INCOME TAX OFFICER, WARD 5(3),, NAGPUR vs. M/S. 21ST CENTURY INFRASTRUCTURE (INDIA) PVT. LTD., NAGPUR

IN THE INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR BEFORE SHRI SANDEEP GOSAIN, JM & SHRI ARUN KHODPIA, AM I.T.A. No. 207/NAG/2017 Assessment Year : 2012-13 Vs. M/s. 21st Century Infrastructure (India ) The Income Tax Officer Ward 5 (3) Pvt. Ltd. Nagpur Old Motor Stand, Itwari, Nagpur PAN No.:AAACZ 1371 L Appellant Respondent Revenue by:ShriPiyushKohle, CIT-DR Assessee by: Shri MahaveerAtal, CA Date of Hearing: 25/04/2022 Date of Pronouncement: 28 /06/2022 ORDER PER: SANDEEP GOSAIN, J.M. The Department has filed an appeal against the order of the ld. CIT(A)-4, Nagpur dated 29-03-2017 for the assessment year 2012-13 wherein the Department has raised following grounds of appeal. ‘’1. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in deleting the addition of Rs.14,54,40,000/- made by the AO under the head ‘’ Income from other sources’’ though this amount was received by the assessee in the form of share premium from two Kolkata based private limited companies. 2. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the AO failed to brought anything on record to show any fraud or evidence of any wrong doing on part of the assessee even though the two Kolkata based companies i.e. investors not properly

2 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR responded the notices u/s 133(6) of the I.T. Act 1961 issued by the AO. 3. On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in holding that the entire additions have been made only on the basis of suspicion without bringing any adverse material against the assessee on record even though the genuineness and creditworthiness remained unexplained. 4 On the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in not taking cognizance of the fact that the two Kolkata based investors companies did not produce the required details/documents in connection with their huge amount of money investment as desired by the AO. 2.1 Brief facts of the case are that the return of income was e-filed by the assessee company on 28-09-2021 showing total income at Rs. Nil. This return was processed u/s 143(1) of the Act on27-02-2013. The case of the assessee was selected through CASS and first notice u/s 143(2) of the Act dated 09-08-2013 was generated and served on the assessee on 17-08-2013. Hence, the assessment in this case was completed u/s 143(3) of the Act by the AO vide order dated 31-05-2015. During the course of assessment proceedings, the AO noted that the assessee company had issued equity shares with face value of Rs.10/- per share for which a premium of Rs.240/- per share was charged to

3 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR two Kolkata based private limited companies namely Gemini Vintrade Pvt. Ltd. and Shalimar Vanijya Pvt. Ltd. The total amount received from the said entities was to the tune of Rs.15,15,00,000/-(Rs.60,60,000/- in the form of share application money and Rs.14,54,40,000/- in the form of share premium. The AO came to the conclusion that the assessee company was a low key trading company which was small trader in Iron and Steel and, therefore, it did not justify share premium at Rs.240/- per share. During the course of assessment proceedings, the assessee company submitted that it was planning to enter new areas of business and thus the money was raised. The assessee company submitted confirmation, copy of bank statement and other relevant documents from the companies which invested share application money and share premium in the assessee company. However, the AO came to conclusion that payment of share premium at Rs.240/- per share was not justified in any case. The AO noted that a new section 56(viib) was introduced in the Income Tax Act, w.e.f. 01-04-2013 which he has mentioned in the assessment order. The AO observed that although amendment was inserted w.e.f. 01-04-2013, however, share premium introduced prior to this period also could be enquired into. After giving

