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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
PER SANDEEP SINGH KARHAIL, J.M.
The present appeal has been filed by the Revenue challenging the impugned order dated 31/08/2016, passed under section 250 of the Income Tax Act, 1961 (“the Act”) by learned Commissioner of Income Tax (Appeals)– 2, Mumbai, [“learned CIT(A)”], for the assessment year 2012–13.
In this appeal, the Revenue has raised following grounds:–
"1. Whether On the facts and circumstances of the case and in law the ld. CIT(A) was correct in allowing the appeal of the assessee and deleting the addition of Rs.63,98,16,405/- made by the Assessing Officer on account of share Premium treated as income from other sources u/s.56(1) of the Income Tax Act, 1961?
Green Infra Ltd. ITA No.7529/Mum./2016 2. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) was correct in deciding the issue in favour of assessee solely relying on the decision of Hon'ble ITAT in the assessee's own case for AY 2009-10, without appreciating the legal position that the said issue had not attained finality since departments appeal filed u/s.260A against the said decision was still pending before Hon'ble Bombay High Court? 3. Whether on the facts and circumstances of the case and in law the Ld.CIT(A) has erred in holding that the Share Premium was by assessee, ignoring the findings of the Assessing Officer given in the assessment order that the assessee company failed to furnish authentic documentary evidence to justify basis of charging premium, the Return of assessee company filed for year under consideration as well as for earlier years showed consistent losses and hence the valuation of shares done adopting DCF without considering the Income Tax Liability of preceding years was meaningless, as once these liabilities were taken into consideration the Share Valuation would be much below the value arrived at by assessee and hence the share premium was not justified? 4. Whether on the facts and circumstances of the case and in Law the Ld.CIT(A) has erred in deleting the addition made on account of share ignoring the findings brought out in assessment order that the assessee company did not possess any assets in the form of patents copyrights, intellectual property rights based on which the company would be likely to substantially enhance its profits in future and presently command Premium on its shares and hence the Share Premium was not justified? 5. Whether on the facts and circumstances of the case and in Law Ld.CIT(A) has erred in deciding the issue in favour of assessee, ignoring the findings of the assessing officer that the assessee company had brought in Share Premium without having Financial Worth to fetch such premium and the said premium had been flown out from the designated account in violation of Section 78(2) of the Company Act and hence lost its character of being treated as share premium and accordingly attracted the taxing provisions under the Income Tax Act namely Section 61 to 63 applicable on transfer of funds in nature of revocable transfer of assets, and hence rightly taxed by the Assessing Officer as income from other sources u/s.56(1) of the Act.”
The only grievance of the Revenue in the present appeal is against deletion of addition of Rs.63,98,16,405, on account of share premium treated as income from other sources under section 56(1) of the Act.
The brief facts of the case pertaining to the issue, as emanating from the record, are: The assessee company was incorporated in India in April 2008, and is engaged in the business of owning, operating, sourcing,
Green Infra Ltd. ITA No.7529/Mum./2016 developing, engineering, constructing and investing in Green or Clean Technology Infrastructure Projects. For the year under consideration, the assessee e–filed its return of income on 29/09/2012, declaring loss of Rs.1,85,78,699. During the course of assessment proceedings, it was observed that the assessee has been incorporated only on 03/04/2008, and collected huge premium of Rs.63,98,16,405, on allotment of shares of face value of Rs.10, each at a premium of Rs.37=5957 per share. In this regard, the assessee was asked to furnish the details and explanation for charging such high premium. In reply, the assessee submitted that it had issued 1,70,18,340 number of shares at Rs.10 each at a premium of Rs.37=5957 per share to the subscribers and group entities. The assessee further submitted that issuance of shares at a premium was a commercial decision and as per the terms of issue. Further, the valuation was done using discounted cash flow method and the same was adopted for charging the premium. The assessee also contended that all the subscribers have explained the source of income and the assessee group has also shown substantial grown in a subsequent year in a consolidated form. The Assessing Officer, vide order dated 09/03/2015, passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the assessee company has shown consistent losses and in such a scenario the valuation done by adopting DCF method without considering the income tax liability of the preceding year, which is confirmed and crystallized in appellate proceedings is meaningless. The Assessing Officer further held that once these liabilities are taken into consideration, the share valuation will be much below the valuation arrived at by the assessee. The Assessing Officer further Page | 3
Green Infra Ltd. ITA No.7529/Mum./2016 held that no documentary evidence has been filed to justify the basis on which the premium is charged and, therefore, the assessee has totally failed to justify the charging of premium of Rs.37=5957 per share. Accordingly, the Assessing Officer, inter–alia, made the addition of Rs.63,98,16,405, as income from other sources under section 56(1) of the Act.
