Income Tax Appellate Tribunal - Kolkata
Ito, Wd-10(4), Kolkata, Kolkata vs M/S Bsni Commercial Pvt. Ltd., Kolkata on 22 November, 2018
1 ITA No. 686/KOL/2017
A.Y. 2012-2013
M/s. BSNL Commercial Pvt. Limited
IN THE INCOME TAX APPELLATE TRIBUNAL,
KOLKATA 'B' BENCH, KOLKATA
Before Shri P.M. Jagtap, Vice-President (KZ)
and Shri Satbeer Singh Godara, Judicial Member
I.T .A. No. 686/KOL/2017
Assessment Year: 2012-2013
Income Tax Officer,.........................................................................Appellant
Ward-10(4 ), Kolkata,
Aayakar Bhawan,
P-7, Chowringhee Square, 3 r d Floor,
Kolkata-700 069
-Vs.-
M/s. BSNI Commercial Pvt. Limi ted,......... ..................................Respondent
Behind J hawtalla Kali Temple,
Teghori a, Kolkata-7 00 059
[PAN:AAECB 6746 K]
Appearances by:
Shri Sankar Halder, JCIT, Sr. D.R. , for the Appellant
Shri S.L. Kochar, A.R. & Shri Anil Kochar, Advocate , for the Respondent
Date of concluding th e hearing : October 31, 2018
Date of pronouncing the order : November 22, 2018
O R D E R
Per Shri P.M. Jagtap, Vice-President (KZ):-
This appeal is preferred by the Revenue against the order of ld. Commissioner of Income Tax (Appeals)-4, Kolkata dated 03.02.2017 and the solitary issue involved therein relates to the deletion by the ld. CIT(Appeals) of the addition of Rs.1,00,80,000/- made by the Assessing Officer on account of share premium.
2. The assessee in the present case is a Company, which filed its return of income for the year under consideration on 21.09.2012 declaring total income of Rs.13,429/-. As noticed by the Assessing Officer, the assessee-company during the year under consideration had raised 1 2 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited share capital at a huge share premium of Rs.1,00,80,000/-. Keeping in view that there was no substantial business activity carried on by the assessee-company during the year under consideration except making some investment in land and Bank, the Assessing Officer proceeded to examine the claim of the assessee for huge share premium. In this regard, he issued notices directly to the concerned shareholders and in reply to the said notices, the concerned shareholder companies furnished the details and documents required by the Assessing Officer. The Assessing Officer, however, found that the replies received from the shareholder companies were almost identical in style and some of their Directors and addresses of the Registered Office were common. He, therefore, issued summons under section 131 to the assessee-company requiring it to produce the Directors of the shareholder companies for examination. The assessee-company, however, failed to produce the Directors of the shareholder companies for verification before the Assessing Officer. Keeping in view this failure of the assessee-company, the Assessing Officer held that the creditworthiness of the concerned creditors could not be corroborated by the assessee-company and even the high value of share premium could not be justified by it. He accordingly treated the share premium amount of Rs.1,00,80,000/- received by the assessee- company as unexplained cash credit and made an addition to that extent to the total income of the assessee in the assessment completed under section 143(3) vide an order dated 16.03.2015.