4 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR the reasoning, the AO added a sum of Rs.14,54,40,000/- received by the assessee company in the shape of share premium as ‘’Income from other sources’’ and completed the assessment. 2.2 In first appeal, the ld. CIT(A) deleted the addition made by the AO by observing as under:- ‘’5.8. I have gone through the assessment order, the grounds of appeal, appellant's submission and the case laws relied upon by the appellant alongwith the remand report. In the assessment order, the AO has not made any addition with respect to share application money. Thereby it is implicit that the AO concluded that the investments from M/s. Gemini Vintrade Pvt. Ltd., Kolkata and M/s. Shalimar Vaijya Pvt. Ltd., Kolkata to be genuine investments in view of the evidences provided during the course of assessment proceedings. The only addition made was with respect to share premium holding the same to be unjustifiable. While adding the amount of share premium, the AO has referred to the provision of Sec.56(viib) of the I.T. Act. This section has been introduced vide amendment made to Income tax vide Finance Act, 2012 and was to be effective from 1.4.2013. This section subjects share premium to taxation where such premium is received company in which the public are not substantially interested. The section proposes to bring into taxation any consideration over and above face value of such shares to tax by an amount which exceeds the fair market value of such shares. However as held by the Hon'ble Apex Court in the case of CIT Vs, Vatika Township Pvt. Ltd., any tax which imposes tax liability can't have retrospective operation. Further, Hon'ble Court in the same judgment has held that "there cannot be imposition of any tax without the authority of law. Such a law has to unambiguous and should prescribe the liability to pay taxesin clear terms. If the

5 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR concerned provision of the taxing statute is ambiguous and vague and is susceptible to two interpretation which favours the subjects, as against there the revenue has to be preferred." Therefore considering the ratio of law as laid down by the Hon'ble Apex Court in the case of M/s. Vatika Township Pvt. Ltd., there can be no justification in retrospective operation of provision of Section 56(viib). Now regarding the justification of share premium charged by appellant company, the case laws relied upon by the appellant and discussed above make it abundantly clear that it is a prerogative of Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe such heavy premium.The Revenue authorities cannot question the charging of such huge premium without any bar from any legislative law of land. Also the AO has not brought any on record either in assessment proceedings or in remand proceedings to show any fraud or evidence of any wrong doing on part of appellant. The entire addition has been made only on basis of suspicion without bringing any adverse material against the appellant on record. Further, I find that Hon’ble Supreme Court in the case of M/s. Vodafone Services (P) Ltd. had laid down the ratio that share premium realized from the issue of share is of capital nature and forms part of share capital of the company and, therefore, cannot be taxed as revenue receipt. The judgement in case of M/s. Vodafone Services Pvt. Ltd. has also been relied upon by Hon’ble ITAT (Hyderabad Bench) in case of M/s. Suguna Metals Pvt. Ltd. decided vide ITA No. 437 & 438/Hyd/2014 (para 19 of the order). Therefore, looking at the facts of the case, appellants submission, AO’s order, remand report and judicial precedence, I am of the considered view that the AO did not have any basis for adding share premium without any evidence only on the basis of conjectures and surmises. Therefore, AO is directed to delete addition of Rs.14,54,40,000/- made to the income

6 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR of the appellant. Ground of appeal filed by the appellant is accordingly allowed.’’ 2.3 During the course of hearing, the ld. DR supported the order of the AO and submitted that the ld. CIT(A) erred in deleting the addition of Rs.14,54,,40,000/- made by the AO. 2.4 On the other hand, the ld. AR of the assessee relied on the order of the ld. CIT(A) and also filed a detailed written submission as under:- ‘’1.1 The assessee is a private limited company. During the year under consideration the assessee received share premium of Rs 14,54,40,000/- from two Investors. 1.1 The return filed by the assessee was selected for complete scrutiny. The assessee submitted all requisite documents to substantiate the genuineness, identity and creditworthiness of the companies 1.2 The learned Assessing Officer issued notice under section 133(6) directly to the investor companies to confirm the transaction and veracity of the documents submitted by the assessee. Both companies confirmed the transactions and submitted requiste documents in response to the 133(6) notice. 1.3 The sanctity and veracity of the documents as well as the assessee’s submissions were accepted by the AO and no addition is made under section 68 to 69D. The learned AO made addition under the head income from other sources. 1.4 During the assessment proceedings, the AO directed assessee to substantiate share premium of Rs 240/- share charged by the assessee company. [F.V Rs 10/- share and share premium Rs 240/- share] 1.5 The assessee submitted that the promoters of the assessee company are renowned entrepreneurs having experience of more than 25 years. The assessee company also stated that they were planning to diversify into new businesses of establishing a 10MW Biomass based power plant, opening a hotel and starting a TV channel. The assessee submitted following documents to support their submission. 1.6 However, the AO unconvinced with the assessee’s submission, treated the share premium as income from other sources. (Section number not mentioned in the assessment order). Even though the AO has not mentioned any section in the assessment order, the AO in the operational paragraphs stated that the newly inserted section 56(2)(viib) has been introduced in the statute w.e.f. 01/04/2013 and is applicable if the company cannot justify share premium. 1.7 The AO in the assessment order, made addition of share premium by quoting, that the assessee company could not justify convincingly with justification receipt of high share premium.

