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Income Tax Appellate Tribunal, MUMBAI BENCH “C” MUMBAI
Before: SHRI SANDEED GOSAIN & SHRI N.K. PRADHAN
ORDER
PER N.K. PRADHAN, AM
This is an appeal filed by the Revenue. The relevant assessment year is 2011-12. The appeal is directed against the order of the Commissioner of Income Tax (Appeals)-20, Mumbai [in short ‘CIT(A)’] and arises out of the assessment completed u/s 143(3) of the Income Tax Act 1961, (the ‘Act’).
The grounds of appeal
filed by the Revenue read as under:
1. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the addition of Rs.7,35,08,800/- u/s 68 of Income Tax Act in respect of unreasonable share premium received by the company.
M/s Consultshah Financial Services
2. On the facts and in the circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the Assessing Officer had determined value per share at Rs.16- following NAV method and there was no justification for selling shares @ 1000/- per share.
On the facts and in the circumstances of the case and in law, the Ld.CIT(A) failed to appreciate that the Income Tax proceedings are governed by preponderance of probability as held by Hon’ble Supreme Court in the case of Sumati Dayal v. CIT [214 ITR 801]. 3. Briefly stated, the facts are that during the course of assessment proceedings, the Assessing Officer (AO) on perusal of the details filed noticed that the assessee had raised paid up share capital from Rs.1,00,000/- to Rs.2,82,000/-. During the year, the assessee had issued 18,200 equity shares having face value of Rs.10 on premium and it had received share premium of Rs.7,36,18,000/-. The assessee had issued 4,300 equity shares on 28.02.2011 on premium of Rs.990/- per share. Further, on 25.03.2011 the assessee had issued 13,900 equity shares on premium of Rs.4,990/- per share. In response to a query raised by the AO the assessee filed a requisite details. However, the AO found that since the intrinsic value of equity shares of the assessee came to Rs.16/- only, the nature of credit entry in the form of excess share premium of Rs.7,35,08,800/- was found to be unjustified and unexplained within the meaning of section 68 of the Act. The working the excess share premium of Rs.7,35,08,000/- as computed by the AO is as under:
Date of No. of Equity Amount of share Amount Excess Share allotment Shares allotted capital including received per premium share premium share (Rs.) received per received in Rs. share (Rs.) 28.02.2011 4,300 43,00,000/- 1000 984 (1000-16) 25.03.2011 13,900 6,95,00,000/- 5000 4984(5000-16)
M/s Consultshah Financial Services Accordingly, on allotment of 4300 equity shares made on 28.02.2011, excess share premium of Rs.42,31,200/- (984 x 4300) was received. Further, in respect of 13,900 share allotment on 25.03.2011, excess share premium of Rs.6,92,77,600/- (4984 x 13900) was received. Thus during the year, an excess share premium of Rs.7,35,08,800/- was received. Therefore, in view of the aforesaid computation of the excess share premium received by the assessee over and above the intrinsic value of the shares, the assessee was asked to explain as to why a sum of Rs.7,35,08,800/- should not be added to the total income of the assessee, towards excessive share premium receipt, as unexplained cash credit u/s 68 of the Act. In reply, the assessee furnished its submission which were duly considered but not accepted by the AO on the ground that the assessee failed to furnish reasonable of share premium received during the year. Thus the AO made an addition of Rs.7,35,08,800/- as unexplained cash credit u/s 68 of the Act.
