TMI Blog2016 (10) TMI 920X X X X Extracts X X X X X X X X Extracts X X X X ..... HAVI DEVI, JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH, ACCOUNTANT MEMBER For The Assessee : Shri Laxminiwas Sharma, AR For The Revenue : Shri K.J. Rao, DR ORDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by assessee against the order of the Ld.Commissioner of Income Tax (Appeals)-III, Hyderabad dated 05-09-2014, confirming the addition of ₹ 2,18,50,000/- as income of assessee which was received towards share premium, invoking the provisions of Section 68 of the Income Tax Act [Act]. 2. Briefly stated, assessee during the year has issued shares of ₹ 27,50,000/- with a premium of ₹ 2,18,50,000/- i.e., ₹ 10/-face value share was issued at ₹ 200/- with a premium of ₹ 190/-. The shares were received from the following companies and the details are as under: Share Premium Share Capital (Rs) Share Premium (Rs) Sahuwan Motors Finance Pvt Ltd 75,000 14,25,000 Eastern Credit Capital Ltd 50,000 9,50,000 Procal Dealcomm Pvt Ltd 75,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 68 treated the amounts as unexplained cash credits holding that as the genuineness and creditworthiness of the party giving premium is doubtful and defies business logic. 3.2. Before the Ld. CIT(A), assessee filed detailed submissions and justification. However, Ld. CIT(A) notes that assessee has not furnished any assessment particulars of the companies as sought for and rejected the contentions by stating as under: 6.1 It is clear that the issue of share premium charged by the companies mentioned in the assessment order namely Sahuwan Motors Finance Pvt. Ltd., Eastern credit capital ltd., Procal Dealcomm Pvt. Ltd., Dashmesh Fincap Pvt. Ltd., Aasma Mercantile Pvt. Ltd., Virgo Textiles Pvt. Ltd., Inex Infotech Pvt. Ltd., Essen Marketing Pvt. Ltd., Nanchi Marketing pvt. Ltd., all of which have just a total share capital of ₹ 11,50,000/- is suspect in nature. None of these companies are public/listed companies to have charged a substantial share premium as they are not established or known entities. Hence, the share premium of ₹ 2,18,50,000/- is nothing but a sham transaction and colourable and hence the ratio of the decision relied upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned CIT erred in concluding that any outsider will not pay such high amount of premium for the present situation of business of the assessee though the assessee has also provided the logical reasons for issue of shares at premium and it is the investor judgement to invest. 5. The CIT erred not to consider the case of Green Infra Ltd. v. ITO [TS-420-IT AT2013(Mum), Income-tax Appellate Tribunal (Tribunal) wherein it was held that the share allotment at premium by a newly incorporated company cannot be taxed as income invoking section 56(1) of the Income Tax Act (Act). Furthermore, if the genuineness and identity of the depositor is established and the transaction was carried out through banking channels, the transaction cannot be taxed under section 68 of the Act. 6. For these and other grounds which may be raised during or before hearing of appeal, it is prayed that relief sought be granted . 5. Ld. Counsel for assessee submitted that order of the CIT(A) is both factually incorrect as well as legally. It was submitted that those companies have their own share capital and what the Ld. CIT(A) has noted as total share capital of ₹ 11,50,000/- is the share cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. DR submitted that there is no justification for receiving so much premium and therefore, the same is to be considered as cash credits and hence the orders of the AO and CIT(A) are correct on facts. 7. We have considered the rival contentions and perused the orders of authorities. There is no denial that all the said nine companies are assessees on record and they have confirmed investing in the assessee-company. Whatever may be the reason for issuing shares at a premium, the share premium per se cannot be considered as cash credits in the absence of any evidence to the contrary. It is a fact that those companies invested in the share capital and they were allotted shares also. If it is kept as a share application money, then a presumption can be raised that the amounts were received as share application money instead of loans or credits, however, in this case, these amounts are received as share capital and shares were allotted to those companies. It is also true that those companies also reflected the investments and shown the amounts invested in assessee-company in its Balance Sheets. However, AO instead of enquiring with those companies, simply drew presumptions whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch 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. Details of subscribers were before the Revenue authorities. The AO has also confirmed the transaction from the subscribers by issuing notice u/s. 133(6) of the Act. The Board of Directors contains persons who are associated with IDFC group of companies, therefore their integrity and credibility cannot be doubted. The entire grievance 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. 10.2. Let us consider the provisions of Sec. 56(1) of the Act: 56.1. Income from other Sources Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head Income from other sources , if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. 10.3. A simple reading of this section show that income of every kind which is not to be excluded from the total income shall be chargeable to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e been received by the AO by issuing notice u/s. 133(6) of the Act, therefore, identity has been established beyond all reasonable doubts nor the Revenue authorities have questioned the identity of the share holders. The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of accounts of the assessee duly reflected in the financial statement of the assessee. The bank statement is exhibited at pages 101 and 102 of the Paper book in which the transaction relating to the allotment of shares are duly reflected . In the instant case, the capacity of the share holders cannot be doubted as has been pointed out elsewhere in our order that 98% of the share is held by IDFC Private Equity Fund-II which is a front manager of IDFC Ltd., and the contributors in IDFC Private Equity Fund-II are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are public sector undertakings. 11.2. Now the only point of dispute is the nature of transaction which according to the Revenue authorities is beyond any logical sense and which is the charging of share prem ..... 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