ITO WD 1(1)(4), MUMBAI vs. GOODYIELD FARMING LTD, MUMBAI

आदेश / O R D E R PER M. BALAGANESH (A.M):

M/s. Goodyield Farming Ltd., 2. The Ground Nos. 1 and 2 raised by the revenue are challenging the deletion of addition of Rs.3,65,09,908/- made by the ld. AO u/s 68 of the Act disbelieving the same to be agricultural receipts. The interconnected issue involved therein is with regard to allowability of agricultural expenses incurred by the assessee.

2.1. The assessee company was incorporated on 14/09/2005 in the name of Oodnap Agritech Ltd with the objects of carrying on agricultural and related activities. The Memorandum of Association of the company empowers such activities. Later the name of the said company was changed to “Goodyield Farming Ltd” effective from 09/01/2012. As per the provisions of Maharashtra Tenancy and Agricultural Lands Act, 1948, the assessee company is not entitled to own or acquire agricultural lands. But it can take on license or have conducting agreement or in association with the owners of agricultural lands, carry on agricultural activities. This activity is not prohibited or barred under the Maharashtra Tenancy and Agricultural Lands Act, 1948. The assessee submitted that its promoters formed the company with the philosophy of taking agricultural lands on contract for cultivation and carry on irrigation activities on its own or in association with the land owners or tenants holding agricultural lands. With the vision that agriculture has great future, it located the areas which were prone to draught and the farmers were finding it difficult to carry on agricultural activities, so that they will be ready and willing to enter into association for jointly cultivate the lands. The assessee thought it would be a great help to the owners or tenants in those area and the operations could be smoother with their association, they being already in know of operations and have local influence and support. The company conveyed that they will not acquire or claim any tenancy in the lands, that they cannot claim such rights not being agriculturist company but would jointly with the help and assistance of the land owners and tenants, they

M/s. Goodyield Farming Ltd., could jointly cultivate the land for good returns. The assessee entered into agreements with the land lords. The agreements entered into by the assessee with the landlords were pure contracts and it did not involve demise or transfer of property or title to the property in the name of the assessee. Therefore the said agreements were chosen not to be registered under the Transfer of Property Act or under any other law. Since no title was created on the said lands in favour of the assessee, the name of the assessee would not figure in the records of agricultural department. The assessee company in aggregate had 642 acres of land for cultivation covered under various arguments. A list showing the owners of the lands, the area of the land with geographical identity, survey number, Hissa number, Taluk, District, etc were filed by the assessee before the learned AO on 04/03/2016 together with details of expenditure incurred on seeds, bull and labour, crop cultivation charges, Hero rotta , Kakariya, ploughing, water charges, manure etc. The crops grown were Jawar, Bajara, Cotton, Arhar, Cucumber, Green Chillies, Tomato, Harbhara, Watermelon etc. The assessee furnished the books of accounts together with the audited financial statements before the learned AO in support of all its contentions.

2.2. The modus operandi adopted by the assessee with regard to its agricultural activities are as under: – (i) Involved the farmer owners in the operations on the land paying them and their team the labour charges; (ii) Reimbursed all costs of seeds, fertilizers bought through the farmer owners; (iii) Owned a tractor for tilling but also used the labour; (iv) The land had adequate water bodies. It also outsourced the same from the nearby area whenever needed; (v) It planned the produce based on the climatic situation and the soil.

(vi) Used organic fertilizers for the produce, using fertilizers and pesticides to a minimum; (vii) Produced crops and horticultural produce namely, Jawar, bajara, cotton, arhar, cucumber, green chillies, tomato, harbhara, water melon etc as above stated; (vii) Sold the produce in lots and at site. This avoided hamali and transportation and exertions of sale. It also avoided brokerage and commission at different stages if they were to be sold in the organized market. It also avoided competition in prices due to syndicating and cartels of brokers and traders which does not allow the farmers to get reasonable price. It may also be noted that the trucks have to wait long days before the produce is sold and trucks emptied, burdening the company with extra expenses.