3. Against the order passed by the Assessing Officer under section 147/143(3) of the Act, an appeal was preferred by the assessee before the ld. CIT(Appeals) and the following submissions were made on behalf of the assessee-company in writing before the ld. CIT(Appeals) in support of its case that the addition made by the Assessing Officer on account of share premium by treating the same was not sustainable:-
"We would like to inform you that t he company BSNL Commercial Private Limited was inco rporated on 05/09/2011 with the paid up capital of Rs.1,00 ,000/-. This amount of 2 3 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited Rs.100000/- was subscribed by the directo rs of the company as promot ers. In the financial year 2011-12, It was engaged in the business of Job wo rk/Commissio n/Interest Income/t rading in consumables co mmercial goods. Th e company was willing to deal in Real Est ate Business as Real Est ate Agent/Builders/Property Developer. It is evident fro m its Balance Sheet and Profit & Loss Acco unt of the financial year 2011-12 that it had al ready started dealing in pro pert ies fro m the financial year 2011-12 as it h ad purch ased Land amounting to Rs.2202490/- during the year 2011-12 which is also showing in it s Invento ries as on 31/03/2012. It want ed to expand its business o f dealing in pro perties and fo r this fund was required. So, th e directors (Debasis Sanyal & Santwana Bagchi) of the Company convinced the investo rs about its planning and expected return (10% to 15%) from invest ment in the company and had issued 42000 shares @ Rs.250/Sh are (Face value - Rs. 10/ Share & Sh are Premium - Rs.240/Sh are) to 4 investors and t hereby raised Rs.1,05 ,00,000/- fro m th e issue of shares. Out of the above fund raised, Rs.55,00,000/- was received from M/s. Devsant Co mmercial Privat e Limited, one of the group companies of M/s. BSNL C ommercial Pvt Ltd. So, it can be said that mo re than 50% of the fund raised is the management's own fund being raised from th e gro up company.
Moreover, all the required co mpliances fo r raising money th rough issue of sh ares were made by the company. The company had received all th e money raised thro ugh i ssue of shares in its bank account. All the t ransactions h ad made through bank . It h ad also filed Fo rm-2 fo r allotment of shares during th e year and had also given allotment advice & share certificates to the investo rs. It h ad also submitt ed all the details & documents as per notices u/s. 143 (2) & 142(1).
Surplus Fund out of money raised th rough share issue was k ept in Company' s bank account till finalization of other pro perty rel ated business transactio ns. T he turnover of the company for th e financial year 2011-12 is Rs.348815/- which is from Job Work/Co mmission and profit before tax of the company is Rs.13429/- during th at year. Th e company is a fast moving co mpany. It is having good reput ation and goodwill in the mark et.
The investors h ad also complied with all t he notices sent by the depart ment and submitted all the relevant details & documents as per the notices sent to them u/s 133(6).
The appellant h ad also clarified all the gro unds o n which the Ld. Assessing Officer had added to the to tal income for th e Assessment Year, the Share Premium amounting to Rs.1 ,00,80,000/- received during the year treat ing it as cash credit . The Appell ant pleaded that the Net Asset Value of the 3 4 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited assessee's sh are was Rs.203/- per share as on 31.03.2012. and the Company has issued the Sh ares @ Rs.2 50/- sh ares, which is very much near to its NAV. Looking into the boo m phase of Construct ion Indust ry at th at time, the pricing of shares were not too high to be categorised as huge and unjustif ied share premium.
Details & documents submitt ed by the appellant and the investors and clarification & justification given by them had pro ved genuineness of transactio ns o f sh are premium including face values, identities and creditworthiness of the shareholders of the company for justification of invest ment in the company.
The Assessee had furnished all the details as requi red to establish the genuineness of th e issue of sh ares at premium of Rs.240/ share such as co py of Bank St atements of BSNL Commercial Private Limited, Copy of IT R Acknowledgement for the Assessment Year 2012-13, copy of Certificate of Allotment Advise, Co py of Allotment lett er, Co py of Annual Repo rt including co py of Bank St atement s and co py of PAN Card of Investo rs Companies such as Devsant Co mmercial Private Limited, Sanmati Synfab Private Limited & Shlok Fashions Private Limited and copy of PAN of Directo rs of Investo r Companies.
So, issue of shares at premium of Rs.240/- share is justified and all the det ails & documents mentioned abo ve also pro ve the genuineness of t ransactions of sh are premium including face values, ident ities and creditworthiness of the shareholders of the company for justification of invest ment in the company.
There are a number of decisions of Hon'ble Courts on the issue, which are favo urable to the assessee. So me of these are summarized as under:
a) In the case of Commissioner of Inco me-t ax v.
