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Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals) – 11, Chennai, dated 25.02.2016 and pertains to assessment year 2012-13.
Shri V.S. Jayakumar, the Ld.counsel for the assessee, submitted that the Assessing Officer made an addition of `90.18 lakhs towards share premium. According to the Ld. counsel, the addition was made under Section 68 of the Income-tax Act, 1961 (in short 'the Act'). The Ld.counsel further submitted that the assessee along with its subsidiary company entered into a new venture for generation of electricity from a type of grass which is renewable and sustainable as alternate source of power generation. Considering the future cash flow for this proposed project, the assessee- company valued its shares based on discounted cash flow method.
However, the Assessing Officer objected to this method of valuation on the ground that the future proposal and expansion of profitability are uncertain, which may or may not happen. The Assessing Officer has also found that shares were allotted without any benefit from the shareholders.
Referring to the observation made by the Assessing Officer, the Ld.counsel for the assessee submitted that admittedly, there was no physical transfer of money or asset to the assessee- company from so-called shareholders. On a query from the Bench, how the assessee was able to issue shares without receiving any money or asset from the shareholders and what was the net worth of the company for the purpose of issuing the additional shares to the shareholders, the Ld.counsel could not clarify the query. On another query from the Bench, how the value of the shares having face value of `10/- was arrived at `5400/- per share, the Ld.counsel submitted that this was valued as per discounted cash flow method.
However, the Ld.counsel could not produce any details. According to the Ld. counsel, when, admittedly, there was no physical movement of money or asset from the shareholders to the assessee-company, there cannot be any addition under Section 68 of the Act. For the purpose of making addition under Section 68 of the Act, according to the Ld. counsel, there should be cash credit in the books of account. Merely because the assessee could not furnish any explanation to the satisfaction of the Assessing Officer, according to the Ld. counsel, there cannot be any addition under Section 68 of the Act. Hence, the CIT(Appeals) is not justified in confirming the addition made by the Assessing Officer.
On the contrary, Dr. Milind Madhukar Bhusari, the Ld. Departmental Representative, submitted that the assessee in the guise of valuing the shares, which has the value of `10/- and market value of `171.34 per share, valued the same without any basis at `5400/- per share. The assessee-company introduced a share premium of `90.18 lakhs and share capital of `16.70 lakhs. This was the credit found in the books. After going through the balance sheet and other books of account, the Assessing Officer found that there was a credit to the extent of `90.18 lakhs towards share premium and share capital of `16.70 lakhs. The Ld. D.R. further submitted that there was no net worth in the assessee-company for issuing shares having a face value of `10/-. Therefore, the estimation of value of shares at `5400/- per share has no basis at all. The Ld. D.R. further submitted that the net worth of the company does not enable the assessee to issue additional shares. According to the Ld. D.R., even though sufficient opportunity was given to the assessee to produce the valuation report before the CIT(Appeals), the copy of valuation report was not produced before the CIT(Appeals). Therefore, it is for the assessee to produce the necessary material to prove the creditworthiness of credit entries found in the books.
The Ld. D.R. further submitted that the assessee has also claimed to have entered into a settlement between M/s Shriram Auto Finance and Mrs. Vathsala Ranganathan. This arrangement with M/s Shriram Auto Finance and Mrs. Vathsala Ranganathan and agreements with other companies are only colourable device for the purpose of introducing cash credit by way of share premium and share capital to the assessee-company. Therefore, by placing reliance on the observation made by the Apex Court in McDowell & Co. Ltd. v Commercial Tax Officer (154 ITR 148), the CIT(Appeals) has rightly confirmed the order of the Assessing Officer. Since admittedly there was entry in the books, according to the Ld. D.R., the assessee cannot now claim that the provisions of Section 68 of the Act is not applicable.
We have considered the rival submissions on either side and perused the relevant material available on record. Admittedly, there was credit entry in the books of the assessee to the extent of `90.18 lakhs. The assessee claimed before the authorities below that `90.18 lakhs was a share premium. Apart from that, there was a credit of share capital to the extent of `16.70 lakhs. The assessee- company further explained before the Assessing Officer by way of letter dated 25.03.2015 that a share premium of `64.26 Crores was received from Mrs. Vathsala Ranganthan. This was on account of transfer from M/s Shriram Auto Finance and M/s Bharat Wind Farm. Moreover, another share premium of `23.76 Crores was received on account of transfer of M/s Trilok Vincom Pvt. Ltd. from M/s VROne Energy Pvt. Ltd. The assessee has claimed before the Assessing Officer that the share premium of `2.16 Crores was received from M/s Ravisrinivasan (HUF). These are journal entries found in the books. The assessee claimed that shares were revalued at `5400 per share. It was not in dispute that the face value of each share is `10/- and the assessee itself admitted before the Assessing Officer the market value of share is `171.34 per share.
7. For the purpose of revaluation, the net worth of the company has to be examined. The Ld.counsel for the assessee could not explain the net worth of the company for the purpose of estimating the valuation of share at `5400/- per share. From the orders of the authorities below it appears that there was agreement between assessee-company and M/s Shriram Auto Finance and Mrs. Vathsala Ranganathan and there was also shareholder agreement with M/s Carcare and M/s VROne Energy Pvt. Ltd. and M/s Trilok Vincom Pvt. Ltd. The assessee claimed before the CIT(Appeals) that the asset was nothing but a loan received from M/s TTJ Industries for M/s Shriram Auto Finance. However, no material evidence was produced. Therefore, this Tribunal is of the considered opinion that as rightly found by the CIT(Appeals), these are colourable device exercised by the assessee to reduce the tax liability. By way of introducing cash credit in the name of share premium and share capital, the assessee-company is making attempts to reduce the tax liability. In the absence of the details of shareholders and the basis for valuation of share at `5400/- per share, the CIT(Appeals) has rightly confirmed the addition made by the Assessing Officer. Section 68 of the Act clearly says that when the Assessing Officer found credit in the books of account and the assessee could not offer any explanation or the explanation offered by the assessee is not satisfactory, then the entries found in the books have to be treated as income of the assessee. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed.
In the result, the appeal filed by the assessee is dismissed.
Order pronounced on 1st September, 2016 at Chennai.