TMI Blog2020 (5) TMI 136X X X X Extracts X X X X X X X X Extracts X X X X ..... the source of share premium. In the present case we note that assessee has duly submitted all the necessary documents for the verification of the identity creditworthiness and genuineness of the share applicants as evident. Examination of justification of share premium is concerned it is noted that the concerned provision in income tax law was brought into statute books in the form of section 56 (2)(vii)(b) . This was with effect from 2013-14. Honourable jurisdictional High Court in the case of M/s. Gangadeep Infrastructure (P) Ltd. [ 2017 (3) TMI 1263 - BOMBAY HIGH COURT] has duly held that the said provision is prospective. In the present case there is no such doubt as the assessing officer has accepted that the sources of funds are duly explained. Further those decisions refer to the absence of the share applicants and/or their director at the given address. There is no such case made out by the AO here. Furthermore some of the cases refer to notices returning unserved, which is not at all the case here. Hence these decisions do not fructify the revenues case in the fact of the present case. The other decisions referred by learned counsel of the assessee duly support t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue of share and not taxability of capital receipt U/s 68 of the Income-tax Act, 1961. 5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) was erred in holding that receipt of share capital/premium is capital in nature and thus cannot be brought to tax u/s 68 of the Income-tax Act, 1961 by relying on Instruction No.2 of 2015 vide F.No. 500/15/2014-APA-l dated 29.01.2015 wherein the issue is regarding acceptance of the decision of Hon'ble Bombay High Court in Vodafone Case (Supra) the form of issue of shares and not taxability of capital receipt u/s 68 of the Income-tax Act, 1961. 3. Brief facts of the case are that the assessing officer observed that assessee has received unjustified share premium during the course of your. He noted that on perusal of submissions filed by the assessee it is seen that assessee had issued 3,84,625 shares on premium @ of ₹ 190/- per share during the year. The assessee allotted 1, 63,500 shares to M/s Monitor Vyapaar Pvt. Ltd., 2,15,000 shares to Blackberry Vyapaar Pvt. Ltd. And 6,125 shares to R N Navmrman Pvt. Ltd. The assessee was asked to justify the premium charged during the year. Thereafter the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence. Therefore, premium command by the company is in view of book value and further growth in value of investment. Now in current year shareholders has accepted to purchase shares at a premium of ₹ 190 per share. The company book values of the Equity Shares as on 31.03.2012 was increased to ₹ 153/- per share for the face value of ₹ 10/- per share which has been calculated as under:- Share capital as on 31.03.2012 6694250.00 Reserve and Surplus 96169516.00 Total 102863766.00 No. of shares as on 31.03.2012 669425 Book Value per share 153.66 4. However, the assessing officer was not convinced. He was of the opinion that it is unlikely that someone will invest at high share premium in a company which is loss-making. Though he noted that source of fund is fully explained the nature of share premium remains unjustified, he noted that the company is making losses and there are no underlying asset. He referred to the ITAT decision regarding shell companies and also refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as maintained as per Companies Act and as required by the Income Tax Department .This is by precedent and accounting standards, the valuation of closing stock has been at cost or market price, whichever is lower as accepted for Assessment purpose. The securities, when sold, will result in huge profit by reason of value of investment at cost price. Thus, the revenue is never at loss so far as taxes are concerned because the profit will accrue and arise only when sale is made. The Appellant encloses the intrinsic value of the investment held, which was filed with Assessing Officer to prove that the premium charged and paid for by the buyers is not unreasonable or artificial, but in consonance with the correct value. The slight variation, if any, is by reason of prudent investment knowledge of the management of the Company, in which the subscriber has faith. The Assessing Officer has accepted the factum of fair market value shown by the Appellant of the shares in paragraph 2.3 and 2.4 of the Assessment Order. However, he has rejected the explanation by giving 7 observations which were irrelevant, immaterial and given only for the sake of rejecting the claim, without any