ITO, WARD-10(4), KOLKATA, KOLKATA vs. M/S GATEWAY ENCLAVE PVT.LTD., KOLKATA

ORDER Per Shri A.T.Varkey, JM

This appeal preferred by the revenue is against the order of the Ld. CIT(A)-4, Kolkata dated 29.09.2016 for AY 2012-13. The main grievance of the Revenue is against the action of the Ld. CIT(A) in deleting the share premium collected by the assessee which was added by the AO u/s 68 of the Act.

"This reasoning must apply a portion to large scale subscriptions to the shares of a public company where the latter may have no material other than the application forms and bank transaction details to give some indication of the identity of these subscribers. It may not apply in circumstances where the shares are allotted directly by the company / assessee or to creditors of the assessee. This is why this Court has adopted a very strict approach to the burden being laid almost entirely on an assessee which receives ...” The Ld. DR submitted that in similar set of facts Hon’ble Calcutta High Court in the case of M/s. Rajamandir Estates Pvt. Ltd. vs. CIT (2016) 70 taxmann.com 124 (Cal) has distinguished the decision of M/s. Lovely Exports Ltd. case. It was pointed out that the said decision of Hon’ble Calcutta High Court has been confirmed by Hon’ble Supreme Court reported in (2017) 77 taxmann.com 284.

The Ld. DR also submitted that in CIT vs. Nipun Builders and Developers Pvt. Ltd. (2013) 350 ITR 407 (Del) the Hon'ble Court while deciding the issue in favour of revenue has reiterated that -

29 in…………………….. in case of private limited companies generally persons known to the directors or shareholders, directly or indirectly, buy or subscribe to shares upon receipt of money, the share subscribers do not lose touch and become incommunicado. Call monies, dividends, warrants etc. have to be sent and the relationship is a continuing one. In such cases therefore the assessee cannot simply furnish details and remain quiet even when summons issued to the shareholders u/s.131 ... 30 . …………….. what we perceive and regard as correct position of law is that the Court or Tribunal should be convinced about the identity, creditworthiness and genuineness of the transaction. The onus to prove the tree factum is on the assessee as the facts are within the assessee's knowledge. Mere production of incorporation details PAN nos. or the fact that third persons or company had filed income tax details in case of a private limited company may' not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, identity are deeper and obtrusive. Companies no doubt are artificial or juristic persons but they are soleless and are dependent upon the individuals behind them who run and manage the said companies. It is the persons behind the company who take decisions, controls and manage them.

"if a cash credit is shown by the company in its books of accounts and if the source cannot be explained properly the ITO may assess the sum as income of the company from undisclosed source."

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13

(i) CIT vs. N. R. Portfolio Pvt. Ltd. (2014) 222 Taxmann 157 (Del) para 24 & 25.

(ii) CIT vs. N. Tarika Properties Investments of2010 Delhi High Court dtd.21.11.13. (iii) CIT vs. Nova Promoters and Finlease Pvt. Ltd. (2012) 342 ITR 169 (Del).

(iv) Visakha Sales Pvt. Ltd. vs. CIT (2014) 52 taxmann.com 305.

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13 premium raised by the assessee, the assessee filed before the AO the details of the six corporate bodies which subscribed the share capital along with the share premium. Before the AO, the assessee had filed paper book to substantiate the share capital along with the share premium. The documents furnished before the AO, inter alia, included – (i) Copies of acknowledgement of filing of Income Tax Return of shareholders, (ii) The statement of source of funds, (iii) Audited financial statements, (iv) Copies of relevant bank statements in respect of accounts from which share application monies were paid, (v) PAN, address of share subscribers for the year ended 31.03.2012. (vi) Copy of the return allotment in Form 2 evidencing the allotment of shares to the six share applicants, vii) Certificate of incorporation of share applicants viii) Confirmation by share-subscribers and they replied to notices u/s 133(6) of the Act.

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13 reveal that the shareholders possessed sufficient capital and reserves out of which share subscription amounts were paid through account payee cheques. The chart is given below to better understand the fund position of each share applicant:

Name of the company Investible Funds Amount invested in the available as per appellant company financials Atlantic Merchants Pvt. Ltd. 49,16,25,344/- 31,00,000/- Risewell Vintrade (P) Ltd. 38,11,65,832/- 7,00,000/- Subhbijay Agencies (P) Ltd. 45,62,16,492/- 11,00,000/- Superior Enclave (P) Ltd. 2,50,70,945/- 25,00,000/- Topaz Enclave (P) Ltd. 2,50,25,132/- 49,00,000/- Toplake Commercial (P) Ltd. 49,48,01,760/- 2,50,000/- Total 1,25,50,000/- On perusal of the aforesaid chart it reveals that the net owned funds of each share applicant were several times more than the investment made in equity of the assessee. It is evident that each share applicant had substantial resources of their own compared with the total investible funds available with each share applicants and that investment made in the equity shares and the assessee company was not significant. We note that the AO did not point out any defect or infirmity in the documents placed on record by the assessee as well as the share subscribers. Thus the creditworthiness of the aforesaid share subscribers cannot be disputed.

