TMI Blog2021 (2) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... hareholder company M/s. Saibaba. M/s. Saibaba had creditworthiness as on March 31, 2012 to invest ₹ 9.5 crores in the assessee-company - copy of bank statement of M/s. Saibaba reveals that the share application money has been transferred from bank account of M/s. Saibaba to the assessee-company. Thus, there can be no doubt against the identity, creditworthiness and genuineness of M/s. Saibaba. Commissioner of Income-tax (Appeals) has clearly given a finding a fact that the share applicant company M/s. Saibaba had enough fund for subscribing for shares in the assessee-company which factual finding have not been challenged by the Revenue/Department in this appeal, so this finding of fact crystallizes. - Decided against revenue. - I.T.A. No. 1960/Kol/2017 - - - Dated:- 9-12-2020 - J. Sudhakar Reddy (Accountant Member) And A. T. Varkey (Judicial Member) For the Department : Sandeep Choube, Commissioner of Income-tax For the Assessee : S. M. Surana, Advocate ORDER A. T. VARKEY (JUDICIAL MEMBER) - 1. This is an appeal preferred by the Revenue against the order of the learned Commissioner of Income-tax (Appeals)-2, Kolkata dated June 6, 2017 for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... book profit of ₹ 1,88,83,977 under section 115JB of the Act. The Assessing Officer notes that the assessee's case was selected for scrutiny through CASS. Thereafter he notes that he issued notice under sections 143(2) and 142(1) of the Act and the assessee was asked to furnish certain documents. According to the Assessing Officer, Shri Rajesh Agarwal, FCA representing the assessee appeared before him and furnished various documents in the course of proceedings. According to the Assessing Officer while perusing the audited accounts of the assessee for the year ended March 31, 2012, he found that the assessee-company has raised share capital inclusive of securities premium of ₹ 9.50 crores by alloting 47,500 numbers of equity shares at a face value of ₹ 10 each at premium of ₹ 1,990 per share to sole share applicant M/s. Saibaba Finvest Pvt. Ltd. (hereinafter referred to as, M/s. Saibaba ). According to the Assessing Officer, he had issued notice under section 142(1) asking for the details of new share applicant pursuant to which the assessee had filed details of the share applicant M/s. Saibaba ; and there-after he issued further notice under section 131 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ach. In course of the assessment proceedings the learned Assessing Officer issued a specific 142(1) notice on March 4, 2015 along with detailed questionnaire seeking various details of. In response to the same the appellant filed each and every details, documents, evidence and explanations as called for including documents in support of the identity and creditworthiness of the share capital and genuineness of the transaction and explanation regarding the justification of share premium with reference to earning per share capitalisations and net asset value. The appellant stated that the earning per share capitalisations (PAT/No. of shares) of the company for the financial year 2010-11 was ₹ 145.43 per share. The market value of share by capitalising the earning per share capitalisations at seven per cent. would come to ₹ 1,933 per share. As such the share issue price of ₹ 2,000 is not too high. Similarly the net asset value of the shares as at March 31, 2011 was ₹ 1,988 per shares. As such the issue price of ₹ 2,000 is not too high. The appellant further submitted that the share premium is a capital receipt and till March 31, 2012 there was no pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 74,21,518 41,02,760 Even if, we go by the provision of section 56(2)(vii)(b), applicable with effect from the assessment year 2013-14 only the excess of share issue price over and above fair market value as per rule 11UA is tax able. Whereas in the instant case the share issue price was ₹ 2,000 and value as per rule 11UA was ₹ 1,988 per share. As such the share premium was not at variance with the fair market value. The same calculation of the fair market value was also submitted by the appellant during the assessment proceeding before the Assessing Officer vide his letter dated March 11, 2015 in compliance to the notice 142(1) dated March 4, 2015 issued to the appellant. The Assessing Officer did not find out any mistake in the fair market value calculation of the appellant. The assessee is engaged in trading of iron ore fines. It was incorporated on March 16, 2008 and started its business from the financial year 2008-09. It's profit after tax for the financial years 2009-10 and 2010-11 was ₹ 131.22 and ₹ 145.43 per shares. Considering the share issue price of Rs.