2.3. All expenses were to be made in cash and all revenues were realized in cash. Generally, the traders approach for purchasing the produce and under write such purchases. Then, it will be the obligation of such traders to have security, harvesting and buying it against payment of consideration agreed. They in turn will have contracts with others or sell privately or in the organized market as may be feasible. But, the assessee avoided such competitive sales, sold it for reasonable profits, ensured recovering full realization, receiving the proceeds in cash before the M/s. Goodyield Farming Ltd., produce are lifted. In this plan, the labour and other expenses were till the harvest and by the time of harvest, the traders would buy underwriting the works of harvesting, preserving, moving and transporting as they would desire, minimizing the costs and efforts of the assessee.

2.4. The assessee submitted that the nearest bank being State Bank of India is situated at a distance of 25 to 36 kms away from the lands. Post office and police stations are also that far. This caused both assessee and the farmers and others who worked with the assessee cultivating the land deal in cash only.

2.5. The ld. AO in the assessment proceedings observed that sale bills furnished by the assessee were self made by the assessee and does not have the names and details of purchasers and no valid receipts are taken from the landowners to whom the consideration is paid except mentioning in the agreement and further the assessee had not taken bills against purchase of seeds, fertilisers etc, but has merely reimbursed such costs to the landowners. In this regard, the relevant observations of the ld. AO in his assessment order are reproduced hereunder: – i. It is an admitted fact that the assessee company is formed with an objective of carrying out the business of agriculture, however, it is seen from the conduct of the business there is no corporate discipline. ii. During the year under reference, the assessee has claimed that land was acquired by him executing tenancy agreement with the land owners, however not received any confirmation for receipt of rent in cash. From the said transaction it is abundantly clear that there does not exist reliable tenancy agreement with land owners. iii. The land owners have purchased seeds under various Government schemes at subsidised rates and used for crop cultivation by themselves, who have offered their labour in agricultural activity of the company. Since the assessee has incurred expenses for procurement seeds by reimbursing it

M/s. Goodyield Farming Ltd., to the land owners, the bills for purchase of seeds have not been included in the vouchers for purchase of needs. iv. It is crucial to restate that the assessee has also shared crop with the land owner, however the value of the agricultural produce have not been accounted adequately. There does not include clause mentioned in the agreement for share of crop with the land owner. It implies that there was no involvement by the assessee in cultivation activity. v. As such the assessee has not kept the unused funds in the bank therefore huge Cash in hand is not justified. vi. The assessee has legally not entered into any land related agreements and also the name of the assessee has nowhere been mentioned in the 7/12 records as "Pattedar to be eligible to carry out any agri, activities on the leased land. It is also worth to mention that no agreement has been notarized so also registered before any authority to prove that any genuine activity has been carried out by the assessee. vii. It also appears from the records filed by the assessee that assessee has claimed various expenses pertaining to the carrying of agri related operations which are all in cash however certain activities like purchase of seeds, Fertilizers and pesticides cannot be purchased from the open market without bill as it has been mandated by the Govt Of Maharashtra that all such bills needs to be supplied to the buyer of agri goods to maintain the quality of products and to prevent adulterations. The assessee has also claimed that all these expenses have been done by the owners of the land but at the same time did not submit any evidences to prove its claim despite several opportunities. viii. The assessee has shown to have made the total sales of crops like jowar, Bajra which are kharif crop and also certain crops like tomato and cucumber which are in Rabbi season and generally gets over by the month of Feb and March every year. The assessee in this case must have kept the perishable produce in the warehouse for which no receipts and other corroborating evidences like transportation, loading and unloading and wastage have been submitted by the assessee. ix. This office had also issued the notice U/s 133(6) to District Superintendent Agriculture Officer of Solapur to get the average yield and to get the exact farming status and crop pattern of the area and also average productivity of the given area. It is also learned from replies received from the Govt authorities that the area in and around akkalkot and Ashti (Beed) is all draught prone and has very less productivity and majority of the area under the cultivation of the crop is under Jowar due to rain fed conditions. The assessee has also not submitted any evidences pertaining to the supply of water & the source of irrigation fort growing of M/s. Goodyield Farming Ltd., such a huge crop yield when in not at all possible given the drought conditions prevailing the region like that of Solapur and Beed where the Farmers Suicides are so rampant and the drought a regular phenomenon. x. The assessee has sold its entire produce to the so called traders who are not trading in the APMC and other recognized trading houses and has sold the entire produce in cash only. The fact to note that the assessee has sold the jowar on lot basis which become the absolute bogus kind of transaction on the part of assessee which cannot be proved by any stretch of imagination.

