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TMI Blog2019 (3) TMI 471X X X X Extracts X X X X X X X X Extracts X X X X ..... received as share capital and share premium from M/s BEPL when it was not found to be creditworthy to make such a huge investment." 2. Whether, on the facts and in the circumstances of the case, the CIT (A) was justified in ignoring the finding of the AO that the onus of proving creditworthiness of the investor and genuineness of transaction was not discharged by assessee, due to failure on its part to produce the Principal Officer of the investor company as demanded by the AO during assessment proceeding for examining creditworthiness of the investor.? 3. Whether, on the facts and in the circumstances of the case the CIT (A) was right in deleting the addition on the basis of submissions made by assessee without making an inquiry as envisaged u/s 250 either himself or through the AO before deciding the issue thereby rendering the appeal order as bad in law and procedure which need to be quashed/set-aside.? The appellant craves leave to add to, amend or withdraw the aforesaid ground of appeal. Copy of the CIT (A)'s order is received on 0810812016. Last date for filing appeal is 06.10.2016. 4. As per the facts of the present case, the return of income for the year under a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect has already been given in para no. 6.3 of its order and thus additions were made. Ld. DR also relied upon the judgment in the case of Major Metals Vrs. Union of India 207 taxman.com 185 (Bom HC) and CIT vrs. P. Mohankala (2007) 161 taxaman. 169. It was also submitted that premium received by the assessee was unreasonable as the shares were issued at unjustifiable amount of premium and the entire transactions were not genuine. Therefore, Ld. CIT(A) had erred in deleting the additions on account of unexplained cash credit u/s 68 of the I.T. Act. 8. On the other hand, Ld. AR relied upon the orders passed by the Ld. CIT(A) and reiterated the same arguments as were raised by him before Ld. CIT(A). It was submitted that admittedly assessee had received share premium from two concerns i.e. SBPL and BEPL, but the additions were made only in respect of share capital and share premium received from BEPL. It was also submitted that during the year under consideration, the BEPL had undertaken substantial investment business, by making investment in various companies as is reflected in its balance sheet, therefore making high risk investment and making investment in fix assets had no relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore deemed income. The rule for application of section 68 is that the identity and credit worthiness of the investor/lender /creditor has to be established and the genuineness of the transaction has to be established. 6.8. The Apex Court upheld the addition u/s 68 in the case of credits as share capital in the case of N. Tarika Property Invest. (P.) Ltd. v. Commissioner of Income-tax*[2014] 51 taxmann.com 387 (SC) by dismissing the SLP filed by the appellant. 6.9. In CIT v. Sophia Finance Ltd. [1994] 205 ITR 98/[1993] 70 Taxman 69 (Delhi) the Hon'ble Delhi High Court held that in the context of Section 68 of the Act that: (i) The Assessee has to prima facie prove "(1) the identity of the creditor/subscriber; (2) the genuineness of the transaction, namely, whether it has been transmitted through banking or other indisputable channels; (3) the creditworthiness or financial strength of the creditor/subscriber. (ii) If the relevant details of the address of PAN identity of the creditor/subscriber are furnished to the Department along with copies of the Shareholders Register, Share Application Forms, Share Transfer Register etc., it would constitute acceptable proof or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntry providers", whose business it is to help assessees bring into their books of account their unaccounted monies through the medium of share subscription, and the assessee. The existence with the Assessing Officer of material showing that the share subscriptions were collected as part of a premeditated plan-a smokescreen-conceived and executed with the connivance or involvement of the assessee excludes the applicability of the ratio.' 6.12. In CIT V. Nipun Buliders & Developers [2013] 350 ITR 407/214 Taxman 429/30 taxmann.com 292 (Delhi) it was held that the point at which the initial onus on the Assessee to prove the unexplained discredit would stand discharged depends upon the facts and circumstances of each case. It was pointed out that where there is private placement of shares 'the Assessee cannot simply furnish details and remain quiet even when summons issued to shareholders under Section 131 return unserved and uncomplied. This approach would be unreasonable as a general proposition as the Assessee cannot plead that they had received money, but could do nothing more and it was for the Assessing Officer to enforce shareholders attendance. Some cases might require ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 68 can be made applicable. Furthermore, the distinction between a private limited company and a public limited company has been considered and it is noted that the onus in the case of a private limited company is different and significantly higher than say in the case of public issue made by a public limited company, as was the case in some of the cases relied upon by the appellant. 