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TMI Blog2024 (4) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... e to take the plea that, even if the explanation is not acceptable, the material and the attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. The identities of the creditors are clearly established in case of the appellant because the sum credited in the books of the assessee as share capital and share premium have been subscribed by the Future group and Godrej group, which are the holding company and other major shareholder of the appellant company. The creditworthiness has also not been questioned by the AO. The only reason why the AO made addition u/s 68 of the Act is that there is no basis for valuation of the shares of loss making company at such a high premium of Rs. 40/- per shares (face value is Rs. 10/-). The company has been consistently incurring losses and the assessee failed to furnish any valuation report before the AO for the subject assessment year. Moreover, if AO does not doubt the transaction and creditworthiness or the genuineness, then how can addition be made on valuation of premium paid on shares on the ground that valuation is higher according to him. AO can examine the na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are dismissed. Disallowance of interest paid on ICDS - CIT(A) allowed the ground Perusal of the Tax Audit Report reveals that interest paid on ICDS to Future Venture India Ltd. - HELD THAT:- Once the assessee has taken ICD‟s and that ICD‟s has been taken in the earlier year then payment of interest cannot be disallowed on the ground that assessee has incurred loss during the year. Thus, we do not find any infirmity in the order of the CIT (A) when the interest has been paid on the ICD‟s to Future Venture India Ltd. Accordingly, the ground is dismissed. In the result, the appeal filed by the revenue is dismissed. Reopening of assessment u/s 147 - share capital and share premium questioned - HELD THAT:- As AR contended that the AO had asked for all details regarding receipt of share process during the year in the original assessment proceedings. The same were supplied to the AO and the assessment order was passed after considering the explanation and details furnished before the AO. We find that no addition has been made by the AO in the assessment order u/s 143(3) except a small disallowance u/s 36(1) of the Act.. Therefore, it cannot be said that the AO has not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(A). The shares of Future Consumers Ltd. are listed on BSE and NSE since 10th May 2011. In view of the facts it is a company in which public are substantially interested and the appellant is deemed to be a company in which the public are substantially interested within the meaning of section 2(18) of the Act. It is thus evidently clear that provisions of section 56(2)(viib) are not applicable to the appellant company. Regarding valuation of shares, we are of the considered view that it was a commercial decision by the promoters of two companies who had agreed to rely on the valuation report which was relied upon while subscribing to the shares of the assessee company in FY 2009-10. In this regard, the appellant has relied upon the decision of the ITAT, Mumbai in the case of Green Infra Ltd [ 2013 (12) TMI 949 - ITAT MUMBAI] where a newly created company had issued shares of ₹ 10 each at premium of ₹ 490 per share. During the assessment proceedings, the AO had observed that own funds were introduced by the assessee through shareholders under guise of revenue. The AO also questioned the authenticity of the valuation report. In the first appeal, the Ld. CIT(A) confirmed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account of interest of Rs. 45,67,728/- paid on loan taken from holding company viz Future Venture India Ltd., without appreciating the fact that during the course of assessment proceedings no explanation was offered by the assessee to show how the payment of interest made to its holding company is justified on the basis of prevalent market rate. 4. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the AO be restored. 3. The facts of the case, in brief, are that the assessee filed its return of income for A.Y. 2011-12 on 27.09.2011 declaring total income at ₹ Nil and claiming current year loss of ₹ 25,72,89,360/-. The return was processed u/s 143(1) of the Act on 13.01.2012 accepting the returned income. The case was picked up for scrutiny and after hearing the assessee, the order u/s 143(3) was passed on 30.01.2013 without any addition. Subsequently, the case was reopened after recording the reasons for reopening, which is given at page 2 of assessment order dated 24.08.2016. The case was reopened for the reason that the assessee has issued 25,00,000 equity shares of ₹10/- each on premium of ₹40/- per share. The co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause the assessee failed to justify the issuance of shares at such huge premium. 