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TMI Blog2024 (4) TMI 350X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 68 on account of share premium Addition u/s 56(2)(viib) on account of share premium Int paid on loan taken from Holding Co. 2011-12 2653/Mum/23 Department 10,00,00,000/- - 45,67,728 10,45,67,728 CO 119/Mum/23* Assessee - - - - 2012-13 2635/Mum/23 Department 30,00,00,000 - - 30,00,00,000 2013-14 2651/Mum/23 Department - 9,60,00,000 - 9,60,00,000 2014-15 2650/Mum/23 Department - 8,00,00,000 - 8,00,00,000 2017-18 2646/Mum/23 Department - 12,00,00,000 - 12,00,00,000 70,05,67,728 * Validity of reopening u/s 147 of the Act. ITA No. 2653/Mum/2023 A.Y. 2011-12 2. The grounds of appeal of the revenue in ITA No. 2653/Mum/2023 are as under: 1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of Rs. 10,00,00,000/- being the share premium u/s. 68 of the Income tax Act, without appreciating the fact that during the course of assessment the assessee has failed to submit or explain the basis of arriving at the said premium, without which is was not possible to ascertain the genuineness of claim of transaction." 2. "On the facts and ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for reopening was claim of interest expenses of Rs.45,67,728/- in spite of huge losses during the year. Since the holding company and the shareholders have introduced share capital, it would have been proper, if they had advanced interest free loan instead of charging interest. 4. The AO also found that the assessee has made late payments of employee's contribution during the month of February 2011 amounting to Rs. 1,50,958/-. The assessee also made delayed payment of ESIC for month of April 2010 and October 2010 amounting to Rs.46,258/-. For these reasons, the AO had reasons to believe that income chargeable to tax had escaped assessment to the extent of Rs.10,47,29,944/- 5. In response to the notice issued u/s 148 dated 16.02.2016, the assessee filed reply on 22.02.2016 stating that original return filed on 27.09.2011 may be treated as return filed u/s 148 of the Act. The assessee requested to provide the reasons for reopening the assessment which was duly supplied to it. Objections of the assessee to the reassessment proceedings were rejected in accordance with the decision of the Hon'ble Supreme Court in the case of GKN Driveshaft India Ltd. 259 ITR (2019) SC. The assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this view and expecting future growth, both the groups invested in the appellant company on year to year basis, in order to provide liquidity and expand the footprints of the assessee company. 9. The appellant further stated that valuation report from the Valuer was obtained in 2010-11 wherein as per the projected scenario, the share price was arrived at and according to the said report, the shareholders invested the required amount in the company. Further, it was contended that identity and creditworthiness of the parties have been accepted by the AO. It was submitted that the management passed resolution during the subject year for converting short-term loans Rs.8.75 crore and Rs.2.37 crore from Future Venture India Pvt. Ltd. and Godrej Agrovet Ltd. respectively into share capital, wherein it was agreed to issue the share at Rs.50/- per share comprising face value of Rs.10/- per share and share premium of Rs.40/- per share. The assessee submitted various documents such as Form-2, board resolution, minuets of meeting and financial statements of the investors to prove genuineness of the transaction. After perusing details submitted by the assessee and the arguments advanced by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the board. The minutes of the Board Meeting of appellant have been furnished wherein the decision of the Board Members in support of the business plan for allotment of shares after conversion of short term loans into equity has been resolved. In view of the above discussion, this ground of appeal is allowed." 10. Aggrieved by the order of the Ld. CIT(A), the revenue is in appeal before us. The Ld. (CIT) DR has strongly relied on the assessment order and has argued that despite sufficient opportunity of hearing, the assessee has not been able to prove the genuineness of the transaction regarding the high premium of Rs.40/- per share paid by investors. However, he admitted that the identity and creditworthiness of the investors are not in doubt. He stated that there is no valuation report to justify the exorbitant premium paid by the investors. He drew our attention to the fact that the assessee has been constantly incurring losses over the years and total accumulated loss was about Rs.173,00,00,000/- at the end of said financial year. In absence of fresh valuation report for the subject year, it is not reasonable to accept the payment solely on the basis of the earlier valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... economics/social conditions and therefore, such valuation cannot be reviewed or compared with actual figures at a later date. He stated that the valuation report needs to be accepted as it was supported by an independent Valuer which cannot be tinkered at a later point of time by substituting it with actual results. In the said valuation report the equity value of the company has been estimated Rs.123,00,00,000/- and the enterprise value estimated at Rs. 145,00,00,000/- and therefore the fair market value of shares of the assessee company ranges from Rs.50 to Rs.60/-. In the DCF method, all cash flows expected as a particular point of time are estimated and discounted by using cost of capital to determine its present value. The Ld. AR submitted that the AO has nowhere pointed any specific adverse findings in the projections of the valuation report nor has made any independent valuation of the shares of the appellant company. 