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Facts
The assessee received ₹25.56 crores as share capital/premium from 29 corporate entities during AY 2008-09. The AO initially added this amount as unexplained credit u/s 68 due to non-compliance, but the Ld. CIT(A) deleted the addition after the assessee submitted extensive evidence during remand proceedings proving the identity, creditworthiness, and genuineness of the transactions.
Held
The Tribunal upheld the CIT(A)'s deletion, confirming that the assessee successfully discharged its onus under Section 68 of the Income Tax Act by furnishing sufficient documents. It reiterated that the amendments introducing the proviso to Section 68 and Section 56(2)(viib) are prospective from 01.04.2013 and therefore not applicable to AY 2008-09.
Key Issues
Whether the addition of share capital/share premium as unexplained credit under Section 68 was justified when the assessee provided evidence, and whether amendments to Sections 68 and 56(2)(viib) apply retrospectively to the assessment year 2008-09.
Sections Cited
68, 147, 143(3), 263, 142(1), 131, Rule 46A (Income Tax Rules, 1962), 2(24), 56(7), 56(2)(viib), 133(6)
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Income Tax Appellate Tribunal, “C” BENCH, KOLKATA
Before: SHRI RAJESH KUMAR, AM & SHRI SONJOY SARMA, JM
This is an appeal preferred by the Revenue against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 20.10.2023 for the AY 2008-09.
The only issue raised by the Revenue is against the deletion of addition of ₹25,56,00,000/- by the ld. CIT (A) as made by the ld. AO on account of share capital / share premium being unexplained credit u/s 68 of the Act.
The facts in brief are that the assessee filed the return of income on 31.03.2009, declaring total income at ₹16,889/-. The assessment was
In the appellate proceedings, before the ld. CIT (A), the assessee furnished all the evidences/ details concerning the 29 share subscribers who were all corporate entities and ld. CIT (A) also admitted the additional evidences under Rule 46A of the Income Tax Rules, 1962, and called for the remand report from the ld. Assessing Officer. In the remand proceedings, the assessee produced all the evidences/details qua 29 share subscribers proving the identity and creditworthiness of the investors as well as the genuineness of the transactions. The ld. AO submitted two remand reports, one dated
“7. I have carefully examined the entire material on record including the assessment order. the submissions of the appellant, including the paper book, remand report and rejoinder to remand report. 7.1 Since the grounds 6 & 7 agitate only a solitary issue and since these grounds are inter-related, they are being disposed as one. The only issue involved is whether the premium money (excluding share capital) received from 29 Investing companies, cumulatively amounting to Rs.25,56,00,000/- on issue of equity shares to these 29 companies, invites the provisions of sec. 68 of the Act or not. Facts are that during the year the appellant company raised share capital including share premium of Rs.25,56,00,000/- from 29 share subscribers who are body corporate entities. The appellant before me illustrated the entire facts along with all the relevant documentary evidence. The appellant before me has submitted that he furnished the relevant details of share applicant companies which included the address and PAN of the allottees, the identity and address proof of the directors of the share applicant companies, share application forms, bank statements highlighting the transactions, PAN Cards of the applicants, financial statements with ITR acknowledgements for AY 2008-09. along with details of sources of funds, with supporting documentary evidences. The documentary evidence along with submissions were send to the AO for remand on 10.06.2022. 7.2 During the remand proceedings, the AO issued notice for hearing and the same was attended by the A/R of the appellant. Upon the receipt of this remand report, the copy of report was forwarded to the appellant company and a rejoinder was filed by the appellant later on. The appellant in its rejoinder explained its case with reference to the assessment proceedings and remand proceedings by AO that the share capital along with share premium raised by it was explained with evidences and hence, it has discharged the onus cast upon it u/s 68 of the Act. Appellant, having furnished all the details and documents before the AO and the AO has not pointed out any discrepancy or insufficiency in the said evidences and details furnished by the appellant before him. As observed above, the appellant having discharged its initial burden casted upon him to furnish the evidences to prove the identity and creditworthiness of the share subscribers and genuineness of the transaction. Again, reliance is placed in the case of "One Point Commercial Pvt. Ltd. Vs. ITO, dated 23/02/2023" where the Hon'ble ITAT Kolkata held the following: "Considering the facts and circumstances of the case and the material placed on record, we find that assessee has discharged its onus to prove the identity and creditworthiness of the share subscribing companies and the genuineness of the transactions towards sum of Rs.4,78,50,000/- received during the impugned year. Accordingly, considering these facts and in the light of the judicial precedence referred above, we set aside the order of the Ld. CIT(A) and direct the Ld. AO to delete the addition made towards share capital and share