7 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR 1.8 The CIT(A), allowed assessee’s appeal by stating that the learned AO has not doubted the genuineness of the transaction. The addition made as income from others sources were deleted by stating that the said addition can be made only under section 56(2)(viib) and the section was brought in statute from 01/04/2013 and accordingly it is not applicable to the year (A.Y. 2012-13) under consideration. 1.9 The CIT(A) relied on the landmark judgment of Hon’ble Supreme Court delivered in the case of CIT(Central) VsVatika Township Pvt. Ltd. to support his view that the amendment to section 56(2)(viib) is prospective and not retrospective. Even the Memorandum to Finance Bill has stated the applicability of section 56(2)(viib) to be w.e.f. from A.Y. 2013-14. 2.1 The Assessing Officer completed scrutiny by taxing the share premium received by the company during the year under consideration. The assessee received share premium to the tune of Rs. 14,54,40,000. The assessee received share premium of Rs. 240 per share from two companies, namely, Gemini Vintrade Pvt. Ltd. (3,12,000 shares) and Shalimar Vanijya Pvt. Ltd. (2,94,000 shares). 2.2 As per the Judgment of the Jurisdictional Bombay High Court in the case of, Gagandeep Infrastructure Pvt. Ltd. vs CIT-1 Appeal no. 1613 of 2014, the assessee is required to prove the following –

 Identity of the creditor;  Genuineness of the transaction; and  Credit worthiness of the party. In this case, the assessee has already proved the identity of the investors by furnishing their PAN, return of income filed for the year under consideration. This robustly proves the identity of the investors.Further, the assessee proved the genuineness of the transactions by submitting bank statements, share allotment letter. With regards to the credit worthiness of the party, the assessee has submitted the books of accounts, return of income and audit report of the investor companies. 2.3 To conclude, the assessee has submitted all the requisite documents as directed by the AO. Similarly, both the investor companies have also submitted the documents are required by the AO.. The transaction took place through proper banking channels. The audited books of accounts of assessee and investor companies was available with the assessee and the AO has accepted the genuineness, identity and creditworthiness of the transaction and no addition is made under section 68 to 69D. 2.4 To substantiate the quantum of share premium the assessee had submitted that the promoters of the assessee company are renowned entrepreneurs having experience of more than 25 years. The assessee company was planning to diversifying into new businesses of establishing a 10MW Biomass based powerplant, opening a hotel and starting a TV channel. 2.5 It was on seeing the good business prospect, the investor companies realized that these new business arenas of the assessee have high potential and hence, invested in the company at a premium. 2.6 However, the Assessing Officer did not agree with the assessee’s submission and even though he directly didn’t mentioned section 56(2)(viib), he stated that the provisions of

