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TMI Blog2021 (8) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... his view of the matter also the case laws referred by learned Counsel of the assessee are not applicable. Furthermore the decision of Green Infra of Hon ble Bombay High Court was not dealing with layered remittance from source abroad. Moreover the issue here clearly is assessee applying opaque device which comes under the ken of exposition of Hon ble Supreme Court decision in Mc Dowell Co. Ltd. [ 1985 (4) TMI 64 - SUPREME COURT] With the above observation, we remit the issue to the file of learned CIT(A) for fresh adjudication. Needless to add, assessee should be granted adequate opportunity of being heard. Addition u/s 56(2) - towards the difference in the fair market value of shares of Rochem separation systems (India) Private Limited - CIT-A deleted the addition - HELD THAT:- There is nothing mentioned in the Act, which proscribes the application of section 69B is cases such as the present one. In this view of the matter in our considered opinion here as noted above since there is use of opaque colourable device the reference to ITAT decision in Rupee Finance and Management 2007 (2) TMI 240 - ITAT BOMBAY-J] does not fructify the assessee s case. Thus, Ld. CIT(A) has erred in all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case the Ld. CIT(A) erred in deleting the additions made by the Assessing Officer as per the provisions of sec. 56(2) of ₹ 26,42,73,393/- towards the difference in the fair market value of shares of Rochem separation systems (India) Private Limited stating that clause (vii) of sec. 56(2) cannot be applied retrospectively, not taking into consideration the fact that the amendment made to sec. 56(2) adding clause (vii) is curative in nature and should apply to all pending assessments." iii. The appellant craves leave to add, to amend and/or to alter any of the grounds of appeal, if need be. iv. The appellant, therefore, prays that on grounds stated above, the order of learned CIT(A)-48, Mumbai may be set aside and that of the Assessing Officer restored. 3. Apropos addition under section 68 of the Act. Brief facts of the case are that assessee-company is a private company. During the year under consideration, assessee's company received funds from M/s. India Waste Water Treatment Company (I.W.W.T.C) a private equity firm based in Mauritius, for this assessee has issued 30 equity shares of ₹ 100 each and ₹ 4,20,000/- CCPS of ₹ 1,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, the assessee is required to explain the nature and source of any credit entry appearing in its books of accounts. It means explaining the source alone is not enough. Nature should also be explained and it is then only that the genuineness of the transaction can be believed to be true. Further as per the provisions of this section, if the explanation offered by the assessee is not satisfactory, then the amount may be charged to income tax. Therefore, if the assessee explains that amount received is share premium, but there is absolutely no justification for the quantum of premium, then it can safely held that nature of premium is not proved and the case gets covered by section 68 of the I.T. Act. In this connection reliance is placed on the Hon'ble Supreme Court Decision in the case of Shreelekha Banerjee (1963) as reported in 49 ITR 112, wherein it is held that addition for unexplained cash credit is justified simply if assessee fails to offer an explanation or the explanation offered by assessee is not found to be satisfactory by the A.O. In this connection further reliance is also placed on the following decisions of Hon'ble ITAT Delhi: • Zars Trading Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 271(1)(c) are initiated separately for furnishing of inaccurate particulars of income thereby leading to concealment of incomes. 5. Against the above order assessee's appeal before the Ld. CIT(A). Ld. CIT(A) granted relief to the assessee by holding as under:- "Upon assessee's appeal learned CIT(A) noted that this issue though the Assessing Officer used the term premium but effectively the difference between the issue price as per agreement and certified valuation obtained by assessee itself, which has been considered as unexplained cash credit under section 68 of the Act. He referred that information was sought from the relevant tax authority in Mauritius under the exchange of information practice of Indo Mauritius DTAA in order to verify the genuine of transaction. He did not go through or examine the information obtained. He chose to refer Assessing Officer's observation in office note which was said to infirmity part of assessment records. He proceeded to accept assessee's submission. His order in this regard read as under:- "I have carefully considered the submissions made by the appellant and the contention of the learned AR of the appellant an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the year under consideration, there was an increase of ₹ 42.19 crore in the capital of the assessee company and the entire fund was received from M/s. India Waste Water Treatment Company (I.W.W.T.C.) Mauritius. In order to verify the genuineness of the transaction the matter was referred to F.T. & T.R., New Delhi for verification of the source