substan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant company and treated the same as taxable income. In this regard, CBDT Instruction No. 2/2015 dated 29.01.2015 is clear on the issue in which it has been held that premium on share issued was on account of capital account transaction and does not give rise to income. The Board's Instruction is reproduced as under:- In reference to the above cited subject, lam directed to draw your attention to the decision of the High Court of Bombay in the case of Vodafone India Services Pvt. Ltd. for AY2009-10 (WP No. 871/2014), wherein the Court has held, inter alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and hence, not liable to transfer pricing adjustment. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned Writ Petition. In view of the acceptance of the above judgment, it is directed that the ratio decidenal of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the TTAT, DRP's and CsIT (Appeals). This issues with the approval of Chairperson, CBDT. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord Trade Investment Ltd. Vs. CIT (2016-TIOL-207-SC-IT) CIT Vs. Nipun Builders Developers(P) Ltd. (350 ITR 407) CIT Vs. Nova Promoters Finlease(P) Ltd. (342 ITR 169) CIT Vs. Ultra Modern Exports(P)Ltd. (220 Taxman 165) CIT Vs. Frostair(P) Ltd.(210 Taxman 221) CIT Vs. NR Portfolio Pvt. Ltd. (263 CTR 456 CIT Vs. Empire Builtech(P) Ltd. (366 ITR 110) CIT Vs. Focus Exports(P) Ltd. (228 Taxman 88) N.K. Proteins Ltd. Vs. CIT (2017-TIOL-23-SC-IT) N.K. Proteins Ltd. Vs. CIT (2016-TIOL-3165-AHM-IT) UDIT Kalra Vs. ITO (ITA no. 220/2019 CM No. 10774/2019 dt. 8.3.2019) 10. Per contra Id counsel of assessee Shri GC Srivastava relied upon orders of the Ld CITA. He submitted that the companies who have applied for the share at a premium are in active status at the site of Department of company affairs. He referred to decision of honourable Supreme Court in the case of principle Commissioner of income tax versus Rohtak chain company 110 Taxmann.com 59 passed after NRA Steel. He submitted that Hon'ble Supreme Court has also not interfered with the order of the honourable madhyapradesh HC High Court which is on identical subject. Learned counsel further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that the said provision is prospective. Hence the examination of this justification for the concerned assessment year is not in accordance with the jurisdictional High Court decision as mentioned above. 13. Furthermore identical issue was examined in detail by honourable jurisdictional High Court in the case of Pr CIT vs Apeak Infoteck (397 ITR 148) the exposition from honourable High Court are summarised as under :- Amendment to Section 68 of the Act by the addition of proviso thereto took place with effect from 1st April, 2013. Therefore, it was not applicable for the subject Assessment year 2012-13. So for as the pre-amended Section 68 of the Act was concerned, the same cannot be invoked in this case, as evidence was led by the Respondents- Assessee before the Assessing Officer with regard to identity, capacity of the investor as well as- the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke Section 68 of the Act to bring the share premium w tax. Similarly, the CIT(A) an consideration of facts, found that Section 68 of the Act cannot be invoked. In view of the above, it was likely that the Revenue may have taken an informe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided in 20 March 2017) has while refusing to entertain a question with regard to Section 68 of the Act has held that the proviso to Section 68 of the Act introduced with effect from 1st April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. In view of the above, Question No .B as proposed also does not give rise any substantial question of law as it is an issue concluded by the decision of High Court in M/s. Vodafone India Services Pvt. Ltd. (Supra) and in the Apex Court in M/s. G.S. Homes Hotels P.Ltd. (supra). Thus not entertained. 14. From the above decision of honourable jurisdictional High Court it is abundantly clear that in the present assessment year the assessing officer was not empowered in examining the justification of share premium and the decisions referred by the assessing officer has been duly held to be not applicable on the facts of this case. The decisions referred by learned DR are with reference to those cases where the source of funds have been doubted by the assessing officer or are not established beyond doubt. However in the present case there is no such doubt as the assessing officer has accepted that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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