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Income Tax Appellate Tribunal, F Bench, Mumbai
O R D E R
Per Rajesh Kumar, AM
This appeal filed by Revenue is directed against the order of the CIT(A)-20, Mumbai dated 30.12.2016 and it relates to A.Y. 2007-08.
The Revenue has raised the following grounds: - “
1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in ignoring the fact that the assessee company failed to produce directors/share applicants of the alleged applicants even after specifically being asked to do so by the AO and thus failed to discharge its onus to establish the identity and creditworthiness of the share applicants and/ the genuineness of transaction.
2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in relying on the decision given in the case of Lovely Exports (P) Ltd without distinguished the fact that in Lovely Export, the AO did not ask the assessee company to produce any of the investor shareholders. However, in the instant case the assessee company was specifically asked and given opportunities to produce the directors/share applicants of the investing companies, but yet none could be produced before the AO to established the genuineness of the parties.
M/s. Facts Tradelink P. Ltd.
3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition `4,47,00,000/- made by the AO on account of unexplained cash credit u/s.68 of the Act without appreciating the facts of the case elaborately discussed by the AO in the assessment order u/s. 143(3) r.w.s. 147 of the IT. Act.”
The brief facts of the case are that the AO observed from the Balance Sheet for A.Y. 2007-08 that the assessee has received share capital/ premium of `447 lakhs and accordingly called upon the assessee to furnish the names and addresses of the parties from whom share capital and share premium has been received. The assessee filed details with the AO. Thereafter the AO issued notice under Section 1336 of the Income Tax Act, 1961 (hereinafter "the Act") to all the parties. However, notice to 11 parties out of 14 could not be serviced and from 3 parties reply was not received. Thereafter the assessee was confronted with the matter and show cause notice was issue to the assessee calling upon the assessee that the share capital/premium received from the parties was not genuine and the creditworthiness of the parties were also not proved and therefore as to why provisions of Section 68 of the Act could not be invoked. Thereafter reply to the notice issue under Section 133(6) was received in tapal on 24.03.20016. The AO came to the conclusion that all these responses were filed by the shareholders on the same day, therefore the AO has reason to believe that these were arranged by the assessee himself and the said replies to the notice under Section 133(6) have no legal sanctity. Finally the AO came to the conclusion that the assessee has issued share capital at face value of `10/- at a premium of `190/- for which there is no justification as the assessee does not have a commensurate income in the said company and finally added the sum to the income of the assessee under Section 68 of the Act by citing share capital/premium as unexplained cash credit in the books of the assessee. In the appellate proceedings the learned CIT(A) allowed the appeal of the assessee after considering the contentions and submission made during the appellate proceedings by discussing and holding as under: - “7.5 On an analysis of the facts on records, it is seen that the share capital and premium of `4,47,00,000/- has come from different M/s. Facts Tradelink P. Ltd. shareholders. It is noted that these shareholders are existing shareholders had confirmed that they had contributed to the share capital of the assessee company. The next aspect is their creditworthiness. The assessee has filed copy of PAN card, bank statement, balance sheet and P&L account, Share Application Form, etc. of shareholders. It emerges out from the record that the investing shareholders had recorded the investments in appellant company in their books of accounts during the relevant financial year. Thus, the shareholders had demonstrated these balances in their balance sheets in the shape of investment as well as loan and advances. The next issue is about the genuineness of the transaction. The assessee has produced the 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. The AO has made the addition on the issue that the shares were issued to shareholders at high premium and the subscribing shareholders had meagre income during the year hence the entire transaction was to be treated as unexplained cash credit U/s 68 of Income Tax Act. The onus cast upon the assessee under Section 68 of the Act is to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. Whilst, the A.O. acted legitimately in enquiring into the matter, the inferences drawn by him were not justified at all in the circumstances of the case. Whether the assessee company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue here was whether the amount invested by the share applicants was from legitimate sources. The objective of Section 68 is to avoid inclusion of which are suspect. Therefore, the emphasis is on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is peculiar in the present case is when the assessment was being completed the A.O. has not made much investigation about these investor shareholders 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 A.O. were duly filled the assessee before the A.O. but the appellant failed to produce the share applicants before the A.O. 7.6 ….. 7.7 ….. 7.8 ….. 7.9 In view of the legal position emanating from legal precedents and the observations of the Hon’ble Delhi 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.
M/s. Facts Tradelink P. Ltd. were available with the A.O. to establish that no cash transactions were involved in the bank account of the investing company then without further prove to prove contra 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 and made by the A.O. of the share capital and premium of `4,47,00,000/- under Section 68 of the Income Tax Act 1961 cannot be sustained in appeal and is directed to be deleted. Accordingly these grounds of appeal are allowed.”
4. The learned D.R. vehemently pleaded before the Bench that the order of the CIT(A) directing the AO to delete the addition is wrong and incorrect as the First Appellate Authority has failed to appreciate the fact that the assessee has issued share capital of the face value of `10/- at a premium of `190/- which is very high having regard to the income of the assessee which justifies the issue of share premium at such a high rate. The learned D.R. submitted that the genuineness and creditworthiness of the said investors were also shroud with doubts as the notices issued under Section 133(6) could not be served and it is only after the assessee is confronted with the said fact all the 14 investors filed their replies in tapal on 24.03.2016 and thus the AO has reason to believe that all these replies were managed by the assessee. The learned D.R. submitted that the AO has recorded a finding of fact that the assessee who made investment in assessee company has either NIL return or very low returned income and the source of funds were in the form of share capital reserves, surplus on account share premium received by these companies and the said companies were have very meagre advance tax or self assessment tax. Therefore the genuineness of the said investment was in doubt. Further the learned D.R. referred to the order of the AO in which the AO has observed that the bank statement of these investors reveal that have their income by way of transfer of funds and there was hardly no balance left on a particular day and therefore the order of the CIT(A) has failed to take into account all these facts. Accordingly the order of the CIT(A) should be reversed and that of the AO be restored.