of funds invested by I.W.W. T.C. Mauritius. The required information was received from the Board vide letters F. No. 504/177/2013-FTNTR -IV/1527 dated 30.12.2013. On verification of the same it is seen that the entire amount was funded to I.W.W.T.C. by its holding company at Mauritius namely N.P.E. India Holdings P.C.C., Mauritius (NPE). It was further reported that M/s. N.P.E. Mauritius is a subsidiary of and is funded by Messrs Natixis Pvt. Equity International which is incorporated in France. Therefore, for further verification the matter was also referred to F.T. & T.R. New Delhi for exchange of information in the case of Messrs Natixis Pvt. Equity International, France. The reply from F.T & T.R., New Delhi in respect of Messrs Natixis Pvt. Ltd. Equity International, France is not yet received till the finalization of this orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich was pending at the time of concluding the assessment proceedings vide letter dated 18.7.2014 and no adverse observations have been made impacting the issue under consideration. The only issue which requires to be considered is whether the appellant has been able to explain the nature of funds received by it or not. The only basis on which the AO is of the view that it was not in the nature of share capital is the difference between the price at which the shares were issued by the appellant and the certified valuation of the same shares obtained by the appellant itself. I am unable to agree with the AO's contention that mere such a difference can lead to rejection of the appellant's explanation regarding 'nature' of the amount received by it. Having accepted part of the amount to be in the nature of share capital, part of the same amount received from the same person cannot be doubted merely because the pricing of that transaction is not acceptable to the AO. It is an undisputed fact that the appellant company has received the amount of ₹ 42.19 crores from an investor for issuing 26% stake in the company. M/s. India Waste Water Treatment Company who ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at which shares have been issued and their fair market value can be taxed are found in clause (viib) of Section 56(2) which is effective from 1st April, 2013 and not applicable to the year under consideration. In this regard, the following observations made by Bombay High Court in the case of Vodafone India Services (P.) Ltd. vs. Union of India 369 ITR 511 are useful: "41. We also find merit in the submission on behalf of the petitioners that w.e.f. 1 April 2013, the definition of income under Section 2(24)(xvi) of the Act includes within its scope the provisions of Section 56(2) (vii-b) of the Act, This indicates the intent of the Parliament to tax issue of shares to a resident, when the issue price is above its fair market value. In the instant case, the Revenue's case is that the issue price of equity share is below the fair market value of the shares issued to a nonresident. Thus Parliament has consciously not brought to tax amounts received from a non-resident for issue of shares, as it would discourage capital inflow from abroad. The revenue has not been able to meet the above submission but have in their written submission only submitted that the above provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received information about this company, which was pending at the time of concluding of assessment proceedings and no adverse observation has been made impacting the issue under consideration. Here there is no detail as to where the Assessing Officer made such observations, when the information by way of a letter dated 17.7.2014 was received, while the Assessing Officer's order is dated 18.3.2014. There is no mention as to what information about the French company was received. 7. From the aforesaid it is evident that Assessing Officer has passed the order without any reference, whatsoever to the enquiry conducted about the source of fund from overseas concern. Learned CIT(A) refers to the inquiry report from Mauritius and France. But learned CIT(A) instead of going through vital documents himself proceeded to place his reliance on the observations of the Assessing Officer not in assessment order nor in any remand report, but in some "office notes". In our considered opinion, this is a complete dereliction of duty on the part of Ld. CIT(A). It is settled law that the powers of CIT(A) are coterminous with that AO. It has been held in the Supreme Court decision in Kapu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es below. If, the AO mistakenly agrees for a part of the amount to be claimed, the same analogy cannot explain the rest of the same, when the unexplained nature is palpably evident. Further, it has been pleaded on behalf of the assessee that issue of share premium could not have been examined in the impugned assessment year. We note that this is not at all issue of premium simpliciter, it is issue of difference between the valuation of shares done by the approved valuer himself of the assessee which was submitted to RBI and the value of transaction. Hence, the facts are different to the case laws relied upon by the assessee's counsel. 