Gangeshwari Metal (P.) Ltd., [20 13J 30 taxmann.com 328 (Delhi), it h as been h eld that where the assessee in support of t ransaction of receipt of share applicatio n money, brought on record various documents such as names and addresses of share applicant s, their confirmatory letters, copies of bank st atement s et c., said transaction was to be regarded as genuine and, consequently, no addition coul d be made in respect of same under section 68.
b) In C IT, Meerut vs. Nav Bharat Duplex Lt d. [2013J 35 taxmann.co m 289 (Allahabad), it has been held that wh ere Assessing Officer made addition in 4 5 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited income of assessee-company under sect ion 68 on plea that it coul d not prove th at share applicant s had enough mo ney o n date of purchase of it s shares, since sh are applicant s were identified and they had submitted their bank statement s, cash extracts and returns filing receipt s, impugned addition was not just ified.
c) In C IT, Udaipur vs. Bhaval Synthetics [2013] 35 taxmann.com 83 (Rajasthan), the Assessing Officer made additio n to assessee' s inco me on account of unexplained sh are capital o n ground that assessee did not furnish confirmation from sh areholders. However, Commissio ner (Appeals) noticed th at transactions were made through banking channel and existence of persons in whose names shares had been issued was proved and deleted said addit ion. The Hon'ble Court h as held th at the Commissioner (Appeals) did not co mmit erro r of law in deleting said addit ion.
d) Recently, the Mumbai Bench of the Income Tax Appellate T ribunal (the T ribunal) in the case of Green Infra Ltd. h ad an occasion to deal with taxability of premium received on issue of shares. The Tribunal held t hat sh are premium realized from th e issue of sh ares is capit alized in nature and forms part of the share capit al of the company and therefo re cannot be taxed as revenue receipt . The Tribunal also held t hat it is a prerogat ive of the Board of Directo rs o f the Company to decide the premium amount and it is the wisdom of the shareholders whether they want to subscribe to shares at premium.
Inspite of what has been st ated hereinbefore, the A ssessing Officer wrongly added the amount of Share Premium of Rs.100,80,000/- to th e total income of the assessee.
We are also enclosing the following det ails & documents that we have al ready submitted to Assessing Officer for your reference:-
1. Lett er submitt ed to Assessing Officer regarding Justification of issue of shares at premium.
2. Copy of PAN of Company "BSN I Co mmercial Private Limited" with copy of PAN of Director " Debasis Sanyal" .
3. Copy of Certificat e of Allotment Advice o r Lette r of Allotment .
4. Copy of Det ails of Source of fund.5 6 ITA No. 686/KOL/2017
A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited
5. Co py of Bank Statement s of the Company "BSNI Commercial Private Limited".
6. Copy of Financial St atements of th e Company "BSNL Commercial Private Limited" fo r the year ended 31.03.2012.
7. Co py of Ack nowledgement of IT R for the Assessment Year 2012-13.
8. Copy of PAN of Investor Companies with Copy of PAN of Director of Investo r C ompanies.
9. Copy of Financial Statement s of the Investor Companies for the year ended 31 .03.2012.
10. Copy of Acknowl edgement of IT R fo r the Assessme nt Year 2012-13.
We hope that the above det ails & documents and cl arificatio n is sufficient to serve your purpose and also justif y the issue of shares at premium by the company" .
