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Income Tax Appellate Tribunal, IN THE INCOME TAX APPELLATE TRIBUNAL
Before: SHRI BEFORE SHRI G.D. AGRAWALG.D. AGRAWALG.D. AGRAWAL & G.D. AGRAWAL & AND & MS. SUCHITRA KAMBLE
At the time of hearing before us, it is submitted by the learned DR that during the accounting year relevant to assessment year under consideration, the assessee company has raised the share capital of `4 crores by issuing the share of `100/- each at a premium of `39,900/- per share. That the assessee is a private limited company and there cannot be any justification for such a huge premium. That M/s Adhyay Equi Pref Pvt.Ltd. (hereinafter referred to as ‘AEPPL’) claimed to have acquired such shares from the assessee by investing huge sum of `4 crores just for 1,000 equity shares of `100/- each. The assessee could not give any satisfactory explanation for such a high premium. That on investigation of bank account of AEPPL, it is noticed that there was a meager balance in the bank account on the date of issue of `4 crores to the assessee. There has been credit of `12 crores on the same day against which cheques to the assessee and two other entities were issued. On these facts, the Assessing Officer rightly treated the credit of `4 crores as unexplained and made the addition there for. Learned CIT(A) deleted the addition without properly appreciating the facts of the case. He, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored.
Learned counsel for the assessee, on the other hand, pointed out that the identical issue has been considered by the ITAT in assessee’s own case for assessment year 2006-07 wherein the similar additions were made by the Assessing Officer in the case of the assessee and other group companies. In that year also, the shares of `100/- were allotted at a premium of `39,900/-. The ITAT, vide order dated 31st December, 2013 in after considering all the facts, has upheld the order of learned CIT(A) wherein the credit of share capital was treated as explained. That Revenue had filed the appeal before Hon'ble Jurisdictional High Court against the above order
4 ITA-2262/D/2013 & 5 others of the Tribunal. Hon'ble Jurisdictional High Court, vide order dated 16th April, 2015 in dismissed the appeal of the Revenue. He further stated that the assessee and other four private limited companies are holding the major equity stakes in the Uflex group of companies. The assessee has referred to its paper book where there is calculation of net worth of the three companies and shareholding pattern of the group and has pointed out that the value of each share comes to `40,616/-. He, therefore, stated that the issue of per share at `40,000/- was quite justified and it was at a lesser rate than the book value of the assets of the company which are ultimately held by these private limited companies. He further pointed out that the actual market value of the assets held by Uflex group of companies is much more than the book value. If the land of Uflex group of companies at Noida is valued as per market value on the basis of stamp duty valuation by the competent authority, then the land itself is worth more than `2,000 crores while its book value is only `38.17 crores. Thus, the issue of shares at `40,000 per share is at a much lesser rate than the worth of the assets ultimately controlled by these private limited companies. He also stated that these shares acquired by AEPPL have not been sold till date. He also referred to the balance sheet of AEPPL and pointed out that the worth of AEPPL is more than `100 crores which has mainly been invested in shares. He further pointed out that the credit in the account of AEPPL on the date of issue of cheque and other concern was out of the sale proceeds of shares of another company. Thus, AEPPL has sold the shares of some other companies and invested in the assessee and two other concerns. He also referred to the income tax returns of AEPPL, copy of which is placed at page 161 of the assessee’s paper book. He further referred to the certificate of incorporation of AEPPL and pointed out that the said company is in existence since 1994 and is regularly investing in 5 ITA-2262/D/2013 & 5 others the shares of various companies. He, therefore, submitted that the assessee has duly established the identity, creditworthiness and genuineness of transactions of AEPPL.
