TMI Blog2021 (4) TMI 486X X X X Extracts X X X X X X X X Extracts X X X X ..... TAT 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 companies share premium or share capital is deemed to be normal income if shares are issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extiles, 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. - ITA No.5996/Mum/2016 - - - Dated:- 24-3-2021 - Hon ble Justice P.P. Bhatt, President And Shri M.Balaganesh, Am For the Assessee : Ms. Vatsalya Saxena For the Revenue : Shri Tushar Hemani ORDER PER M. BALAGANESH (A.M): This appeal in ITA No.5996/Mum/2016 for A.Y.2012-13 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-12, Mumbai in appeal No.CIT(A)-12/IT 298/DCIT 6(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... furnished the name of the investor, complete address, PAN, Jurisdictional assessing officer details , 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of share application money amounting to ₹ 4,47,10,385/- from Orange Mauritius Investment 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 req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er issued by RBI in connection with FCGPR 232-239 2. FIRC issued by IDBI in the case of NR investors 240-245 3. Complete address 513 4. shareholder s agreement 514-552 666-704 5. Share application form received from investor 553-554 705-706 6. FIRC issued by bank 555-560 7. Letter issued by RBI allotting UIN No. 246-249 561-564 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as under: - Ground of Appeal No. (ii)- Share Premium on issue of shares ₹ 23,47,38,900 1. M/s Desert Diamond General Trading LLC 12,977 12,847,230 1. PAN and complete address 20 377 2. shareholder s agreement 378-413 3. Share Application form received from investor 414-415 663-664 4. FIRC issued by RBI in the case of NR investors 43-45 416-418 5. letter issued by RBI allotting UIN No. 48-51 419-422 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 52-53 473-506 3. Minutes recorded in Board Meeting for allotment of shares 56-58 507-508 4. shareholder s agreement 473-506 745-778 5. Share application form received from investor 507-508 779-780 6. FIRC issued by bank 46-47 509 7. Share Allotment certificate issued to investor 510 781 8. FCGPR submitted to RBI 511-512 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces dated 01.11.2013, 24.12.2013 and 04.02.2014 issued under section 133(6) of the Income Tax Act. 789-792 8. Response to notice issued under section 133(6) of the Income Tax Act. 793-801 8. M/s Dindayal Processors Pvt. Ltd. 35,000 34,650,000 1. PAN and complete address 20 2. Confirmation of Accounts 25 3. Return of income 32 4. Minutes recorded in board meeting for allotment of shares 59-64 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Confirmation of Accounts 27 3. Return of income 34 4. Minutes recorded in board meeting for allotment of shares 59-64 5 Share application from received from investor 82-83 6. Share allotment certificate issued to investor 91 We also find that the assessee has filed details with respect to balance with ROC for share issuance in term of form No. 2 and annual return filed with ROC. As regards to non-resident investors i.e. namely (i) Desert Diamond General Trading LLC (ii) Mrs. Neelam Sharma (iii) M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee of Hon'ble Bombay High Court in case of CIT vs. Gagandeep Infrastructure (P) Ltd. (2017) 394 ITR 680 (Bom) which reads as under:- (c) Being aggrieved, the Revenue carried the issue in the appeal to the Tribunal. The impugned order of the Tribunal holds that the respondent assessee had established the identity, genuineness and capacity of the shareholders who had subscribed to its shares. The identity was established by the very fact that the detailed names, addresses of the shareholders, PAN numbers, bank details and confirmatory letters were filed. The genuineness of the transaction was established by filing a copy of share application form, the form filed with the Registrar of Companies and as also bank details of the shareholders and their confirmations which would indicate both the genuineness as also the capacity of the shareholders to subscribe to the shares. Further the Tribunal while upholding the finding of CIT(A) also that the amount received on issue of share capital along with the premium received thereon, would be on capital receipt and not in the revenue field. Further reliance was also placed upon the decision of Apex Court in Lovely Exports (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction of share subscriber is concerned, it concludes as the entire transaction is recorded in the Books of Accounts and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held by IDFC Private Equity Fund which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC Private Equity Fund-II are all by public sector undertakings. (c) Mr.Chhotaray the learned counsel for the Revenue states that the impugned orderitself holds that share premium of ₹ 490/ per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. (d) Thus, question no.(ii) as formulated d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted upon the AO the power to refer to the Valuation officer. The power of AO to make a reference to the Valuation Officer is contained in section 142A of the Act. Section 142A of the Act as it stood for the year under consideration reads as under: 142. (1) For the purposes of making an assessment or reassessment under this Act, where an estimate of the value of any investment referred to in section 69 or section 6911 or the value of any bullion, jewellery or oilier valuable article referred to in section 69A or section 6911 or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him . 