13. The Ld. AR also argued that the valuation of shares is a commercial decision between investors and investees and once both the parties agree on a price of subject shares, then questioning the same by the AO is would be beyond the scope of section 68 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed further] that nothing contained in the first proviso [or second proviso] shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10." 17. A bare reading of section reveals that section 68 reposes in the AO the jurisdiction to enquire from the assessee the nature and source of the sum amount credited in its books of account. If the explanation given by the assessee is found not to be satisfactory, further inquires can be made by the AO himself, both in regard to the nature and source of the income credited by the assessee in the books of account. The section accords statutory recognition to the principle that cash credits which are not satisfactorily explained, or not at all explained, might be assessed to be taxed as income of the assessee. The onus of proving source of sum found to have been received by the assessee is on the assessee. It is for the assessee to prove that even if cash credit represents income, it is income from a source which has been already taxed. To prove the genuineness of transaction, the burden lies on the assessee and to discharge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om A.Y.2013-14. Thus such an addition cannot be made u/s 68 of the Act. 20. The Ld. AR of the appellant has further contended that the transaction is a commercial transaction wherein exiting shareholders and independent investors have agreed to participate in business venture based on their own understanding of the industry, risk-reward matrix and other relevant factors which are highly subjective for each individual investor. The valuation report for issue of share was prepared prior to notification of Rule 11UA of the Income-tax Rules, 1942. We find that the valuation report was prepared for A.Y. 2010-11. Though, no fresh valuation report has been prepared, there are no substantial changes in the projections made in the said report. The Valuer has adopted DCF method which takes into account the future business prospect of the company. It uses the concept of the time value of money. All cash flows expected at a particular point of time are estimated and discounted by using cost of capital to determine its present value. The appellant has argued that the IT Act itself gives option to the assessee to determine the value of its share u/s 56(2)(viib) and the same cannot be rejected m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esult, the grounds of appeal of the revenue are dismissed. 24. The next ground in deletion of disallowance of interest of Rs. 45,67,728/-. During the year assessee has paid interest of Rs. 45,67,728/- on loan taken from holding company Future Venture India Ltd. AO has made disallowance on the ground that when assessee has made huge losses why interest has been paid. 25. The Ld. CIT (DR) has relied on the assessment order of AO whereas the Ld. AR of the appellant has relied upon the order of the Ld. CIT (A). 26. The Ld. CIT(A) allowed the ground by discussing as under:- "Perusal of the Tax Audit Report reveals that interest paid on ICDS to Future Venture India Ltd. is Rs. 45,67,728/-. In view of the findings on ground of appeal 3 supra, this ground of appeal is allowed." Once the assessee has taken ICD‟s and that ICD‟s has been taken in the earlier year then payment of interest cannot be disallowed on the ground that assessee has incurred loss during the year. Thus, we do not find any infirmity in the order of the Ld. CIT (A) when the interest has been paid on the ICD‟s to Future Venture India Ltd. Accordingly, the ground is dismissed. In the result, the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 10,00,00,000/- at the time of assessment proceedings. The Ld. AR submitted that the issue was duly raised by the AO in the original assessment proceedings and no new tangible material has been received by the AO after completion of the original assessment which can warrant any change of the opinion already formed on the subject issue. Mere change of opinion on the same set of facts does not entitle the AO to reopen the completed assessment. It would amount to review of own decision by the AO, which is not permissible. For this, the Ld. AR also relied on the decision of the Hon'ble Apex Court in the case of CIT v/s Kelvintor of India Ltd. reported in 320 ITR 561 (SC). The Ld. AR relied on the decision in the case of CIT v/s Eicher Ltd (2009( 26 DTR (Del.) 310 