8 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR section 56(2)(viib) are bought in statute from 1st April 2013, with an intent to tax such share premium. He further concluded that this doesn’t mean that the assessee was not required to justify share premium before this date and accordingly AO added same as income from other sources. Therefore, it is apparent that AO invoked section 56(2)(viib) for taxing the share premium received by the assessee company. Accordingly, the AO made an addition of Rs. 14,54,40,000 as income from other sources. 2.7 Aggrieved by the order, assessee preferred an appeal before the Hon’bleCIT(A) and submitted the facts of the case before the Hon’ble CIT(A) and contended the applicability of section 56(2)(viib). 2.8 The Hon’ble CIT(A) agreed with the contentions of the assessee and provided relief to the assessee vide an order dated 29 March 2017 by relying on the decision of the Apex court in case of CIT(Central), New Delhi, VsVatiaka Township Pvt. Ltd. Regarding prospective applicability of provisions. 2.9 The learned Assessing Officer is wrong in invoking deeming fiction of section 56(2)(viib) in the current year (A.Y. 2012-13) because the amendment in the above section is applicable for the assessment year A.Y.2013-14 onwards 2.10 The provisions of section 56(2) (viib) have been inserted by the Finance Act, 2012 with effect from the assessment year 2013-14. In this regard, reference is made to paragraph Circular No. 3 of 2012, dt. 12- 6-2012 (345 ITR (St.) 103, 106) vide which the Central Board of Direct Taxes has clarified that the above clause is applicable prospectively from the assessment year 2013-14, the relevant paragraphs of the above circular are reproduced hereunder :-- "Share premium in excess of fair market value to be treated as income.
In the Finance Bill, 2012, it had been proposed (section 56(2), as sub-clause ((viib)) that in case of a company, not being a company in which the public are substantially interested, which receives, in any previous year/ from any person being a resident, any consideration for issue of shares and the consideration received for issue of such shares exceeds the face value of such shares, then the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income- tax. An exemption was provided in a case where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.
(i) It has now been further provided that such excess share premium is included in the definition of 'income' under sub-clause (xvi) of clause (24) of section 2.
(ii) Considering that the proposed amendment may cause avoidable difficulty to investors who invest in start-ups where the fair market value may not be determined accurately, it is proposed to provide an exemption to any other class of investors as may be notified by the Central Government.
These amendments, will take effect from 1-4-2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." (Clauses 21,3) From the above, it can be seen that the provisions of section 56(2) (viib) have been inserted expressly with effect from the assessment year 2013-14, hence, based on the ratio laid down

9 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR by the Apex Court in CIT(Central), New Delhi, VsVatiaka Township Pvt. Ltd, the said provisions would apply prospectively. 2.11 Till the assessment year 2013-4 share premium was not subject to tax under any provisions of the Act. However, from the assessment year 2013-14 and onwards share premium would be subject to tax in the hands of recipient company subject to fulfilment of conditions stated in section 56(2)(viib) of the Statute. 2.12 Hon'ble Bombay High Court again in the case of Gagandeep Infrastructure (P.) Ltd. (supra). In the above said case, the assessee therein issued shares at a premium of Rs.190/- per share and collected a sum of Rs.7.53 crores including share premium amount of Rs.6.98 crores. The AO questioned the justification for charging Share Premium and it was explained that the same was on the basis of the future prospects of the business of the respondent assessee. The AO did not accept the same and invoked sec.68 of the Act to treat the amount of Rs.7.53 crores as unexplained cash credit. The LdCIT(A) deleted the addition cited above. The LdCIT(A) observed that the AO has not given any reason to conclude that the investment made (inclusive of premium) was not genuine in spite of furnishing of evidences to prove genuineness. The LdCIT(A) also held that the appropriate valuation of shares is for the subscriber/investor to decide and not a subject of enquiry by the Revenue. The Tribunal noticed that the assessee has proved the three main ingredients that were required to be proved u/s 68 of the Act, viz., the identity of the subscribers, the creditworthiness of the subscribers and genuineness of transactions. The Tribunal also held that the share premium received by the assessee would be on capital receipt and not in the revenue field. 2.13 Before the Hon'ble Bombay High Court, the revenue took support of the proviso inserted to sec.68 of the Act with effect from 1.4.2013 and contended that the same would apply to AY 2008-09 also. The proviso inserted to sec.68 of the Act states that when the assessee collected by way of share application/share capital/share premium or any such amount by whatever name called, then an additional burden is placed upon the assessee to prove the nature and source of the investor, i.e., the person in whose name such credit is recorded should also offer explanation about the nature and source of such sum collected. The Hon'ble Bombay High Court rejected the same and held that the proviso would be effective only from AY 2013-14 onwards. With regard to the decision rendered by the Tribunal, the Hon'ble Bombay High Court held as under:— "….In any view of the matter the three essential tests while confirming the pre-proviso section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The apex court in Lovely exports P Ltd (supra) in the context to the preamended section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It