Further, in the case of CIT, Dehi Vs. Ms.Mayawati, 338 ITR 563 (Def), 03/08/2011, the Hon'ble Delhi High court held the following: "The capacity of any person does not mean how they earn monthly or annually but the term capacity is a wide term and that can be pursued by how wealthy he is. All the formalities, as per the law are made by the assessee and donors as well." 7.4 In the present case it is found that the corporate share applicants are registered under the companies Act, 1956/2013 and are on the records of Registrar of Companies functioning under Ministry of Corporate Affairs, Government of India and are having Permanent Account Numbers (PAN). They have also been filing their returns with the Income Tax Department. The share applicants had disclosed their PAN along with acknowledgement of submissions of their return of income and furnished audited financial statements. The confirmations and source of funds have been submitted and been examined by the AO in remand. All the other material necessary for establishing the identities, creditworthiness and genuineness have also been submitted. It is also observed that each of the share applicants maintained bank accounts and copies of their respective bank accounts from which they had made payments to the appellant for subscribing to the shares issued to them, was filed by each of them before the AO. Further each of the share applicants accepted the fact that they had subscribed to the shares issued by the appellant at a premium and that such transactions were duly reflected in their respective books of accounts, as well as in their audited Balance Sheets. 7.5 Also It was brought to my notice that the proviso to section 68 which required the assessee to prove the source of source was introduced from AY 2013-14 and thus prior to AY 2013-14 there was no obligation upon the assessee to explain the source of source and therefore this requirement did not exist for the impugned AY. Similar fact has been discussed at length in Kanchan Plywood Products Pvt. Ltd. -vs.- ITO (order dated 01.05.2019, Kolkata ITAT). In this connection, the Hon'ble Bombay High Court has gone into an in-depth discussion of the matter. In CIT vs Gagandeep infrastructure (p.) Itd in Income Tax appeal number 1613 OF 2014, in a decision delivered on 20.03.2017, the Hon'ble Court has examined the issue of retrospectively or otherwise of the amendment to section 68 of the Act via which the proviso to the said section was inserted from 01.04.2013. Reliance may be placed through the judgement of Hon'ble High Court in the case of "Pr.CIT vs Apeak Infoteck (397 ITR 148/2017), where the Hon'ble Court held that:
"the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. It was further pertinent to note that the definition of Income as provided u/s 2(24) of the Act at the relevant time did not define as income and any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from 1st April 2013 and thus would have no application to the share premium received by the Respondent-Assessees in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked." 7.6 Further, it has to be noted that in order to prove the creditworthiness of a company, it is not always necessary to look only for these investments to have been made from the profits of the company. It is by now an accepted position in law that net profits are not the only indicators of the investment making capacity of an entity. What has to be examined is the net worth of entity as well the availability of money with it. There are plethora of judicial decisions that have expounded this proposition. The Hon'ble Delhi High Court in the case of CIT vs. Vrindavan Farms Pvt. Ltd., etc. ITA.No.71 of 2015 dated 12th August, 2015 (Del.), has observed in this connection that, "The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their retum of income. It was observed by the ITAT that the AO had not undertaken any investigation of the veracity of the documents submitted by the assessee, the departmental appeal was dismissed by the Hon'ble High Court." In the case of Carissa Investment (P) Ltd. Vs ACIT (ITAT Delhi) in ITA. No. 6448/Del./2016 dated 22.01.2021 the Hon'ble Tribunal found that the assessee submitted the audited financial statements, bank statements and assessment orders u/s 143(3) of the creditors. It held that, "Thus, the assessee-company has been able to prove that both the creditors have availability of sufficient funds to give loan to the assessee-company in assessment year under appeal. Merely because income was low declared by both the creditors, is no ground". I find that in ACIT Vs. Brindavan Agencies Pvt. Ltd. (ITAT Delhi) in dated 23.12.2020 for the same AY as the instant one, that is, AY 2008- 09, it was held that, ...........it is seen that the appellant has filed sufficient documents e.g. Permanent Account Numbers, bank statements, etc. to establish the identities of the four share applicants. The copies of the bank statements of the share subscribers wherein the transactions are reflectedas well as the fact that they are assessed to It is therefore a settled principle that the creditworthiness of any share applicant cannot be dismissed only on the basis of its annual profits or income without first discussing the financial "capacity of the investor to make the impugned investment. This financial "capacity to invest is a function of the investable wealth of the investor, which, in turn, is reflected in the net worth of such an investor. 7.7 In this context, what also has to be examined is whether, given the net worth of an investor, the amount of investment as a percentage of this net worth was reasonable or not. Even though an investment decision is strictly a business and strategic decision, and not within the province of the AO's investigations, but, during such an examination, what can be and has to be examined by the AO, is the possibility of a rational prudent person making the said strategic decision for making an investmerit. In this case, I find that the investment levels, as compared to the net worth of the investing companies are quite low and acceptable and would not pose a risk to the investing company on account of a significant depletion of its net worth. It is quite clear that the investing companies had sufficient funds of their own to make the impugned investments. Beside demonstrating the net worth of the share applicant and that they had invested only a very small proportion of their net worth in the appellant company, all the share applicants have also demonstrated their respective sources and their means for arranging funds from genuine soürces for making investment in appellant company. Therefore, in this case the share application money or premium paid by such share applicant companies cannot be treated as unexplained u/s 68 of the Act by holding that the share applicants were not credit worthy since nowhere has it been shown that the share applicants did not have the required financial wherewithal to make the impugned investment in share application as well as premium. This is particularly so when the AO himself has accepted the share capital as genuine and to be fully explained, in terms of the identity of the share applicants, their creditworthiness and the genuineness of the transaction and the mode of the transaction. 