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13 i) ITO Vs. Trend Infra Developers Pvt. Ltd. & Happy Bagans Pvt. Ltd., & 2273/Kol/2016 order dated 26.10.2018. ii) ITO Vs. Savera Towers Pvt. Ltd. ITA No. 2275/Kol/2016 order dated 05.12.2018. iii) ITO Vs. BSNL Commercial Pvt. Ltd. ITA No.686/Kol/2017 order dated 22.11.2018. iv) ITO Vs. Tanish Dealers Pvt. Ltd. ITA No. 1636/Kol/2016 order dated 07.12.2018. v) ITO Vs. Dreamz Met Construction Projects Pvt. Ltd. ITA No. 2047/Kol/2016 order dated 07.12.2018 The Ld. AR drew our attention to the 1st case of Trend Infra Developers Pvt. Ltd., 14. (supra), which according to Ld. AR was a group of company wherein also the same kind of addition was made after accepting the share capital and adding the share premium. According to Ld. AR, share premium cannot be added in the hands of the assessee u/s. 68 of the Act since the proviso was inserted u/s 68 of the Act only from AY 2013-14 and similar additions made only on share premium was directed to be deleted and which action has been upheld by the Hon’ble Bombay High Court in Pr. CIT Vs. Apeak Infotech reported in 88 Taxman.com 695 dated 08.06.2017. The Ld. AR drew our attention to page 18 of the case law paper book and drew our attention to the order passed by the Tribunal in Trend Infra Development pvt. Ltd., supra, wherein we note in similar facts the Tribunal was pleased to delete the addition made only on share premium by the AO for AY 2012-13. The Tribunal held as under:

“3.3. We have heard the rival submissions. The fact stated hereinabove remain undisputed before us by either of the parties and hence the same are not reiterated for the sake of brevity. At the outset, we find that the assessee had received share capital of Rs. 57,900/- from six shareholders and Rs. 2,88,92,100/- from the very same shareholders towards share premium. The share capital received by the assessee has been duly accepted by the ld. AO within the ken of section 68 of the Act. However, share premium component has been doubted by the ld. AO. We find that the assessee in the instant case had duly complied with by furnishing the complete details of share subscribers to prove their identity, genuineness of the transaction and creditworthiness of share subscribers beyond doubt. These are duly supported by the documentary evidences which are enclosed in the paper book. The ld. AO had not found any falsity or any adverse inference of the said documents. We find that the Ld. CIT(A) had placed heavy reliance on these documents and had granted relief to the assessee. All the share subscribers are duly assessed to income tax and the transaction with the assessee company are duly routed through banking channels and are duly reflected in their respective audited balance sheets which are also placed on record before us. In any case, once the receipt of share capital has been accepted as genuine within the ken of section 68 of the Act, there is no reason for the ld. AO to doubt the share premium component received from the very same shareholders as bogus. We held that all the three necessary ingredients of section 68 had been duly complied with by the assessee with proper documentary evidences. We find that notices issued u/s 133(6) have been duly complied with. The only

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13 grievance of the ld. AO was that the assessee could not produce the directors of the share subscribing companies. In our considered opinion, for this reason alone, there cannot be any addition u/s 68 of the Act as held by the Hon’ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. reported in 159 ITR 78 (SC). We find that the decision of Hon’ble Delhi High Court in the case of Novo Promoters and Finelease Pvt. Ltd. reported in 342 ITR 169 (Del) vehemently relied upon by the ld. DR before us, is not applicable in the instant case, as in the facts before the Hon’ble Delhi High Court, the notices u/s 133(6) have not been duly complied with. Hence the decision rendered by the Hon’ble Delhi High Court in the case referred to supra is not applicable to the facts of the instant case and is factually distinghuishable.

3.3.1. We find that the reliance placed by the ld. AR in the decision of Hon’ble Bombay High Court in Pr. CIT vs. Apeak Infotech reported in 88 Taxmann.com 695 dt 08.06.2017 wherein the question raised before the Hon’ble Bombay High Court are as under: “A. Whether on the facts and circumstances of the case and in law, the Tribunal was correct to uphold the decision on Commissioner of Income Tax (Appeals) that the share premium received by the assessee-company cannot be taxed under Section 68 of the Act ignoring the ratio laid down by this Court in its decision reported in the case of Major Metals Ltd. vs. Union of India [2013] 359 ITR 450 (Bom)?

B. Whether on the facts and circumstances of the case and in law, the Tribunal as well as the Commissioner of Income Tax (Appeals) was right in deleting addition made by the Assessing Officer, by holding that the share premium receipt is capital in nature?”

