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TMI Blog2025 (5) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 56(2)(viib)/68 of the act, due to lack of creditworthiness of the investors from whom the Share capital and share premium amount have been received also erred without bringing any cogent/corroborative material in support of his contention and without considering the materials and explanations. available on records in their true perspective and sense. Hence same should be deleted in toto being contrary to the provisions of the law and facts of the case, 3. The Ld. AO as well Ld. CIT(A)/NFAC have grossly erred in law and facts in making the additions and confirming the same without providing specific and proper Show Cause Notice led to violation of Natural Justice therefore complete addition should be deleted. 4. The Ld. AO as well as Ld. CIT(A)/NFAC have grossly erred in law and facts in invoking section 115BBE and confirming the same being illegal and contrary to the provision of law. 5. The Id. AO as well as Ld. CIT(A)/NFAC have grossly erred in law as well as on the facts of the case in charging the interest u/s 234A, B and C. The interest so charged is being totally contrary to the provision of law and on facts of the case and hence same may kindly be deleted in full.'' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tified by strong business prospects, profitability, or significant growth potential in the absence of any business activity, these justifications are missing. Issuing shares at a high premium means that the company is selling its shares for a price significantly above their nominal value. When a company with no business activity does this, it suggests that the purpose might not be genuine capital raising for business purposes but potentially for questionable motives. The investors who subscribe to these high-premium shares need to be credible and financially sound. Their creditworthiness should be established through income tax returns, financial statements, or other relevant documents. In this case, the assessee failed to prove the creditworthiness of the investors by not submitting the income tax returns or income sources of the three investor as said above. Without proof of the investors' financial capability, it becomes suspicious how they could afford to invest in high-premium shares of a non-operational company. In my view, filling income tax returns is a way to show transparency and compliance with tax regulations especially in case of residents. In this scenario, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess activities were carried out by the company until 31.03.2015. The issuance of shares at a high premium was questioned as it did not align with the financial results of the company. The company provided details for Ms. Neha Joshi and Ms. Rashmi Verma (NRIs), which were found satisfactory. No details were provided for other investors to justify their creditworthiness. The company valued its shares at Rs. 2,179.49 per share, compared to Rs. 1,010.06 in the previous year. The valuation report submitted was not accepted as it did not adequately support the high valuation. According to Rule 11UA, the Fair Market Value (FMV) of shares was calculated to be Rs. 11.15 per share. Based on this calculation, the excess share premium amounting to Rs. 29,84,733/- was considered as income from other sources and added to the total income. The excess premium received from resident investors (Anna Lungany, Prafull Marwah, and Krishna Behari Lal Katiyar) was added as income from other sources. Due to lack of details on the creditworthiness of resident investors, the entire amount of share capital and share premium received from them (Rs. 30,00,000/-) was added by the AO under section 68 and taxed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar, Gandhi Road, Gwalior, Madhya Pradesh 474011 India AYDPK7351F Bank Rashmi Verma Vijay Nagar, Paisar Dehat Bara Banki, Uttar Pradesh 225001 India AKFPV6522K Bank It is noted that out of all the investors, two investors namely Neha Joshi and Rashmi Verma were non-Investors. Accordingly, no additions were made by the AO of the amount received from such Non-Resident investors u/s 56(2)(viib) of the Act. However. AO, during the course of assessment proceedings, disregarded the Valuation Report for valuation of its CCPS, as obtained from a firm of Chartered Accountants, submitted before him and the AO determined the Fair Market Value ("FMV") of the shares by applying Net Asset Value ("NAV") method and disregarded the DCF method as originally adopted by the assessee company as per law and allowable. The AO calculated the value per share at Rs. 11.15, considering the NAV method. Accordingly, the AO was of the view that the amount as received by the assessee company from resident investors over and above the NAV of Rs. 11.15 as calculated by him during the course of assessment proceedings should be added to the income of the assessee company under section 56(2)(viib). Resultantly, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ific method for the valuation of Preference Shares. Even Hon'ble Jurisdictional ITAT (Jaipur), recently, in the case of Ginni Global (P.) Ltd v ACIT [2019] 106 taxmann. com 270 (Jaipur - Trib.) held that the valuation of the Preference Shares, the valuation should be determined as per Rule 11UA(1)(c) which required the assessee to obtain a report from a Merchant Banker or a Chartered Accountant to determine the price which preference shares would fetch if sold in the open market on the valuation date. The NAV method under Rule 11UA(2) is applicable for determination of FMV of unquoted equity shares and not preference shares. In the absence of a specific mandate, FMV of the preference shares can be determined on the basis of DCF method. Assessee company as per Rule 11UA(1)(c)(c) had the option of determining the fair market value of the shares on the basis of either NAV method or the DCF method. However, out of the two methods the assessee company chose to value its shares based on the DCF method.. That It is a trite law that the method once chosen by the assessee company, for the purpose of valuation of its shares could not be disregarded by the Income Tax authorities, without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 115BBE was to cover cases of concealment of income, pursuant to demonetization, which was not the case of the assessee company. Each of the aforementioned contentions are elaborated hereunder. 