We have carefully considered the submissions of both the sides and have perused the material placed before us. Admittedly, the onus is upon the assessee to prove the credit in its books of account whether by way of loan or share capital. To discharge such onus, the assessee has to establish the identity and creditworthiness of the shareholder and the genuineness of the transaction. In this case, there is no dispute with regard to the identity of the share applicant. However, the Assessing Officer doubted the creditworthiness of the share applicant as well as genuineness of the transaction. At the outset, we may point out that this issue is squarely covered by the decision of ITAT as well as Hon'ble Jurisdictional High Court in assessee’s own case. We find that in assessment year 2006-07, similar additions were made in the case of the assessee and other group concern. We find that in the case of the assessee, there was total credit by way of share capital amounting to `12,78,60,000/-. In that year also, the share of `100/- was sold at a premium of `39,900/-. The Assessing Officer made the addition treating the credit by way of share capital as unexplained. The same was deleted by the CIT(A). Hence, the Revenue was in appeal. The ITAT, vide order dated 31st December, 2013 in sustained the order of learned CIT(A). The Revenue filed the appeal before Hon'ble Jurisdictional High Court and Hon'ble Jurisdictional High Court in ITA No.523/2014 vide order dated 16th April, 2015 sustained the order of the ITAT. The relevant finding of Hon'ble Jurisdictional High Court reads as under:-
6 ITA-2262/D/2013 & 5 others
“6. The onus cast upon the assessee under Section 68 of the Act 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 AO 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 was whether the amount invested by the share applicants were from legitimate sources. The objection of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants’ particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee’s account to the share applicants’ account. As held concurrently by the CIT (Appeals) and the ITAT, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. We place these observations on the record and direct a copy of the judgment to be furnished to the concerned income tax authorities for appropriate action towards reflecting these observations suitably in service record of the concerned AO to avoid such instances in the future.
7. For the above reasons, this Court is of the opinion that the concurrent findings of fact, as to the true identity
7 ITA-2262/D/2013 & 5 others of the share applicants, their creditworthiness and genuineness of the transaction, are based on sound reasoning and do not call for interference. No substantial question of law arises. The appeals are dismissed.”
The facts of the year under consideration are identical and, therefore, the ratio of the above decision of the ITAT as well as Hon'ble Jurisdictional High Court in assessee’s own case would be squarely applicable. However, for the sake of completeness, we wish to mention the facts of this year as well. At page 161 of the assessee’s paper book, there is copy of income tax return of AEPPL wherein the income of more than `30 lakhs has been disclosed. At page 166 of the assessee’s paper book, there is balance sheet from which we find that the share capital is `7.16 crores and reserves and surplus is `96.48 crores. Thus, the net worth of the share applicant company is `103.64 crores which is mainly invested in shares. The company was incorporated in the year 1994 for which certificate of incorporation is placed on record. The amount has been paid by cheque. Copy of bank statement is also placed on record. The Assessing Officer doubted the creditworthiness on the ground that before the issue of cheque to the assessee company, there was credit of `12 crores in the account of AEPPL. However, we find that such credit was by way of sale of shares of another company. AEPPL has investment of about `100 crores in shares and, therefore, if the said company has sold the shares of one company and invested in another company, the creditworthiness cannot be doubted. Therefore, we hold that creditworthiness of AEPPL was duly established.
Coming to the genuineness of transactions, the Assessing Officer has doubted the genuineness mainly on the ground that share premium was too high. Apparently, it looks so. However, the assessee
8 ITA-2262/D/2013 & 5 others has explained why the share premium is so high. The assessee has explained that appellant company is one of the promoters of Uflex group of companies. The assessee company along with the other co- promoters has promoted various operating companies of Flex Group. The major companies promoted by assessee company are :-
(i) Uflex Ltd. (ii) Flex Foods Ltd. (iii) Ultimate Flexipack Ltd.
