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TMI Blog2024 (1) TMI 359X X X X Extracts X X X X X X X X Extracts X X X X ..... roved. We also note that the ld CIT(A) has also considered the issue that there is no bar on issuing shares at a price higher than the FMV in the instant assessment year as provisions of section provisions of section 56(2)(viib) of the Act are effective from assessment year 2013-14. While allowing the appeal of the assessee we observe that the ld. CIT(A) has relied on a series of decisions as discussed by ld CIT(A) in his order and also distinguished the Hon ble Apex Court decision in the case of CIT Vs NRA Steel [ 2019 (3) TMI 323 - SUPREME COURT ] In our opinion the ld CIT(A) arrived at a correct conclusion after considering all the facts of the assessee s case and the ratio laid down in various decisions as referred to in the appellate order. Therefore, we do not find any merit in the appeal of the revenue and consequently the same is dismissed. - Shri Rajesh Kumar, Accountant Member And Shri Sonjoy Sarma, Judicial Member For the Appellant : Shri Sunil Surana, A.R For the Respondent : Shri B. K. Singh, JCIT(Sr. D.R) ORDER PER RAJESH KUMAR, AM: This is an appeal preferred by the revenue against the order of the Ld. Commissioner of Income Tax (Appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and copy of bank statement highlighting the transaction evidencing the payment through banking channels. In some cases the copy of assessment order framed u/s 143(3) of the Act were also filed. The AO however instead of carrying on any further investigation on the evidences filed by the subscribers simply harped on the theory that summons issued u/s 131 of the Act were not complied with and the verification of the share capital received during the year could not be made due to non-compliance on the part of the assessee as well as share holders and subsequently Rs. 5,10,00,000/- was added to the income of the assessee in the assessment framed u/s 144 of the Act. 5. In the appellate proceedings, the assessee filed all the evidences before the Ld. CIT(A) which were forward to the AO for remand report. The ld CIT(A) after taking into account the observations of AO in the remand report allowed the appeal of the assessee. Needless to say that the assessee has filed all the details before the AO in the remand proceedings such as copy of ITR, audited report and audited financial statements, copy of MCA data and copy of bank statement highlighting the transactions in respect of each sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined by the AO in remand. The necessary board resolutions, as well as other material necessary for establishing the identities, creditworthiness and genuineness have also been submitted. In fact it has been pointed out that in 8 out of the 11 investors, scrutiny assessments u/s 143(3) had also been concluded without any adverse inferences, four in the impugned AY and four in the immediately preceding AY. It is also observed that each of the share applicants maintained bank accounts and copies of their respective bank accounts from which they had made payments to the appellant for subscribing to the share issued to them, was filed by each of them before the AO as well in the Paper Book filed before me. Further each of the share applicants accepted the fact that they had subscribed to the shares issued by the appellant at a premium and that such transactions were duly reflected in their respective books of accounts, as well as in their audited Balance Sheets. The AO has accepted all the aspects of the transaction in relation to share capital without pointing out any deficiency. It is found and accepted by the AO that the entire transactions have been through banking channels only ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is no ground to make the impugned addition against the assessee-company. I find that in ACIT Vs. Brindavan Agencies Pvt. Ltd. (ITAT Delhi) in ITA no. 5272/Del/2016 dated 23.12.2020 for the same AY as the instant one, that is, AY 2012-13, it was held that, ..it is seen that the appellant has filed sufficient documents e.g. Permanent Account Numbers, bank statements, etc. to establish the identities of the four share applicants. The copies of the bank statements of the share subscribers wherein the transactions are reflected as well as the fact that they are assessed to income tax, along with copies of their final accounts wherein investments made by them in the appellant company are not only shown but constitute a small portion of their total investments, establish the creditworthiness of the parties concerned. The incomes of the four shareholders for the year under appeal may have been meager, as pointed out by the Assessing Officer, but creditworthiness of a party is not gauged merely from income of a particular year. The balance sheets of the four shareholders companies reveal that they had ample share capital to invest in the appellant company. In fact, the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the Revenue and the Judgment of the Hon'ble Delhi High Court have been confirmed by the Hon'ble Supreme Court by dismissing the SLP of the Revenue. Therefore, the issue is covered in favour of the assessee by the Judgment of Hon'ble Delhi High Court in the case of M/s. Adamine Construction Pvt., Ltd., (supra). Considering the totality of the facts and circumstances of the case in the light of documentary evidences on record and the decisions referred to above, we do not find any infirmity in the Order of the Ld. CIT(A) in deleting the addition. Accordingly, the appeal of the Department is dismissed. Applying the above discussed propositions of law in this regard, it is found that the creditworthiness of the companies are to be examined with respect to net worth of these