2.6. The ld. AO while making the aforesaid observations concluded that the assessee company had not carried out any single agricultural related activity and it is nothing but siphoning the own money of the assessee company to introduce in the garb of agricultural activities. Accordingly, the sale proceeds of agricultural produce of Rs.3,65,09,908/- was treated as unexplained cash credit u/s. 68 of the Act and added in the assessment as income from other sources. Consequently, no deduction of expenses incurred by the assessee for the agricultural activities were allowed by the learned AO.

2.7. With regard to various observations made by the learned AO, the assessee submitted before the ld. CIT(A) that the purchasers are regular traders, their names were not reflected in the invoices made by the assessee. It was submitted that no law requires that in case of purchases, names and other details of such purchasers should be written. The traders and agents buy the goods in cash and sell the same in cash, making their cut or commission in the deal and not willing to disclose their names and identities on papers. In fact the assessee volunteered to produce the traders before the learned AO for personal examination. The learned AO chose to examine Mr Pandoo Naig, Director of the assessee company, who explained the modus operandi adopted by him with regard to purchase of agricultural produce from the assessee. With regard

M/s. Goodyield Farming Ltd., to other parties / traders, the learned AO chose not to examine them. The assessee pleaded that in the modus operandi adopted by it, the assessee could achieve its desired objective and the farmers also could earn their share. The labour at the respective villages and the surroundings earned their livelihood even when the geographical area suffered from draught like situation.

2.8. The ld. AO during the course of assessment sought to enquire from the agricultural authorities of the state to get a feedback about the situation of agricultural production in the area in which the lands cultivated by the assessee are situated. The ld. AO had stated that he had called for information with regard to agricultural produce, rainfall, irrigation facility, fertiliser subsidies awarded by the Government, sale of agricultural produce in taluka Akkalkot, regulation of rent for agricultural land etc and that similar information was requested from District Superintendent, Agricultural Officer, Pune also. In the report given by the said authorities, it was seen that they had given the yield of various produce per hectare of land in Taluka Akkalkot for the relevant year 2012- 13. They have further stated that the sale of agricultural produce was regulated by agricultural marketing committee; that the average rainfall in Akkalkot Taluka was 510 mm and the actual rainfall was 598 mm in 2012–13, exceeding the average rainfall; that the source of water was through wells and lift irrigation from Bhima River; crops taken are as kharif, rabbi, summer; that Bullock cart, tractor, trolley or trucks were used for movement; that fertilisers and pesticides are not sold with only cash memo.

2.9. The assessee submitted that the above reports from the authorities of the state government in fact supports the case of the assessee. The above reports clearly show that the relevant area had received good and M/s. Goodyield Farming Ltd., sufficient rains; the area had water bodies from which the assessee had drawn waters; labour has been paid for lifting water; for tilling apart from bullocks, tractors has been used. The assessee had given the purchase details of the tractors before the learned AO. As regards fertilisers and pesticides, the assessee submitted that it had gone organic and not used much of fertilisers and pesticides. Wherever they have been bought, the same has been bought by the farmers on the assessee had merely reimbursed the cost against their claims. These are supported by the cash vouchers produced by the assessee before the learned AO. As regards the sale of produce, the assessee did not follow the mode of getting to the regulated market. In fact there are no items which are mandatory to sell through the regulated market committee. The assessee adopted a method to dispose the produce at site and before the harvest itself, the traders buying the same for price ex site. This helped the assessee to save lot of expenses by way of hamali, transport, storage, preservation, brokerage and commission apart from being a prey to the cartel and syndicates of traders who compel original growers of the produce to sell at distressed prices. It followed what could be called a forward trading principle with traders who would buy ex site with agreed rates for the produce at the date of sale.

2.10 Before us, the ld. DR argued that the main grievance of the revenue is that the assessee was not cultivating any agricultural produce. There was no evidence produced by the assessee for even possessing the agricultural lands. The assessee had claimed that it had merely reimbursed the expenses to the farmers in view of the fact that the farmers had purchased the seeds and fertilisers from their own sources and thereafter the said expenses were reimbursed by the assessee to the farmers. Accordingly, the ld. DR argued that there is no evidence to prove that assessee had cultivated the agricultural lands. The ld. DR also M/s. Goodyield Farming Ltd., submitted that as per Maharashtra Tenancy Act, a corporate entity cannot be owner of agricultural lands and cannot engage itself in agricultural activities. The learned DR vehemently argued that the crucial document which proves the ownership of agricultural lands is 7/12 extracts. Even this was not produced by the assessee before the lower authorities.

