DCIT-9(1)(1), MUMBAI vs. M/S.AEVITAS PHARMAGRO LIMITED, MUMBAI

AadoSa / O R D E R महावीर स ुंह, न्याययक दस्य/ PER MAHAVIR SINGH, JM:

This appeal filed by the Revenue is arising out of the order of Commissioner of Income Tax (Appeals)-16, Mumbai [in short CIT(A)], in appeal No. CIT(A)-16/IT-18/DCIT-9(1)(1)/2016-17, dated 27.09.2017. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle- 9(1)(1), Mumbai (in short DCIT/ITO/ AO) for the A.Y. 2013-14 vide order dated 07.03.2016 under section 143(3) of the Income Tax Act, 1961 (hereinafter ‘the Act’).

2 2. The only issue in this appeal of Revenue is against the order of CIT(A) deleting the addition made by AO on account of unexplained share application money without the documentary evidences regarding creditworthiness and genuineness of transactions under section 68 of the Act. For this Revenue has raised the following ground No. 1: -

1. Whether in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of ₹ 1,04,68,000/- on account of Share Application Money, whereas the AO has rightly made the addition in absence of documentary proof regarding creditworthiness of the parties and genuineness of the transaction related to the Share Application Money?.”

3 4. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the AO has made the addition by noting that the assessee has filed only the details like Foreign Inward Remittance Certificate (FIRC) to prove the identity, capacity, genuineness of transaction but according to AO merely filing of FIRC did not prove the capacity of the lender to pay. According to AO, the assessee has not filed the copy of balance sheet, profit and loss account, tax audit report, copy of tax return etc. of the holding company. The AO also noted that as per FIRC money was remitted on 24.04.2012 but the assessee got the valuation done only on 18-10-2012 by one valuer namely Shri PD Kunte and Co., Chartered Accountants, who valued the share at the rate of 4600 per share by using discounted cash flow method. This valuer has valued share by factoring financial year 2010-11 and 2011-12 and projected financials of the period Financial year 2012-13 to FY 2016-17. On the basis of this, the shares were issued at a premium of ₹ 7550 to SNC Lavalin Europe BV even though the remitter was the SNC Lavalin Groun Inc. Canada and allotment was made on 05.11.2012. The AO noted that subsequently, the shares were held by foreign company were sold to the existing promoters at the rate of ₹ 1 only vide registered agreement dated 11.12.2015. The AO also noted the comparison of fall in the price to as low as ₹ 1 on 11.12.2015 compared to the premium charge by assessee at ₹ 7650/- in October, 2012. The AO also noted that the status of outstanding payables as on 31.03.2013 was ₹ 26,37,890/- and ₹ 11,92,753/- against SNC Lavalin Inc. and SNC Lavalin Infrastructure P. Ltd. respectively. The AO further noted that the assessee has offered these entries in its books of account under section 41(1) of the Act in AY 2015-16. Hence, he noted that these transactions are dubious transaction and against norms of business prudence. Hence, he held the transactions are not genuine and added under section 68 of the Act.

4 5. The facts narrated before us and as noted by the CIT(A) are that in regard to shares allotted during the year, the assessee has filed all the details evidencing the genuineness of transaction and identity of the share applicant like FIRC, valuation report, board resolution, forms submitted to the ROC, confirmation from the SNC Lavalin BV, Netherlands, during assessment proceedings as well as during appellate proceedings before CIT(A). The assessee has also filed bank details in regard to prove the source of credit of the amount received during the year. It was explained by the learned Counsel for the assessee before us, now that the share applicant being a non-resident was not required to prepare accounts or file tax returns or get the tax audit done in India. Even it was explained that the subsequent funds according to subsequent years relating to sale of shares by the holding company is totally irrelevant and narrated to the issue of shares during the year. It was contended that no doubt the company has incurred substantial losses in subsequent years. Accordingly, the holding company wanted to wind up and close the Indian operation and so it sold shares in subsequent years. In view of the ongoing contracts already in hand and considering the impact on the existing manpower employed by the assessee company, it was not possible to wind up and close the operation altogether as it would severely affect reputation of SNC Group worldwide. Hence, it was contested that holding company will be not continue the operations to the local directors and sold the shares at a nominal value. We also noted that the AO has not applied the provisions of section 56(1)(vii) of the Act in the present case as evident from the assessment order, wherein the addition was made by AO under section 68 of the Act for not proving the creditworthiness, genuineness of transaction and identity of the party and creditworthiness or capacity of the holding company.

Particulars 2012 2011 Amount in 000’s Amount in 000’s Canadian Dollars Canadian Dollars Consolidated Gross Revenues 8090960 7208971 Net Income 309530 387342 Equity 2079436 1886716 In respect of the shares allotted during the year, the assessee furnished Foreign Inward Remittance Certificates (FIRC), valuation report, board resolution, forms submitted to the