companies, which would either justify or not justify the premium paid. Depending upon only one criterion, that of low net profits, could lead to erroneous conclusions based on inadequate appraisal of facts. The appellant has submitted a table of the net worths of the investing companies, derived from the audited balance sheets of these companies. These balance sheets had been duly produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its annual profits or income without first discussing the financial capacity of the investor to make the impugned investment. This financial capacity to invest is a function of the investable wealth of the investor, which, in turn, is reflected in the net worth of such an investor. In this context, what also has to be examined is whether, given the net worth of an investor, the amount of investment as a percentage of this net worth was reasonable and plausible or not. Even though an investment decision is strictly a business and strategic decision, and not within the province of the AO's investigations, but, during such an examination, what can be and has to be examined by the AO, is the plausibility of a rational prudent person making the said strategic decision for making an investment. In this case, I find that the investment levels, as compared to the net worths of the investing companies are quite low and acceptable and would not pose a risk to the investing company on account of a significant depletion of its net worth. The AO has also not made any comment upon this aspect or raised any doubts. Besides demonstrating their net worths and that they had inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xceeded the amount of investments (share application as well as premium) made by them in the shares of the appellant company. These discussions clearly prove the creditworthiness of these investing companies. The aforesaid facts, duly supported by concrete evidences, establish the identity of the share applicants, their capacity, source of funds, as well as the genuineness of the transactions in relation to the share capital including the share premium subscribed to by each of them. But before ascertaining if the burden which lay on the appellant, in relation to sec 68 of the Act, has been duly discharged by it, one aspect of this case has also to be considered. This relates to the appellant's contention that even though the statutory requirement for explaining the source of source of share capital/premium was inserted in the statute only from 01.04.2013 and this being there AY 2012-13, there was no statutory onus cast upon the appellant to explain the source of source to the satisfaction of the AO, the appellant had in fact provided the AO with the source of source during assessment as well as during remand. This is despite the fact that the said proviso to section 68 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced for removal of doubts or that it is declaratory. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. (ii) Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the gen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, did not make a personal appearance. This objection, it has already been noted earlier in this order, has been duly addressed during the remand stage when not only the director of the appellant company but also the directors of all the investor companies made personal appearances and depositions before the AO. At this stage the directors of the share applicant companies were examined with reference to the documentary evidences furnished by the appellant as well as by taking into consideration the documents submitted by the directors of the investing companies. Based upon these investigations and enquiries the AO has duly accepted the share capital amount received from the share applicants as being genuine, but has treated only the share premium amount as being unjustified. This latter brings us to the second objection of the AO. The second objection of the AO during assessment has been reiterated by the AO in remand. This is that the financials of the investing companies did not show that they were capable of paying such high amounts in premiums. What this implies is that while the AO accepts in remand that the investing companies could be considered creditworthy if only the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he insertion of clause viib, have been discussed and adjudicated upon. It has been held by the judicial authorities that since the said amendments were made from 01.04.2013, they would have prospective effect and that they could not be applied to AYS 2012-13 or earlier, since they were not declaratory clarificatory or were for the removal of doubts or were expressly held by the Parliament to be applied with retrospective effect. Therefore, the share premiums could not be added u/s 56(2)(viib) of the Act- even though it may fairly be stated that the AO has not tried to take this view either in his assessment order or in the remand report. In conclusion, I find that the AO has not doubted the identities, and creditworthiness of same set of share subscribers from whom the appellant accepted share capital, but has doubted the payment of high share premium. In my considered view, as per the discussions above, this is not permissible in law. A transaction cannot be partly accepted and party held to be unexplained based on the results of the same enquiries conducted by the AO in respect of same entities who have not only furnished documentary evidences but also appeared personally befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... find that the AO has been placing reliance upon the case of CIT vs Nipun Builders Developers Pvt to add weight to his addition. I find that the facts of this case were that in the course of the reassessment proceedings, enquiries were sought