10 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit." 2.14 In the assessee’s case, as the AO was satisfied with the identity and credit worthiness of the investor and genuineness of transactions, it is but obvious that the assessee has proved the "nature and source" of the cash credits. It is an accepted jurisprudence that amounts received as Share premium are in the nature of capital receipts as per the decision rendered by Hon'ble Bombay High Court in the case of Vodafone India Services (P.) Ltd. (supra) 2.15 There is no dispute with reference to the fact that assesseealloted the shares with a premium and the amounts being received by way of share premium being shown in the Balance Sheet as such. Issuing shares at a premium by the company cannot be faulted because it was a decision taken by the investors in their interest. The share premium cannot be brought to tax as it is a capital receipt and not on revenue account. Provisions of S.56(2) are amended by the Finance Act, 2012, so as to consider the unreasonable premium as income is effective from 01.04.2013. However, without any allegation of fraud or quid pro quo for any illegal transaction or any type of unjust enrichment or without any justification for receiving so much premium, in the absence of legal provision the capital receipt on premium account cannot be considered as income as made out by the Assessing Officer. 2.16 The Said jurisprudence about prospective applicability of section 56(2)(viib) is also supported from the judgment of Mumbai Tribunal in case of Dy. CIT v. Rockwood Hotels & Resorts Ltd (2018) 68 ITR (Mum) (Trib.) 402. In this judgment the Mumbai Tribunal discussed all the major earlier judgment and has held as under- There is also a force in the arguments advanced by the learned Authorised Representative that the addition under section 68 cannot be made of share premium money since such is a receipt on capital account and is not of revenue nature. Further, it is observed that the provisions of section 56(2) (viib) inserted by the Finance Act, 2012 had been made applicable from the assessment year 2013-14 and does not apply to the year relevant to the assessment year 2012-13. The said view had been adopted in two jurisdictional Mumbai Income Tax Appellate Tribunal decisions in the cases of Gagandeep Infrastructure (P) Ltd. ITA No. 5784/Mum/2011 and Green Infra Ltd. v. ITO (2013) 38 taxmann.com 253 (Mum-ITAT) wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium. We further found that the provisions of section 56(2) (viib) inserted by the Finance Act, 2012 had been made applicable from the assessment year 2013-14 and does not apply to the year under consideration i.e., for the assessment year 2012-13. Our this view is supported by the decision of Income Tax Appellate Tribunal in

11 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR the cases of Gagandeep Infrastructure (P) Ltd. ITA No. 5784/Mum/2011 and Green Infra Ltd. v. ITO 38 Taxman 253 (Mum-ITAT) wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium The provisions of section 56(2)(viib) of the Act have been specifically inserted by the Finance Act, 2012 with effect from the assessment year 2013-14. As a consequence, any consideration received by a company for issue of shares that exceeds the face value of such shares/the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be subject to tax with effect from the assessment year 2013-14 and any such amount received during the earlier assessment years shall not be subject to tax under the Act. Therefore, section 56(2) (viib), based on the ratio laid down by the Apex Court in GufficChem (P) Ltd.'s case (supra) is amendatory and not clarificatory. 2.17 The landmark judgment on the subject whether Share Capital is a capital receipt or revenue receipt, we wish to draw support from the landmark judgment of Hon’ble Bombay High Court in the case of Vodafone India Services (P) Ltd. v. UOI reported in (2014) 368 ITR 1 (Bom-HC) The Hon'ble Bombay High Court held that ‘The amounts received on issue of share capital including the premium are undoubtedly on capital account share premium have been made taxable by a legal fiction under section 56(2) (viib) of the Act and the same is enumerated as income in section 2(24) (xvi) of the Act.’ 2.18 The Central Board of Direct Taxes vide Instructions No. 2 of 2015, dt. 29-1-2015 (See (2015) 371 ITR (St.) 6.) directed the revenue not to file the special leave petition before Hon'ble to Supreme Court and directed learned assessing officers to accept the High Court order. The relevant instructions is as under :-- 'In reference to the above cited subject, I am directed to draw your attention to the decision of the High Court of Bombay in the " case of Vodafone India Services (P) Ltd. v. UOI for the assessment year 2009-10 (W. P. No. 871 of 2014)--(2014) 368 ITR 1 (Bom-HC) wherein in the court has held, inter alia, that the premium on share issue was on account of a capital account transaction and does not give rise to income and, hence, not liable to transfer pricing adjustment. It is hereby informed that the Board has accepted the decision of the High Court of Bombay in the above mentioned writ petition. In view of the acceptance of the above judgment, it is directed that the ratio decided of the judgment must be adhered to by the field officers in all cases where this issue is involved. This may also be brought to the notice of the Income Tax Appellate Tribunal, Dispute Resolution Panels and the Commissioner (Appeals).'