-2,000, the PE ratio comes to just 13.75 which gives a t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... identity of the subscribers is established beyond all doubt. So far as genuineness of the transactions, it is stated that share subscriptions were received through banking channel which is traceable from the origin to the destination of such payment and further confirmed through documents furnished. Further, the impugned share application monies were recorded in the balance-sheets and duly reflected in their returns filed with the respective Assessing Officer of the share applicants. Therefore, the genuinity of the transactions regarding receipt of share application is beyond controversy and cannot be called into question. As far as creditworthiness of the share applicants is considered, it is stated that the entire gamut of transactions was undertaken by way of account payee cheques only. In respect of the share applicant, there were more than enough funds to subscribe, to the shares of the appellant as the following facts will unequivocally testify and prove. It is pointed out that funds held on account of shareholders disclosed in the balance-sheets as on the March 31, 2012. In compliance with the summon, the investor appeared and filed all the details, documents and evidence a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and surplus of ₹ 35,87,43,750. According to the learned Departmental representative, even though the Assessing Officer had issued summons under section 131 of the Act to the M/s. Saibaba, no directors appeared before the Assessing Officer to substantiate that they had genuinely subscribed for the shares of assessee-company and justified the premium of ₹ 1,990 per share of the assessee-company. According to the learned Departmental representative the whole transaction is an eye wash and so unbelievable, per se improbable for the share subscribing company to do so. Therefore according to the learned Departmental representative the order of the learned Commissioner of Income-tax (Appeals) is erroneous and therefore, he wanted us to reverse the order of the learned Commissioner of Income-tax (Appeals) and uphold the order of the Assessing Officer. 8. Per contra, the learned authorised representative of the assessee Shri S. M. Surana supported and justified the impugned action of the learned Commissioner of Income-tax (Appeals). According to the learned authorised representative the assessee-company manufactures and exports iron ore fines and also trades in coal. And he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cording to him, this fact is discernible from the admission made by the Assessing Officer in the assessment order itself to this effect and drew our attention to paragraph 2 page 2 of the assessment order. And further brought to our notice that very little reaction time was given by the Assessing Officer for the appearance of the authorized person of the assessee-company. Elaborating further on the less time given by the Assessing Officer for physical appearance, the learned authorised representative submitted that after the assessee had filed the reply dated March 13, 2015, pursuant to the notice of the Assessing Officer dated March 4, 2015, the Assessing Officer issued summons to appear on March 17, 2015 for the purpose of explaining the bona fide of share application made by it as well as the premium offered for such share application. Thus, it was pointed out by the learned authorised representative that what the Assessing Officer wanted was the personal appearance of the authorised person of M/s. Saibaba to explain the share application ; and the supposed to be huge premium even though according to the learned authorised representative the premium was duly justified vide the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t applicable to the facts of this case and thus erroneously added back the entire share capital and premium amount as unexplained. 11. The learned authorised representative then submitted that the assessee aggrieved by the action of the Assessing Officer had filed an appeal before the learned Commissioner of Income-tax (Appeals) who took note of the number of queries and requisitions made by the Assessing Officer under section 142(1) in the first notice itself, i. e., on March 4, 2015 which have been reproduced at page 4 of the Commissioner of Income-tax (Appeals) order. According to the learned authorised representative., the learned Commissioner of Income-tax (Appeals) further noted that the assessee-company had filed each and every details called for by the Assessing Officer. According to the learned authorised representative, the learned Commissioner of Income-tax (Appeals) took note of the market value of the shares at both breakup value under rule 11UA of the Income-tax Rules, 1962 (hereinafter referred to as, the Rules ) and computation by yield method was also noted and referred to page 5 of his order which computation justified the premium. Moreover, according to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Saibaba) is group concern and is an NBFC recognized by the Reserve Bank of India and that the directors were common and the fact that it has undergone scrutiny assessment cannot be denied. So according to the learned authorised representative its existence of the company, i. e., M/s. Saibaba cannot be doubted or disputed nor have been disputed. Further according to the learned authorised representative, the notice under section 131 was issued to M/s. Saibaba without allowing reasonable time and opportunity by fixing the date of appearance on March 17, 2015, still the directors appeared but their statements were not recorded. According to the learned authorised representative, subsequent year loan, almost