6.15. Thus, it can be safely concluded that even in case of credit appearing as share capital and premium, section 68 can be invoked in the I case of a private limited company. Now coming to the facts of this case, the investment has been made by BEPL. BEPL has responded to the notice u/s 133(6) in the course of assessment proceedings and filed the details of name, address, PAN numbers, audited account for the FYrs 2008-09, 2009-10 , copy of acknowledgement of return of income filed by the BEPL, extract of minutes of meeting of the Board of Directors of BEPL, Relevant extract of bank statement of BEPL showing the payment towards share subscription, Form 23AC filed by BEPL for filing of balance sheet and other documents with the Registrar of Companies and also basis of share valuation. The same wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 68, if the shares issued at a premium exceeds the fair market value, such excess over fair market value will be assessable as income for AY 13-14 onwards. In the present case the assessing officer has accepted the premium since the share application by Sbpl Infrastructure Ltd. of Rs. 500 lakhs has been accepted. The projections given by the appellant based on which the premium was computed has also not been questioned. 6.18. In the facts of the present case, the identity of the investor BEPL is not in doubt. It had share capital and reserves and loans of Rs. 3530 lakhs out of which investment of Rs. 300 lakhs were made in the appellant company. The same were made through banking channels. The investment is reflected in its audited accounts. If there are doubts regarding the amount raised by BEPL the correct course is to investigate that and if justified, make additions in the hands of BEPL. Such addition cannot be made in the hands of the appellant. This is the view supported by the decisions in the cases of CIT vs Lovely Exports Pvt. Ltd. 216 CTR 195 (SC) and CIT vs Divine Leasing & Finance Ltd. 299 ITR 268 (Del). 6.19. In this fact matrix, the ground of appeal no 2 is allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rge to the Income Tax, is the sum found to be credited in the books of the asseseee if, (i) the nature and source of the same is not explained by the assessee, (ii) the explanation offered by the assessee is not found satisfactory by the AO. It further states that where the assessee is a private company and the some show credited consists of share application money, share capital, share premium or any such amount by whatever name called, then any explanation offered by such assessee company shall be deemed to be not satisfactory, unless the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum, so credited, which is found to be satisfactory by the AO. Therefore, in such circumstances, what assessee needs to prove is, (1) nature of receipt, (2) source of receipt and (3) source of investor. 13. From the records, we observed that assessee had duly proved the above ingredients. Moreover, in the present case, the share premium was paid by two parties but the addition was made only in respect of one concern. Thus it can be concluded that AO had accepted the receipt of share premium ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to furnish details in respect of shares issued at premium. The assessee replied and filed following details: - "Annexure1- details of share allotment Annexure 2- form 2 filed for each tranche of allotment filed with RoC Annexure 3- Annual return filed in Form 20B filed with RoC Annexure 4- Details of applicant (including PAN and address) shares allotted, consideration, etc." 6. The AO required the assessee to explain as to why the share premium is not added to the returned income of the assessee. The assessee filed its reply dated 16.03.2015, wherein it is submitted that the return of income filed by PCPL and also audited financial statement for the AY 2012-13. The AO invoked the provisions of section 68 of the act and added share premium of Rs. 598,44,01,500/-, without disputing the face value of shares to the total income of the assessee on the ground that the assessee has failed to establish the nature and source of the credit on the account of the share premium. The CIT(A) deleted the addition after considering the submissions of the assessee as noted above. 