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

Date of concluding the hearing : January 14th, 2019 Date of pronouncing the order : February 20th , 2019 O R D E R Per J. Sudhakar Reddy :- This is an appeal is filed by the revenue and is directed against the order of the ld. Commissioner of Income Tax (Appeals) - 4, Kolkata (hereinafter the ‘ld. CIT (A)’), passed u/s 250 of the Income Tax Act, 1961 (the ‘Act’), dated 28/09/2016.

Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd 5. After hearing rival contentions, perusing the papers on record and case laws cited, we hold as follows.

5.1. The issue is whether only the share premium could be added u/s 68 of the Act after accepting the face value of the share capital as genuine transaction. In this case only a part of the transaction was accepted by the Assessing Officer. We find that this Bench of the Tribunal in the case of ITO vs. M/s. BSNL Commercial Pvt. Limited in order dated 22.11.2018 at Para 7 held as follows:

“7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the relevant documentary evidence in the form of Annual Reports, Bank statements, copies of PAN Card, etc. of the shareholder companies was produced before the Assessing Officer in order to establish the identity as well as creditworthiness of the said shareholder companies. The notices issued by the Assessing Officer were also duly responded by the said shareholder companies by filing their replies. It is observed that the Assessing Officer, however, doubted their creditworthiness as well as the genuineness of the share premium amount mainly on the ground that the assessee-company failed to produce the Directors of the shareholder companies for examination. He, however, accepted the share capital amount received from the concerned shareholder companies and treated mainly the share premium amount paid by them as unexplained. As pointed out by the ld. Counsel for the assessee, the share premium charged by the assessee-company was duly justified before the ld. CIT(Appeals) by furnishing the relevant facts and figures. It is observed that in the similar facts and circumstances involved in the case of M/s. Trend Infra Developers Pvt. Limited (supra), similar addition made by the Assessing Officer only on account of share premium by treating the same as unexplained was deleted by the ld. CIT(Appeals) and the Tribunal upheld the order of the ld. CIT(Appeals) for the following reasons given in paragraph no. 3.3 of its order:- “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 Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd 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 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 distinguishable”.

5.2 Similarly, in the case of ITO vs. Tanish Dealers Pvt. Ltd. order dated 07.12.2018 held as follows:

6. 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. 22,00,000/- from 18 corporate entities and Rs. 1,98,00,000/- 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. 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. We find that the director of the assessee company was present before the ld AO and the assessee had submitted that the ld AO had informed them to file the necessary details called for in the summons u/s 131 of the Act in his office through proper mode in tapal, which was accordingly done by him. It was also submitted that the director of the assessee company offered himself for deposition which was refused by the ld AO. This fact was not controverted by the revenue before us. In our considered opinion, for this reason alone, there cannot be Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd any addition u/s 68 of the Act in the facts of the instant case. 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 distinguishable. 6.1. 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.

Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd (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. (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 respondent "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 Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd 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." 6.2. We find that the issue under dispute was the subject matter of adjudication on exactly similar facts by this tribunal in the case of ITO vs Trend Infra Developers Pvt Ltd in dated 26.10.2018 for Asst Year 2012-13, wherein the addition made towards share premium was deleted. The findings given therein are not reiterated for the sake of brevity. 6.3. In view of the aforesaid observations in the facts and circumstances of the case and respectfully following the judicial precedents 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, the Grounds 1 to 2 raised by the revenue are dismissed.

Similar view has been in the other judgments cited by the ld. Counsel for the assessee.

5.3 Applying the proposition of law laid down in this case law to the facts of the case, we find that the addition made only of share premium received along with the share application money is not justified. The Assessing Officer has accepted the identity, creditworthiness of the share subscribing companies. The genuineness of the transactions sought to be accepted only to the extent of face value of the shares. This, as per the proposition of law cited above cannot be Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd sustained. Hence on this ground above, the order of the ld. CIT(A) has to be upheld.

5.4 The assessee in this case has filed documents such as the copy of acknowledgement of income tax, statement of source of fund, copies of relevant bank statements in respect of accounts from which share application money were paid, PAN and address of share subscriber companies in the year ending on 31st March 2012, copy of the return allotment of shares, copy of the certificate of incorporation of share applicant companies, income tax particulars of each of share subscribing companies and their respective bank accounts. The Assessing Officer had issued notices u/s 133(6) and u/s 131 of the Act to all five share subscribers and these notices were served to them and they have furnished requisite documents and evidences and details as requisitioned by the Assessing Officer. An confirmation letter explaining immediate source of payment of share application money was stated and this was also furnished before the Assessing Officer.

5.5 On these facts, the ld. CIT(A) at Para 4.7 held as follows:

4.7 I also agree with the submissions of the AR of the appellant that its case relates A.Y 2012-13 and section 56(2)(viib) of the Act was introduced in the statue only from A.Y 2013-14. Thus this matter is before the introduction of section 56(2)(viib) of the Act. I find that in the case of Green Infra Ltd relied upon by the AR of the appellant ITAT has held that the share allotment at premium by a newly incorporated company cannot be taxed as income invoking section 56(1) of the Income Tax Act (Act). Furthermore, if the genuineness and identity of the depositor is established and the transaction was carried out through banking channels, the transaction cannot be taxed under section 68 of the Act. I find that the A.O has not doubted the identities, and creditworthiness of same set of share subscribers from whom the appellant accepted share capital of Rs.26,800/-. In my considered view this is not permissible in law. A transaction cannot be partly accepted and partly held to be unexplained. I also agree with the AR that share premium by its very nature is a capital receipt. The Apex Court in the case of Standard Vaccum Oil Co reported in 59 ITR 685 has held that premium realized from the issue of its shares represented reserve not includible in computing the profits of the company for the purpose of Indian Income-tax Act, 1922. In addition to above, we also rely on High Court decisions in the cases of Om Oils & Seeds Exchange Ltd 152 ITR 552 and Krishnaram Baldeo Bank (P) Ltd. reported in 144 ITR 600 also followed the same principle. The same

Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd view was affirmed in the cases of Punjab State Industrial Corporation Ltd. reported in 225 ITR 792 wherein it is held that share premium is in the nature of capital and in the case of Brooke Bond India Ltd. reported in 225 ITR 798. The A.O had not questioned the identity of the shareholders either. Furthermore, the entire transaction had been done through banking channels and hence section 68 of the Act was not applicable. Further, where the A.O has accepted the genuineness of shareholder as far as share capital is concerned it could not be held to be a bogus transaction as far as it relates to share premium.”

5.6 These observations are in line of the proposition of the law laid down in the order of the Coordinate Bench of the Tribunal in the case of ITO vs Trend Infra Developers Pvt Ltd in dated 26.10.2018 and ITO vs. M/s. BSNL Commercial Pvt. Limited in ITA No.686/Kol/2017 (supra).

5.7 In the case of ITO vs Trend Infra Developers Pvt Ltd (supra), the Tribunal by upholding the order of the Ld. CIT(A) deleted the addition made by the Assessing Officer on account of share premium after observing 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 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

Assessment Year: 2012-13 M/s Topaz Enclave Pvt. Ltd 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 distinguishable.”

5.8 Considering the above discussions and in view of the proposition of law laid down in the case laws cited above, we find no infirmity in the order of the ld. CIT(A).