M/s. Goodyield Farming Ltd., Rs. i. Jawar sale realization 9356494 Jawar Expenses Seed 291200 Bull pull labour 295250 Crop Cultivation Chgs 304210 Herro Rotta 115395 Kakariya 231440 Labour Charges 2834332 Land Cultivation Chgs 1587685 Ploughing 662893 Water flow charges 690536 Khad expenses 268230 3.1. For the area, crop and the season, the assessee had furnished the 7/12 extracts before the learned AO. The assessee also furnished the Ledger account of expenses with supporting vouchers before the learned AO for the following items: – ii. Cotton sale realization 4280151 Cotton Expenses Seed 92030 Bull pull labour 232183 Crop Cultivation Chgs 139431 Herro Rotta 48015 Kakariya 33316 Labour Charges 1256822 Ploughing 130849 Water flow charges 362964 Khad expenses 47790 iii. Arhar sale realization 3873904 Arhar Expenses Seed 89150 Bull pull labour 138690 Crop Cultivation 123820 Hero Rotta 52196 Labour Charges 913150 Land Cultivation Chgs 411548

M/s. Goodyield Farming Ltd., Ploughing 131250 Water flow charges 218149 Khad expenses 42421 iv. Cuccumber sale realization 5261064 Cuccumber Expenses Seed 91250 Bull pull labour 35330 Crop Cultivation Chgs 71050 Herro Rotta 62150 Kakariya 13740 Labour Charges 115197 Land Cultivation Chgs 336270 Ploughing 78120 Water flow charges 102860 Khad expenses 86990 v. Bajara sale realization 1874903 Bajara Expenses Seed 75160 Bull pull labour 118750 Crop Cultivation Chgs 116510 Herro Rotta 62150 Labour Charges 282492 Land Cultivation Chgs 362205 Ploughing 128180 Water flow charges 175120 Khad expenses 78340 vi. Green chilly sale realization 2711246 Green chilly Expenses Seed 56002 Bull pull labour 40567 Crop Cultivation Chgs 68767 Herro Rotta 26100 Kakariya 22800 Labour Charges 100548 Land Cultivation Chgs 133800 Ploughing 30067 Water flow charges 43453 Khad expenses 60849

M/s. Goodyield Farming Ltd., vi. Tomato sale realization 595695 Tomato Expenses Seed 46500 Bull pull labour 13350 Crop Cultivation Chgs 20250 Herro Rotta 14200 Kakariya 13150 Labour Charges 51000 Land Cultivation Chgs 36300 Ploughing 14613 Water flow charges 27450 Khad expenses 71250 vii. Harbhara sale realization 415480 Harbhara Expenses Seed 49000 Bull pull labour 15213 Crop Cultivation Chgs 21700 Herro Rotta 25600 Kakariya 21200 Labour Charges 56900 Land Cultivation Chgs 82500 Ploughing 27200 Water flow charges 54520 Khad expenses 28570 ix. Water melon sale realization 3546237 Water melon Expenses Seed 293200 Crop Cultivation Chgs 42500 Herro Rotta 61600 Kakariya 43350 Labour Charges 125400 Land Cultivation Chgs 221200 Ploughing 35600 Water flow charges 93313 Khad expenses 67200 3.2. Further the assessee had completely given the extent of acres of land under cultivation before the learned AO as under: – Details of Land under cultivation- Acres Cotton 52 Jawar 313 Bajara 96 Cucumber 39 Green Chilli 18 Harabara 14 Tomato 6 Tur 76 Watermelon 28 Total 642 3.3. The assessee had also furnished the Ledger account of agricultural expenses with supporting vouchers before the learned AO. We find that the assessee had also further furnished the Ledger account of agricultural sales of agricultural produce together with supporting sale bills before the learned AO. The evidence is in respect of the aforesaid facts are enclosed in pages 10 to 17 of the paper book filed before us. Further we find that the objection made by the learned DR before us that as per Maharashtra Tenancy and Agricultural Lands Act, 1948, a corporate entity cannot be owner of agricultural lands and cannot engage itself in agricultural activities, was also addressed by the assessee before the learned AO vide letter dated 21.03.2016.

