TMI Blog2020 (9) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... Decided against revenue. - ITA No. 801/JP/2019 - - - Dated:- 14-9-2020 - SHRI RAMESH C SHARMA, AM And SHRI SANDEEP GOSAIN, JM Revenue by : Smt. Runi Paul , Addl. CIT -. DR Shri B.K. Gupta, CIT DR Assessee by : Shri S.L.Poddar, Advocate ORDER PER SANDEEP GOSAIN , J. M. The present appeal has been filed by the Revenue against the order of ld.CIT (A), Kota dated 26.03.2019 for the Assessment Year 2009-10 passed under section 143(3)/263 of the Income Tax Act, 1961 on the ground mentioned hereinbelow. On the facts and in the circumstances of the case, the ld. CIT(A) has erred in deleting addition made by the AO of 2,63,15,000/- on account of disallowance of share premium received on issue of share without appreciating the facts discussed by the AO in the assessment order. 2.1 Brief facts of the case are that the assessee filed its return of income on 7-08-2008 declaring income of ₹ 3600/-. In this case, the assessment was completed u/s 143(3)/263 of the Act on 23-11-2017 thereby making addition of ₹ 2,63,15,000/- u/s 68 of the Act by the AO. 2.2 Aggrieved by the order of the AO, the assessee preferred appeal before the ld. CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affidavit to be filed or may allow such evidence to be adduced] After having gone through the facts contained in the application and also the provision of Rule 29 of the Appellate Tribunal Rule, 1963, we found that it has categorically been mentioned in the said provision that parties to the appeal shall not be entitled to produce additional evidence either oral or documentary before the Tribunal. However, if the Tribunal requires any document to be produced or any witness to be examined so as to enable it to pass the order or for any other substantial cause then for the reasons to be recorded may allow such document to be produced or witness to be examined. However, in the present case, as per facts contained in the application filed by the Revenue, it has nowhere been mentioned as to why the documents need to be filed and even no explanation has been put forth with regard to connectivity of these documents with the controversy in question and as to how in the absence of these documents, the Tribunal would not be in a position to decide the controversy in question effectively and completely. Therefore, in our view the ld. DR has not been able to demonstrate before us that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on was not submitted despite giving several opportunities. The information sought the dates of notices remaining uncomplied with, is nowhere recorded in the order. Share capital/premium can be added u/s 68 in the hands of recipient-company only when identity of investors (investing companies) and their capacity to invest are not proved. Further, after insertion of Proviso to section 68, source of investment by investing company has also to be proved. Once assessee-company is able to establish the identity of investing companies and prove that they have invested out of their own resources and no cash is deposited in their bank account for making investment, then onus lying on the assessee is discharged. Explanation offered by the assessee along with documentary support about identity of the investor/lender, transfer of money to the assessee through banking channels and absence of enquiry by the AO on such documents render the explanation offered by the assessee not unsatisfactory within the meaning of section 68. So long as the investing companies have their own worth and funds for investment which they can explain, the explanation furnished by the assessee is not held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, (iv) Fact that the shareholders have low income does not warrant adverse inference. CIT v. Vrindavan Farms (P.) Ltd. etc., in ITA.No.71 of 2015 dated 12th August, 2015 held as under :- The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their return of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court. Even though the assessee in support of his case that loan/ share capital has been received through banking channels, produces bank account of the lender/investor but AO has not carried out inquiries into the credits appearing in the bank account of the creditors. Where no such inquiry is carried out by AO, or where entry appearing in the bank account and thereafter transferred to assessee through banking channels is explained by the assessee or the investor, courts have opined that then addition u/s 68 will not be justified. Where share applicants, in addition to their confirmation letters, had provided their particulars, PAN details, assessment par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing number of shares, face value and premium per share and also name of allottee - Assessee had also filed its annual return with ROC disclosing details of allotment of shares, and detail of shareholder including name, address and PAN of shareholder - Further, Assessing Officer had not questioned share capital to extent of face value but had only questioned share premium Whether since assessee had filed sufficient evidences viz., return of income, share allotment, annual return and details of shareholder and same was not negated by Assessing Officer, merely because Assessing officer felt that share premium received by assessee was high, genuineness of transaction could not be doubted for purpose of section 68 - Held, yes The ITAT referred to the Bombay High Cort judgement in the case of CIT v. Green Infra Ltd. /2017] 78 taxmann.com 340/392 ITR 7 (Bom.) Which it held as 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re 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. (c) Thus, question no.