4. The ld. CIT(Appeals) found merit in the submissions made on behalf of the assessee-company and deleted the addition made by the Assessing Officer by treating the share premium amount as unexplained cash credit under section 68 for the following reasons given in paragraph no. 4.8 & 4.9 of his impugned order:-
"4.8. I find that the appellant h ad explained befo re the AO that the Net Asset Value of the assessee' s share was Rs.203/- per share as o n 31 .03.2012 and th at it h as issued the equit y shares @ Rs.250/ sh ares, which is very much near to it s NAV. It was also expl ained by the AR that co nsidering the boom phase of Const ructio n Indust ry at th at time, the pricing of shares were not too high to be cat egorised as h uge and unjustified sh are premium. The appellant h ad furnished details & documents for just ificat ion of share premium. The AO h as not pointed out any anomal y o r defect backed by cogent material to negat e the argument s and justificatio n filed by the appellant in course of assessment proceedings with regard to th e issue of sh are premium. I find that the appellant h ad furnished all the detail s as required to establish the genuineness of th e issue of sh ares at premium of Rs.240/- per share such as copy of Bank Statements of BSN L Commercial Private Limited, Copy of IT R Acknowledgement for the assessment Year 2012-13, co py of Certificate of Allotment Advise. Co py of Allotment lett er. Co py of Annual Repo rt including co py of Bank st atements and copy of PAN 6 7 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited Card of Investor Companies such as Devsant Co mmercial Private Limited, Sanmati Synfab Private Limited & Shlok Fashions Private Limited and copy of PAN of Directo rs of Investo r Companies. In such event , I find that the issue of shares at a premium of Rs.240/- per share seems to be just ifiable wh en all the details & documents as mentioned above filed befo re th e AO only go to show the genuineness of transactions of sh are premium including face values, identities and credit worthiness of the shareholders of th e company fo r just ification of invest ment s in th e appellant company.
4.9. Therefo re, co nsidering the totality of the facts and circumst ances of the case, I find subst ance in the argument of the AR th at the appellant h as made o ut its case that the identit y of the share applicants are est ablished beyond doubt and on enquiries made by the AO there is no adverse finding reach ed on this aspect. Admittedly, all the sh are applicants are existing assessees under the Act which establishes th e identit y and authent icity of the share applicants. About the genuineness of the transactions, there is no any ad verse finding in the assessment order which is distinct to the facts brought o n record by the appellant during the cours e of assessment proceeding. Th e creditwo rth iness of the share applicants as regards their subscription to t he sh are capit al is pro ved by submission of their ret urn, audit ed annual account s, their bank st atement and repl ies to notices u/s 133(6) of the Act as depict ed hereinabove. The net wo rth of such subscribers is in excess of the amount invest ed by each of them as explained h ereinabove. The addition made by AO is based o n ext raneous parameters not germane fo r deci ding th e issue. The AO h ad not dealt with the issue judiciously and consistently with the evidence adduced during the co urse of the assessment proceedings by the appellant and the replies of the share applicants in respect of the share capit al do not warrant the inference that such sh are applicat ion mo nies received is unaccounted cash credit. Hence, I am inclined to accept the argument s tendered by th e AR of the appellant in this respect . In view o f the above, I have no hesit ation to hold that the impugned addition made by invo king the provisions of s. 68 by the AO is not justified in the circumst ances. In view of the foregoing, the addit ion of Rs.1,00,80 ,000/- made on this account by the AO is, therefore, directed t o be deleted. Thus, this ground is allowed".
Aggrieved by the order of the ld. CIT(Appeals), the Revenue has preferred this appeal before the Tribunal.
7 8 ITA No. 686/KOL/2017A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited
5. The ld. D.R. strongly relied on the order of the Assessing Officer in support of the Revenue's case on the issue involved in this case. He contended that the creditworthiness of the concerned shareholders was not established by the assessee-company by producing them for examination before the Assessing Officer inspite of sufficient opportunity afforded in this regard. He contended that money trail of the share premium amount claimed to be received by the assessee-company from the concerned shareholders was required to be seen to ascertain the genuineness of the huge share premium amount claimed to be received by the assessee, but the ld. CIT(Appeals) completely overlooked this vital aspect while deleting the addition made by the Assessing Officer on account of share premium amount by treating the same as unexplained cash credit.
6. The ld. Counsel for the assessee, on the other hand, contended that all the relevant aspects of the issue have been duly considered by the ld. CIT(Appeals) and after taking into consideration the relevant documentary evidence placed on record by the assessee-company, creditworthiness of the concerned shareholders has been accepted by the ld. CIT(Appeals). He contended that even the share premium charged by the assessee-company was duly justified by it by furnishing the relevant facts and figures. He contended that the share capital amount received from the shareholders was accepted by the Assessing Officer and only the share premium amount received from them was treated by him as unexplained, which was not justified. He contended that in the similar facts and circumstances of the case, the addition made by the Assessing Officer on account of share premium amount was held to be not sustainable by the Tribunal in the case of ITO -vs.- M/s. Trend Infra Developers Pvt. Limited decided vide its order dated 26.10.2018 passed in ITA No. 2270/KOL/2016.