wherein it was observed that if the entire material has been placed by the assessee before the AO during the original assessment and the AO had applied his mind, then merely because this is not expressly stated in the assessment order, the same would not be a ground to conclude or hold that there was no application of mind. Such cases also fall under „change of opinion‟ to quash reopening of completed assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is allowed. ITA No. 2635/Mum/2023 A.Y. 2012-13 33. The grounds taken up by the revenue are similar to the grounds raised in A.Y. 2011-12. The facts are similar to the facts of the case for A.Y. 2012-13. The issue involved is regarding addition of Rs.30,00,00,000/- towards share premium u/s 68 of the Act. The arguments of the Ld. AR and the reasons given by the AO, which was relied upon by the Ld. CIT (DR), are also similar to the reasons and arguments of the earlier year. Hence, following reasons given above for A.Y. 2011-12, the grounds of revenue are dismissed. Accordingly, the appeal of revenue is dismissed. ITA No. 2651/Mum/2023 A.Y. 2013-14 34. The facts of the case are similar to the facts of the appeal for A.Y. 2011-12 and 2012-13. However, the share premium receipt of Rs. 9,68,00,000/- during the year has been added by the AO u/s 56(2)(viib) of the IT Act in lieu of provisions of section 68 of the Act applied in the A.Ys. 2011-12 and 2012-13. The grounds are reproduced hereunder for ready reference: "1. "On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowances of Rs. 9,60,00,000/- u/x. 56(2) (viib) of the Income tax Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the above factual background and held that the assessee failed to justify issuance of shares at such high premium. Accordingly, the total sum of Rs. 9,60,00,000/- received by the assessee as share premium was disallowed and added u/s 56(2)(viib) of the Act. He also simultaneously initiated penalty proceedings u/s 271(1)(c) of the Act. 36. In the appellate order passed u/s 250 of the Act on 31.05.2023, the Ld. CIT(A) has considered the facts of the case and submission of the appellant that 70% shares of the appellant was held by the Future group and 26.14% was held by Godrej Group. Therefore, the appellant is subsidiary of M/s Future Group Venture Enterprises Ltd. (FVEL) [Now known as Future Consumer Ltd.] . The Ld. CIT(A) examinedfacts of the case against the statutory provisions of section 56(2)(viib) and section 2(18)(b)(B)(b) of the Act and decided the ground in favor of the appellant by holding as under: "6.2 The appellant has made a detailed submission on the issue that provision of section 56(2)(viib) do not apply to a company in which public are not substantially interested. The appellant has contended that the investors in appellant assessee are Future Ventures India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , listed in a recognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act 1956 (42 of 1956) and any rules made thereunder, [(B) shares in the company (not being shares entitled to a fixed of dividend whether with or without further right to participate in profits) carrying not less than fifty percent of the voting power have been allotted unconditionally to, or acquired unconditionally by, and were throughout the relevant previous year beneficially held by (a) the Government, or (b) a corporation established by a Central, State of Provincial Act (c) any company to which this clause applies or any subsidiary company of such company if the whole of the share capital of such subsidiary company has been held by the parent company or by its nominees throughout the 6.5 In the view of the above facts, the provisions of section 56(2)(viib) of the Act are not attracted to the appellant, which is a subsidiary of a public limited company. The appellant has relied on decisions of Hon'ble ITAT Hyderabad in the cases of Apollo Sugar Clinics Ltd [2019] 105 taxmann.com 254 and M/s Sembcorp Energy India Limited [ITA No. 1774/Hyd/2019] in support of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo companies who had agreed to rely on the valuation report which was relied upon while subscribing to the shares of the assessee company in FY 2009-10. In this regard, the appellant has relied upon the decision of the ITAT, Mumbai in the case of Green Infra Ltd. v/s ITO (2013) 37 CCH 0059 where a newly created company had issued shares of Rs. 10 each at premium of Rs. 490 per share. During the assessment proceedings, the AO had observed that own funds were introduced by the assessee through shareholders under guise of revenue. The AO also questioned the authenticity of the valuation report. In the first appeal, the Ld. CIT(A) confirmed the addition. However, the ITAT decided the issue in favour of the assessee. The following observations of the ITAT are relevant and hence reproduced as under: "10.1. No doubt a non-est company or a zero balance company asking for a share premium of Rs. 490/- per share defies all commercial prudence but at the same time we cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to such a heavy premium. The Revenue aut ..... X X X X Extracts X X X X X X X X Extracts X X X X
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