11. To summarize Ld. CIT(A) has erred inasmuch as, he has not examined the information obtained about the various offshore companies of Mauritius and France from whom the information was obtained and from where the source is layered. Secondly, there is no cogent explanation of difference between the values as given to the RBI and that given to Income tax Authorities on the touchstone of the legal maxim of approbate and reprobate as referred by Hon'ble Supreme Court in the case of Suzuki Parasrampuria Suitings Pvt. Ltd. (supra). Further the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such transaction was missing from the statute. That the law also did not prohibit to acquire any property at a consideration which was lower than the fair market value. That the shares in Rochem Separation Systems (India) Pvt. Ltd. have been transferred in the name of the assessee by the transferors due to which the said company has become a subsidiary company of the assessee by virtue of a scheme whereby foreign equity shareholders also joined the assessee. Further submission of the assessee are that the amendment in the act to cover by way of a deemed income on purchases of shares by a company where purchase consideration was lower than the market value has been brought in the statute w.e.f. 01.06.2010 i.e. from the period relevant to the A.Y. 2011-12 and was not applicable in the relevant period. The assessee company submitted that it purchased the share of M/s. Rochem Separation Systems (India) Private Limited form the following persons: Particulars No. of shares Amount (Rs.) Prerak Gael 10,000 1,20,00,000/- Preyas Goel 10,000 1,20,00,000/- Pushpa Goel 18,000 2,16,00,000/- Namrata Goel 1,000 12, 00, 000 /- Nidhi Goel 1,000 12, 00, 000/- Total 40,000 One sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also confirmed on order sheet noting by the A.R. of the assessee in the course of hearing on 10.03.2014. However, as the transaction relating to the purchase of shares by the assessee company has taken place on 24.08.2009, as per the share purchase agreement, the net profit generated by M/s. RSSIPL from 01.04.2009 to 23.08.2009 also requires to be added to the fair market value of the shares calculated as above. In the absence of any details having been furnished by the assessee the net profit of M/s. RSSIPL as on 23.08.2009 is worked out on proportionate basis as under: Particulars Amount Rs. Profit earned by M/s RSSIPL during F.Y. 2009-10 and transferred to its reserves and surplus 7,47,80,711/- Therefore proportionate profit for 145 days till 23.08.2008 is 7,47,80,71 1/- x 145 /365 2,97,07,405/- So ₹ 2,97,07, 405/- divided by 40,000 shares : - 743/- per share So the proportionate profit of ₹ 743/- earned per share by M/s. RSSIPL 01.04.2009 to 23.08.2009 also requires to be added to the fair market value equity share of ₹ 7067/- worked out as on 31.03.2009. Therefore, the fair market value of the equity share of M/s. RSSIPL as on 23.08.2009 is worke ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax such amounts. The Ld. CIT(A) has aggrieved with the view of the assessee that the said sum is not taxable u/s. 56. He referred to the decision of Hon'ble Bombay High Court in Vodafone India Services Pvt. Ltd. (supra) and found that the principles are same. 18. Upon careful consideration, we note that even assessee has accepted that the value given for the shares purchase is much lower than the actual value thereof. It is settled law that putting a wrong section is not fatal to the assessment. We note that section 69B of the I.T. Act deals with the amount of investments as under:- "Where in any financial year the assessee has made investments or is found to be the owner of any bullion, jewellery or other valuable article, the Assessing Officer finds that the amount expended on making such investments or in acquiring such bullion, jewellery or other valuable article exceeds the amount recorded in this behalf in the books of account maintained by the assessee for any source of income, and the assessee offers no explanation about such excess amount or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the excess amount may b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here as noted above since there is use of opaque colourable device the reference to ITAT decision in Rupee Finance and Management (120 ITD 539) does not fructify the assessee's case. Thus, Ld. CIT(A) has erred in allowing the assessee's appeal despite the fact that the assessee's investment falls under provisions of section 69B. The decision of Hon'ble Bombay High Court in Vodafone India Services P. Ltd. (supra) is not at all applicable on the facts of the present case. In this regard, we note that there is some lack of clarity regarding the valuation aspect of the shares as the AO has started with a figure of ₹ 6,875/- and finally considered the value at ₹ 7,067/-. Moreover, valuation aspect was never examined by learned CIT(A). Hence, the valuation aspect needs to be examined by the first appellate authority. Since we have remitted the first issue to the file of Ld. CIT(A), we deem it appropriate to remit this issue also to the file of Ld. CIT(A). Ld. CIT(A) is directed to consider this issue also afresh. In remitting the matter on this issue also we draw support from Hon'ble Apex Court in the case of Kapurchand Srimal (supra). 21. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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