TMI Blog2019 (8) TMI 1404X X X X Extracts X X X X X X X X Extracts X X X X ..... s for obtaining consent for conversion which has been marked as annexure-C. The assessee has also produced the concerned letter of preference shareholder for conversion marked as annexure-D CIT(A) has decided the matter of judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, this issue is being decided in favour of the assessee against the revenue. - I.T.A. No.1706/Mum/2017 - - - Dated:- 31-7-2019 - Shri Shamim Yahya, AM And Shri Amarjit Singh, JM For the Assessee : Shri Vinay Deshman/Pawan Sharma For the Revenue : Shri Sanjay Singh (DR) ORDER PER AMARJIT SINGH, JM: The revenue has filed the present appeal against the order dated 22.12.2016 passed by the Commissioner of Income Tax (Appeals) -12, Mumbai [hereinafter referred to as the CIT(A) ] relevant to the A.Y.2011-12. 2. The revenue has raised the following grounds: - 1. Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the addition made the AO u/s 68 of the Act whereas the AO had rightly con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any has, by way of such conversion, gained a sum of ₹ 8,59,99,680/- as Premium in addition to the arrear dividend of ₹ 2,20,95,117/-. The total gain in the hands of the assessee company is ₹ 10,80,94,797/-. 4. As pointed out earlier, there is neither any underlying assets nor intrinsic value to the premium so fixed except the fact that the converted shares were transferred as Gift on the same day to DEL India so as to make the assessee company a 100% subsidiary of the latter. The issue of genuineness or otherwise of the impugned 'gift' was an issue before consideration in the case of DEL India as well and a finding of fact has been given that the impugned transfer is not a genuine transaction. The assessee company has accumulated losses to the extent of ₹ 42 crore as at the beginning of the year which was more than the paid up capital of the company. If the investment from N513 in the form of share premium was ignored, then the valuation of FMV of the shares would also be negative. The share premium so claimed is therefore not truly reflective of the intrinsic value of the equity shares of the company, the ostensible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equity shares. The amount Of preference shares is already credited in earlier years which is now converted into equity shares capital. The AO has 110 doubt over the identity creditworthiness of the investor, genuineness of the transaction. The only doubt is that the value of share premium charged is not truly reflecting the intrinsic value of the equity shares of the company, i.e, issue price is not justified but only the valuation of charging of share premium could not be a basis for making addition u/s 68 of the Act. In view of section 68 of the Act, AO can added the any sum found credited in the books of appellant if the appellant does not have explanation about the nature and source of it. But, in the instant case, the appellant has converted its preference shares into equity shares and the source of fund which is NSR AIph' whose identity, creditworthiness is not doubted. Therefore, it is held the transaction is genuine. I find force in the submission of the appellant. As all the requirements of section 68 has been fulfilled, i.e, identity creditworthiness of the investor and genuineness of the transaction, hence, no addition can be called for. A.O is directed to delet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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. The AO invoked the provisions of section 68 of the act and added share premium of ₹ 598,44,01,500/-, without disputing the face value of shares to the total income of the assessee on the ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders (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 three new shareholders is itself not proved. 8. We have gone through the case laws relied by the Assessee have been disti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sent 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 share premium defies commercial prudence, Hon'ble Jurisdictional High Court has held that genuineness of the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 real unless proved otherwise. It is a settled legal position that apparent is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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(2) of the Act, requires valuation o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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