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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI RAJESH KUMAR & SHRI RAM LAL NEGI
Per Rajesh Kumar, Accountant Member:
The present appeal has been preferred by the Revenue against the order dated 28.04.2015 of the Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)] relevant to assessment year 2012-13.
The only issue raised by the Revenue is against the order of Ld. CIT(A) deleting the addition made by the AO on account of share application and share premium of Rs.5 crore by treating the same as unexplained cash credit under section 68 of the Act.
The facts in brief are that the assessee filed the return of income on 28.09.2012 declaring income of Rs.1,390/- which 2 M/s. East Asiatic Infrastructure Corp. Pvt. Ltd. was processed under section 143(1) of the Act. The case of the assessee was selected for scrutiny and notices were issued under section 143(2) of the Act and duly served. During the course of assessment proceedings the AO observed that assessee has issued shares to associate companies of face value of Rs.10 at a premium of Rs.240/- and accordingly called upon the assessee to submit the details of share application money received and also the financial statements to these two companies along with bank statements, balance sheets, profit and loss accounts etc. The assessee duly filed the details as relied upon by the AO and AO on the basis of bank statement of the assessee observed that the investors have frequent transactions of debit and credits and minimum balance is very meager and thus the AO also observed that these companies were not having any financial strength and also not doing any business operation and thus there is no reason by the huge amount of premium should be paid. Accordingly AO came to conclusion that the whole transactions is a colourable device and accordingly added the entire amount as unexplained cash credit by framing assessment under section 143(3) of the Act.
The Ld. CIT(A) deleted the disallowance by observing that conclusion of the AO is wrong and based on the wrong facts. The Ld. CIT(A) observed that both the share applicants were doing business and filing their returns of income regularly. The Ld. CIT(A) also noted that the assessee has filed the necessary evidences before the AO in the form of PANs, balance sheets, bank statements etc. and both these entities were group companies and AO has not conducted any further enquiry except making the addition on presumption and surmises. The 3 M/s. East Asiatic Infrastructure Corp. Pvt. Ltd. Ld. CIT(A) relied on the decision of Hon’ble Supreme Court in the case of CIT vs. Lovely Exports Private Ltd. (2008) 216 CTR 195 (SC). The Ld. A.R. also relied on the decision of Osis Hospitalities Pvt. Ltd. (2011) 333 ITR 119 (Del. HC) which was passed after considering the decision of Hon’ble Supreme Court in the case of CIT vs. Lovely Exports Private Ltd. (supra). Finally, the Ld. CIT(A) observed and held as under: “5.10 In view of the legal position emanating from legal precedents and the observations of Hon'ble Delhi High Court, in the case of Gangeshwari Metal P. Ltd. as discussed above it is noted that when requisite documents such as PAN, Bank accounts, Balance Sheet etc, were available with the A.O., to establish that no cash transactions were involved in the bank accounts of the investing companies then without further probe to prove contrary the addition u/s 68 in the hand of the assessee cannot be made. In view of the above discussion on the facts of the case and having regard to the decisions of courts and judicial precedents as noted above, the addition made by the A.O. of the share capital and premium of Rs.5,00,00,000/- under section 68 of The Income Act 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly these grounds of appeal are allowed.”
The Ld. D.R. ,while relying on the order of AO, submitted that in this case the assessee company was not doing any business and has declared an income of Rs.1,390/- and thus has no financial strength warranting the issue of shares of face value of Rs.10/- each at a premium of Rs.240/-. The Ld. D.R. also referred to the bank statements which are extracted by the AO on page No.3 of the assessment order and argued that the debit and credit entries are frequently appearing which creates suspicion about the nature of operation carried out by the assessee. The Ld. D.R. therefore submitted that though the assessee has filed the necessary documents the circumstances and facts leads to the uncontroverted conclusion that these are colourable devices and rightly added under section 68 of the Act, and accordingly prayed before the Bench to set aside the order of Ld. CIT(A) and restore the order of AO.
