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Facts
The assessee company, engaged in construction and development, received a substantial investment in shares with a significant premium from M/s MG Finvest Pvt. Ltd. The Assessing Officer (AO) questioned the valuation of these shares and the genuineness of the transaction, leading to an addition under Section 68 of the Income Tax Act.
Held
The Tribunal held that the assessee deliberately used the old company name for filings, misrepresenting the transaction. The valuation of shares was not substantiated as per Rule 11UA, and the investor lacked the financial capacity for the investment. The Tribunal upheld the addition made by the AO.
Key Issues
Whether the addition made by the AO under Section 68 for share premium is justified when the valuation is disputed and the investor's genuineness is questionable? Whether the assessment order is bad in law due to the use of the old company name post-amalgamation?
Sections Cited
143(3), 68, 56(2)(vii), 56(2)(viib), 11UA
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, AHMEDABAD “B” BENCH
Before: Dr. BRR Kumar & Ms. Suchitra Kamble
आदेश/ORDER Per Suchitra Kamble, Judicial Member:
This is an appeal filed against the order dated 10-10- 2023 passed by National Faceless Appeal Centre (NFAC), Delhi for assessment year 2015-16.
The grounds of appeal
are as under:-
1. The Ld. CIT(A) has erred in confirming the action of the Assessing Officer in passing an order u/s.143(3) of the Act which is illegal and bad in law hence the same deserves to be quashed.
2. The Ld. CIT(A) has erred in confirming the addition of Rs.9,60,00,000/- made by the Assessing Officer u/s.68 of the I.T. Act, 1961 on account of Sale of Share Premium and Share Capital.
The Ld. CIT(A) has erred in holding that the alternative addition of Rs.9,16,75,676/- made by the Assessing officer on protective basis u/s.56(2)(vii) of the Act would only be for academic purpose and there is no requirement for adjudicating the said issue as the substantive addition of Rs.9,60,00,000/- made by A.O. u/s. 68 of the Act has already been confirmed.
4. The Ld. CIT(A) has erred in not allowing set off of current year loss as per return of income filed.
5. The appellant craves leave to add, alter, amend, modify and/or withdraw all or any of the grounds of appeal before or at the time of hearing.”
3. The assessee company was engaged in the business of construction and developer of commercial and residential projects. The case of the assessee was selected for scrutiny and the statutory notices were issued. The assessee has filed original return of income for assessment year 2015-16 on 31-10-2015 declaring total income at (-) Rs. 10,17,129/-. The Assessing Officer observed that M/s. MG finvest Pvt. Ltd. has subscribed to share capital of the assessee company along with premium. For this purpose, the assessee allowed 432432 equity shares at the price of Rs. 222.00 per share accordingly value worked to be Rs. 9.60 crores. The assessee submitted that the assessee obtained a fair valuation report whereby fair value of equity of the assessee company worked out by an independent firm of chartered accountant. The assessee company also pointed that section 56(2)(ib) of the Act in respect of additional of securities premium charged in excess of fair value of shares. The amount charged as securities premium amount in excess of fair value of shares can be added to total income of 2 Shalby Ltd., A.Y. 2015-16 the recipient company u/s. 56(2)(viib) of the Act. Thus, the valuer has worked fair value of land. The valuer has explained the difference stating that book value of CWIP is Rs. 19,75,18,792/- which comprises lease hold land premium of Rs. 4,68,00,000/-. The land area is 40,985/- sq. mt. The prevailing government rate is Rs. 2045 sq. mt accordingly, the value of land should be considered to Rs. 8,27,91,825/-. In the assessee’s case land value has been increased by Rs. 3,59,91,825/- post adjustment of certain CWIP expenses, the valuer has determined fair market value of shares and accordingly, the allotment took place. The assessee company also submitted before the Assessing Officer that the investor M/s. MG finvest Pvt. Ltd. transferred shares of the assessee company in subsequent years. However, the assessee company submitted that the shares of the assessee firm were not transferred at loss, the assessee company extracted information from the Investor company whereby the assessee company came to know that share of the assessee company were transferred at higher valuation by the Investor company. The share transfer agreement of the Investor company categorically mentions the same that there has not been any loss incurred by M/s. MG finvest Pvt. Ltd. on the shares of the assessee company. After considering the assessee’s contention, the Assessing Officer held that from the perusal of balance sheet dated 31-03-2014 and 31-03-2015, the assessee has not increased its asset/inventory to the same proportion. Therefore, the assessee’s valuation report was rejected. The Assessing Officer further held that the shares Shalby Ltd., A.Y. 2015-16 of assessee should have been allowed only on face value of shares and therefore share premium raised at Rs. 222 is added back to the total income of the assessee u/s. 56(2)(viib) of the Income Tax Act which comes at Rs. 9,16,75,676/-. The Assessing Officer further held that share capital and share premium of Rs. 4.60 lacs has been credited in the book of the assessee company maintained for previous year 2014-15 relevant to assessment year 2015-16 and the explanation offered by the assessee company is not satisfactory. Thus, the Assessing Officer invoked the provisions of section 68 of the Income Tax Act and made addition of Rs. 9.60 crores u/s. 68 towards share premium and share capital and premium.
The assessee filed appeal against the said assessment order before the CIT(A), the CIT(A) dismissed the appeal of the assessee being repetitive, hence infructous.