8 9 ITA No. 686/KOL/2017A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited
7. We have considered the rival submissions and also perused the relevant material available on record. It is observed that the relevant documentary evidence in the form of Annual Reports, Bank statements, copies of PAN Card, etc. of the shareholder companies was produced before the Assessing Officer in order to establish the identity as well as creditworthiness of the said shareholder companies. The notices issued by the Assessing Officer were also duly responded by the said shareholder companies by filing their replies. It is observed that the Assessing Officer, however, doubted their creditworthiness as well as the genuineness of the share premium amount mainly on the ground that the assessee-company failed to produce the Directors of the shareholder companies for examination. He, however, accepted the share capital amount received from the concerned shareholder companies and treated mainly the share premium amount paid by them as unexplained. As pointed out by the ld. Counsel for the assessee, the share premium charged by the assessee-company was duly justified before the ld. CIT(Appeals) by furnishing the relevant facts and figures. It is observed that in the similar facts and circumstances involved in the case of M/s. Trend Infra Developers Pvt. Limited (supra), similar addition made by the Assessing Officer only on account of share premium by treating the same as unexplained was deleted by the ld. CIT(Appeals) and the Tribunal upheld the order of the ld. CIT(Appeals) for the following reasons given in paragraph no. 3.3 of its order:-
"3.3. We have heard the rival submissions. The fact stated hereinabove remain undisputed before us by either of the parties and hence the same are not reiterated forthe sake of brevity. At the outset, we find that the assessee had received share capital of Rs. 57,900/- from six shareholders and Rs. 2,88,92,100/- from the very same shareholders towards share premium. The share capital received by the assessee has been duly accepted by the ld. AO within the ken of section 68 of the Act. However, share premium component has been doubted by the ld. AO. We find that the assessee in the instant case had duly complied with by furnishing the complete details of share 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 9 10 ITA No. 686/KOL/2017 A.Y. 2012-2013 M/s. BSNL Commercial Pvt. Limited 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. The only grievance of the ld. AO was that the assessee could not produce the directors of the share subscribing companies. In our considered opinion, for this reason alone, there cannot be any addition u/s 68 of the Act as held by the Hon'ble Supreme Court in the case of CIT vs. Orissa Corporation Pvt. Ltd. reported in 159 ITR 78 (SC). 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 distinguishable".
8. As the issue involved in the present case as well as all the material facts relevant thereto are similar to the case of M/s. Trend Infra Developers Pvt. Limited (supra) decided by the Tribunal, we respectfully follow the said decision and uphold the impugned order of the ld. CIT(Appeals) deleting the addition made by the Assessing Officer on account of share premium.
9. In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on November 22, 2018.
Sd/- Sd/-
(Satbeer Singh Godara) (P.M. Jagtap)
Judicial Member Vice-President (KZ)
Kolkata, the 22 n d day of November, 2018
Copies to : (1) Income Tax Officer,
Ward-10(4 ), Kolkata,
Aayakar Bhawan,
P-7, Chowringhee Square, 3 r d Floor,
Kolkata-700 069
(2) M/s. BSNI Commercial Pvt. Limi ted,
10
11 ITA No. 686/KOL/2017
A.Y. 2012-2013
M/s. BSNL Commercial Pvt. Limited
Behind J hawtalla Kali Temple,
Teghori a, Kolkata-7 00 059
(3) Commissioner of Income Tax (Appeals)-4, Kolkata, (4) Commissio ner of Income Tax- , (5) The Depart ment al Represent ative (6) Guard File By order Assistant Registrar, Income Tax Appellate Tribunal, Kolkata Benches, Kolkata Laha/Sr. P.S. 11