6. Aggrieved by the above order, the assessee filed appeal before the Ld. CIT(A). The first issue before the Ld. CIT (A) was validity of the reopening of the assessment u/s 147. The Ld. CIT(A) has relied on the decision of the Supreme Court in the case of Raymod Woollen Mills Ltd. V/s ITO and other in (1999) 236 ITR 34 (SC) where it was held that in determining whether commencement of reassessment proceedings was valid, it is only to be seen whether there was prima facie some material on the basis of which the department could reopen the case. The sufficiency or correctness of the material is not a thing to be considered at this stage. The Ld. CIT(A) has also relied on the decisions in the cases of Aravali Infrapower Ltd. V/s DCIT in 2017-TIOL-42-SC-IT, CIT V/s Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 161 taxmann 316 (SC), Amsa India Pvt. Ltd. v/s CIT (2017-TIOL-603-HC-DEL-IT-), Mohammedally Noorbhoy Bandukwala Trust V/s ITO (2017-TIOL-341-HC-MUM-IT), R.K. Malhotra ITO v/s Kasturbhai Lalbhai 109 ITR 537 (SC). 7. In view of the above decisions, the Ld. CIT (A) held that the AO had sufficient reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Pvt. Ltd. In support of its reply, appellant has furnished the following documents before the Id. AO to prove the genuineness of the transaction:- Letter dated 22.11.2013 wherein the financials of Future Ventures India Ltd. and Godrej Agrovet Ltd for relevant year are submitted before the Ld. AO during the course of assessment proceeding (copy of the letter placed at pg 36 of the paper book. Preferential offer given to Mr. A Mahendran for increasing the share capital. Preferential offer given to Bahar Agrochem Feeds Pvt. Ltd for increasing the share capital. Letter from Future Ventures India Itd and Godrej Agrovet Ltd to convert the short term loan into share capital. Valuation report for the issue of shares (page no.107-122 of the paper book. 6.4 From its submissions, it is seen that the subject capital was introduced to augment the appellant company's long term capital requirements and to repay some of the debts. The shares were issued to the joint venture partners at a face value of Rs. 10/- each and premium of Rs. 40/- per share, as recorded in the assessment order and the submission of appellant. The appellant has submitted that the transaction is a commercial transactio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was obtained wherein as per the projected scenario, the share price was arrived at. The shareholders accordingly invested the amount in the appellant company. The Ld. AR stated that the investors are part of well known business houses namely, Future Venture India Ltd. (Currently known as Future Consumer Ltd. ) and Godrej group. Therefore, genuineness of the transactions cannot be doubted. It is further submitted that the appellant company has already submitted following documents before the AO to substantiate the genuineness of the transaction: Letter dated 22.11.2013 wherein the financials of Future Ventures India Itd and Godrej Agrovet Ltd for relevant year are submitted before the ld.ao during the course of assessment proceeding (copy of the letter placed at pg 36 of the paper book. Preferential offer given to Mr.A Mahendran for increasing the share capital. Preferential offer given to Bahar Agrochem Feeds Pvt. Ltd for increasing the share capital. Letter from Future Ventures India ltd and Godrej Agrovet Ltd to convert the short term loan into share capital. Valuation report for the issue of shares (page no.107-122 of the paper book. 12. The Ld. AR also submitted that the AO ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as it is a capital receipt. Such receipt is not in the revenue field and it cannot added to the total income. 15. We have carefully considered facts of the case and the arguments of both parties. The revenue has contested the deletion by the Ld. CIT (A) of ₹10,00,00,000/-, being the share premium, added by the AO u/s 68 of the Act. According to the AO, the assessee failed to submit or explain the basis for arriving at said premium, without which it is not possible to ascertain genuineness of the transaction. The Assessee also did not submit any fresh valuation report to show how the premium was arrived at. 16. Before deciding the issue, it would be proper to reproduce and discuss the provisions of section 68 which has been applied by the AO to make the addition of ₹10,00,00,000/- towards share premium. The section reads as under: 68. Cash Credits:- - Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the [Assessing Officer] [ Substituted by Act 4 of 1988, Section 2, for Income-tax Officer (w.e. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ession the assessee offers no explanation means assessee offers no proper, reasonable and acceptable explanation as regards sums found credited in the books maintained by the assessee. The opinion of the AO is required to be formed objectively with reference to the material on record. Application of mind is a sine qua non for forming the opinion. The burden is on the assessee to take the plea that, even if the explanation is not acceptable, the material and the attending circumstances available on record do not justify the sum found credited in the books being treated as a receipt of income nature. 19. The identities of the creditors are clearly established in case of the appellant because the sum credited in the books of the assessee as share capital and share premium have been subscribed by the Future group and Godrej group, which are the holding company and other major shareholder of the appellant company. The creditworthiness has also not been questioned by the AO. The only reason why the AO made addition u/s 68 of the Act is that there is no basis for valuation of the shares of loss making company at such a high premium of Rs. 40/- per shares (face value is Rs. 10/-). The comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xmann.com 253 [Mumbai Trib.] is directly on the issue. This decision of the ITAT, Mumbai in favour of the assessee and was subsequently upheld by the Hon ble Bombay High Court in CIT vs. Green Infra Ltd. (2017) 78 taxmann.com 340 (Bom.). Relevant part of decision of the ITAT, Mumbai is as under: 10.1. No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490/-per share defies all commercial prudence but at the same time we cannot ignore the fact 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. 22. There is no reason why the ratio of the above decision should not be applied to the facts of the case because facts of the present case are similar to the facts of the above case. We may add that no other adverse material has been produced by the revenue to take a different view on the impugned issue. 23. Be that it as may, even the decision of the Hon ble Jurisdictional High Court in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law, the Ld. AO erred in issuing notice u/s 148 of the Act dated 16.02.2016 which is barred by limitation as per first proviso of section 147 of the Act. 3. The Cross objector crave leaves to add, amend, alter, modify and or withdraw any of the above grounds of cross objection, which are without prejudice to one another. 28. As discussed earlier, the case was reopened, to tax excess premium. The Ld. CIT(A) sustained the reopening by discussing the facts of the case and by relying on the decisions cited in the facts of the case discussed earlier at para 7 including the decision in case of Raymond Woolen Mills Ltd. (supra). While dismissing the ground, the Ld. CIT(A) has stated that in the initial stage the AO is required to prima facie satisfy that there is escapement of income. The quantification and finality is decided subsequently in the reassessment order to be passed after obtaining relevant details and after confronting the assessee. 29. The Ld. AR has argued that in the original assessment, completed on 21.02.2012, the assessee was asked to provide details in respect of share capital received during the year with the name and address of donor, name of bank and cheque number, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a undisputed fact that the case of the assessee was originally assessed u/s 143(3). The Ld. AR contended that the AO had asked for all details regarding receipt of share process during the year in the original assessment proceedings. The same were supplied to the AO and the assessment order was passed after considering the explanation and details furnished before the AO. We find that no addition has been made by the AO in the assessment order u/s 143(3), dated 21.02.2014, except a small disallowance of ₹ 2,15,691/- u/s 36(1) of the Act.. Therefore, it cannot be said that the AO has not applied his mind to impugned issue regarding share capital and share premium. The Ld. CIT(DR) has not placed any evidence or material before us to counter the argument of the Ld. AR that the details regarding impugned issue were not provided to the AO and the same was not considered by the AO. Therefore, we are of the view that the reopening is based on mere change of opinion on the same set of facts and the same issue already considered by the AO in the original proceedings u/s 143(3) of the Act. The reopening is based on mere change of opinion, which is not permissible, as held by the H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating the fact that during the course of assessment proceedings the assessee has not submitted any fresh valuation for FY 2012-13 relevant to AY 2013-14 to show how the premium amount has been arrived at. 3. The appellant prays that the order of the CIT(A) on the above ground be set aside and that of the A.O be restored. 