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2016 (10) TMI 920 - ITAT HYDERABAD

2016 (10) TMI 920 - ITAT HYDERABAD - TMI - Addition u/s 68 - unexplained cash credits - genuineness and creditworthiness of the party giving premium - Held that:- Share premium cannot be brought to tax invoking the provisions of Section 68, unless there is a link with either quid pro quo transaction or investing by assessee-company in their accounts so as to receive it back as share capital. No such evidence was brought on record. On the given facts of the case, and on the basis of the confirmat .....

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rovisions of Sec. 68 can not be invoked. - I.T.A. No. 1775/HYD/2014 - Dated:- 5-10-2016 - SMT. P. MADHAVI 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 recei .....

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astern Credit Capital Ltd 50,000 9,50,000 Procal Dealcomm Pvt Ltd 75,000 14,25,000 Dashmesh Fincap Pvt Ltd 1,00,000 19,00,000 Aasma Mercantile Pvt Ltd 1,00,000 19,00,000 Virgo Textiles Pvt Ltd 2,75,000 52,25,000 Inex Infotech Pvt Ltd 1,75,000 33,25,000 Essen Marketing Pvt Ltd 2,00,000 38,00,000 Nanchi Marketing Pvt Ltd 1,00,000 19,00,000 Total: 11,50,000 2,18,50,000 3. AO acknowledged that these companies were neither associate companies nor sister concerns nor any of the Directors of the compan .....

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l among investors; e) Investors unanimously have been allotted shares at ₹ 200/- per share; It has also been brought to AO s notice that the share premium do not go with the books value, since there are various other aspects such as future profitability, potentiality and expectation to earn profit by the investor. It was further justified stating During the FY. 2008-09 there was a boom in the stock market. The Reliance power shares, before even the company started operating were issued at .....

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1. However, AO did not agree and invoking 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 cl .....

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ve 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 by the assessing, officer i.e., Mc. Dowell vs. CTO 154 ITR 148 of the Hon'ble Apex Court is applicable. 6.2 It is obvious that the appellant company has sought to introduce cash credits without establishing identity, creditworthiness and genuineness as required u .....

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ITR 117-Andhra Pradesh],Sri Chakra Cements Ltd vs ITO [221 Taxman 181-Andhra Pradesh],Vijay Kumar Talwarvs CIT[330 ITR 1-Supreme Court], CIT vs MAF Academy(Pvt) Ltd[361 ITR 258- Delhi]. Considering the ratio of the plethora of these decisions, in brief, it is clear that the three vital limbs of Section 68 of the IT Act i.e., identity, creditworthiness and genuineness have to be clearly established. While agreeing with the findings of the assessing officer, it is clear that the share premium rec .....

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ee is aggrieved and contested by raising the following grounds: 1. The learned CIT erred in facts and law while passing the order. 2. The learned CIT erred in arriving at the conclusion that the company has sought to introduce cash credits without establishing identity, creditworthiness and genuineness as required u/s. 68 though the assessee has provided the details of the investor companies along with the letters confirming the investment. 3. The learned CIT (A) erred in treating the transactio .....

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ribunal (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 sou .....

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y has allotted shares at a premium not only in this year, but also in earlier year as can be seen from the assessment order itself. In earlier year, as on 31-03- 2008, 1.30 Crores of share capital was issued with a premium of ₹ 2.29 Crores. This was accepted. It was further submitted that assessee has justified the premium with market conditions at that point of time and business profile of assessee-company. Ld. Counsel relied on the case law for various propositions to submit that Revenue .....

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mpany and therefore, cannot be taxed as revenue receipt . It is also settled proposition of law that any expenditure incurred to the expansion of capital base of a company is to be treated as capital expenditure as has been held by the Supreme Court in the case of CIT Vs. Allahabad Bank Ltd., [73 ITR 745]. It was submitted that the share premium received by the company cannot be taxed u/s. 56(1) of the Act. It was submission of Ld. Counsel that the share premium by its very nature as a capital r .....

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t. Ltd., ITA No. 4656/Del/2009; viii. ITO Vs. M/s. Trident Shelters Pvt. Ltd., ITA No. 1160/Hyd/2012; ix. Green Infra Ltd., Vs. ITO [TS-420-ITAT-2013(Mum)]; 6. 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 .....

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s 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 which are not based on any facts. If he is doubting the extent of premium as well as receipt of moneys, he should enquire from those companies or at lea .....

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l submissions and carefully perused the orders of the lower authorities and the material evidences brought on record in the form of Paper book. The entire dispute revolves around the charging of share premium of ₹ 490/- per share on a book value of ₹ 10/- each. This dispute is more so because of the fact that the assessee company was incorporated during the year under consideration. Therefore, according to the revenue authorities, it is beyond any logical reasoning that a company wit .....

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The contributors to the IDFC PE Fund-II who is a subscriber to the assessee s share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any sense. 10.1. No doubt a non-est company or a zero balance company asking for a share premium of ₹ 490/- per share defies all c .....

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bscribers 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 Sou .....

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nder this section, it must have some character of income . It is a settled proposition of law that capital receipts , unless specifically taxed under any provisions of the Act , are excluded from income. The Hon ble Supreme Court has laid down the ratio that share premium realized from the issue of shares is of capital in nature and forms part of the share capital of the company and therefore cannot be taxed as a Revenue receipt. It is also a settled proposition of law that any expenditure incur .....

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Ld. Departmental Representative has raised an altogether plea by stating that the nature of the transaction should also be judged within the parameters of the Sec. 68 of the Act. The counsel for the assessee strongly objected to this but in the interest of justice and fair play, we allowed the DR to raise this issue. For this, we draw support from the decision of the Hon ble Supreme Court in the case of Kapurchand Shrimal Vs CIT 131 ITR 451, wherein the Hon ble Supreme Court has laid down the r .....

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sions of Sec. 68 of the Act. As per Section 68 - the initial onus is upon the assessee to establish identity, genuineness of the transaction and the capacity of the lender or the depositor. The subscribers to the share capital are all companies. The confirmations of the transactions have 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 holde .....

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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 premium at the rate of .....

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n Infra Wind Farms Ltd., wherein the assessee is holding 99.88% of share capital which means that the funds have not been diverted to an outsider. This clears the doubt about the application of funds and the credibility of the company in whom the funds have been invested. Since the assessee itself is holding 99.88% of shares and in turn the assessee company s 98% of shares are held by IDFC PE Fund-II, this entire share holding structure cannot be said to generate any transaction which could be s .....

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