The first two companies are listed in the stock exchanges and third one is an unlisted manufacturing company. The assessee company along with other four investment companies is holding major equity stakes in the operating companies of the Uflex Group and even in some cases holding 100% equity shares. These five companies including the assessee company are further shareholder in each other and holding almost 97 to 98% of shares holding in each other. The remaining shareholders are the individual promoters and outside shareholders. Since all these investment companies are cross holding the shares of each other, hence any outsider by becoming shareholder in any of these companies also automatically becomes the shareholder in the other four companies. In nutshell, if a person becomes shareholder in the assessee company, it automatically becomes shareholder in the remaining four holding companies. He further submitted that if the net book value of the assets is divided by the number of shares of the assessee company, the worth of each share is more than `40,000/-. In this regard, he furnished the following working:-
9 ITA-2262/D/2013 & 5 others
Amount in Lac As on 31st March 2009 2009 2008 Total Assets : 7890.06 9819.24 Less : Liabilities 1806.25 1604.27 Secured Loans Unsecured Loans 1806.25 1604.27 Book Net Worth 6083.81 8214.97
No. of Shares Holding of different shareholding Groups in AIPL 2009 2008 Main promoter group 9250 9250 Old shareholders : Excluding main promoter group 4729 4729 New shareholder – M/s Adhyay Equipref Pvt.Ltd. 1000 0 Total shares 14979 13979 Value of per share (In Rs.) 40616 58767
Amount in Lac Book Net Worth Belongs to Different 2009 2008 Shareholding Group : Main Promoter Group 3756.94 Old shareholders : Excluding main promoter group 1920.71 New Shareholder – M/s Adhyay Equipref Pvt.Ltd. 406.16
From the above, it is evident that the value of each share is worked out at `40,616/-. Thus, apparently, higher share premium of `39,900/- is justifiable because of limited number of shares of the assessee company who are actual owner of assets of worth more than `60 crores. Moreover, in the earlier year also, the shares were allotted
10 ITA-2262/D/2013 & 5 others at a premium of `39,900/- per share and in AY 2006-07, the Assessing Officer even got the verification made through the Investigation Wing of Kolkata and the ITAT has accepted the credit in the form of share capital after considering the report of Investigation Wing of Kolkata. Hon'ble Jurisdictional High Court has also upheld the order of the ITAT in assessee’s own case for assessment year 2006-07 after taking due note of high share premium. In view of the above, we are of the opinion that considering the facts of the case, the genuineness of the transactions is duly established. In view of the above, we hold that the assessee has duly discharged the onus of proving the credit of share capital in its account and learned CIT(A) was fully justified in accepting the same and in deleting the addition.
ITA No. ITA No. ITA No. 2262 2262/Del/2013 2262 /Del/2013 /Del/2013 – App /Del/2013 App Appeal App eal eal of M/s Anshika Investments Pvt.Ltd. eal of M/s Anshika Investments Pvt.Ltd. of M/s Anshika Investments Pvt.Ltd. of M/s Anshika Investments Pvt.Ltd. for AY 2009 for AY 2009-10 : for AY 2009 for AY 2009 10 : 10 :- 10 :
Ground No.1 raised in this appeal by the assessee reads as under:-
“That on the facts and in the circumstances of the case, the lower authorities erred in law in disallowing expenses in disallowing aggregate expenses of Rs.1,31,82,562/- section 14A of Income Tax Act, 1961 and under rule 8D(i) and Rule 8D(iii) of Income Tax Rules, 1962. It is contended that section 14A and Rule 8D are not applicable to the assessee.”
All other grounds raised by the assessee are arguments in support of above ground No.1.
At the time of hearing before us, the limited argument made by the learned counsel was that the assessee had made the investment in the shares of other group companies to acquire controlling interests in 11 ITA-2262/D/2013 & 5 others those companies. No investment was made for earning of exempt income. That various Benches of the ITAT have taken the view that where the investment has been made for acquiring the controlling interests in the group companies, then the disallowance cannot be made u/s 14A. He also stated that no expenditure was incurred by the assessee for earning of exempt income because no borrowed money was invested and moreover, it is a permanent investment in the few group companies. Thus, no expenditure was incurred. Learned DR stated that no such claim was made before the Assessing Officer. All these aspects would require verification at the end of the Assessing Officer. He, therefore, submitted that on this issue, the matter may be set aside to the file of the Assessing Officer. Learned counsel for the assessee has no objection to this suggestion of learned DR.
In view of the above, we set aside the orders of authorities below on this point and restore the matter to the file of the Assessing Officer. We direct the Assessing Officer to allow adequate opportunity of being heard to the assessee. We also direct the assessee to furnish detailed explanation before the Assessing Officer on the ground on which he is claiming that no disallowance u/s 14A is warranted. Thereafter, the Assessing Officer will pass a speaking order.