In appeal, the Ld. CIT(A) observed that (i) the share capital and premium of Rs.7,35,08,800/- has come from different shareholders; these shareholders are existing shareholders and had confirmed that they had contributed to the share capital of the assessee-company, (ii) in respect of their creditworthiness, the assessee has filed copy of PAN Card, bank statement, balance sheet, profit and loss account, share application form etc. of shareholders, (iii) the investing shareholders had recorded the investments in the assessee-company in their books accounts during the relevant financial year, (iv) the shareholders had demonstrated these balances in their balance sheets in the shape of M/s Consultshah Financial Services (v) regarding the genuineness of transaction, the assessee has produced details of bank account ; the share application money and share premium had been issued through banking channel; there is no cash transaction which could compel oneself to assume that the transactions were not genuine, (vi) whether the assessee-company charged a higher premium or not should not have been the subject matter of the inquiry; instead the issue here was whether the amount invested by the share applicants was from legitimate sources, (vii) in the present case, while completing the assessment, the AO has not made much investigation except issuing of notices u/s 133(6), which were served on the share applicants and these investor shareholders were required to file confirmation, balance sheets and bank details etc. which would have established that the identity of the investors, the genuineness of the transaction and the creditworthiness the share applicants; these details called for by the AO were duly filed by the share applicants before the AO, but the assessee failed to produce the share applicants before the AO. In view of the above observations, the Ld. CIT(A) relying specifically on the decision in CIT v. Lovely Exports (P) Ltd. 216 CTR 295, Oasis Hospitalities P. Ltd. (2011) 333 ITR 119 (Delhi), CIT v. Creative World Telefilms Ltd. (In of 2009 decided on October 12, 2009) [2011] 333 ITR 100, CIT v. V.P. Mohanakala [2017] 291 ITR 278, CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 (Delhi), concluded that when requisite documents such as PAN, bank accounts, balance sheet etc. were available with the AO to establish that no cash transactions M/s Consultshah Financial Services were involved in the bank accounts of the investing company, then without further probe to prove contrary, the addition u/s 68 cannot be made in the hands of the assessee. Regarding the applicability of section 56(2)(viib), by the AO, the Ld. CIT(A) observed that the same is applicable from the AY 2013-14 onwards. Therefore, the Ld. CIT(A) deleted the addition of share capital and premium of Rs.7,35,08,800/- made by the AO u/s 68 of the Act.
Before us, the Ld. DR relies on the decision in CIT v. P. Mohanakala (2007) 161 Taxman 169 (SC), Pavankumarm Sanghvi (2018) 90 taxmann.com 386 (Guj) and order of the ITAT, Kolkata ‘C’ Bench, Kolkata in the case of Advance Power Infra Tech Ltd. v. DCIT in for AY 2007-08 and submits that the order passed by the AO be restored.
On the other hand, the Ld. counsels of the assessee file a Paper Book (P/B) containing the copies of documents submitted before the AO and CIT(A). Also reliance is placed by them on the decision in CIT v. Green Infra Ltd. (2017) 78 taxmann.com 340 (Bom.), Pr. CIT v. Chain House International (P.) Ltd. (2018) 98 taxmann.com 47 (MP), CIT v. Gagandeep Infrastructure (P.) Ltd. (2017) 80 taxmann.com 272 (Bom.) and CIT v. Orchid Industries (P.) Ltd. (2017) 88 taxmann.com 502 (Bom.). Referring to the documents in the P/B and the above case laws, the Ld. counsels submit that the order passed by the Ld. CIT(A) be confirmed.