The Hon’ble Court held as under: Regarding Question A: (a) The issue raised by the Revenue in this question is to bring to tax the share premium received under section 68 of the Act. We find that the issue of bringing the share premium to tax under section 68 of the Act was not an issue which was urged by the appellant Revenue before the Tribunal. The only issue which was urged before the Tribunal as recorded in para 11 of the impugned order is the addition of share capital and share application money in the hands of the assessee as income under section 28(iv) of the Act. We find that the Commissioner of Income-tax (Appeals) did consider the issue of applicability of section 68 of the Act and concluded that it does not apply. The Revenue seems to have accepted the same and did not urge this issue before the Tribunal. Mr. Bhoot, learned counsel appearing for the Revenue also fairly states that the issue of applicability of section 68 of the Act was not urged by the Revenue before the Tribunal. (b) It is a settled position in law as held by this court in CIT v. Tata Chemicals Ltd. [2002] 122 Taxman 643/256 ITR 395 (Bom.) that in an appeal under section 260A of the Act, the High Court can only decide a question if it had been raised before the Tribunal even if not determined by the Tribunal. Therefore, no occasion to consider the question as prayed for arises. (c) In any case, we may point out that the amendment to section 68 of the Act by the addition of proviso thereto took place with effect from April 1, 2013. Therefore, it is not applicable for the subject assessment year 2012-13. So for as the pre-amended section 68 of the Act is concerned, the same cannot be invoked in this case, as evidence was led by the respondents- assessees before the Assessing Officer with regard to identity, capacity of the investor as well as the genuineness of the investment. Therefore, admittedly, the Assessing Officer did not invoke section 68 of the Act to bring the share premium to tax. Similarly, the Commissioner of Income-tax (Appeals) on consideration of facts, found that section 68 of the Act cannot be invoked. In view of the above, it is likely that the Revenue may have taken an informed decision not to urge the issue of section 68 of the Act before the Tribunal.

M/s. Gateway Enclave Pvt. Ltd., AY 2012-13

(d) We may also point out that decision of this court in Major Metals Ltd. v. Union of India [2012] 19 taxmann.com 176/207 Taxman 185/[2013] 359 ITR 450 Bom. proceeded on its own facts to uphold the invocation of section 68 of the Act by the Settlement Commission. In the above case, the Settlement Commission arrived at a finding of fact that the subscribers to shares of the assesseeâ€"company were not creditworthy inasmuch as they did not have financial standing which would enable them to make an investment of Rs. 6,00,00,000 at premium at Rs. 990 per share. It was this finding of the fact arrived at by the Settlement Commission which was not disturbed by this court in its writ jurisdiction. In the present case the person who have subscribed to the share and paid share premium have admittedly made statement on oath before the Assessing Officer as recorded by the Tribunal. No finding in this case has been given by the authorities that shareholder/share applicants were unidentifiable or bogus. (e) In the above view Question No. A is not being entertained in view of the decision in Tata Chemical Ltd. (supra). Accordingly, the question (A) is not entertained.

Regarding Question B : (a) We find that the impugned order of the Tribunal upheld the view of the Commissioner of Income-tax (Appeals) to hold that share premium is capital receipt and therefore, cannot be taxed as income. This conclusion was reached by the impugned order following the decision of this court in Vodafone India Services (P.) Ltd. (supra) and of the apex court in G. S. Homes and Hotel (P.) Ltd. (supra). In both the above cases the court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income. (b) It is further pertinent to note that the definition of income as provided under section 2(24) of the Act at the relevant time did not define as income any consideration received for issue of share in excess of its fair market value. This came into the statute only with effect from April 1, 2013 and thus, would have, no application to the share premium received by the respondentâ€"assessee in the previous year relevant to the assessment year 2012-13. Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 (Bom.) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will not have retrospective effect and would be effective only from the assessment year 2013-14. (c) In view of the above, question No. B as proposed also does not give rise to any substantial question of law as it is an issue concluded by the decision of this court in Vodafone India Services (P.) Ltd. (supra) and in the apex court in G. S. Homes and Hotels (P.) Ltd. (supra). Thus not entertained. Therefore, all the six appeals are dismissed. No order as to costs.”

3.3.2. In view of the aforesaid observations in the facts and circumstances of the case and respectfully following the judicial precedent relied upon hereinabove, we hold that the Ld. CIT(A) had rightly granted relief to the assessee in the peculiar facts and circumstances of the case, which in our considered opinion, does not require any interference. Accordingly, grounds raised by the revenue are dismissed.”

“41. We are inclined to agree with the CIT(Appeals), and consequently with ITAT, to the extent of their conclusion that the assessee herein had come up with some proof of identity of M/s. Gateway Enclave Pvt. Ltd., AY 2012-13 some of the entries in question. But, from this inference, or form the fact that the transactions were through banking channels, it does not necessarily following that satisfaction as to the creditworthiness of the parties or the genuineness of the transactions in question would also have been established.

Order is pronounced in the open court on 1st May, 2019.