12 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR 2.19 The Assessee will also draw your support to the latest judgment of Jurisdictional Bombay High Court in the case of PCIT VsApeakInfotech 397 ITR 148 (Bom) (Nagpur Bench). The said judgment discussed both the proposition of prospectivity of section 56(2)(viib) and the jurisprudence that the share capital and share premium are in a nature of capital receipt and cannot be brought to tax, Para 7

(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. . (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

13 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR 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. 2.20 Both the above judgment of Jurisdictional Bombay High Court of Gagandeep Infrastructure and ApeakInfotech was followed by the Jurisdictional Nagpur Tribunal in the case of ACIT VsSwiftsolPvt Ltd & 14 others in 2018 ITA No 407/Nag/2016 and held as under;

Para 11 We may gainfully refer to the Hon’ble jurisdictional High Court expositions in this case as under; 1) CIT vs. Gagandeep Infrastructure (P.) Ltd. [2017] 394 ITR 680 had held as under: (e) We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation ofSection 68 of the Act both before and after the adding of the proviso. In any view of the matter the three essential tests while confirming the pre- proviso Section 68 of the Act laid down by the Courts namely the genuineness of the transaction, identity and the capacity of the investor have all been examined by the impugned order of the Tribunal and on facts it was found satisfied. Further it was a submission on behalf of the Revenue that such large amount of share premium gives rise to suspicion on the genuineness (identity) of the shareholders i.e. they are bogus. The Apex Court in Lovely Exports (P.) Ltd.(supra) in the context to the pre-amended Section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income Tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance

14 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. 
(f) In the above circumstances and particularly in view of the concurrent finding of fact arrived at by the CIT(A) and the Tribunal, the proposed question of law does not give rise to any substantial question of law. Thus not entertained. 2) CIT vs. Orchid Industries (P.) Ltd. [2017] 397 ITR 136 (Bom) had held as under: "5] ' The Assessing Officer added Rs.95 lakhs as income under Section 68 of the Income Tax Act only on the ground that the parties to whom the share certificates were issued and who had paid the share money had not appeared before the Assessing Officer and the summons could not be served on the addresses given as they were not traced and in respect of some of the parties who had appeared, it was observed that just before issuance of cheques, the amount was deposited in their account . 6] The Tribunal has considered that the Assessee has produced on record the documents to establish the genuineness of the party such as PAN of all the creditors along with the confirmation, their bank statements showing payment of share application money. It was also observed by the Tribunal that the Assessee has also produced the entire record regarding issuance of shares i.e. allotment of shares to these parties, their share application forms, allotment letters and share certificates, so also the books of account. The balance sheet and profit and loss account of these persons discloses that these persons had sufficient funds in their accounts for investing in the shares of the Assessee. In view of these voluminous documentary evidence, only because those persons had not appeared before the Assessing Officer would not negate the case of the Assessee. The judgment in case of Gagandeep Infrastructure (P.) Ltd. (supra) would be applicable in the facts and circumstances of the present case"

15 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR same cannot be invoked in this case, as evidence was led by the Respondents- Asessee 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 CIT(A) an 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 urge the issue of Section 68 of the Act before the Tribunal. 9(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 1st April, 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 - 2013. 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 Commissioner of Income Tax vs. M/s. Gangadeep Infrastructure (P) ltd (Income Tax Appeal No.1613 of 2014 decided in 20 March 2017) 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 Actintroduced with effect from 1 April 2013 will not have retrospective effect and would be effective only from Assessment year 2013-14. 13. From the above expositions, it is clear that the assessee's case clearly falls under the realm of the above case laws. The proviso to section 68 has clearly and unambiguously been held to be prospective and not retrospective. Admittedly the same is not applicable in the assessment year which is being considered here, i.e., assessment year 2010 - 11. Hence, adverse inference taken by the assessing officer that assessee could not produce the share applicants and their directors, is not sustainable. 14. We find that the assessee in this case has duly submitted all the necessary details in respect of the share application received which included name, address, company incorporation details, share application details, balance sheets, PAN, bank statements, acknowledgement of income tax return filed and confirmation from the parties. The Assessing Officer has not found any fault in these submissions except that he wanted to verify the details by asking the assessee to produce the promoter/director of these companies. As clearly emanating from the aforesaid case laws, the assessee has duly

