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2018 (10) TMI 1438 - ITAT MUMBAIAddition of excess share premium u/s 68 - share premium when receipts of premium over and above the DCF valuation report - whether the Share premium can be considered as income taxable under the Act? - Held that:- There is no dispute with regard to the fact that the assessee has received the impugned funds by way of “Share Premium” on issue of preference shares. In the books of accounts also, the assessee has credited “share premium account” only with the amount received. The investor has also given the funds only towards share premium. Hence, according to the assessee as well as investor company, the nature of receipt/payment is “Share premium” on the preference shares. Since the revenue is contending that the “nature” of excess amount of premium is not proved, we shall examine the meaning or context in which the word “nature” is used in sec.68 of the Act. The courts have time and again held that if an assessee proves three essential ingredients with regard to cash credits, viz., the identity of the creditor, credit worthiness of the creditor and genuineness of transactions, then the “nature and source” of cash credit stands proved. In that case, the said cash credit cannot be assessed as income of the assessee. As observed earlier, if any cash credit is offered as income by the assessee himself, the question of applying sec.68 does not arise. The requirement of applying provisions of sec.68 shall arise only if any cash credit is not offered as income by the assessee. There is merit in the contention of the Ld A.R that the share premium amount worked out in the Valuation Certificate is the minimum amount that can be collected by the assessee and hence there is no bar on collecting higher amount as share premium. CIT(A) has rightly observed that there are several factors that are taken into consideration while issuing the equity shares to shareholders/investors, such as Venture capital funds and Private Equity funds. CIT(A) has also noticed that the actual financial results achieved by the assessee has exceeded the financial projections. Accordingly he has held that the premium of ₹ 1030/- was determined between the parties on the basis of commercial considerations and agreed to by them, which cannot be questioned by the tax authorities. It is well settled proposition of law that the AO was not entitled to sit on the arm chair of a businessman and regulate the manner of conducting business. Hence, in our view, the AO was not justified in holding that he will accept the share premium amount only to the extent of Rs,672/- only. Hence the AO was not justified in partially not accepting the share premium and accordingly he could not have doubted the genuineness of transactions on this reason. AO himself has accepted the quantum of share premium in AY 2014-15 and further the actual financial results have far exceeded the financial projections. We also notice from the agreement entered between the parties, the investor is entitled to a particular rate of return in case the call option/put option is exercised. It also provides for the manner of conversion of preference shares into equity shares etc. In any case, the question of present book value shall apply only to equity shares and not to preference shares - Decided in favour of assessee.
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