WSA ANGEL LINES PVT. LTD.,MUMBAI vs. ITO - 7(3)(4), MUMBAI

सुनवाई क� तार�ख / : 22.03.2018 Date of Hearing घोषणा क� तार�ख / : 01.06.2018 Date of Pronouncement आदेश / O R D E R Per Shamim Yahya, A. M.: This appeal by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals) dated 27.01.2016 and pertains to the assessment year 2011-12.

read as under:

1. The Ld. Commissioner of Income Tax (Appeals) - 14, Mumbai [hereinafter referred to as the "Ld. CIT(A)"] erred in passing the order dated 27.01.2016 upholding the assessment order dated 20.03.2014 passed under section 143(3) of the Act determining total income of Rs.1,14,88,122/- as against loss of WSA Angel Lines Pvt. Ltd Rs.11,84,080/- declared by the appellant without appreciating the facts and circumstances of the case. The Appellant strongly objects to the following additions and disallowances confirmed by Ld.CIT(A): 2. Addition under section 56(11 of the Act by treating share application money as Income from Other Sources unjustified - Rs. 1,22,56,2297- i. The Ld. CIT(A) erred in upholding the action of the Ld, A.O. in making addition of Rs.1,22,56,229/- under section 56(1) of the Act by treating the share application money received as Income from Other Sources without appreciating the facts and circumstances of the case. Hence, the addition of Rs.1^22,56,229/- by treating the same as Income from Other Sources is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that the Appellant has discharged the primary onus cast upon it to prove the identity, capacity and creditworthiness of the share applicant by furnishing the relevant documentary evidences. The Appellant, therefore, prays that treating the share application money amounting to Rs.1,22,56,229/- as income from other sources under section 56(1) of the Act is not at all justified and the same may be deleted iii. Without prejudice to the above the Ld. CIT(A) failed to appreciate that the share application money received by the Appellant is capital receipt in nature. Hence, the same is not liable to be taxed in the hands of the Appellant. Thus, the addition of Rs.1,22,56,229/- by treating the share application money as Income from Other Sources is unjustified and the same may be deleted. Addition by treating the share capital received as unexplained cash credit under section 68 of the Act. - Rs.3,82,350/- i. The Ld. CIT(A) erred in confirming the action of the Ld. A.O. in making addition of Rs.3,82,350/- by treating the share capital received as unexplained cash credit under section 68 of the Act without appreciating the facts and circumstances of the case. Hence, the addition of Rs.3,82,350/- under section 68 of the Act is unjustified and the same may be deleted. ii. The Ld. CIT(A) failed to appreciate that the Appellant has discharged the primary onus cast upon it to prove the identity, capacity and creditworthiness of the share applicant by furnishing the relevant documentary evidences. The Appellant, therefore, prays that treating the share capital money amounting to Rs.3,82,350/- as unexplained cash credit under section 68 of the Act is not at all justified and the same may be deleted.

The fact of the case is that during the year under consideration, the assessee company has raised and allotted 38,235 equity shares of Rs.10/- amounting to Rs.3,82,350/- and further credited Rs.1,22,56,229/- under the head security premium in WSA Angel Lines Pvt. Ltd the balance sheet under reserve and surplus. During the course of assessment proceeding, the Assessing Officer asked for various details as appearing in para 7.2 of the assessment order. Among other things, these included documentary evidence to prove the identity, creditworthiness and genuineness of the parties along with their return of income, balance sheet, P&L a/c., capital account, bank statement etc. In the assessment order, the Assessing Officer has noted many discrepancies in the allotment of shares. It was noted that the shares have been valued at Rs.330.55 per share at a premium of Rs.320.55 per share and as per discussion in para 7.5, the director of the company has accepted the fact that there is no valuation report being prepared by the company and the share application money has been received on mutual consent basis. During the course of assessment proceeding, the assessee has computed the valuation of share as per details mentioned in para 7.7 and 7.9 of the assessment order and it was found that the valuation is made in two different ways. On the other hand, the Assessing Officer in para 7,19(xiii) contended that as per guidelines of Reserve Bank of India, the valuation of shares in unlisted companies has to be done in accordance with discounted free cash flow method to be carried out by an independent SEBI register category 1, Merchant Banker or Chartered Accountant of the company which is not done in this case. The Assessing Officer relied on various case laws and therefore contended that the money has been brought in the garb of share premium with the intention of being used for benefit of the assessee company without subjecting it to taxation. It is also contended that section 78 of the Companies Act put some restrictions regarding use of the money out of securities premium account.