double the amount of share capital from the same party, i. e., ₹ 15 crores was accepted by the Assessing Officer in the immediately next year, and that the shares were issued at the breakup value at the time of issue and therefore according to the learned authorised representative, the learned Commissioner of Income-tax (Appeals) was fully justified in deleting the addition and so he does not want us to interfere with the impugned order. The learned authorised representativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) which was prescribed in section 56(2)(viib) of the Act, still the price of ₹ 1,988 per share whereas the assessee has sold the share at ₹ 10 at share premium of ₹ 1,990 so the difference is negligible, i. e., ₹ 2 only in excess and even as per earning per share capitalisations (earning per share) it comes to ₹ 1,933 per share so the share premium of ₹ 1,990 is not excess and is fair and reasonable price. So in the aforesaid facts and circumstances, the learned authorised representative does not want us to interfere with the impugned order of the learned Commissioner of Income-tax (Appeals). 14. Further the learned authorised representative in order to show that M/s. Saibaba is a sister concern drew our attention to the fact that M/s. Saibaba which is a private limited company was held by two private limited companies, i. e., M/s. Greenary Distributors Pvt. Ltd. and M/s. Pretty Dealers Pvt. Ltd. which are in turn held by two other companies, i. e., M/s. RBM Finance Pvt. Ltd. and M/s. Bengal Credit Corporation Pvt. Ltd. ; which means M/s. Greenary Distributors Pvt. Ltd. was held by M/s. RBM Finance Pvt. Ltd. (40 per cent.) and M/s. Bengal Cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st the assessee-company for subscribing for shares. So in the aforesaid facts and circumstances, the learned authorised representative does not want us to interfere with the impugned order of the learned Commissioner of Income-tax (Appeals). 15. We have heard both the parties and perused the records. We note that assessee is a manufacturer and exporter of iron ore fines and also trades in coal. The assessee-company was incorporated on March 16, 2008 and started its business from the financial year 2008-09 and in this assessment year it has returned income of ₹ 1,74,21,518 and book profit of ₹ 1,88,83,977 under section 115JB of the Act. We note that in this assessment year (2012-13) the assessee-company has issued 47,500 numbers of equity shares of face value of ₹ 10 each at premium of ₹ 1,990 per share to another private limited company M/s. Saibaba Finvest Pvt. Ltd. which is a sister concern as brought to our notice (supra) wherein we noted that in this relevant assessment year common director was there in assessee-company and holding company of M/s. Saibaba. We note that Sri Utkarsh Suresh Shelar was common director of the assessee-company as well as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued share capital plus premium of ₹ 9.5 crores, he thereafter issued summons to the share subscribing company M/s. Saibaba under section 131 of the Act summoning the authorised persons (directors) of the assessee-company to appear before him on March 17, 2015. However since none appeared before him, he drew adverse inference against the share applicant M/s. Saibaba and made an addition under section 68 of the Act and framed the assessment on March 26, 2015. On appeal the learned Commissioner of Income-tax (Appeals) has addressed the allegation of the Assessing Officer that share premium of ₹ 1,990 of the assessee-company is very high since the assessee-company is not into any business activity. The learned Commissioner of Income-tax (Appeals) has taken note of the following financial data of the assessee-company which shows that the Assessing Officer erred in his finding that assessee-company was not doing any business. As on 31-3-2010 As on 31-3-2011 As on 31-3-2012 As on 31-3-2013 Share capital 1,00,000 1,00,000 5,75,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny) did not turn up before him (Assessing Officer) on March 17, 2015. It was brought to our notice that all the directors except one who resides at Pune, are residents of State of Madhya Pradesh and therefore, could not come on short notice. It was also brought to our notice that the summons issued under section 131 of the Act was duly served upon the address of company. According to the learned authorised representative, no adverse view ought to have been taken against the assessee since it had filed all the details/explanations/ documents asked for by the Assessing Officer under section 142(1) of the Act which is found placed at pages 40 and 137 of paper book. In this context we note that the assessee had filed all the documents to substantiate the identity, creditworthiness and genuineness of the share subscribing company M/s. Saibaba which has been incorporated on January 10, 1996 and it is a registered NBFC by Reserve Bank of India (refer pages 100 and 105 of the paper book) which shows that statutory reserve under section 45C of the Reserve Bank of India Act has been created and the auditor's report at page 100 clearly spells out M/s. Saibaba is a registered NBFC. It has ..... 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