ITA No.34 ITA No.34 ITA No.34 38 38/Del/2013 38 /Del/2013 /Del/2013 – Revenue’s appeal for AY 2009 /Del/2013 Revenue’s appeal for AY 2009 Revenue’s appeal for AY 2009-10 Revenue’s appeal for AY 2009 10 10 in M/s A. 10 in M/s A. in M/s A.R. in M/s A. R. R. R. Leasing Pvt.Ltd. Leasing Pvt.Ltd. :- Leasing Pvt.Ltd. Leasing Pvt.Ltd.
The only ground raised by the Revenue in this appeal reads as under:-
“On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs.6,99,60,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961.”
12 ITA-2262/D/2013 & 5 others
At the time of hearing before us, both the parties fairly admitted that the facts in this case are identical to the facts in the case of AEPPL and, therefore, their arguments in that case hold good. We find that during the year under consideration, there was credit of `6,99,60,000/- in respect of share capital from the following parties :- (i) M/s Adhyay Equipref Pvt.Ltd. `6,00,00,000/- (ii) M/s Rupali Saree Pvt.Ltd. `24,80,000/- (iii) M/s Jagdamba Designers Pvt.Ltd. `24,80,000/- (iv) M/s Anchor Vinimay Pvt.Ltd. `30,00,000/- (v) M/s Khusaboo Bearing Pvt.Ltd. `20,00,000/- Total `6,99,60,000/- 16. We find that the addition was made on the similar ground of high premium. The Assessing Officer has mainly discussed the facts relating to AEPPL because the major amount was received from the said party. We have already discussed the identical issue while deciding the appeal in the case of M/s Anshika Investments Pvt.Ltd. above wherein we have considered all the facts including high share premium. We also find that in the case of the assessee also, similar issue had arisen in the earlier year and the Tribunal, vide consolidated order in the case of AEPPL and M/s A.R. Leasing Pvt.Ltd., has deleted the addition made for unexplained cash credit in the form of share capital. Hon'ble Jurisdictional High Court has also passed the common order wherein the orders of ITAT in the case of AEPPL and M/s A.R. Leasing Pvt.Ltd. both were sustained. In view of the above, for the detailed discussion in the case of AEPPL above as well as in the order of the ITAT and Hon'ble Jurisdictional High Court in assessee’s own case for assessment year 2006-07, we do not find any justification to interfere with the order of learned CIT(A).
13 ITA-2262/D/2013 & 5 others IT IT A No A Nos.2263 A No 2263 2263/Del/2013 2263 /Del/2013 /Del/2013, 6968/Del/2014 & 6969/Del/2014 /Del/2013 , 6968/Del/2014 & 6969/Del/2014 , 6968/Del/2014 & 6969/Del/2014 – Appeals of , 6968/Del/2014 & 6969/Del/2014 Appeals of Appeals of Appeals of M/s A.R. Leasing Pvt.Ltd. for M/s A.R. Leasing Pvt.Ltd. for AY 2009 M/s A.R. Leasing Pvt.Ltd. for M/s A.R. Leasing Pvt.Ltd. for AY 2009 AY 2009-10 AY 2009 10 10, 2010 10 , 2010 , 2010-11 & 2011 , 2010 11 & 2011 11 & 2011-12 11 & 2011 12 12 :- 12
The only ground raised in all these appeals is against the disallowance u/s 14A. In this case also, the arguments and submissions of both the sides were similar to what were raised in the case of AEPPL in ITA No.2262/Del/2013. Therefore, for the detailed discussion therein, we set aside the orders of authorities below on this point and restore the matter to the file of the Assessing Officer to be readjudicated as per our directions above.
In the result, the appeals of the Revenue are dismissed and the appeals of the assessees are deemed to be allowed for statistical purposes. Decision pronounced in the open Court on 05.09.2016. Sd/- Sd/- (SUCHITRA KAMBLE (SUCHITRA KAMBLE) (SUCHITRA KAMBLE (SUCHITRA KAMBLE (G.D. AGRAWAL G.D. AGRAWAL G.D. AGRAWAL) G.D. AGRAWAL JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VICE PRESIDENT VK.