In appeal, the learned CIT(A), vide impugned order dated 31/08/2016, following the decision of the Co–ordinate Bench of the Tribunal in assessee’s own case for immediately preceding year allowed the appeal filed by the assessee on this issue. Being aggrieved, the Revenue is in appeal before us.
During the course of hearing, the learned Departmental Representative (“learned D.R”) relied upon the order passed by the Assessing Officer. The learned D.R. further submitted that Revenue’s appeal against the order passed by the Co–ordinate Bench of the Tribunal in assessee’s own case is still pending before the Hon'ble Jurisdictional High Court.
On the other hand, the learned Authorised Representative (“learned A.R”) placed reliance upon the decision of the Co–ordinate Bench in assessee’s own case in preceding assessment year.
We have considered the rival submissions and perused the material available on record. We find that the Co–ordinate Bench of the Tribunal in assessee’s own case in Green Infra Ltd. v/s ITO, [2013] 145 ITD 240 (Mum. Trib.), for the A.Y. 2009–10, while deciding similar issue in favour of the assessee observed as under:–
Green Infra Ltd. ITA No.7529/Mum./2016 “10. We have considered the rival submissions and carefully perused the orders of the lower authorities and the material evidences brought on record in the form of Paper book. The entire dispute revolves around the charging of share premium of Rs. 490/- per share on a book value of Rs. 10/- each. This dispute is more so because of the fact that the assessee company was incorporated during the year under consideration. Therefore, according to the revenue authorities, it is beyond any logical reasoning that a company with zero balance sheet could garner Rs. 490/- per share premium from its subscribers. Such transaction may raise eyebrows but considering the subscribers to the assessee company, the test for the genuineness of the transaction goes into oblivion. It is an undisputed fact admitted by the Revenue authorities that 10,19,000 equity shares has been subscribed and allotted to IDFC PE Fund-II which company is a Front Manager of IDFC Ltd., in which company Government of India is holding 18% of shares. The contributors to the IDFC PE Fund-II who is a subscriber to the assessee’s share capital, are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are all public sector undertakings. Therefore, to raise eyebrows to a transaction where there is so much of involvement of the Government directly or indirectly does not make any sense. 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 share holders whether they want to subscribe to such a heavy premium. The Revenue authorities cannot question the charging of such of huge premium without any bar from any legislated law of the land. Details of subscribers were before the Revenue authorities. The AO has also confirmed the transaction from the subscribers by issuing notice u/s. 133(6) of the Act. The Board of Directors contains persons who are associated with IDFC group of companies, therefore their integrity and credibility cannot be doubted. The entire grievance of the Revenue revolves around the charging of such of huge premium so much so that the Revenue authorities did not even blink their eyes in invoking provisions of Sec. 56(1) of the Act. 10.2. Let us consider the provisions of Sec. 56(1) of the Act: 56.1. “Income from other Sources Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head “Income from other sources”, if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E.” 10.3. A simple reading of this section show that income of every kind which is not to be excluded from the total income shall be chargeable to income tax. The emphasis is on that ’ income of every kind’, therefore, to tax any amount under this section, it must have some character of “income”. It is a settled proposition of law that capital receipts , unless specifically taxed under any provisions of the Act are excluded from income. The Hon’ble Supreme Court has laid down the ratio that share premium realized from the issue of shares is of capital in nature and forms part of the share capital of the company and therefore cannot be taxed as a Revenue receipt. It is also a settled proposition of law that any expenditure incurred for the expansion of the capital base of a company is to be treated as a capital expenditure as has been held by the Hon’ble Supreme Court in the case of Page | 5
Green Infra Ltd. ITA No.7529/Mum./2016 Punjab State Industrial Corporation Ltd. Vs CIT 225 ITR 792 and in the case of Brooke Bond India Ltd. VS CIT. Thus the expenditure and the receipts directly relating to the share capital of a company are of capital in nature and therefore cannot be taxed u/s. 56(1) of the Act. The assessee succeeds and Revenue fails on this account. 11. The Ld. Departmental Representative has raised an altogether plea by stating that the nature of the transaction should also be judged within the parameters of the Sec. 68 of the Act. The counsel for the assessee strongly objected to this but in the interest of justice and fair play, we allowed the DR to raise this issue. For this, we draw support from the decision of the Hon’ble Supreme Court in the case of Kapurchand Shrimal Vs CIT 131 ITR 451, wherein the Hon’ble Supreme Court has laid down the ratio that – “It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by statute.” 