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Asst. Commissioner of Income tax Versus M/s Suguna Metals Pvt. Ltd.

2015 (11) TMI 295 - ITAT HYDERABAD

Treatment of share premium receipts - capital or revenue receipt - Held that:- CIT(A) correctly followed the decision of Hyderabad Bench of ITAT in the case of M/s. PVP Ventures Limited, Hyderabad [2013 (11) TMI 225 - ITAT HYDERABAD] wherein it was held that the receipt as share premium is a capital receipt and cannot be considered as revenue receipt. - Decided against revenue - ITA Nos. 437 & 438/HYD/2014 - Dated:- 9-10-2015 - P. Madhavi Devi, JM And B. Ramakotaiah, AM For the Petitioner : Shri .....

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f manufacturing and sale of M.S. Billets. In the group cases, there was search and seizure operations conducted on 29-01-2009. In response to the notices u/s. 153A of the Income Tax Act [Act], Return of Incomes were filed declaring Nil income for AY. 2008-09 and loss of ₹ 85,45,881/- for AY. 2009-10. AO in the course of assessment proceedings observed that assessee had received share application amount with ₹ 40/- premium from three applicants in AY. 2008-09. AO called for the detail .....

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, AO observed from the Schedule-II of the Balance Sheet, that under the head 'Reserves and Surpluses', the appellant had shown an amount of ₹ 1,35,00,000/- under share premium account. On verification of the details furnished in respect of the above, it was observed by the AO that when the other share contributors have paid ₹ 10/- per share, five companies viz., M/s. Gyaneshwar Trading and Finance Co. Ltd., M/s Sidh Housing Development Co. Ltd., M/s. Artillegence Bio Innovati .....

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s for the shares, only three parties for the AY. 2008-09 and five parties for the AY 2009-10 have paid premium, and the method of working out of the premium was not explained by assessee. It was also remarked that assessee is a closely held company and had commenced its production only in December, 2008 and the first Balance Sheet of the company was prepared on 31-03-2008 and it is not clear as to how the amounts contributed to share premium has been worked out and brought in to the books subseq .....

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groups. AO had thus brought to tax the share premiums of ₹ 56,00,000/- for the AY. 2008-09 and ₹ 1,35,00,000/- for the AY. 2009-10, to tax, as 'Income from Other Sources', by treating the amounts as 'Trade Receipts'. 3. Before the Ld. CIT(A), assessee objected to such additions and submitted that out of total 42 subscribers, only 8 have taken the shares on premium and details for assessment year-wise furnished on to CIT(A) are as under: Name AY. No. of shares Share C .....

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8,12,500 Cliffon Securities (P) L 2009-10 56,250 5,62,500 22,50,000 28,12,500 Oshin Investments and Finance Pvt. Ltd., 2009-10 1,12,500 11,25,000 45,00,000 56,25,000 TOTAL: 15,00,000 1,35,00,000 1,50,00,000 4. It was contended that all the persons who contributed the money have confirmed the amounts with the details of bank account, PAN, Income Tax details, payments of money along with intimation given on allotment of shares to the Registrar of Companies. It was further contended that AO did not .....

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& Oil Seeds Exchange Limited [152 ITR 552] (Del); and b. CIT Vs. Kishnarom Baladeo Bank (P) Ltd., [144 ITR 600] (MP) 5. It was further contended that the provisions of Section 56 are effective w.e.f. 01-04-2013 and so they are also not applicable for the years under consideration. The matter was referred to AO by the CIT(A) and on his remand report, assessee filed its rejoinder. After considering the detailed explanation of the parties, Ld. CIT(A) analyzed the issue keeping in view the fact .....

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along with the share application money was received through banking channels and the same have been confirmed by the investing parties. There is no dispute on these facts. It was also a fact that there was search and seizure proceedings conducted in this case during which no incriminating information related to these transactions were mentioned to have been traced/found. It is also a fact that either during the post search proceedings and the assessment proceedings, no enquiries were shown to h .....

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t doubting the genuineness of transaction related to the share application money received from the same parties. This clearly indicate that the AO intended to treat the said share premium as business receipt and income from other sources and accordingly the AO assessed such amounts as income from other sources. Hence, question of examining the genuineness of sources of investments and treating the same as unexplained credits, did not arise at the stage of assessment and for the same reasons trea .....