35. The facts, of the case, in brief are that the assessee had issued 24,00,00,000 equity shares of ₹10/- per share and had received share premium @ ₹ 40/- per share amounting to ₹ 9,60,00,000/- The AO asked the assessee to justify the valuation of shares as per rule 11UA of the Income-tax Rule, 1962. He also asked assessee to justify the large huge share premium in a situation when the company has accumulated loss of more than ₹ 150,00,00,000/-. The AO was not satisfied with the submission of the assessee. He held that reliance on a share valuation report of A.Y. 2010-11 for considering value of shares for A.Y. 2013-14 would give a distorted picture. Since, the assessee did not carry out fresh valuation of share for the year under consideration, the AO has referred to the valuation report for A.Y. 2010-11 and pointed out various discrepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies during FY 2012-13 relevant to AY 2013-14. 16,80,000 shares at a premium of Rs. 6,72,00,000/- were allotted to Future Ventures India Limited (FVIL) and 7,20,000 shares at a premium of Rs. 2,88,00,000/- were allotted to Godrej Agrovet Limited. Future Ventures India Limited (FVIL) is a group company of Future Group and Godrej Agrovet Limited is a subsidiary of Godrej Industries Ltd. As per the above shareholding, it is clear that the appellant is a subsidiary of M/s. Future Ventures Enterprises Ltd. (FVIL) (now known as Future Consumer Ltd.) which holds more than 51% of the shareholding. FVIL is a listed company on BSE and NSE stock exchanges since 2011 and accordingly, it is a public company as per section 2(71) of the Companies Act, 2013 or Sec 3(1)(c) of the Companies Act, 1956. As per section 2(18)(b)(B) of the 1. T. Act, 1961, FVIL holds 70% of the shares as well as voting rights in the appellant company with no fixed dividend rights. 6.3 The provisions of Sec. 56(2)(viib) of the I. T. Act, 1961 are as under where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company falls in the category company in which public are substantially interested . 39. We have carefully considered the facts of the case and have also gone through the relevant provisions of sections 56(2)(viib) and 2(18)(b)(B) of the Act. It is clear from reading of section 56(2)(viib) of the Act that mischief of the said section is not attracted to a company in which public are substantially interested. The provisions of section 2(8)(b)(B) of the Act defines a company in which public are substantially interested . The said sections have already been reproduced above. After careful consideration of the facts of the case in the light of the above statutory provisions, it is clear that the case of the appellant is not covered under the provisions of section 56(2)(viib) of the Act. We also find that the assessee covered by the clause (b) (B)(c) of the subsection (18) of section 2 of the Act because the share holding in the appellant s company is as follows:(1) Future Venture India Ltd. (now known as Future Consumer Ltd.) 70%, (2) Godrej Agrovet Ltd. 19% and (3) Others 11%. Thus, appellant is a subsidiary of Future Venture India Ltd. 40. Further, shares held by the Future group a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the Revenue revolves around the charging of such of huge premium so much so that the Revenue authorities did not even blink their eyes in invoking provisions of Sec. 56(1) of the Act. 42. Above decision of ITAT, Mumbai has been upheld by the Hon ble Bombay High Court in the case of Green Infra Ltd. v/s ITO (2013) 37 CCH 0059 (SC). The facts of the present case are similar to the facts of the case cited above. The investors are reputed listed companies belongings to the Future group and Godrej group. There is no reason why ratio of the above decision shall not be applicable to the facts of the present case. We have already held that provisions of section 56(2)(viib) are not applicable to the case of the appellant company. In view of the above factual and statutory positions and authorities cited supra, the grounds of revenue are dismissed. The appeal of the revenue is, accordingly, dismissed. ITA No. 2650/Mum/2023 A.Y. 2014-15 43. The grounds taken up by the revenue are similar to the ground taken up for A.Y. 2013-14. The facts are similar to the facts of the case for A.Y. 2014-15. The issue pertains to addition of ₹ 8,00,00,000/-u/s 56(2)(viib) of the Act towards share ..... X X X X Extracts X X X X X X X X Extracts X X X X
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