The Ld. A.R., on the other hand, relying on the order of Ld. CIT(A), submitted that in this case the assessee is engaged in the business of development of infrastructure facilities and has raised share capital during the year. The shares were issued to two sister concerns namely Mandavi Salts and Logistics Pvt. Ltd. and Rehwa Corporation Pvt. Ltd. These shares were of face value of Rs.10/- each and issued at a premium of Rs.240/-. The Ld. A.R. submitted that this is the inter decision of the Board and the assessee’s board of director as to on what premium the share ought to be issued. The Ld. A.R. submitted that assessee has filed all the necessary evidences before the AO in the form of PAN, bank accounts, balance sheets and AO has not bothered to conduct any further enquiry and only harped on the fact that shares were issued at a high premium and thus held to be a colourable device. The Ld. A.R. also submitted that the addition as made by the AO under section 68 can not be made during the year under consideration as the amendment under section 68 by the Finance Act, 2012 w.e.f. 01.04.2013 and was effective from assessment year 2013-14 whereas the assessment year under consideration is 2012-13. The AO has not even bothered to issue summons or notices under section 133(6) to these parties. The Ld. A.R. relied heavily on the decision as followed by the Ld. CIT(A) while passing the order. The Ld. A.R. specifically referred to the CIT vs. Jignesh Exports Pvt. Ltd. 216 CTR 195 SC and CIT vs Gujarat Heavy Chemicals Ltd. (2002) 256 ITR 795 SC and also the instruction No.2/2015 F.No.500/15/2014-APA-I dated 29.01.2015. The Ld. A.R. therefore prayed that the order passed by Ld. CIT(A) is a very detailed, reasoned and speaking one and passed in consonance
We have heard the rival submissions of both the parties and perused the material on record. In this case, we note that the assessee has issued 20,000 shares to two associate concerns each of face value of Rs.10/- at a premium of Rs.240/-. The AO made addition as unexplained cash credit under section 68 of the Act on the ground that the said share application money received by the assessee is a sham and is a colourable device which was reversed by Ld. CIT(A) by holding that the said addition can not be made under section 68 of the Act and observed that the amendment by Finance Act, 2012 was brought about w.e.f. 01.04.2013 meaning thereby that the said amendment is applicable from assessment year 2013-14 and not to the year under consideration. We further find that the AO has not done any investigation or further verification to verify and dig out the truth behind the transaction, while the assessee has duly discharged its burden by filing all the necessary documents in the form of copies of PANs, bank statements and audited annual accounts etc. before the AO. In this case, we find that the Ld. CIT(A) has recorded a finding of fact that these two investor companies have confirmed and the assessee filed the copies of PANs, balance sheets, P&L accounts, share application forms etc. of investor companies before the AO. However, the AO has failed to conduct any enquiry. Moreover, no cash transactions were involved. In the case of CIT vs. Lovely Exports Private Ltd. (2008) 216 CTR 195 (SC), the Hon’ble Supreme Court has held that if the assessee has given the names and addresses of the alleged bogus shareholder then the 6 M/s. East Asiatic Infrastructure Corp. Pvt. Ltd. department is free to proceed to open their assessments in accordance with law but it can not be treated as undisclosed income of the assessee. Similarly, in the case of CIT vs. Creative World Telefilms Ltd 333 ITR 100 the Hon’ble Bombay High Court has held that where the assessee has filed the documents like PAN card, bank details and details from the bankers before the AO and it is up to the AO to reach the shareholders to ascertain the facts. The AO has to make the further enquiry with regard to status of the parties to bring on record any adverse finding regarding their creditworthiness. In the instruction No.2/2015 dated 29.01.2015 the CBDT has clarified that the Board has accepted the decision of Hon’ble Bombay High Court in the case of Vodafone India Services Pvt. Ltd. A.Y. 2009-10 WP No.871 of 2014 that the share premium on share issued was on account of capital account and does not give raise to income and the ratio decidendi in the said decision was advised to be adhered to by the field officer in all the cases. In view of the above facts and ratio laid down by the Apex Court in the case of CIT vs. Lovely Exports Pvt. Ltd. & others and other decisions and also the fact that the amendment to section 68 of the Act is applicable from A.Y. 2012-13 ,we are inclined to uphold the order of Ld. CIT(A) by dismissing the appeal of the Revenue.
In the result, the appeal of the Revenue is dismissed. Order pronounced in the open court on 18.02.2020.