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e scope of taxing provisions, since the intended amendment to Sec. 56(2) is only operative from 01.04.2013, as such the share premium collected for the AY 2008-09 and AY 2009-10, are not within the ambit of proposed amendment of Sec. 56(2). This argument of the appellant appears to have considerable force and is well supported by decision of ITAT, Hyderabad in Appeal No. in ITA No. 647/Hyd/2011 and IT No. 135/Hyd/2013 dated 24.05.2013, wherein the Hon'ble ITAT, observed as under": " .....

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ot be considered as income made out by the Assessing Officer. " 5.7. As regard to the issue of treatment of share premium as capital or revenue receipt, it was contended by the appellant that the AO failed to prove the nature of share premium to be revenue receipt and AO did not doubt the sources for receipts or genuineness of receipts, as share capital as well as share premium. The appellant's contention was further that the facts of the case under reference are similar to the facts of .....

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t to mention that the Hon'ble ITAT, Hyderabad A Bench, while deciding the issue in Appeal No. 647/Hyd/2011 and appeal No. 135/Hyd/2013 (supra) has also relied upon the decision of High Court of Delhi in the case of Addl.CIT Vs. am Oil and Oil Seeds Company (Supra), in deciding on the issue of share premium as a capital receipt. The observation of the Hon'ble ITAT is as under: "In the case of Addl. CIT V/s. OM Oil and Oil Seeds Company (152 ITR 552), the Hon'ble Delhi High Court .....

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al account called Share Premium Account. As per the provisions of the Companies Act, the amount received by the assessee as share premium required to be credited in the share premium accounts only. Since it is a capital received on par with the share capital received, the same cannot be treated as a revenue receipt. In fact, Hon'ble Delhi High Court in the case cited above, also gave a finding that the amount cannot be considered as a business receipt, as the amount was brought to tax under .....

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ngly, the assessee's grounds are allowed and the AO is directed to delete the addition made kin that behalf." 5.8 Thus, based on the facts of the case it may be relevant to conclude that, while accepting the share capital, it is unreasonable for the AO to hold the share premium as unaccounted trade receipts, without any adverse findings to that extent. Further, based on the judicial decisions of Hon'ble ITAT , Hyderabad, on similar facts (supra), the share premium cannot be treated .....

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Vs. Om Oil and Oil Seeds Exchange Ltd. (supra). Thus, based on the facts as well as the judicial decisions, I am of the considered opinion that the share premium of ₹ 56,00,000/- and ₹ 1,35,00,000/- which were treated as income from other sources to be included in the total income of the appellant for the AYs 2008-09 and 2009-10, respectively, are not sustainable. Accordingly, the additions are ordered to be deleted". 6. Ld. DR relied on the orders of AO, whereas Ld. Counsel re .....

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e addition Ld. CIT(A) implicitly followed the decision of Hyderabad Bench of ITAT in the case of M/s. PVP Ventures Limited, Hyderabad in ITA Nos. 647/Hyd/2011 & 135/Hyd/2013, wherein it was held that the receipt as share premium is a capital receipt and cannot be considered as revenue receipt. In fact the ITAT in the above said decision also held that: "The share premium cannot be brought to tax as it is a capital receipt and not on revenue account. Provisions of S.56(2) are amended by .....

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inate Bench at Mumbai in the case of M/s. Green Infra Ltd. Vs. ITO in ITA No. 7762/Mum/2012, dt. 23-08-2013, wherein also on a similar issue, it was considered not taxable. 9. Hon'ble Bombay High Court in the case of Vodafone India Services (P) Ltd vs. Union of India [2014] 368 ITR 1 (Bombay) (supra) held that: "The word 'income' for the purpose of the Act has a well understood meaning as defined in Section 2(24) of the Act. This even when the definition in Sec. 2(24) of the Act .....

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on, no amount received, accrued or arising on capital account transaction can be subjected to tax as income. This is settled by the decision of this Court in Cadell Weaving Mill Co P Ltd Vs. CIT (249 ITR 265 - Bom) was upheld by the apex court in CIT Vs. D.P.Sandu Chembur (P) Ltd (273 ITR 1 - SC) . …… In view of the above, we find considerable substance in the petitioner's case that neither the capital receipts received by the petitioner on issue of equity shares to its holding .....

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the proposition that share premium can be brought to tax. After perusing the above order, we are of the opinion that the facts in the said case does not apply to the facts of assessee. In fact in the above referred case, the Co-ordinate Bench at Calcutta has analysed the Modus operandi followed by that assessee in making bogus entries and helping many people in conversion of their unaccounted money into accounted transactions and availing the scheme of share premium. Moreover, that order is giv .....

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