7. We have noted that during the course of hearing of this appeal, the Ld CIT-DR in all fairness admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m three parties were signed by the same person. The assessee in that case could not justify the chargeability of such a huge share premium received from three new shareholder vis-a-vis issuing shares at par to the original promoters within the same relevant year under consideration. To contend that Section 56(2)(viib) r.w.s. 2(24Xxvi) of the Act are placed in statute by Finance Act, 2012 w.e.f. 01-04-2013 and no question can he raised as to the valuation of shares at an huge share premium is not correct as in the instant case, the genuineness of the transaction of raising of share capital inclusive of share premium to the tune of Rs. 300 lacs from these three new shareholders is itself not proved. 8. We have gone through the case laws relied by the Assessee have been distinguished by the Tribunal while rendering the aforesaid decision. We seek to specifically address how the Tribunal dealt with the decision of Hon'ble Jurisdictional High Court in case of CIT Vs. Gagandeep Infrastructure (P.) Ltd. (2017) 394 ITR 680. The Hon'ble Tribunal has held that in the case of Gagandeep (supra) the Hon'ble Bombay High Court considered the factual matrix of the case wherein it was obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re' of transaction as that of 'preference share allotment' is proved beyond doubt and merely because he feels that the share premium is high the genuineness of the transaction cannot be doubted for the purpose of section 68 of the Act. 11. We find that in the given facts of the case the decision of Hon'ble Jurisdictional High Court in case of Gagandeep (supra) squarely applies to the assessee's case. The decision of Hon'ble Jurisdictional High Court in case of CIT vs Green Infra Ltd 78 taxmann.com 340 is squarely applicable to the case of the assessee. Despite being the specific argument of the CIT-DR that the share premium defies commercial prudence, Hon'ble Jurisdictional High Court has held that genuineness of the transaction is proved since the entire transaction is recorded in the books of the assessee and the transaction has taken place through banking channels. The decision of the Hon'ble High Court has specifically held that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng recorded by the Tribunal is perverse in any manner. (d) Thus, question no.(ii) as formulated does not give rise to any substantial question of law and thus not entertained". 12. In view of the aforesaid, we are of the view that valuation is not relevant for determining genuineness of the transaction for the purpose of section 68 of the Act. We are of the view that CIT(A) has rightly deleted the addition on account of the share premium relying on the decision of Hon'ble Jurisdictional tribunal in case of Green Infra Ltd. Vs. ITO (2013) 145 ITR 240. It is a settled position that what is apparent is real unless proved otherwise. It is a settled legal position that "apparent is real" and the onus to prove that the apparent is not the real is on the party who claims it to be so as held by Hon'ble Supreme Court in case of CIT Vs. Daulat Ram Rawatmull (1973) 87 ITR 349. 13. In the present case, the overwhelming evidence proves that the 'nature' of receipt is share premium. The audited accounts of both parties, the statutory since it was the department which claimed that the share premium is not in fact so, despite the statutory forms viz. Form 2 for return of allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and loss while challenging the charge of share premium on preference shares. "Reserves" could be relevant for valuing equity shares. They are not relevant for valuing preference shares. Preference shareholders get priority over the equity shareholders in terms of payment of dividend and during winding up. They get only a fixed rate of dividend. The redemption amount depends on the terms of issue. The conversion depends on the terms of issue. The terms of issue are relevant for valuing preference shares. Even the present Rule 11UA of the Income Tax Rules 1962 are applicable only to section 56(2) of the Act, requires valuation of preference shares by the merchant bankers. The AO has not even attempted to do any sort of valuation of preference shares. His addition is based entirely on conjectures and surmises. It is a settled law that the assessment cannot he made on mere suspicion, conjectures and surmises. 16. Even amendment to section 68 brought by Finance Act, 2012 does not refer to valuation. The insertion of the proviso to section 68 of the Act by Finance Act, 2012 casts an additional onus on the closely held companies to prove source in the shareholders subscribing to the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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