The learned A.R., on the other hand, relied heavily on the order of the CIT(A) by submitting that all the investors in the share capital of the M/s. Facts Tradelink P. Ltd. assessee were having high net worth and therefore income or turnover should not be the criteria. The learned A.R. submitted that before issuing share capital at a premium a valuation report was duly got prepared by the assessee company which was also before the AO. Further the money was received through banking channel and the AO has failed to establish any connection while or the fact that the money is routed through those banks. The learned A.R. submitted that share capital has been issued after following the due procedure of law as per the Companies Act. Lastly, the learned A.R. submitted that the proviso to section 68 of the was introduced by Finance Act, 2012 and is applicable w.e.f. 01.04.2013 and is not retrospective in effect, which has been upheld by the Hon'ble Jurisdictional High Court in the case of CIT vs. Gagandeep Infrastructure Pvt. Ltd. (2017) 80 taxmann.com 272 (Bom). The learned A.R. finally submitted that since the assessee has filed all the necessary evidences as required by the AO during the course of assessment proceedings which also filed before the CIT(A) and the CIT(A) after considering all these evidences in the form of PAN, copy of banks statement, Balance Sheet, Profit & Loss Account and Share Application Form, etc. of the shareholders decided the issue in favour of the assessee. The learned A.R. relied on the following decisions in defence of his arguments: - i) CIT vs. Green Infra Ltd. (2017) 392 ITR 7 (Bom) ii) Green Infra Ltd. vs. ITO, iii) CIT vs. Gagandeep Infrastructure Pvt. Ltd., (2017) 394 ITR 690 (Bom) iv) ACIT vs. Gagandeep Infrastructure Pvt. Ltd., ITA No. 5784/Mum/2011 v) PCIT vs. Acquatic Remedies Pvt. Ltd., I.T. Appeal No. 83-85 of 2016 (Bom HC) vi) CIT vs. Goa Sponge and Power Ltd., I.T. Appeal No. 16 of 2012 (Bom HC) vii) ACIT vs. Sankalp Corporate Pvt. Ltd., ITA NO. 118/Mum/2016 viii) ITO vs. Lisha Trading P. Ltd., ITA No. 5845/Mum/2016 ix) CIT vs. Lovely Exports P. Ltd. (2008) 216 CTR 195 (SC) x) Jasamrit Constructions Pvt. Ltd. vs. ITO, ITA No. 1091/Mum/2016 M/s. Facts Tradelink P. Ltd. xi) CIT vs. Alcon Biosciences P. Ltd., ITA No. 1946/Mum/2016 xii) CIT vs. Orchid Industries Pvt. Ltd., I.T. Appeal No. 1433 of 2014 (Bom HC) He submitted that the order of CIT(A) is being very reasoned and detailed the same should be affirmed by dismissing the appeal of the Revenue.
We have heard the rival contentions and perused record including the decisions cited by the learned A.R. We observe that in the present case the issue before us is whether the shares issued by the assessee at a very high premium rate, i.e. share of face value of `10/- at premium of `190/- to 14 investors could be added under Section 68 of the Act when the assessee has filed all the necessary evidences in the form of PAN, bank account, Balance Sheet, Profit & Loss Account, Share Application Forms, etc. of the shareholders before the AO. In our opinion there is no bar in issuing shares at a high premium as it is a matter to be decided by the company based upon several factors such as the valuation done for issuing such shares. In the present case also the assessee has prepared a valuation report from outside agency, which was also before the AO. A perusal of the order of the CIT(A) reveals that the First Appellate Authority has taken a very reasoned stand in view of the matter and after following the Hon'ble Supreme Court judgement in the case of Lovely Exports (supra) and various other judgements of the Hon'ble High Courts in deciding the issue in favour of the assessee. Moreover it is for the assessee to decided at what price the shares of the company should be issued and not for the tax authorities to determine the price at which the share capital of the company should be issued. The only concern of the Department is whether the money invested in the share capital is genuine and the investors have duly established the identity and creditworthiness to invest the said money. In the present case, after perusal of the order of the CIT(A), we observe that the learned CIT(A) has recorded a finding of fact on the basis of various evidences filed by the assessee, that these shareholders where genuine and had creditworthiness. Further the proviso to Section 68 of the Act as inserted by Finance Act, 2012 is applicable w.e.f. 01.04.2013 and have no retrospective effect as has been held by the M/s. Facts Tradelink P. Ltd. Hon'ble Jurisdictional High Court in the case of Gagandeep Infrastructure Pvt. Ltd. (supra). We have perused various decisions cited by the assessee as stated hereinabove and we are of the considered opinion that the ratio laid down in all the decisions is squarely applicable to the case of the assessee. Accordingly we do not find any reason to deviate from the finding given by the CIT(A).