TMI Blog2018 (10) TMI 1122X X X X Extracts X X X X X X X X Extracts X X X X ..... lue. This came into the statute wef 01-04-2013 and thus would have no application to the share premium received by the respondent assessee in the previous year relevant to the AY prior to 2013-14. Similarly, the amendment to section 68 of the Act, by addition of Proviso was made subsequent to previous year relevant to the subject assessment year and cannot be invoked. Therefore, we are of the considered view that even under this count no addition can be made towards share premium u/s 68 of the Act, as it is on account of capital a receipt does not come within the ambit of definition of “income”. CIT(A) has rightly deleted the additions - decided in favour of assessee. - I.T.A No.2943/Mum/2014 - - - Dated:- 17-10-2018 - Shri Joginder Singh(VICE PRESIDENT) And Shri G Manjunatha (ACCOUNTANT MEMBER) For The Appellant : Shri S.K. Mishra For The Respondent : Shri B.V. Jhaveri ORDER Per G Manjunatha, AM: This appeal filed by the revenue is directed against order of the CIT(A)-14, Mumbai dated 24-02-2014 and it pertains to AY 2010-11. The revenue has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me for AY 2010-11 on 25-09-2010 declaring total income of ₹ 3,92,903/-. The case was selected for scrutiny and accordingly, notices u/s 143(2) and 142(1), along with a detailed questionnaire were issued. In response to the notices, the authorized representative of the assessee appeared from time to time and filed various details, as called for. During the course of assessment proceedings, the AO noticed that the assessee has received share application money of ₹ 10 crores in the year under consideration from a non resident, therefore, called upon the assessee to file necessary evidences to justify the identity, genuineness of transactions and creditworthiness of the parties. In response to notice, the assessee, vide letter dated 14-12-2012, filed copy of ledger of share application money along with supporting evidences, copies of minutes of board meeting authorizing issue of shares, copy of supporting bank statements for receipt of share application money through banking channel. The assessee also furnished complete name and addresses of subscribers to the share capital along with the purpose of investment. The assessee, vide its letter dated 05-12-2012 further submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly made addition. 4. Aggrieved by the assessment order, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee has reiterated its submissions made before the AO to argue that share application money received from Xander Group Inc. is a genuine transaction which is supported by valid share purchase agreements coupled with supporting evidences like foreign inward remittance certificate, bank statements and financial statements of the investors to prove the identity, genuineness of transactions and creditworthiness of the subscribers. The assessee further submitted that the Xander Group Inc. is an institutional value investment firm focused on the real estate, infrastructure, hospitality, entertainment and retail sectors in emerging markets. The Xander Group Inc has been an active investor in India since 2005 and has invested in excess of USD 1.2 billion in the country across multiple companies primarily through the FDI route. The group has joint ventures with Reliance group, Tata- Trent, Mantri Developers, NHAI and has various other projects. In this regard, the assessee has filed various details before the CIT(A), which were part of records before the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing dated 26-08-2013, the AR of the appellant was asked to file details regarding creditworthiness of the parties. It is pertinent to mention that the AR is empowered to file all relevant details in support of grounds appeal. Though, the details were clarificatory in nature, all the details were forwarded to the AO for examination and comments. Therefore, no evidence has been admitted at the back of the AO and the principle of natural justice has not been denied. The Ld.CIT(A) further observed that section 250(4) gives vide discretion to the CIT(A) to make such further enquiries as he thinks fit or to direct the AO to make further enquiry and report the result to him. Even rule 46A(4) clarifies that nothing contained in rule 46A(1) shall affect the power of the CIT(A) to direct the production of any documentary evidence or the examination of any witness to enable him to dispose of the appeal. Even circular No.108 dated 20-03- 1973 issued by the CBDT explaining the amendment pertaining to introduction of Rule 46A echos the same view. Therefore, additional evidence produced before the CIT(A) pursuant to his direction stand on a different footing than a new evidence produced before hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f investment, but on the basis of its future potential. In this case, the assessee has filed enormous details to prove the value of its shares, therefore, there is no reason for the AO to disbelieve issue of shares only on the basis of high premium. 8. The Ld.CIT(A), based on the evidence filed by the assessee observed that the transactions between the assessee and Xander Group Inc is genuine transaction and the assessee has filed necessary details to prove identity, genuineness of transaction and creditworthiness of the parties. The AO has made addition purely on suspicion and surmises manner without recording any reasons to prove that the transaction is sham or the assessee has introduced its own money in the form of share capital. No evidence has been brought on record by the AO to substantiate it averment that Xander Group Inc is an entry operator. The investment by the party in any company is a business decision and so long as there is no evidence to dispute this decision, it needs to be accepted. Therefore, the Ld.CIT(A) opined that the sum of ₹ 10 crore received from Xander Group Inc towards share application money could not b added as unexplained income in the hand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... merit in the ground taken by the revenue in the light of Rule 46A of the I.T. Rules, 1962 as the assessee has not filed any additional evidences on its own, but such additional evidence has been filed on a specific query from the Ld.CIT(A), vide her order sheet entry dated 26-08-2013. The Ld.CIT(A) has dealt with the issue of Rule 46A in the light of various judicial precedents and categorically observed that the Ld.CIT(A) has wide discretion u/s 250(4) to make further enquiry as he thinks fit or to direct the AO to make further enquiry and report the result to him. The Ld.AR further submitted that the Ld.CIT(A) has discussed the issue in detail in the light of circular No.108 dated 20-03-1973 which explains the position of introduction of Rule 46A. Even otherwise, the Ld.CIT(A) has forwarded all evidences filed by the assessee to the AO for his verification. Therefore, the question of admission of additional evidence behind the back of the AO in violation of principles of natural justice does not arise. The Ld.AR further submitted that when the assessee has filed certain additional evidences as per the directions of the Appellate Commissioner, the said evidence is governed by rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore, the said amendment cannot be applied to the assessment