1. At the time of receipt of share capital by the assessee company, the amended provisions were not in place. The amendment to Section 115BBE, being onerous on the assessee company, should not be given a retroactive effect. A.1 The provisions of Section 115BBE were inserted in the ITA by finance Act, 2012, with effect from 01.04.2013. Section 115BBE taxed the unexplained credits, money, investment, expenditure, etc., which were deemed as income under Section 68, Section 69, Section 69A, Section 69B, Section 69C or Section 69D, at the rate of 30% (plus surcharge and cess), without allowing any deduction for any expenditure or allowance. A.2 Thereafter, the provisions of sub-section (1) of Section 115BBE were substituted by Taxation Laws (Second Amendment) Act, 2016, w.e.f. 01.04.2017 i.e. A.Y. 2017- 18 ("Amendment-115BBE"). Although, Taxation Laws (Second Amendment) Act, 2016 received the assent of the President of India only on 15.12.2016. Share capital was received by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.7 The amendment, to Section 115BBE, cannot, in any way, be considered to be introduced to overcome any defects of the law, previously in place, nor it can be considered to be clarificatory in nature, explaining the intention of the law already in place. Per contra, such amendment has resulted into increase in tax burden on the assesses. A.8 Hon'ble Supreme Court in the case of Vatika Township (P) Ltd. [2014] 367 ITR 466 (SC) observed that of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should govern current activities, which is based on the principle of law known as lex prospicit: law looks forward not backward. Thus, legislation which modify accrued rights, or which imposes obligation or impose new duties or attach a new disability have to be treated as prospective, unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. A.8.1 Hon'ble Apex Court, in the said case was considering the time p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of New Skies Satellite BV [TS-64-HC-DEL (2016)] held that amendments though originally notified as clarificatory may turn out to be substantive in fact and such a substantive amendment is incapable of being given retrospective effect. Relevant extracts of the said order is reproduced hereunder for the sake of ready reference:- "... Undoubtedly, the legislature is competent to amend a provision that operates retrospectively or prospectively or prospectively. Nonetheless, when disputes as to their applicability arise in court, it is the actual substance of the amendment that determines its ultimate operation and not the bare language in which such amendment is couched. A Clarificatory amendment presumes the existence of a provision the language of which is obscure, ambiguous, may have made an obvious omission, or is capable of more than one meaning. In such case, a subsequent provision dealing with the same subject may throw light upon it. Yet, it is not every time that the legislature characterizes an amendment as retrospective that the Court will give such effect to it. This is not in derogation of the express words of the law in question, (which as a matter of course must be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A.11.2. Hiraco Jewellery (India) Pvt. Ltd., I.T.A. No.7297/Mum/2014 (Mumbai) A.11.3. Gitanjali Exports Corporation Limited (2016) 178 TTJ 529 (Mumbai) A.11.4. Siro Clinpharm Private Limited (2016) 177 TTJ 609 (Mumbai) A.12. Hon'ble ITAT, Jaipur Bench, in the case of KGK Enterprises [2017] 88 taxmann.com 264 (Jaipur - Trib.) accepted the above proposition and held that Explanation to section 92B enhancing its scope to be applicable from A.Y. 2013-14 onwards. A.13. It is submitted that when the assessee company received the share capital, the amended provisions of section 115BBE were not in existence. A.14. Where an amendment, as under 92B, although was introduced having a retrospective effect, was held, by the courts, to have a prospective effect, by the same analogy, an amendment to Section 115BBE, putting additional burden on the assessee, introduced on 15.12.2016, w.e.f 01.04.2017(A.Y 201 7-18), should not be made applicable on any act committed between 01.04.2016 to 14.12.2016. A.15. The amendment to Section 115BBE is penal in nature, which aims to penalize the assessee, if additions referred to in Section 68 to 69A are made. Penal statutes which create offenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trospective effect. Apropos retrospectively and prospectively of any amendment it was held by the Hon'ble High Court that :- A.17.1. It is well settled law that unless a contrary intention is reflected, legislation is presumed and intended to be prospective. For in the normal course of human behavior, one is entitled to arrange his affairs keeping in view the laws for the time being in force and such arrangement of affairs should not be dislodged by retrospective application of law. A.17.2. The principle of law known as lex prospicit non prospicit (law looks forward not backward), is a well known and accepted principle. The retrospective legislation is contrary to general principle for legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts Ought not to change the character of past transactions carried out in the faith of the then existing law. A.17.3. Thus, the principle against retrospectivity is the principle of 'fairplay' and unless there is a clear and unambiguous intendment for retrospective effect to the legislation which affects accrued rights or imposes obligations or castes new duties or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, in search or otherwise, prior to demonetization. B.5. The aim of the said amendment was to prevent "concealment" on the part of the assessee of the income in the process of depositing cash in their bank accounts, pursuant to demonetization. However, in the case at hand, the assessee has made disclosure in his Return of Income and has not tried to "conceal" any particulars of income. This even finds force from the fact that no further additions were made by the Id. AO during the course of assessment proceedings. B.6. Having made the disclosure, the assessee clearly doesn't fall in the category, the prevention of which, was the reason for which said amendment was made u/s 115BBE. B.7. Hon'ble Calcutta High Court in the case of Pilani Investments and Industries Corpn. Ltd. [2016] 383 ITR 635/238 Taxman 384/67 Taxman.com 60 held that disclosure and concealment cannot co-exist. However the ld. CIT(A) has not spoken a single word on these submissions and legal position of law.'' After hearing both the parties and perusing the materials available on record, the Bench noticed that there is merit in the submissions of the assessee and the Bench does not concur with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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