3.4. From the perusal of the various papers in the paper book, we find that assessee had given the identity of land owners with whom it entered into agreements; the extent of lands involved; village in which the lands are situated; the land revenue extracts to exhibit the lands owned by the farmers which were ultimately used for cultivation by the assessee; copies of all agreements; vouchers in respect of sales, receipts and expenses. With regard to the examination carried out by the ld. AO on the farmers, we find that the ld. AO had chosen to issue summons to the farmers at M/s. Goodyield Farming Ltd., the fag end of the assessment proceedings and since the farmers were located at an distant location from Mumbai, they found it difficult to travel and present themselves before the ld. AO proving their ownership of land and genuineness of agreements entered into with the assessee. We find that assessee had duly met each and every averment of the ld. AO in his assessment order by way of written submissions filed before the ld. CIT(A). One more important point addressed by the ld. AO was that the area in which the lands were situated were draught hit, draught prone and it could not have grown the crops as claimed. This has been disproved by the report submitted by the District Superintendent Agricultural Officer, Pune from whom the ld. AO had sought to obtain information directly u/s.133(6) of the Act. In the said information, it was revealed to the ld. AO that the said areas in which agriculture lands were situated had sufficiently exceeding rainfall than its predictions and that the source of water was through wells and lift irrigation from Bhima river and various crops were indeed cultivated thereon. Hence, it could be safely concluded that the allegation leveled by the ld. AO is without any basis and purely based on surmise and conjecture. Hence, we hold that the Revenue was not right in holding that the assessee had not carried out any agriculture operations in the said lands. The books of accounts maintained by the assessee duly audited were never rejected by the Revenue. Admittedly, the entire expenses were incurred in cash and sale proceeds were received in cash, being transacted with agriculturists and agricultural produce. This does not make the transactions ingenuine so as to make any addition u/s.68 of the Act. As stated earlier, it is a fact that assessee had duly reflected leasehold agricultural land in its books in the sum of Rs.7,05,70,000/- in its fixed assets schedule.

3.5. It would not be out of place to mention that the ld. AO in the scrutiny assessment proceedings for A.Yrs. 2014-15 and 2015-16 in the M/s. Goodyield Farming Ltd., case of the assessee had indeed accepted the transactions of the assessee as genuine vide orders u/s.143(3) of the Act dated 30/12/2016 and 29/12/2017 respectively. In fact in the said assessment order for A.Y.2014-15, the ld. AO had even mentioned that assessee had grown the following products i.e. Cotton, Bajara, Watermelon, Chilli, Cucumber, Tomato, Watermelon etc., and during the Rabbi season company has grown the following products i.e. Jawar, Cotton, Tur, Tomato, Chilli and Cucumber etc. This goes to prove that in immediately succeeding two assessment years, the ld. AO had indeed accepted the claim of the assessee in the scrutiny assessment proceedings. The ld. AR made a statement from the Bar that the said assessment were not disturbed by the Revenue either by reopening u/s.147 of the Act or the ld. PCIT invoking revision jurisdiction u/s.263 of the Act. Further we find that the assessee had been making payment of land revenue tax on the said lands and details of the said receipts were also submitted by the assessee before the ld. AO vide letter dated 30/03/2016. In the said letter, we also find that the assessee had furnished the Registration Certificate of the Escort Tractor purchased during the year 2005-06 for the purpose of agricultural activities; copies of insurance certificate for insuring Escort Tractor with United India Insurance Co. Ltd. together with the details of premium paid during the year under consideration and also stating that summons issued by the ld. AO to five farmers (land owners of agricultural lands) situated at Akkalkot could not respond before the ld.AO as the notices were received by them very late on 28/03/2016, but however, they had sent their reply by speed post on 30/03/2016, confirming that they had entered into agreement for cultivating of land with the assessee company. It is not in dispute that the documents were received from the said farmers post completion of assessment proceedings by the ld. AO and they are forming part of the records of the lower authorities. We find that the ld. CIT(A) while granting relief to the assessee had taken due