year in question. The Ld.AR further submitted that the Hon ble Bombay High Court in the case of Vodafone India Services Pvt Ltd vs UOI 368 ITR 1 (Bom) made it very clear that amount received on account of share application money is a capital receipt and the nature and source of the investment is explained, then there is no scope for making addition u/s 68 of the Income-tax Act, 1961. The Ld.AR further submitted that the assessee has filed various details to prove valuation of shares and such valuation is based on valuation of the development rights historically possessed by the assessee and not on the basis of the balance-sheet of the company. The assessee has filed various details to prove that the company is having a development right of a prime place which is having potential and investor has considered all those factors to make investments in assessee company which is evident from the fact that a sale purchase agreement is entered into between the parties specifying the terms and conditions of the investment, therefore, the AO was incorrect in disbelieving all these evidences to make addition u/s 68 of the Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome-tax Act, 1961. The AO has given various reasons to disbelieve investments made by Xander Investment Holding XV Ltd. According to the AO, although the assessee has furnished certain evidences to prove the identity of the party, but fact remains that the assessee failed to file further evidences to justify issue of shares at a high premium of ₹ 9,99,900 per share. Therefore, he came to the conclusion that the alleged capital received from Xander Investment Holding XV Ltd is a non genuine transaction entered through the process of accommodation or bogus entries to bring in assessee s own money under the guise of capital in the company. The AO has basically questioned documentation furnished by the assessee to prove the credit found in its books of account. According to the AO, although the assessee has filed bank statement to prove the transfer of money through banking channel, but the bank statement does not give details of investments. The AO further observed that the identity of the alleged subscriber has not been established voluntarily. The genuineness of the transaction and creditworthiness of the alleged subscriber and the purpose for which the money has been invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare. To support this, the assessee has filed bank statements alon gwith financial statements of investors to prove the capacity of investors. We further notice that the assessee has filed number of other details in respect of Xander Investment Holding XV Ltd to prove that the said company is part of Xander group which is having more than USD 1.2 billion investments in India in various sectors including real estate, hospitality, infrastructure, entertainment, etc. The group is an active investor in India since 2005 in joint ventures with Reliance group, Tata -- Trent, Mantri Developers, NHAI and other projects. The assessee has filed various newspaper reports in respect of Xander group investments in India in various sectors. All these evidences go to prove an undoubted fact that the investment received from Xander Investment Holding XV Ltd is a genuine transaction which is supported by valid evidences. Had it been a case of the AO that the identity of the investor is not known and the genuineness and creditworthiness of the investor is doubtful, then the matter would be different. In this case, the AO has doubted the identity and genuineness of transaction, but the finding of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alance-sheet. The development rights were acquired way back in 1999 whereas the investment has been based in the previous year 2010. It is obvious that the market value of the property would not be reflected in the books of account, as the accounts being prepared on historical cost basis. The mere fact that there is no income derived / earned by the company would not reduce or affect the valuation of the company on the basis of the market value of the assets. The assessee has filed necessary details to prove the value of the property possessed by the company in current market price at ₹ 49 crores and it is on this basis that a potential investor would consider investing in shares. We further observe that the decision of the investor to make investment into the company including interalia the premium paid by the investor is not dependent on the profit of the company as on the date of investment, but on the basis of its future potential. As claimed by the assessee, the company is in the process of developing a commercial project and such activity cannot commence almost immediately in view of the fact that various permissions and sanctions are required to commence operations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bout the nature and source of such sum so credited and such explanation in the opinion of the AO aforesaid has been found to be satisfactory. In this case, the assessee has explained the credit found in its books of account with necessary evidence to prove identity, creditworthiness and genuineness of transaction and, therefore, we are of the considered view that the share premium cannot be brought to tax within the ambit of provisions of section 68 before insertion of Proviso to section by the Finance Act, 2012 wef 01-04-2013 which is evident from the fact that the Hon ble Bombay High Court in the case of CIT vs Gagandeep Infrastructure Ltd vs 394 ITR 680 (Bom) observed that the Proviso inserted wef 01-04-2013 is considered to be prospective in nature and applicable to AY 2013-14. This fact is further strengthened by the latest decision of Hon ble Bombay High Court, Nagpur Bench in a series of tax appeals in Income-tax Appeals No. 26 to 31 of 2017 dated 08-06-2017, where the Hon ble High Court has considered the question of addition made u/s 68 in respect of share premium and held that amendment to section 68 of the Act, by the insertion of Proviso thereto took place wef 01-04-201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2013-14. Similarly, the amendment to section 68 of the Act, by addition of Proviso was made subsequent to previous year relevant to the subject assessment year and cannot be invoked. Therefore, we are of the considered view that even under this count no addition can be made towards share premium u/s 68 of the Act, as it is on account of capital a receipt does not come within the ambit of definition of income . 19. Coming to the case laws relied upon by the Ld.DR. The Ld.DR has relied upon the decision of Hon ble Kerala High Court in the case of Sunrise Academy of Medical Specialities India Pvt Ltd vs ITO in W.A. No.1297 of 2018 dated 12-07-2018 to argue that any premium received by a company on sale of shares come in excess of its face value, if the company is not one in which the public is substantially interested, would be treated as Income from other sources , as seen from section 56(2)(viib) of the Act, which we do not think can be controlled by the provisions of section 68 of the Act. We have gone through the case law relied upon by the Ld.DR in the light of facts of the present case and find that the case laws relied upon by the Ld.DR has no application as in the case co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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