16 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR discharged its onus and no onus was cast on the assessee in the impugned assessment year to produce the persons or the books from the investment companies. The requirements of enquiry and obtaining explanation from the person making the investment in these circumstances have been brought into the statute books by amendment to section 68 of the Act. These have been clearly held in the above case laws to be prospective as they were effective only from 01.04.2013. Admittedly, the present assessment year being assessment year 2010-11, the Assessing Officer was not justified to take up the issue of obtaining explanation from the Directors/promoters of the investing companies. Drawing support from the above judgments and the settled jurisprudence on the subject, we humbly request your kindness to upheld the order of the First Appellate Authority. For this act of kindness, the assessee shall always remain obliged.’’

2.5 We have heard both the parties and perused the materials available on record. From the available records, it is noted that during the year under consideration , the assessee company had received share premium of Rs.14,54,40,000/- from two Kolkata based private limited companies namely Gemini Vintrade Pvt. Ltd. and Shalimar Vanijya Pvt. Ltd. The AO issued notices u/s 133(6) directly to both the Investor companies to confirm the transaction and veracity of the documents submitted by the assessee, before the AO. Both the companies confirmed the transactions and submitted requisite documents in response to notice u/s133(6) of the Act. During the course of assessment proceedings, the AO directed the assessee to substantiate

17 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR share premium of Rs.240/- per share (with face value of Rs.10/- per share and share premium of Rs.240/- per share) charged by the assessee company. The AO also noted in the assessment order that a new section 56(viib) was introduced in the Income Tax Act w.e.f. 01-04- 2013. Finally, the AO was not convinced with the submissions of the assesseeand treated the share premium as income from other sources and thus made an addition of Rs.14,54,40,000/- in the total income of the assessee company. In first appeal, the ld. CIT(A) has deleted the addition by holding as under:- ‘’5.8………The Revenue authorities cannot question the charging of such huge premium without any bar from any legislative law of land. Also the AO has not brought any on record either in assessment proceedings or in remand proceedings to show any fraud or evidence of any wrong doing on part of appellant. The entire addition has been made only on basis of suspicion without bringing any adverse material against the appellant on record. Further, I find that Hon’ble Supreme Court in the case of M/s. Vodafone Services (P) Ltd. had laid down the ratio that share premium realized from the issue of share is of capital nature and forms part of share capital of the company and, therefore, cannot be taxed as revenue receipt. The judgement in case of M/s. Vodafone Services Pvt. Ltd. has also been relied upon by Hon’ble ITAT (Hyderabad Bench) in case of M/s. Suguna Metals Pvt. Ltd. decided vide ITA No. 437 & 438/Hyd/2014 (para 19 of the order). Therefore, looking at the facts of the case, appellants submission, AO’s order, remand report and judicial precedence, I am of the

18 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR considered view that the AO did not have any basis for adding share premium without any evidence only on the basis of conjectures and surmises. Therefore, AO is directed to delete addition of Rs.14,54,40,000/- made to the income of the appellant. Ground of appeal filed by the appellant is accordingly allowed.’’ We have also taken into consideration the provision of Section 56(2)(viib) which has been inserted by the Finance Act, 2012 w.e.f. assessment year 2013-14. It is noted that CBDT in its Circular No. 3 of 2012 dated 12-06-2012 has clarified that the above clause is applicable prospectively from the assessment year 2013-14 and the relevant paragraph of the above circular is reproduced as under:- "Share premium in excess of fair market value to be treated as income.
In the Finance Bill, 2012, it had been proposed (section 56(2), as sub-clause ((viib)) that in case of a company, not being a company in which the public are substantially interested, which receives, in any previous year/ from any person being a resident, any consideration for issue of shares and the consideration received for issue of such shares exceeds the face value of such shares, then the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income- tax. An exemption was provided in a case where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.
(i) It has now been further provided that such excess share premium is included in the definition of 'income' under sub-clause (xvi) of clause (24) of section 2.
(ii) Considering that the proposed amendment may cause avoidable difficulty to investors who invest in start-ups where the fair market value may not be determined accurately, it is proposed to provide an exemption to any other class of investors as may be notified by the Central Government.
These amendments, will take effect from 1-4-2013 and will, accordingly, apply in relation to the assessment year 2013-14 and subsequent assessment years." (Clauses 21,3). It is also noted that issue of prospective applicability of Section