M/s. Goodyield Farming Ltd., cognizance of the report of the Tahsildar, Akkalkot vide his letter dated 02/04/2016 which was received by the ld. AO after completion of assessment proceedings wherein he had mentioned the average production per acre for the year 2012-13 (i.e. relevant to A.Y.2013-14) mentioning the season crop and the average production for each crop in tabular form. Accordingly, the remand report was called for by the ld. CIT(A) from the ld. AO. The ld. AO filed a remand report on 23/11/2016. In the remand report, the ld. AO agrees to the fact that the details as requested in the notice u/s.133(6) of the Act from District Collector‟s office, Solapur and District Superintendent, Agricultural Officer, Pune, were received by him on 03/05/2016 and 25/05/2016 respectively. The ld. AO also stated in the remand report that summons were issued to five persons and out of which two persons accepted the summons and three persons refused to accept the summons. However, the ld. AO mentioned in the remand report that compliance to the summons were duly made by the farmers vide letter received on 01/04/2016. We find that the ld. CIT(A) had recorded a categorical finding that the ld. AO in the remand report had conceded that five agriculturists agreed that their lands were given to the assessee company on rent basis. Considering the remand report of the ld. AO, considering the various details furnished by the assessee, as detailed supra, considering 7/12 extracts from the said Revenue authorities furnished by the assessee and considering the independent reports from Superintendent of Agriculture department of Taluk Akkalkot in Solapur District and District Superintendent, Agriculture Officer, Pune, the ld. CIT(A) held that the net agricultural income shown by the assessee at Rs.1,17,31,323/- to be genuine and deleted the addition made by the ld. AO in respect of gross receipts in the sum of Rs.3,65,09,908/- as unexplained cash credit u/s.68 of the Act. By this process, the sale proceeds received by the assessee from agricultural activities in the sum of Rs.3,65,09,908 was accepted as genuine and M/s. Goodyield Farming Ltd., agricultural expenses debited by the assessee in its profit and loss account were also accepted as genuine.

3.6. In view of the aforesaid observations, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in the facts and circumstances of the instant case. Accordingly, the ground Nos. 1 & 2 raised by the Revenue are dismissed.

4.1. We have heard rival submissions and perused the materials available on record. The assessee issued 138400 shares of Rs.10 each at a premium of Rs.115 to its holding company M/s. Onelife Gas Energy and Infrastructure Ltd. Thus, capital contribution of Rs.13,84,000/- (138400 x 10) and premium of Rs.1,59,16,000/- (138400 x 115) totaling to Rs.1,73,00,000/- collected during the year. The ld. AO during the course of assessment proceedings showcaused the assessee to justify the premium charged together with the valuation report under Rule 11UA of the Income Tax Rules. The ld. AO observed that assessee did not furnish the valuation report. The ld. AO observed that assessee could not provide sufficient documentary evidences to justify the premium charged by it in the sum of Rs.1,59,16,000/- thereby failing to prove the genuineness of the same. The ld. AO also observed that Section 78 of the Companies Act, 1956 provides for utilization of share premium for specified purposes and that the assessee in the instant case had not utilized the share premium received for those specified purposes. Instead these funds i.e. the share premium receipts were utilized by the assessee for making investments in M/s. Goodyield Farming Ltd., inventories, deposits etc., Accordingly, the ld. AO concluded that share premium received had been diverted for non-specified purposes in violation of provisions of the Companies Act, 1956. Thereafter, he concluded that the amount brought into the books of the assessee company as share premium is not a share premium within the meaning of Companies Act, 1956 and hence, the same needs to be treated as income under the Income Tax Act. Later, the ld. AO applied the provisions of Section 56(2)(viib) of the Act and held that the share premium component remained unjustified by the assessee and hence it exceeded the face value of the share of the assessee company warranting making addition thereon.

4.2. The ld. CIT(A) deleted the addition made u/s.56(2)(viib) of the Act by placing reliance on the valuation report submitted by an independent Chartered Accountant which was submitted to the ld. AO on 31/03/2016. By appreciating the financial statements of the assessee company as on 31/03/2012 and 31/03/2013 and also placing reliance on various decisions of Mumbai Tribunal, the Hon‟ble Jurisdictional High Court, Hon‟ble Madras High Court and Hon‟ble Supreme Court.

