumstances the addition of ₹ 1,18,67,508/- is deleted. Ground Appeal No.4 is allowed." Aggrieved, now Revenue is in appeal before Tribunal. 26. We have heard rival contentions and gone through the facts and circumstances of the case. We have gone through the findings of CIT(A) and noted that the entire reserves and surplus appearing in the balance sheet as on 1.4.2010 are only on account of the grant received from the Government of India and not on the basis of any business profit earned by the company. In these circumstances, in my view, there can be no inference that the shares of VITPL have been a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
