ITO, WARD-10(4), KOLKATA, KOLKATA vs. M/S DREAMZ MET CONSTRUCTION PROJECTS PVT. LTD., KOLKATA

1. This appeal by the Revenue arises out of the order of the Learned Commissioner of Income Tax(Appeals)-4, Kolkata [in short the ld CIT(A)] in Appeal No. 184/LD. CIT(A))-4/Ward-10(4)/Kol/15-16 dated 04.08.2016 against the order passed by the ITO, Ward-10(4), Kolkata [ in short the ld AO] under section 143(3) of the Income Tax Act, 1961 (in short “the Act”) dated 12.03.2015 for the Assessment Year 2012-13.

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 3. The brief facts of this appeal are that the assessee company filed its return for the Asst Year 2012-13 on 31.8.2012 declaring total income of Rs 4,70,447/-. The ld. AO observed that since there was no substantial business activity carried on by the assessee, the assessee company cannot command huge share premium. Accordingly he sought to verify the veracity of the share capital and share premium raised by the assessee. The assessee submitted that it is engaged in the business of investment in unquoted equity shares of companies and properties. The assessee raised share capital and share premium from the following share holders:

2. Baliraja Distributors Pvt Ltd P-445, Hemanta Mukhopadhya Sarani, 2nd Floor, Flat No. 2N, Kolkata – 700029 PAN – AABCB3083G Date of allotment of shares – 31.3.2012 Number of Shares – 50000 equity shares Face value per share – Rs 10 Total Share Capital received – Rs 5,00,000/- Premium value per share – Rs 190 Total Share premium received – Rs 95,00,000/- Total Share Premium Received - Rs 2,70,75,000/-

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 Notice u/s 133(6) of the Act were issued to all the share holders which were duly replied by them directly before the ld. AO. The ld. AO observed that reply sent by the share holders were almost identical in style and submitted almost at the same point of time. One of the letters to the investors returned unserved. The summons u/s 131 of the Act was issued to the directors of the assessee company to examine the receipt of premium and the assessee was also directed to produce the directors of the share holder companies for examination of identity, genuineness of transactions and creditworthiness of the investors. The ld. AO observed that the summons issued u/s 131 of the Act did not find compliance from the directors of the assessee company. The assessee did not produce the directors of the investor companies before the ld AO. For non-compliance of the summons u/s 131 of the Act, by not producing the directors of the share holder companies, the ld. AO concluded that the share premium raised by the assessee in the sum of Rs. 270,75,000/- as unexplained cash credit u/s 68 of the Act. The ld. AO however accepted the receipt of share capital in the sum of Rs. 14,25,000/- from the very same shareholders as genuine in the assessment.

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 subscribers independently were duly complied with by them before the ld. AO. It was submitted that the summons u/s 131 of the Act was issued at the end of the limitation period. The summon was issued asking the directors of the assessee company to appear before him in short notice. The director of the assessee Mr Sukhendra Shukla appeared on due date on 19.2.2015 for giving his deposition along with his identity proof, copy of bank statement of the assessee company supported by the bank ledger and share subscribers’ ledger but the ld AO did not gave him an opportunity to present his case before him. Later the director of the assessee company Mr Sukhendra Shukla explained all these facts vide his written submission filed on 25.2.2015 before the ld AO in response to summons u/s 131 of the Act. It was also submitted that the director of the investor company also did appear to give his deposition and submit the papers before the ld AO. It was stated that the ld AO very openly refused to take any deposition or record the presence for that and suggested to file the documents officially in his office which was duly complied with upto the satisfaction of the ld AO. Thus it was pleaded that the assessee had discharged its onus as described u/s 68 of the Act and established the genuineness of the transactions. It was also specifically pointed out that the ld AO grossly erred in quoting that the assessee failed to discharge its onus. It was pleaded that apart from the aforesaid documents, confirmations together with explanation with regard to immediate sources of payment of share premium were also furnished before the ld. AO. It was pleaded that the assessee also placed on record the fact that the investor companies had sufficient investible funds to make investment in the assessee company thereby proving their creditworthiness beyond doubt. It was submitted that from the aforesaid documents and evidences, the identity and creditworthiness of the share subscribers stand conclusively proved together with the genuineness of the transaction. It was submitted that the share subscribers had even established the source of source of funds in the instant case. No lacuna, infirmity, falsity or defect was established or proved in the evidences placed on record nor was the ld. AO able to prove any falsity in the explanation furnished by the share applicants in respect of 4

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 source and/or the source of source of investments. The assessee placed reliance on the decision of various High Courts including Hon’ble Jurisdictional High Court in support of its contentions. The assessee specifically argued before the Ld. CIT(A) that the allotment of shares at a premium cannot be considered as sham or income of the assessee. Submissions were also made with specific reference to a proviso inserted by the Finance Act, 2012 w.e.f. 01.04.2013 in section 68 which reads as under:

“[Provided that where the assessee is a company ( not being a company in which the public are substantially interested), and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless – (a) The person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) Such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory:”

5.1. The Ld. CIT(A) gave a categorical finding that the ld. AO had not doubted the identity and creditworthiness of the share subscribers and the genuineness of the transactions in respect of receipt of share capital in the sum of Rs. 14,25,000/-. While that is so, how can the same be doubted for the purpose of receipt of share premium alone. Accordingly he deleted the addition made on account of share premium to the tune of Rs. 2,70,75,000 /- for the year under appeal. Aggrieved the revenue is in appeal before us.

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 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. We find that the director of the assessee company together with the director of the investor company were 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 them. It was also submitted that the both the directors of the assessee company as well as the director of the investor company offered themselves 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 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 distinghuishable.. 7

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 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. (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 8

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 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 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 9

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 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 3 raised by the revenue are dismissed.

M/s Dreamz Met Construction Projects Pvt. Ltd. A.Yr. 2012-13 PCIT vs IL & FS Energy Development Co Ltd (2017) 399 ITR 483 (Del)

Respectfully following the same, we do not find any infirmity in the order of the ld CITA granting relief to the assessee. Accordingly, the Ground No. 4 raised by the revenue is dismissed.

Order pronounced in the Court on 07.12.2018