The ld. A.R. submitted that the assessment order is passed in the name of the old name and in fact on 15-09- 2017, the assessee has informed the amalgamation of Shalby Surat Hospital Pvt. Ltd. which amalgamated with Shalby Ltd. to the Assessing Officer. Therefore, the Assessing Officer submitted that the assessment itself bad in law. As regards merits of the case, the ld. A.R. submitted that the vide order dated 09-10-2023 CIT(A) has decided the case on merit thereby stating that the assessee while filing the response to the Assessing Officer (show cause reply) had booking stamp of NSH Surat meaning the Shalby Ltd., A.Y. 2015-16 assessee had itself sent the reply in the name of investor company. Thus, the CIT(A) has dismissed the appeal of the assessee stating therein that the valuation of shares was not according to Rule 11UA of the Income Tax Rules, 1962 and has not proved the genuineness of the transaction and confirmed the addition. The ld. A.R. stated that this is not correct. The valuation was properly done on share premium
The ld. D.R. relied upon the assessment order and the order of the CIT(A) .
We have heard both the parties and perused all the relevant material available on record. From the perusal of records, it appears that the assessee in the proceedings before the Assessing Officer has deliberately chosen the name of the earlier company i.e. NSH Surat instead of amalgamating company i.e. Shalby Ltd. Thus, the Assessing Officer was under bonafide impression despite in which that the assessee is continuing with the name of Shalby Surat Hospitals Pvt. Ltd. therefore, the contention of the ld. A.R. does not sustain and ground no. 1 is dismissed. As regards merit of the case, the Assessing Officer has categorically mentioned that the shares have been issued to M/s. MG finvest Pvt. Ltd. at Rs. 222 per share wherein premium containing is Rs. 212 per share. These shares have been subsequently transferred to M/s Shalby Limited for Rs. 35,84,85,995/- and the profit of such transaction of shares has been set off against the losses booked by it with respect to it some other shares. Thus, the assessee has introduced Shalby Ltd., A.Y. 2015-16 its own fund in this company without paying any taxes on the entire transactions and merely the change of name cannot be treated as the actual transfer of shares. Thus, the addition and the valuation made by the Assessing Officer is justified and hence on merit the case of the assessee does not survive. The decision of Hon’ble Gujarat High Court in case of Inox Wind Energy Ltd. vs. ACIT 454 ITR 162, Adani Wilmer Ltd. vs. ACIT 456 ITR 551 and Anokhi Reality Pvt. Ltd. vs. ITO (2023) 153 taxmann.com 275 all these decisions by the Hon’ble Jurisdictional High Court in respect of non-existing company where the assessee has properly informed the Assessing Officer and the Assessing Officer has passed the Assessment order in the name of non-exiting company. But in the present case, the assessee in fact for filing the reply after its submission of amalgamation has deliberately filed reply with earlier name that means the assessee itself has accepted the earlier name and that cannot be treated as a mistake apparent on record and therefore the assessment order cannot be held as bad in law. Thus, the said contention of the assessee is dismissed. As relates to the merits of the case, the CIT(A) has given the categorical finding at page para 5.2.4. which is as follows: “5.2.4 Now coming to the facts of the instant case. I have carefully gone through the assessment order, facts of the case and submissions of the appellant. The appellant is a closely held private limited company. It is an undisputed fact that the shares have been issued to M. G. Finvest Pvt Ltd. (hereinafter M.G.Finvest) at Rs. 222 per share wherein premium component is of Rs. 212 per share. These shares have been subsequently transferred by M.G. Finvest to M/s Shalby Limited (the successor company of the appellant company) for Rs. 35,84,85,995/- and the profits earned by M.G. Finvest on such transaction of shares Shalby Ltd., A.Y. 2015-16 has been set off against the losses booked by it with respect to some other shares. Thus, in the entire sequence of events, the appellant has introduced its funds in its own company without paying even a penny of tax on the entire transaction. It is also a matter of fact that as per the financials of M/s M.G. Finvest, it was not into any effective/operative business other than the business of circumlocution of funds as has been analysed by the AO in detail in para 4.3.4 and 4.3.5 of the assessment order. M G Finvest had filed return with negligible income, therefore, there was no financial capacity with the investor per-se to invest huge amount.
Further, the AO conducted due enquiries for verifying the genuineness of transaction and creditworthiness of the investor. It is to highlight that M.G. Finvest did not respond to the 133(6) notice issued by the AO. The AO has categorically noted in para 4.3.2 of the assessment order that the reply received in response to 133(6) notice was after issuance of show cause notice to the assessee and that the response had booking stamp of NSH Surat meaning that the assessee had itself sent the reply in the name of the investor company. The appellant has failed to refute the said finding of the AO.
As regard the claim of the appellant regarding the valuation of shares being in accordance with Rule 11UA of the Income-tax Rules 1962, the AO has given a detailed finding on the same in paras 4.4.2, 4.4.3 and 4.4.4 at pages 41 to 43 of the assessment order. It has been clearly brought out as to why the valuation offered by the assessee is not acceptable.”
The observation made by the CIT(A) is correct and there is no need to interfere with the same, hence the appeal of the assessee is dismissed.
In the result, the appeal of the assessee is dismissed.