After extensive discussion, the entire share premium amount was added back under the WSA Angel Lines Pvt. Ltd head income from other sources u/s.56(l) of the Act, It was noted in para 7.3 of the assessment order that the appellant has failed to provide the details asked for, i.e identity of the party, creditworthiness of the parties and genuineness of transactions and has only submitted that the money has been routed to India after pertaining necessary permission of the regulatory authorities. Only bank statement in which said amount has been deposited by the assessee company has been submitted. Looking into the facts of the case and relying on various case laws, the Assessing Officer added the amount u/s.68 of the Act. Further as discussed in para 9 of the assessment order the share premium amount has been alternatively treated as cash credit u/s.68 of the Act.

i. Addition by treating the share application money received as income from other sources-Rs.1,22,56,229/- a. The Ld. A.O. has discussed this issue in paragraph 7 - 8.6 of the assessment order. The Appellant strongly objects to the action of the Ld. A.O. in treating the share application money received by the Appellant as Income from Other Sources. The Appellant submits that it had issued 38235 equity shares of Rs.10/- at a premium of Rs.320.55/- per share to M/s. WSA Lines International Ltd and the same is duly accounted in the Books of Accounts of the Appellant. The shares were issued as per the Memorandum of Understanding dated 27.03.2010 between the Appellant and M/s. WSA Lines International Ltd. As M/s. WSA Lines International Ltd wanted to start joint venture with the Appellant, it has applied for the purchase of shares of the Appellant Company. The creditworthiness of the Mr. Jerry Luk can be ascertained from the fact that he is the President of WSA Lines which has engaged over 1000 staff for carrying out its operation. M/s. WSA Lines having branches in'various countries. The print out taken from the website of WSA Lines is enclosed herewith for ready reference of your Honour. b. The Appellant submits that the entire procedure is done as per the procedure laid down under the Companies Act, 1956. The Appellant has furnished the Copy of the Resolution passed by the Appellant Company, Bank Statement, Form No.2 for allotment of shares filed before Company Registrar and the details