11.1. Considering the submissions of the Ld. DR in the light of the above ratio, let us test the transaction in the light of the provisions of Sec. 68 of the Act. As per Section 68 – the initial onus is upon the assessee to establish identity, genuineness of the transaction and the capacity of the lender or the depositor. The subscribers to the share capital are all companies. The confirmations of the transactions have been received by the AO by issuing notice u/s. 133(6) of the Act, therefore, identity has been established beyond all reasonable doubts nor the Revenue authorities have questioned the identity of the share holders. The genuineness of the transaction can also be safely concluded since the entire transaction has been done through the banking channels duly recorded in the books of accounts of the assessee duly reflected in the financial statement of the assessee. The bank statement is exhibited at pages 101 and 102 of the Paper book in which the transaction relating to the allotment of shares are duly reflected . In the instant case, the capacity of the share holders cannot be doubted as has been pointed out elsewhere in our order that 98% of the share is held by IDFC Private Equity Fund-II which is a front manager of IDFC Ltd., and the contributors in IDFC Private Equity Fund-II are LIC, Union of India, Oriental Bank of Commerce, Indian Overseas Bank and Canara Bank which are public sector undertakings. 11.2. Now the only point of dispute is the nature of transaction which according to the Revenue authorities is beyond any logical sense and which is the charging of share premium at the rate of Rs. 490/- per share. According to the Revenue authorities this is a sham transaction . So far till now, we have seen and examined the sources of funds. Let us see the application of funds and who are the ultimate beneficiaries of this share premium which may clear the clouds over the transaction alleged to be a sham. We find that the assessee company has invested funds in its three subsidiary companies namely (i) Green Infra Corporate Wind Ltd. (ii) Green Infra Wind Assets Ltd and (iii) Green Infra Wind Farms Ltd., wherein the assessee is holding 99.88% of share capital which means that the funds have not been diverted to an outsider. This clears the doubt about the application of funds and the credibility of the company in whom the funds have Page | 6
Green Infra Ltd. ITA No.7529/Mum./2016 been invested. Since the assessee itself is holding 99.88% of shares and in turn the assessee company’s 98% of shares are held by IDFC PE Fund-II, this entire share holding structure cannot be said to generate any transaction which could be said to be sham. 12. We have considered the grievance of the Revenue from all possible angles and by applying the provisions of Sec. 56 of the Act and at our stage we have gone to the extent of testing the transaction within the parameters of Section 68 of the Act. We could not find a single evidence which could lead to the entire transaction as sham. Our view is also fortified by the share holding pattern as explained to us and as substantiated by the material evidence on record. We find that the share holders in all the related transaction under issue are directly or indirectly related to the Government of India. Therefore, considering the entire issue in the light of the material evidence brought on record, in our considerate view, the Revenue authorities have erred in treating the share premium as income of the assessee u/s. 56(1) of the Act. In our considerate view, for the reasons discussed hereinabove, we do not find it necessary to apply the provisions of Sec. 68 of the Act. We, therefore, direct the AO to delete the addition of Rs. 47,97,10,000/-. Ground No. 2 & 3 are accordingly allowed.”
We further find that the Co–ordinate Bench of the Tribunal in assessee’s own case for assessment year 2010–11, in DCIT v/s Sembcorp Green Infra Ltd. (previously known as Green Infra Ltd.), in ITA no. 4409/Mum./2015, vide order dated 17/10/2017, by following earlier decision for the assessment year 2009–10, rendered similar findings. The learned D.R. could not show us any reason to deviate from the aforesaid decisions and no change in facts and law was alleged in the relevant assessment year. The issue arising in the present appeal is recurring in nature and has been decided by the Co– ordinate Bench of the Tribunal in assessee’s own case for preceding assessment years. It is also to be noted that during the year under consideration, premium of Rs.37=5957 per share was collected in comparison to premium of Rs.490, per share and Rs.466, per share in assessment year 2009–10 and 2010–11 respectively. Thus, respectfully following the aforesaid decision, we find no infirmity in the impugned order passed by the learned
Green Infra Ltd. ITA No.7529/Mum./2016 CIT(A) on this issue. As a result, grounds raised by the Revenue are dismissed.
In the result, appeal by the Revenue is dismissed.
Order pronounced in the open Court on 26/09/2022 Sd/- Sd/- OM PRAKASH KANT SANDEEP SINGH KARHAIL JUDICIAL MEMBER ACCOUNTANT MEMBER
MUMBAI, DATED: 26/09/2022 Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary Assistant Registrar ITAT, Mumbai