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2019 (5) TMI 1439 - AT - Income TaxAddition u/s.68 - unexplained cash credit - as per AO assessee has failed to discharge the burden to substantiate the creditworthiness of the shares investors and genuineness of the transactions - CIT-A deleted the addition - HELD THAT:- In the present case, so far as the identity of the investors, their creditworthiness & genuineness of the transactions is concerned, we find that all the investors were having Permanent Account number and were duly filing their Income Tax Returns. The audited financial statements were placed on record. The share applicants had confirmed the investments. It is the finding of Ld. AO that the investment in the shape of share capital as well as share premium was made by these entities out of their respective unsecured loan / reserves / other liabilities / share premium account which contradicts / negate the stand of AO that the entities were showing meagre profits and had no source to make the stated investments. Nothing on record suggest that any money got exchanged between the assessee and the investor entities which flew back in the shape of share capital / share premium. Another pertinent observation to be made is that as per Ld. AO’s finding, the impugned AY was the initial year of business operation of the assessee company and therefore, it is difficult to accept that the assessee accumulated huge unaccounted money which was ploughed back in the shape of share capital / share premium. It is undisputed fact that the transactions have taken place through banking channels which is evident from the bank statements of the assessee as well as share applicants as placed on record. The entirety of facts would convince us to form an opinion that the assessee was successful in establishing the fulfilment of primary condition of Section 68. Justification of share premium - We find that the assessee, in its investment note, adopted Discounted Cash Flow method to arrive at the valuation of shares. Be that as the case may be, we are of the considered opinion that quantum of premium was matter between assessee company issuing the shares and investor entities and the payment of high premium, in itself, could not be the basis of making addition in assessee’s hand unless there was any illegality or restriction, under law, towards receipt of high share premium. Our view is in line with the decision of Pr.CIT Vs. Chain House International Pvt. Ltd. [2019 (2) TMI 1213 - SC ORDER] wherein it has, interalia, been held that It was the prerogative of the Board of Directors to decide the quantum of premium and it was the wisdom of the shareholders whether they wanted to subscribe to the shares at such a premium. Another aspect of this is that the provisions of Section 56(2)(viib) were applicable only with effect from 01/04/2013 and the same were not applicable during impugned AY. - Decided in favour of assessee.
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