M/s Consultshah Financial Services
We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We discuss the case laws relied on by the Ld. DR. In the case of P. Mohanakala (supra), the AO rejected the explanation of the assessee that amounts credited in their respective accounts were gifts from NRI and added said amount to income of assessees as income from undisclosed sources, on the ground that the so-called gifts were not real and genuine. On appeal, the Ld. CIT(A) as well as Tribunal did not accept the explanation of the assessee and confirmed finding of the AO. The High Court, however, re-appreciated evidence available on record and substituted its own findings for that of the Tribunal and held that the reasons assigned by the Tribunal and other authorities were in the realm of surmises, conjectures and submissions. The Hon’ble Supreme Court held that, since findings of fact arrived at by authorities below were based on proper appreciation of facts, materials available on record and surrounding circumstances, the High Court committed error in disturbing concurrent findings of facts. In Pavankumaram Sanghvi (supra), it is held that where assessee received loan from two companies, in view of the fact that on the date assessee was given loan, there were credit entries of almost similar amounts and balance after these transactions was a small amount and moreover assessee failed to produce these lenders for verification, impugned amount was rightly brought to tax u/s 68. In Advance Power Infra Tech Ltd. (supra), the Tribunal held that “merely furnishing PAN numbers in routine way, does not explain the M/s Consultshah Financial Services source or the creditworthiness of the party. The basis on which premium has been charged for the shares has not been explained. A perusal of the financial statements do not justify the quantum of share premium charged”. 7.1 In the instant case, the fact remains that the shareholders have confirmed that they had contributed to the share capital of the assessee- company. The assessee had filed copy of PAN, bank statement, balance sheet and profit and loss account, share application form of shareholders. The share application money and share premium had been issued through banking channel. There was no cash transaction. As rightly recorded by the Ld. CIT(A) “what is peculiar in the present case is when the assessment was being completed, the AO has not made much investigation except issuing of notices u/s 133(6) which were served on the share applicants and these investor shareholders were required to file confirmation, balance sheets and bank detail etc. which would have established the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants. It has been submitted that these details called for by the AO were duly filed by the share applicants before the AO but the appellant failed to produce the applicants before the AO.” It is well settled that in order to discharge the onus u/s 68 of the Act, the assessee must prove the following : i. the identity of the creditor, ii. the capacity of the creditor to advance money ; and iii. the genuineness of the transaction.
M/s Consultshah Financial Services After the assessee has adduced evidence to establish prima facie the aforesaid, the onus shifts to the department as held in the case of Shankar Ind v. CIT 114 ITR 689; Prakash Textile v. CIT 121 ITR 890; CIT v. United 187 ITR 596; Rajshree v. CIT 256 ITR 331; Ashokpal v. CIT 220 ITR 452, 454; CIT v. Metachem 245 ITR 160; CIT v. Shree Gopal 204 ITR 285. We find that in the instant case, the assessee has adduced evidence to establish prima facie the aforesaid. The onus shifted to the department. The AO has not made required investigation to find out the genuineness of transaction. In the case of Chain House International (P.) Ltd. (supra), during the assessment proceedings the AO had issued notice u/s 133(6) to all the investor companies and also their Directors, separately all of them confirmed the investment made in the assessee-company and in support thereof furnished relevant supporting documents including the ledger account, copy of ITRs, bank statements and also explained their source of investments. The Hon’ble High Court held that once genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on ground that shares were issued at excess premium. In Green Infra Ltd. (supra), it is held that where evidences proved genuineness of transactions in share capital, transactions would not be hit by section 68. In Gagandeep Infrastructure (P.) Ltd. (supra), during the previous year relevant to assessment year 2008-09, the assessee had increased M/s Consultshah Financial Services Rs.2.50 lakhs to Rs.83.74 lakhs. The assessee had collected share premium to the extent of Rs.6.69 crores and charged share premium at Rs.190 per share. The assessee furnished the list of its shareholders, copy of the share application form, copy of share certificate and Form No. 2 filed with the Registrar of Companies. The AO invoked section 68 to treat the amount of Rs.7.3 crores i.e. the aggregate of the issue price and the premium on the shares issued as unexplained cash credit within the meaning of section 68 of the Act. The Hon’ble High Court held as under:
“(e) We find that the proviso to Section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced “for removal of doubts” or that it is “declaratory”. Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre-proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion M/s Consultshah Financial Services (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P) Ltd. (supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.”
We find that the ratio laid down in Chain House International (P.) Ltd. and Gagandeep Infrastructure (P.) Ltd. mentioned hereinabove squarely applies to the present case. Following the same, we uphold the order of the Ld. CIT(A).
In the result, the appeal filed by the revenue is dismissed.