20. We have considered the issue and find that this section does not cover section 68 of the Act. Thus, the Legislature does not envisage any sort of valuation for the purpose of section 68 of the Act. Indeed, valuation of preference shares is a completely different exercise as compared to valuation of equity shares. The AO makes the mention of the reserves and loss while challenging the charge of share premium on preference share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by Hon ble Supreme Court in case of CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192. In view of the above facts and circumstances, we are of the view that the assessee has discharged its onus by adequately disclosing the transaction in its books of accounts, filing statutory forms as regards allotment of shares, providing name, address and PAN of the shareholders, etc. the assessee has sufficiently discharged the onus cast upon it for the purpose of section 68 of the Act and no addition can be made on this account. Hence, we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. These two common issues of Revenue s appeal are dismissed. 2.5. We find that the decision rendered by this tribunal for Asst Year 2011-12 in assessee s own case on the similar set of facts shall apply mutatis mutandis to the year under consideration also. Hence, respectfully following the same, the Ground No. I raised by the revenue is dismissed. 3. The next issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the disallowance of ₹ 17,29,780/- made on account of depreciation on intangible assets in the facts and circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . II raised by the revenue is dismissed. 4. The last issue to be decided in this appeal is as to whether the ld CITA was justified in deleting the addition made in the sum of ₹ 6,12,92,931/- u/s 56(2)(viia) of the Act in the facts and circumstances of the case. 4.1. We have heard the rival submissions and perused the materials available on record. We find that assessee became member in Vraj Integrated Textile Park Ltd (VITPL) formed on the basis of Scheme of Integrated Textile Park (SITP) of Ministry of Textiles, Government of India. The main objective of the said Scheme is to provide State of the Art Infrastructure and support to the members, who are setting up units in the Textile Park. As per the SITP policy, Special Purpose Vehicle (SPV) shall invariably be a Corporate Body registered under the Companies Act . To become a member in the said Textile Park, the investor (ie Corporate Body) should acquire share capital in the Textile Park. Accordingly, the assessee acquired 469318 shares at a face value of ₹ 10 each during the year under consideration. We find that the ld AO had made addition u/s 56(2)(viia) of the Act on the ground that assessee had acquired s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,000/- i.e. amounting to ₹ 1,18,67,508/- as taxable in the hands of the assessee company under section 56(2)(viia) of the Act. For this, the AO observed in Para 6.4 as under: - a. As per the provisions of section 56(2)(vii)(a) of the Act, where a company receives, in any previous year, from any person or persons on or after the 1 day of June, 2010, any property being shares of a company for a consideration which is less than the aggregate fair market value by an amount exceeding fifty thousand rupees shall be chargeable to income tax under the head income from other sources. b. The appellant is company which has either purchased or received on allotment the shares in question after 01.06.2010 which is after the provisions of the said section came into effect. C. The valuation as contended by appellant is not supported by any corroborative evidences. The method as prescribed under the Rule 11UA for valuation of Equity shares of an unlisted company is either Net Asset Valuation Method or the Discounted Cash Flow Method. The appellant's submission is not in accordance with any of the above methods and hence rejected. d. As per Rule 11UA of IT Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided calculation of fair market value after ignoring the said subsidy and on this basis has contended that the fair market value does not exceed the face value of ₹ 10. During the course of the appellate proceedings, it has been submitted on behalf of the appellant-company, that it is only a matter of presentation in the balance sheet as to how the Government grant is reflected. By following some different method, the Government grant could have been directly reduced from the cost of the assets and if the appellant had followed this method, the fair market value of the shares would have automatically come to a level which is not more than the face value of ₹ 10. It is, therefore, contended that having regard to the entire facts and circumstances and the objective of thescheme of integrated Textile Park no income can be brought to the charge of tax u/s 56(2)(vii)(a) of the IT Act. 9.26 I have carefully considered the facts and circumstances relevant to this issue. I have also duly considered the basis provided in the assessment order for making this addition and also the detailed submissions made on behalf of the appellant-company which have been reproduced ab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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