4.3. At the outset, we find that the valuation report from an independent Chartered Accountant dated 30/08/2012 valuing the equity share of the assessee company at Rs.124.16 per share under Rule 11UA of the Income Tax Rules was duly filed by the assessee before the ld. AO on 31/03/2016. This fact has been duly admitted by the ld. DR before us that the said valuation report was indeed filed before the ld. AO on 31/03/2016. The main grievance of the ld. DR was that the ld. AO did not have sufficient time to examine the said valuation report as it was submitted on the last date of completion of assessment. On perusal of the valuation report, we find that an independent valuer had adopted

M/s. Goodyield Farming Ltd., Discounted Cash Flow (DCF) method which is one of the recognized method under Rule 11UA of the Income tax Rules taking into account the projected revenue from operations, projected profitability and free cash flow for the next three years keeping the audited figures as on 31/03/2012 as the base figure. Moreover, the independent valuer had assumed the conservative growth rate of cash flow at 5% per annum. The book value per share by the assessee company as on 31/03/2012 of Rs.1368.37 which was much more than the value arrived under the DCF method. Hence, the shares issued by the assessee company to its holding company @Rs.125/- per share using DCF method is very much on a conservative basis. The ld. CIT(A) had taken cognizance of the fact that assessee company is having a free reserve of Rs.10.05 Crores as against its paid up capital of Rs.5 lakh as on 31/03/2012. We have gone through the audited financial statements of the assessee company and the profit before tax for the various years are as under:-

As on 31/03/2013 - Rs.1.21 Crores As on 31/03/2014 - Rs.1.25 Crores As on 31/03/2015 - Rs.1.23 Crores 4.4. When the above figures are compared with the projections in the DCF method, the same does not have much variance. The profit before tax estimated by the independent valuer in his valuation report are as under:-

As on 31/03/2013 - Rs.1.21 Crores As on 31/03/2014 - Rs.1.27 Crores As on 31/03/2015 - Rs.1.34 Crores

M/s. Goodyield Farming Ltd., 4.5. Hence, the figures that were estimated in the valuation report using DCF method had tallied more or less with the actual audited figures thereby leading to lesser variance between the projected and the actual figures. Though this is not a relevant factor, still this fact also justifies the premium charged by the assessee company at Rs.115/- per share for allotment of shares to its holding company. In any case, the assessee company had only allotted shares to its holding company. On going through the shareholding pattern of the assessee company, we find that 99.99% of the shares of the assessee company are held by the following persons:- i. Mr. Pandoo Naig, Director - 12.07% ii. Mr. T.K.P Naig - 14.46% iii. Onelife Gas Energy and - 73.46% Infrastructure Ltd.(Holding Company)

4.6. Hence, no outsider had even entered the company as a shareholder. Moreover, the other observations made by the ld. AO that assessee company had violated the provisions of Section 78 of the Companies Act, 1956 is absolutely irrelevant for the purpose of Indian Income Tax Act, 1961. In fact Section 78 of the Companies Act, 1956 only stipulates the situation whenever any company proposes to utilize the share premium, then the said company could utilize only for specified purposes. In other words, any debits that are to be made in the share premium account in the books of any limited company would be governed by provisions of Section 78 of the Companies Act, 1956. Nowhere there is a prohibition either in the Companies Act or in the Income Tax Act to utilize the amounts received towards share premium for any specific purpose. The restriction provided in section 78 of the Companies Act, 1956 is only with regard to the utilization of „share premium account‟ and M/s. Goodyield Farming Ltd., not for the „share premium amount‟. In the instant case before us, we find that assessee company admittedly had used the share premium amounts for the purpose of its business, which fact has been admitted by the ld. AO in his assessment order. Hence, the observations made by the ld. AO in this regard are totally baseless, devoid of merits and deserves to be dismissed in limine.