7.8 Coming to another aspect of this matter, which is pertinent in cases like the present one. This pertains to the question whether, since the said amount of share premium could not be added u/s 68, it could have been added u/s 56(2) of the Act; since section 56(2) (viib) envisages a situation where a company receives consideration for issue of shares which is in excess of the fair market value of the shares, then such consideration can be added to his Income under this clause as income from other sources. The appellant, in this connection,has explained that although the justification for premium was not a requirement of law during the relevant assessment year but even then the share premium has been justified by the (i) The ld. AR on the other hand strongly supported the order passed by the ld. CIT (A) by submitting that though the assessee has not filed any evidences in the assessment proceedings, however during the remand proceedings, the assessee has furnished all the documents comprising names, address, ITRs, audited balance sheets, Bank statements, confirmation and assessments framed u/s 143(3)/143(1) of the Act in the case of subscribers which adequately demonstrated that the assessee has proven the identity, creditworthiness of the investors and the genuineness of the transactions. The ld. AR submitted that in the assessment proceedings, the ld. AO has merely made the addition on the ground that there was no compliance to the summons issued u/s 131 of the Act which cannot be a ground for making the addition. The ld. AR submitted that during the year the assessee has issued 25,56,000 equity of face value of ₹10 each at a premium of ₹90, therefore, resulting to ₹25,56,00,000/- from 29 subscribers which were all corporate entities having the PAN No. and sufficient resources for making investments in the assessee company. The ld. AR further
Further, the ld. AR submitted that there was no bar in issuing equity shares at a high premium during the instant assessment year and the proviso to Section 68 of the Act has been introduced by Finance Act, 2012, with effect from 01.04.2013, and was accordingly, applicable from A.Y. 20131-4 onwards. Therefore, the observation of the AO that the equity shares were issued at a very high premium is devoid of any marits. The ld. Counsel for the assessee stated that the proviso to Section 68 of the Act has not been inserted with retrospective effect nor it is the proviso so introduced that it is for the removable of doubts or it is directory. The ld. Counsel for the assessee in defense of his argument relied on the CIT Vs.Gagandeep Infrastructure Private Limited (80 taxmann.com 272 (Bom).
After hearing the rival contentions and perusing the material on record, we find that the assessee has furnished before the AO in the remand proceedings as well as before the Ld. CIT(A) all the evidences qua the share capital/ share premium raised during the instant financial year comprising the names , addresses ,proofs of voter IDs, Driving licenses, PAN cards, list of directors with share holders with DIN, copies of ITRs, copies of bank statements and assessment orders u/s 143(3)/143(1) of the Act etc in case of share subscribers. We find that though the directors of the assessee company and also the subscribers companies did not comply with summons u/s 131 of the “That in this case the respondent had given the names and addresses of the alleged creditors. It was in the knowledge of the Revenue that the said creditors were income-tax assessees. Their index numbers were in the file of the Revenue. The Revenue, apart from issuing notices under Section 131 at the instance of the respondent, did not pursue the matter further. The Revenue did not examine the source of income of the said alleged creditors to find out whether they were creditworthy. There was no effort made to pursue the so-called alleged creditors. In those circumstances, the respondent could not do anything further. In the premises, if the Tribunal came to the conclusion that the respondent had discharged the burden that lay on it, then it could not be said that such a conclusion was unreasonable or perverse or based on no evidence. I f the conclusion was based on some evidence on which a conclusion could be arrived at, no question of law as such arose. The High Court was right in refusing to state a case.”
The case of the assessee is also squarely covered by the decisions of Hon’ble Calcutta High Court in the case of Crystal Networks Pvt. Ltd. vs. CIT (supra ) wherein it has held that where all the evidences were filed by the assessee proving the identity and creditworthiness of the loan transactions , the fact that summon issued were returned un- served or no body complied with them is of little significance to prove the genuineness of the transactions and identity and creditworthiness of the creditors.
The case of is also covered by the decision of the coordinate bench by ITO Vs M/s Cygnus Developers India Pvt. Ltd. (supra).Similar ratio has been laid down by the Hon’ble Mumbai High Court in the case of CIT Vs Orchid Industries (P) Ltd CIT Vs. Orchid Industries Ltd. 397 ITR 136 (Bom) by holding that provisions of section 68 of the Act can not be invoked for the reasons that the person has not appeared before the AO where the assessee had produced on records documents to establish genuineness of the party such as PAN ,financial and bank statements showing share application money. Similar ratio has been laid down in the DCIT Vs Rohni Builders (2002)256 ITR 360.
In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 28.03.2025.