19 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR 56(2)(viib) is supported by the Judgement of ITAT Mumbai Bench in the case of DCIT Vs Rockwood Hotels & Resorts Ltd. (2018) 68 ITR (Mum) (Trib) 402 wherein it is held as under:- ‘’There is also a force in the arguments advanced by the learned Authorised Representative that the addition under section 68 cannot be made of share premium money since such is a receipt on capital account and is not of revenue nature. Further, it is observed that the provisions of section 56(2) (viib) inserted by the Finance Act, 2012 had been made applicable from the assessment year 2013-14 and does not apply to the year relevant to the assessment year 2012-13. The said view had been adopted in two jurisdictional Mumbai Income Tax Appellate Tribunal decisions in the cases of Gagandeep Infrastructure (P) Ltd. ITA No. 5784/Mum/2011 and Green Infra Ltd. v. ITO (2013) 38 taxmann.com 253 (Mum-ITAT) wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium. We further found that the provisions of section 56(2) (viib) inserted by the Finance Act, 2012 had been made applicable from the assessment year 2013-14 and does not apply to the year under consideration i.e., for the assessment year 2012-13. Our this view is supported by the decision of Income Tax Appellate Tribunal in the cases of Gagandeep Infrastructure (P) Ltd. ITA No. 5784/Mum/2011 and Green Infra Ltd. v. ITO 38 Taxman 253 (Mum-ITAT) wherein it is held that it is the prerogative of the board of directors of the company to decide the share premium and it is the wisdom of the shareholders whether they want to subscribe to such heavy share premium The provisions of section 56(2)(viib) of the Act have been specifically inserted by the Finance Act, 2012 with effect from the assessment year 2013-14. As a consequence, any consideration received by a company for issue of shares that exceeds the face value of such shares/the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be subject to tax with effect from the assessment year 2013-14 and any such amount received during the earlier assessment years shall not be subject to tax under the Act. Therefore, section 56(2) (viib),based on the ratio laid down by the Apex Court in Guffic Chem(P)Ltd.'scase (supra)is a mandatory and not clarificatory.

20 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR It is also noteworthy to mention that the provision of Section 56(2)(viib) of the Act has specifically inserted by the Finance Act, 2012 with effect from the assessment year 2013-14. As a consequence, any consideration received by a company for issue of shares that exceeds the face value of shares the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be subject to tax with effect from the assessment year 2013-14 and any such amount received during the earlier assessment years shall not be subject to tax under the Act. Therefore, the use of this provision of Section 56 (viib)by the AO in his order has no relevance and this issue is also covered by the decision of ITAT Mumbai Tribunal in the case of DCIT vs Rockwood Hotels & Resorts Ltd (Supra). We also find that the department did not file any written submission during the course of hearing and also could not controvert the findings of the ld. CIT(A). Hence, taking into consideration all the above facts, circumstances of the case and the decisions relied upon by the ld. CIT(A) in his order as well as the written submission of the assessee, we concur with the findings of the ld. CIT(A). Thus the appeal of the Revenue is dismissed.

21 ITA207/NAG/2017 ITO, WARD 5(3), JAIPUR VS 21st CENTURY INFRASTRUCTURE (INDIA) PVT. LTD. NAGAPUR 3. In the result, the appeal of the Department is dismissed. Order pronounced in the open Court on 28/06/2022. Sd/- Sd/- (ARUN KHODPIA) (SANDEEP GOSAIN) Accountant Member Judicial Member Nagpur Dated:- 28 /06/2022 *Mishra Copy of the order forwarded to: The Appellant- The ITO, Ward 5(3), Jaipur 1. The Respondent- M/s. 21st Century Infrastructure (India) Pvt. Ltd., 2. Nagpur CIT 3. The CIT(A) 4. DR, ITAT, Nagpur 5. Guard File (ITA No. 207 /Nag/2017) 6. By order, Asst. Registrar