(ii) as formulated does not give rise to any substantial question of law and thus not entertained . The ITAT also highlighted that- 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 shares of companies. During the course of the hearing, the Ld Counsel explained that the explanatory memorandum to the Finance Bill 2012 makes it clear that the additional onus is only with respect to source of funds in the hands of the shareholders before the transaction can be accepted as a genuine one. Even the amended section does not envisage the valuation of share premium. This is further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment to prove that it was assessee's own money which was routed through a third party. Only then can be provisions of section 68 be invoked. The revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. The Assessing Officer did not make any effort to conduct any enquiry directly from these Investors. The Assessing Officer did not issue notices under section 133(6) or summon under section 131 against these Investors for recording their statements. The issuance of shares at premium is the prerogative of the issuing company in an invitation offer. There is no statutory restriction and it is something which falls within the domain of contractual terms. It is for the prospective shareholders to judge and decide as to whether the share premium was justified from their perspective and when these shareholders so decide, there the matter ends and the business prudence of the investors is not open for questioning. Therefore, I do not find this as a good ground for the Assessing Office to disbelieve that the shares of the appellant company of the face value of ₹ 10/- were sold at premium, without bringing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cants, the A.O. has not done either of the two. It is seen that all the details of the share holders such as their complete address, PAN, copy of tax return, Bank account etc. alongwith confirmations had been furnished to the A.O. but he has not brought these details on record and ignored them while finalizing the order. It is further observed that not even a single notice u/s 133(6) or summon u/s 131 was sent by the A.O. to even cross verify the subscribers of the premium 86 share capital. Thus even it seen from the applicability of provisions of section 68, the onus of proving the identity, genuineness 86 creditworthiness of the subscribers had been discharged by the assessee before the A.O. However, once the onus shifted upon the A.O. he failed to discharge his own burden by carrying out independent enquiries. If the A.O. had any doubts regarding the source of investment of the subscribers, he could have examined the bank accounts from where the investment was routed. In most cased the transactions are found to be numerous substantial. No evidence of cash deposits for colluding with assessee by re-routing unaccounted cash through the premium route is established vide the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hwhile' enquiry or correct appreciation of the legal principles involved in the issue. He has not been able to prove that the premium charged by the appellant was unjustified or bogus or sourced from undisclosed or unexplained funds /sources. SUPREME COURT OF INDIA in Rick Lunsford Trade 8s Investment Ltd. v. Commissioner of Income-tax, Kolkata-177 taxmann.com 110 (SC) held:- Section 68 of the Income-tax Act, 1961 - Cash credit (Share capital) - Assessment year 1983-84 - High Court by impugned order held that addition under section 68 would be justified only of unexplained part of share capital and not whole of it as assessee had partly produced evidence in respect of credit entries in books, accounted for as share capital - Held, yes - Whether special leave petition against said order was to be dismissed - Held, yes In view of the discussion made on the facts and legal precedents enumerated above in this order, from the material available on record, it emerges that assessee discharged its primary onus in terms of Section 68 of the Act. I am therefore not inclined to uphold the addition of ₹ 2,63,15,000/- made by the A.O. on account of Share Premium attr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved in the issues. The AO has not been able to prove that the premium charged by the assessee is unjustified or bogus or sourced from undisclosed or unexplained funds/ source. It is also noted from the available records that most of the corporate subscribers were filing returns and they were being regularly assessed to tax. The AO has not brought any adverse findings against them. It is also noted from the records that the assessee had submitted a valuation report for charging of premium before the AO during the assessment proceeding but the same had neither been mentioned nor controverted in the assessment order by the AO. It is further noted that if the AO had any doubts regarding the source of investment of the subscribers, he could have examined the bank accounts from where the investment was routed. The AO is duty bound to investigate the creditworthiness of the creditors/ subscribers, verify the identity of the subscribers and ascertain whether the transaction is genuine or these are bogus entries of name lenders but it was not properly done. Hence, taking into consideration all these facts, circumstances of the case and decisions cited by the ld. CIT(A), we concur with th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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