TMI Blog2019 (3) TMI 689X X X X Extracts X X X X X X X X Extracts X X X X ..... vances given and from the said details, the contention of the assessee was found to be in order to the effect that interest fee loans or advances given by the assessee is at ₹ 22,10,18,973/- only as against the amount of ₹ 30,05,18,9737- considered by the A.O. Therefore, after considering the balance sheet. The own fund (i.e. share capital and surplus) of the assessee was ₹ 27,43,62,742/- against which the interest free advances given by the assessee was Rs, 22,10,18,973/-. Thus. this establishes that the interest free funds have been given by the assessee out of its own funds. As relying on RELIANCE UTILITIES & POWER LTD. [2009 (1) TMI 4 - BOMBAY HIGH COURT] CIT-A rightly allowed this ground. - Decided against revenue - I.T.A. No. 5925/Mum/2017 - - - Dated:- 28-2-2019 - SH. SANDEEP GOSAIN, JM And SH. G. MANJUNATHA, AM Appellant by: Shri Arvind Kumar, DR Respondent by: Shri Jitendra Jain, AR ORDER Per Sandeep Gosain, Judicial Member: The present Appeal has been filed by the revenue against the order of Commissioner of Income Tax (Appeals)-20, Mumbai, dated 29.06.17 for AY 2011-12 on the grounds mentioned herein below:- 1. Wheth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07 taxman.com 185 (Bom HC). It was 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. 7. 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 assessee company had issued 550 number, 1% non-cumulative, non-convertible preferential shares to an individual namely Anuj Joshi and the total consideration received for the issue of preference share capital includes security premium, therefore additions made on account of security premium received by the assessee on the ground that such premium is not justifiable, is without any basis. It was submitted that the assessee had duly proved the source of funds of the investor for making the investment. It was also submitted that identity, creditworthiness of investor as well as genuineness of the transctions had already been proved by placing on record the documents containing name, addre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s having face value of ₹ 100 per share at premium of ₹ 49,900/- per share to an individual namely Shri Anuj Joshi. Thus, the total consideration received on issue of preference share capital was ₹ 2,75,00,000/-being preference share capital of ₹ 55,000/- and security premium of ₹ 2,74,45,000/-. 6.6. It is noted that the AO has made the addition of ₹ 2,74,45,000/- on account of unexplained cash credit u/s 68 of the Act. The AR has vehemently opposed the additions. The Appellant has stated in its submission that the action of the AO in making the addition is arbitrary. The Appellant submitted that it has discharged its onus to prove the identity and creditworthiness of the investor as well as genuineness of the transaction. In order to discharge the onus caste by section 68 of the Act, the Appellant has filed various documents which are stated as under: (i) Name, addresses and PAN of Shri Joshi (investor) (ii) Application made by Shri Joshi for allotment of preference shares (iii) Minutes of meeting of the Boards of Directors held on 08.10.2010 granting approval for issuing preference shares to Shri Joshi (iv) Relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the Appellant duly submitted that Mr. joshi has also invested in the Appellant company in the assessment year 2008-09 an amount of ₹ 4,75,00,000/-. During the course of assessment proceeding for the assessment year 2008-09, Mr. Joshi was summoned to Income Tax Office wherein he confirmed that he has invested in the shares of the Appellant and he filed the relevant documents as asked by the AO. After considering his statement, the amount received from him has been duly accepted by the AO. Therefore, in the light of the facts that the AO has already verified the investor the identity of the investor is proved beyond any doubt. 6.9 Coming to the creditworthiness of the investor, the Appellant explained that Shri Joshi had an investment in the shares of M/s. Prime Focus Ltd (a listed company) which has been sold for a consideration of ₹ 2,84,10,384/- and out of the said sales proceeds, an amount of ₹ 2,75,00,000/- has been invested in the Appellant Company. In order to prove the same, the Appellant filed (i) broker contract issued by M/s. Centrum Broking Limited showing the shares sold by Shri Joshi for a consideration of ₹ 2,84,10,384/- (ii) Party ledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court was Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in disagreeing with invocation of Section 68 of the Act to tax share premium? The above question has been answered by the Hon'ble High Court as under: Before the Tribunal, the Revenue raised a new plea viz- that the so called share premium has also to be judged on the touchstone of Section 68 of the Act which provides for cash credit being charged to tax. The impugned order of the Tribunal allowed the issue to be raised before it for the first time, 'ing the objection of the respondent assessee, urged order examined the applicability of Section 68 of the Act on the parameters of the the subscriber to the share capital, genuineness of the transaction and the capacity of the to the share capital. It found that the identity of the subscribers was confirmed by virtue of assessing Officer issuing a notices under Section 133(6) of the Act to them. Furiker, it holds that the Revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, it concludes as the entir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse 6.15. This decision is also upheld by the Hon'ble Bombay High Court in the case of CIT Vrs Gagandeep Infrastructure Pvt. Ltd [ITA NO. 1613 OF 2014] wherein the Hon ble High Court has held that We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 201314 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it -was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced for removal of doubts or that it is declaratory . Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Although the AO had not doubted the identity, creditworthiness of the investors and genuineness of the transactions, but had made the additions merely on the presumption that the premium received by the assessee is unjustified and unreasonable. Whereas, the AO had lost sight of the fact that the said fact cannot be a ground for making the addition for share premium received by the assessee because, what section 68 of the Act, pre-supposes to charge 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 satisfac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory forms with ROC in form No. 2 for each tranche separately disclosing the number of shares, face value and premium per share and also the name of the allottee. The assessee also filed its annual return of with ROC in form No. 20B disclosing the details of accounts of number of shares, face value and premium of share, name and address of shareholders. The AO during the course of assessment proceedings issued notice under section 133(6) of the act dated 28.03.2014 requiring the assessee 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that case was confronted with the adverse inspector report but the assessee could not produce current addresses of these three new shareholders (para 6. page 10 of the order). The creditworthiness of the shareholders was also not proved since the shareholders did not have their own money as every payments made by them towards share money in the favour of the assessee is preceded by deposit in the hank account and the balance maintained regularly by them was miniscule (para 6, page 14 of the order). The confirmations received from 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 ₹ 300 lacs from these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment, annual return, details including name, address and PAN of the shareholder which are not negated by the AO. The AO in the present case has himself assessed the preference shareholder for the assessment year under consideration and after scrutiny has passed the order u/s 143(3) of the Act around the same date and has neither made any addition nor made any adverse remarks. The AO has not questioned the preference share capital to the extent of the face value but has only questioned the share premium. By this action of the AO himself, the 'nature' 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions in IDFC Private Equity Fund-II are all by public sector undertakings. (c) Mr.Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of ₹ 490/ per share defies all commercial prudence. Therefore it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 6911 or fair market value of any property referred to in sub-section (2) of section 56 is required to be made, the Assessing Officer may require the Valuation Officer to make an estimate of such value and report the same to him . 15. We have considered the issue and find that this section does not cover section 68 of the Act. Thus, the Legislature does not envisage any sort of valuation for the purpose of section 68 of the Act. Indeed, valuation of preference shares is a completely different exercise as compared to valuation of equity shares. The AO makes the mention of the reserves 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we are of the view that the CIT(A) has rightly deleted the addition and we confirm the same. This issue of Revenue s appeal is dismissed. 15. After having considered the entire facts and circumstances of the case and the orders passed by the revenue authorities, we find that Ld. CIT(A) had passed a detailed order while relying upon various judgments cited by the parties and also considering the principles laid down by Hon ble Supreme Court in the case of Lovely Exports Pvt. Ltd.(supra) and moreover, no new facts have been brought on record before us in order to controvert or rebut the findings so recorded by Ld CIT (A). Therefore, there are no reasons for us to interfere into or deviate from the findings recorded by the Ld. CIT (A). Hence, we are of the considered view that the findings so recorded by the Ld. CIT (A) are judicious and are well reasoned. Resultantly, this ground raised by the revenue stands dismissed . Ground No. 2 16. This ground raised by the revenue relates to challenging the order of Ld. CIT(A) erred in disallowance of interest of ₹ 2,90,96,145/- u/s 36(1)(iii) of the Act. 17. We have heard the counsels for both the parties at lengt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are tabulated above, the Appellants contention is found to be in order and it is accepted that the interest free loans or advances given by the Appellant is ₹ 22,10,18,973f- only as against the amount of ₹ 30,05,18,9737- considered by the A.O. On perusal of the balance sheet of the Appellant,, it was seen that own fund (i.e. share capital and surplus) of the Appellant is ₹ 27,43,62,7427- against which the interest free advances given by the Appellant is ₹ 22,10,18,973/-. This establishes that the interest free funds have been given by the Appellant out of its own funds. In view of this discussion the addition made by the A.O. cannot be sustained in appeal. In view of this discussion the disallowance made by the AO deserves to be deleted. 7.5 This view is duly supported by the judgment of Hon'ble Bombay High Court and Hon'ble ITAT in the following decisions: - CIT vs Reliance Utilities Power Ltd [313 ITR 340 Bom] - Manohar Manak Alloys P. Ltd vs ACIT fITA 2094/Mum/2013l - ACIT vs Gopal Fabrics fITA 3338/Ahd/2010l 7:6 This view is also supported by the judgment of Hon'ble Bombay High Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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