4.7. We find that the ld. CIT(A) had rightly placed reliance on the decision of the Hon‟ble Jurisdictional High Court in the case of Vodafone India Services Pvt. Ltd vs. Union of India and others reported in 368 ITR 1 wherein it has been held that receipt of share capital and share premium is capital in nature and cannot be brought to tax. Pursuant to the amendment made in proviso to Section 56(2)(viib) which has been introduced from 01/04/2013, (hence, applicable from A.Y.2013-14 onwards), the assessee is bound to justify the receipt of share premium by way of valuation report. In the instant case, the assessee had duly justified the charging of premium on its holding company by way of an independent valuation report using discounted cash flow method which is one of the recognised valuation method prescribed under Rule 11UA of the Income Tax Rules. Hence, the decision rendered by the Hon‟ble Jurisdictional High Court referred to supra would hold the field even in the facts of this case and even for the year under consideration. It is also pertinent to note that this decision of the Hon‟ble Jurisdictional High Court has been accepted by the department and no further appeal to Hon‟ble Supreme Court has been preferred. In fact there is also a Board Instruction No.2/2015 in FNo.500/15/2014-APA-I dated 29/01/2015, wherein the Central Board of Direct Taxes (CBDT) had categorically stated that the aforesaid decision of the Hon‟ble Bombay High Court has been accepted by the Board.

M/s. Goodyield Farming Ltd., 4.8. In view of the aforesaid observations and respectfully following the aforesaid judicial precedents, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in respect of this issue. Accordingly, the ground Nos. 3,4 & 5 raised by the Revenue are dismissed.

5.1. We have heard rival submissions and perused the materials available on record. During the year under consideration, the assessee has availed unsecured loan from M/s. Onelife Gas Energy and Infrastructure Ltd. (Holding Company of the assessee) in the sum of Rs.15,93,20,000/-. The ld. AO on the perusal of the financial statements of the lender company observed that it had reserves and surplus in the form of share premium of Rs.54 Crores carried forward from the earlier years. The loss shown for the year was Rs.10,90,549/- by the said lender company. Accordingly, the ld. AO concluded that the lender company is not a genuine company and held that creditworthiness of the company is not proved and accordingly, proceeded to treat the receipt of loan by the assessee company as unexplained cash credit u/s.68 of the Act.

5.2. The ld. CIT(A) deleted the addition on the ground that the money is received from the Holding Company by the assessee company and there was sufficient creditworthiness available with the holding company to give advance unsecured loan to the assessee company. The ld. CIT(A) however, stated that a remand report has been obtained from the ld. AO in this regard while deleting the addition. We have gone through the M/s. Goodyield Farming Ltd., remand order passed by the ld. CIT(A) and from perusal of the same, we find that the ld. CIT(A) had not sought for any report as far as this issue is concerned in the remand order. Hence, we hold that the second part of para 6.4 in page 34 of order of the ld. CIT(A) is partially incorrect in respect of ld. CIT(A) stating that the remand report has been obtained from the ld. AO on this issue. Hence the ground No.7 raised by the Revenue is allowed.

5.3. It is not in dispute that assessee has received unsecured loan from M/s. Onelife Gas Energy and Infrastructure Ltd. The said lender company holds 73.46% of equity shares of the assessee company and accordingly, the lender company is a Holding Company of assessee company. It is not in dispute that the funds have been received through regular banking channels by the assessee company out of accounted sources of the lender company. The assessee had duly furnished the bank statements of both lender company as well as the assessee company to prove this point. The entire audited financial statements of the lender company was duly furnished by the assessee company before the ld. AO to prove the creditworthiness of the lender company. On perusal of the financial statements of the lender company, we find that it has own funds of Rs.59.97 Crores and Rs.59.66 Crores as on 31/03/2012 and 31/03/2013 respectively. Confirmation for receipt of loan was also placed on record by the assessee before the ld. AO from the lender company. The lender company is duly assessed to Income Tax and the Income Tax assessment particulars were also furnished before the ld. AO. The monies invested by the lender company in the assessee company is duly reflected in the books of accounts of the lender company and the same has been paid out of accounted sources of the lender company. Sufficient creditworthiness is proved for advancing loan by the lender company to the assessee company as is evident from the bank statements of the lender company.

M/s. Goodyield Farming Ltd., Hence, we hold that all the three ingredients of Section 68 of the Act viz. identity, creditworthiness of the lender and genuineness of the transactions are proved beyond doubt in the instant case. Hence, we hold that the ld. CIT(A) was justified in deleting the addition made u/s.68 of the Act in the facts and circumstances of the instant case. Accordingly, the ground No.6 raised by the Revenue is dismissed.

Order pronounced on 22/02/2023 by way of proper mentioning in the notice board.