to be made by the Assessing Officer (AO); summons u/s. 131 were issued on 14.09.2007 to the companies from whom the share capital was stated to be received and they were returned unserved with the remarks no such company ; the inspector sent to the addresses for verification confirmed the fact. In view of this, the assessee was asked to produce the principal officer of the companies who had subscribed to the shares along with the relevant details. In response, the assessee filed a letter dated 21.11.2007 at the dak counter of the office of the AO stating that all the notices of the annual general meeting and call notices for shares were being sent to the same addresses of the share subscribers under certificate of posting and they have not come back unserved, implying that the share subscribers did exist at the addresses the given to the AO. It was also submitted that the capital was subscribed through account payee cheques with valid shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors or shareholders directly or indirectly to buy its shares. Once the monies are received and shares are issued, it is not as if the share- subscribers and the assessee-company lose touch with each other and become incommunicado. Calls due on the shares have to be paid; if dividends are declared, the warrants have to be sent to the shareholders. It is a continuing relationship, even granting that it may not be of the same degree in which it exists between a debtor and creditor. The share- subscribers in the present case have each invested substantial amounts in the assessee's shares, as the chart at pages 2-3 of the assessment order would show. Most of them, barring two or three, are themselves private limited companies. It cannot therefore be contended, as was contended before us on behalf of the assessee, that if the summons issued u/s. 131 to the subscribing companies at the addresses furnished by the assessee returned unserved, the AO is duty-bound to enforce their attendance with all the powers vested in him. The unreasonableness of such a general proposition is writ large in the face of the contention. The assessee-company received the share monies; it even says that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above citation is misplaced. If anything the said judgement goes in favour of the appellant. Similarly, the other citations relied upon by the AO also do not help him since the facts and circumstances in these cases are materially different from the instant case. The AO has relied upon CIT Vs NR Portfolio of the Hon'ble Delhi High Court to buttress his claim that if an assessee does not produce evidence or tries to avoid appearance before the assessing officer then an adverse view would be taken against such an assessee. But this is not true in the present case where all compliances were made along with personal appearances etc. In view of the above discussions and in the present facts and circumstances of this case, I cannot lend legal support to the impugned additions made by invoking the provisions of sec. 68 by the AO in the facts and circumstances of this case and accordingly, direct that these additions be deleted. Thus, these grounds of appeal are allowed. परिणाम में अपील पूरी तरह से स्वीक ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the AO stated that in some cases the share subscribers appeared personally and their statements were recorded. In three cases the AO stated that the subscribers filed all the evidences but did not appear. The AO also referred to the letters in those cases where the share subscribers were found on their addresses when the Inspector who was deputed by the AO reported that the few subscribers were there on the address whereas in some cases share subscribers could not be found. The Ld. A.R vehemently submitted that findings of the ld AO in the remand report were as in 8 cases out of 11, the assessments were framed u/s 143(3) of the Act sand the assessment orders were also filed before the authorities below. The Ld. A.R submitted that all these details such as copies of ITRs, audited reports and audited financial statements, summons u/s 131 and replies thereto, copies of MCA data and copies of bank statements highlighting the transactions in respect of each subscribers are also being filed from page 29 to 285 in PB in respect of all subscribers which proved that these were assessed to tax and their credentials are substantially proved with the credible evidences. The AO has failed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ences, share subscribers and issued summons u/s 131 of the Act. In most of the cases we observe that where the subscribers did not appear personally , they filed all the details/evidences in compliance to summons issued u/s 131 of the Act. Meaning thereby that the identity, creditworthiness of the subscribers and genuineness of the transactions were substantially proved. We also note that the ld CIT(A) has also considered the issue that there is no bar on issuing shares at a price higher than the FMV in the instant assessment year as provisions of section provisions of section 56(2)(viib) of the Act are effective from assessment year 2013-14. While allowing the appeal of the assessee we observe that the ld. CIT(A) has relied on a series of decisions as discussed by ld CIT(A) in his order and also distinguished the Hon ble Apex Court decision in the case of CIT Vs NRA Steel 412 ITR 161(SC). In our opinion the ld CIT(A) arrived at a correct conclusion after considering all the facts of the assessee s case and the ratio laid down in various decisions as referred to in the appellate order. Therefore, we do not find any merit in the appeal of the revenue and consequently the same is dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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