DCIT, NEW DELHI vs. M/S. INTERNATIONAL LAND & DEVELOPERS PVT. LTD., NEW DELHI

Per Dr. B. R. R. Kumar, Accountant Member:

1. On the facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the disallowance made on account of share capital loss of Rs. 1,27,35,000/- u/s 68 of the Act.

2. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in disregarding the fact that worth of the assessee, share capital and other long term liabilities were negative and that the assessee had no assets on which premium of shares can be valued at Rs. 90/- as against face value of Rs. 10.

3. On the facts and circumstances of the case, Ld. CIT(A) erred in not appreciating the fact that the assessee does not have any valuation report to 2 International Land & Developers Pvt. Ltd. substantiate value of premium of shares at Rs. 90/- as against face value of Rs. 10.

5. On the facts and circumstances of the case and in law, Ld. CIT(A) erred in not appreciating the facts that assessee had taken advances from M/s ALM Infotech City Pvt. Ltd. & M/s ALM Housing & Construction Pvt. Ltd. amounting to Rs. 1,27,00,000/- against purchase of land and construction of immovable property, however, assessee did not purchased any property.

6. On the facts and circumstances of the case, Ld. CIT(A) disregarded the fact that the advance giver companies i.e. M/s ALM Infotech City Pvt. Ltd. & M/s ALM Housing & Construction Pvt. Ltd. are not engaged in the business of lending and that both the companies had sufficient accumulated profit and the fact that Sh. Alimuddin is the common director in all the three companies (including assessee company) having substantial interest more than the prescribed limit.”

Addition u/s 68:

“During the course of assessment proceedings, it is noticed that the assessee company had issued 1,41,500 shares of face value of Rs.10/- each at a premium of Rs.90/- per share. The assessee was asked to explain on what basis it has valued its 3 International Land & Developers Pvt. Ltd. share with reference to assets and liabilities of the assessee company. The assessee was also asked to prove the identity, creditworthiness and genuineness of the parties who have subscribed the above share premium. In response, the assessee vide letter dated 11.02.2015 has submitted as under: “During the year under consideration assessee company had issued 1,41,500 shares of face value of Rs.10/- per share at a premium of Rs.90/- per share. In fact during the year under consideration assessee company had purchased agricultural land for the cost of Rs.3,19,87,955/- at village Kherki Daula, Further, it had ventured into a project for construction of a multi storied residential project in village Dudaera and Harihera in Haryana for this purpose a sum of Rs.4,77,00,000/- were paid by the assessee company for collaboration of the same. In view of the value of the projects ventured and increase in agricultural land, particularly in view of the future prospects of the business venture, the company had entered into the value of assessee company shares were estimated at Rs.100/- per share inclusive of Rs.90/- per share as premium”.

The above submission of the assessee has been considered but not found to be tenable in view of the fact that the worth of the assessee before taking this premium, share capital and other long term liabilities was negative. Therefore, the assessee has no assets on which premium of shares can be valued at Rs. 90/- as against face value of Rs. 10/-. Further, the assessee has also not furnished any valuation report in its support. Therefore, the assessee has taken higher premium value. The assessee's case is squarely covered within the meaning of Section 68 of the IT Act and the explanation offered by the assessee is not acceptable. Therefore, the premium taken by the assessee is added u/s 68 of the IT Act. Therefore, the amount of Rs. 1,27,35,000/- is hereby disallowed and added to the total income of the assessee.”

4 International Land & Developers Pvt. Ltd. 4. The ld. CIT (A) deleted the addition on the grounds that the identity, creditworthiness and genuineness of the transaction has been proved by the assessee and there was no material before the revenue to assume that it was the assessee’s own money that has come back to the system in the form of share premium.

5 International Land & Developers Pvt. Ltd. There is no iota of evidence about the concealment or plough back of undisclosed income to the assessee. Further, the Assessing Officer has not disputed the identity, genuineness and creditworthiness of the share holders. Hence, the invocation of the provisions of Section 68 of the Income Tax Act, 1961 for the simple reason of non filing the valuation report by the assessee and by not referring the cost of the land to the DVO, and without bringing any material on record to fulfill the criteria of Section 68, cannot be justified in this case.

Addition u/s 2(22)(e):

6 International Land & Developers Pvt. Ltd. 9. The ld. CIT (A) deleted the addition on the grounds that the advances were made purely for commercial consideration and commercial exigencies.

“(e) any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the company or otherwise) [made after the 31st day of May, 1987, by way of advance or loan to a shareholder, being a person who is the beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.”