WSA Angel Lines Pvt. Ltd of investor before the Ld. A.O. to show the genuineness of the Share Application Money received by the Appellant during the impugned assessment year. The Memorandum of understanding is enclosed at pages 34-42, Form No. 2 enclosed at pages 62-65 and share certificate at page 66 of the Paper Book. c. The Appellant, further, submits that the shares were issued and allotted at the premium of Rs.320.55/- after following due procedure and passing resolution with the consents of majority of members of Appellant Company. The Appellant has furnished Share Allotment Form, copy of the Resolution, details of share investor, name and address of the investore before the Ld. A.O. to show the genuineness of the share capital. The details of the same are furnished ast pages 43-67 of the paper book. d. The Appellant further submits that there was a mutual understanding between the Appellant and M/s. WSA Lines International Ltd. that the shares would be issued for starting the joint venture company. Further, the Memorandum of Understanding was also executed between the said parties. The Appellant further submits that it has issued 38235 share to one Mr. Jerry Wai Cheung Luk of Hong Kong. The Appellant has also provided the address of Mr. Jerry Wai Cheung Luk to the Ld. A.O. He has been subsequently became director of the Appellant company. The allotment of Director Identification number by the Government of India is furnished at page 52 of the Paper Book. All the shares issued to the shares have been duly recorded in the book of accounts. The Appellant submits that it has utilized the money received from the issuance of shares in the normal course of carrying out the business of the Appellant. The Appellant further submits that after issuing the shares, the name of the Appellant has been changed from M/s. Angel Maritime Private Limited to M/s. WSA Angel Lines Private Limited. The certificate for change of Name issued by Ministry of Corporate Affairs is enclosed at pages 48 of the Paper Book. The Appellant, thus, has furnished all the details and evidences to show the genuineness of the said transaction. Hence, the Ld. A.O. is not unjustified in doubting the share capital without giving the opportunity to the Appellant to justify the same. The Appellant therefore prays that no adverse inference can be drawn against the Appellant, relying on the contents in this paragraph. In support of the above contention the Appellant relies on the decision of decision of Allahabad High Court in the case of C!T Vs. Miq Steels (P) Ltd. [2013]36 taxmann.com 422 / 217 taxman 209 (All) wherein the Hon'ble Allahabad High Court has held that where assessee-company received from shareholders certain amount on account of share application money, it was required to prove only identity of shareholders and not genuineness of transactions and creditworthiness of shareholders. Hon'ble Allahabad High Court further held that the said case is covered by the decision of Hon'ble Supreme Court in the case of C!T Vs. Shelter Investment Ltd. [2001] 251 ITR 263 wherein the Hon'ble Supreme Court deleted impugned addition made by the Ld. A.O. and WSA Angel Lines Pvt. Ltd observed that in case of capital contributed by a shareholder, identity of shareholder is only required to prove.

3.2 I have considered the submissions made. Looking into the submissions made during the assessment and appellate proceedings it is noted that the appellant has not filed any evidence in support of creditworthiness of the party. It has simply referred to the website of WSA Lines in support of creditworthiness of Sri Jerry Luk. In the case of Oasis Hospitalities Pvt. Ltd 333 ITR 193 (Del), it is held that "the initial onus is upon the assessee to establish three things necessary to operate the mischief of Section 68. These are (i) identity of the investors (ii) their creditworthiness/investments (iii) genuineness of the transaction. Only when these three ingredients are established prima facie, the department is required to undertake further exercise.

In this case, no details/evidence are submitted to establish the creditworthiness of the investor. Therefore, looking into the facts of the case, I am of the opinion that the addition made by the AO on account of share application and share premium u/s 68 is justified.

WSA Angel Lines Pvt. Ltd 8. Upon careful consideration, we find that section 56(1) of the I. T. Act does not envisage addition on account of unjustified share premium. The unjustified share premium can be taxed u/s. 56(vii)(b) of the I. T. Act which has been inserted by Finance Act, 2012 w.e.f. 01.04.2013. In several cases, the Hon'ble jurisdictional High Court has held that this is prospective and cannot be applied retrospectively. Admittedly, the assessment year in this case is 2011-12. Hence, the said section cannot be applied. As regards the addition u/s. 68 of the Act is concerned, we find that the share application was received from one Mr. Jerry Wai Cheung Luk of Hong Kong. It was further submitted that the share application came from overseas with due procedure having been followed as laid down by the Government of India. The Assessing Officer despite the detail given by the assessee about the share application has not made any verification, rather in the whole order he has discussed about the lack of justification of share premium. In these circumstances, in our considered opinion, without examining the details submitted by the assessee, the Assessing Officer has added the same amount which is already added u/s. 56(1) of the Act also u/s.

The ld. Commissioner of Income Tax (Appeals) has also erred in affirming the addition u/s. 68 of the Act summarily without any discussion thereon. As held by the Hon’ble Apex Court in the case of Kapoorchand Shrimal [1981] 131 ITR 451 (SC) it is the duty of the appellate authority to correct the error in the orders of the authorities below and WSA Angel Lines Pvt. Ltd remit the matter for further investigation with a necessary directions unless prohibited by law.