Income Tax Appellate Tribunal - Mumbai
Asst Cit 1(3)(1), Mumbai vs Sankalp Corporate P. Ltd, Mumbai on 14 February, 2018
आयकर अपील य अ धकरण "ई" यायपीठ मब ुं ई म।
IN THE INCOME TAX APPELLATE TRIBUNAL "E" BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं./I.T.A. No.118/Mum/2016 ( नधारण वष / Assessment Year: 2012-13) Asst. CIT-1(3)(1) M/s. Sankalp Corporate Pvt. Ltd.
Room No. 564, 5th Floor, Ground Floor, Sunbeam Chambers,
बनाम/
Aayakar Bhawan, Opp. Liberty Cinema, New Marine
M. K. Road, Mumbai-400 020 Vs. Lines, Mumbai-400 020
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. AANCS 3998 P
(अपीलाथ /Appellant) : ( यथ / Respondent)
अपीलाथ क ओर से / Appellant by : Shri V. Justin
यथ क ओर से/Respondent by : Shri Prakash Jhunjhunwala
सनु वाई क तार ख / : 30.11.2017
Date of Hearing
घोषणा क तार ख /
: 14.02.2018
Date of Pronouncement
आदे श / O R D E R
Per Shamim Yahya, A. M.:
This appeal by the Revenue is directed against the order by the Commissioner of Income Tax (Appeals) dated 29.10.2015 and pertains to the assessment year 2012-
13.
2. The grounds of appeal read as under:
2ITA No. 118/Mum/2016 (A.Y. 2012-13)
Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
Whether on facts and circumstances of the case and in law, the CIT(A) was justified in deleting the addition of Rs.4,23,00,000/- made u/s. 68 of the Act on the account of share premium charged by the appellant assessee without considering the decision of the Bombay High Court in Major Metals vs. Union of India (WP No. 397 of 2011 (19 taxmann.com 176)(2012 Bom) on similar facts.
Whether on facts and in circumstances of the case and in Law, the CIT(A) was justified in deleting the entire addition of Rs.4.23 cr. charged by the appellant assessee when atleast the amount of Rs.2.16 cr. i.e. the amount of share premium received during the year under consideration, ought to have been sustained.
3. In this case, the Assessing Officer noted that the assessee company has obtained huge share premium from one of its associate concern M/s. Illusion Securities P. Ltd. The assessee submitted its valuation of shares which the Assessing Officer did not accepted, as the Assessing Officer was of the opinion that since the assessee company is running into losses since several years, the projected financials on the basis of which valuation of shares have been arrived is not realistic. Hence, he held that share premium remains unjustified. Further, the Assessing Officer examined the balance sheet of the investor company M/s. Illusion Securities Pvt. Ltd. and found the financials of the company to be lacking in creditworthiness and genuineness. Hence, the Assessing Officer proceeded to hold that the share premium was disallowed and was to be added back u/s. 68. The observations of the Assessing Officer in this regard may be gainfully referred as under:
The assessee submitted that the fair value of equity shares of the company is Rs.121.99 per share and the discounting facto was considered at 15% and hence the fair value was arrived at Rs.104 per.3 ITA No. 118/Mum/2016 (A.Y. 2012-13)
Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
As per the Return of income and the computation filed by the assessee the assessee company M/s. Sankalp Corporate Services Pvt. Ltd. is running into losses since several years and the position of the company in terms of financial returns is not bright. Looking at the projected financials as per DCF valuation the profit before tax position of the company has not attained as per the projected figures. Hence, the DCF valuation done in the case of company becomes misnomer and hence the issue of shares at a premium remains unjustified.
Similarly the assessee has submitted the Return of Income and the Balance Sheet of M/s. Illusion Securities Pvt. Ltd. filed for A.Y. 2012-13. Looking at the financials of the company certain points are enough to explain the non credit worthiness and the non genuineness of this transaction. Notably the investor company has insignificant fixed assets having only a car in its pool and no significant source of earning. The reserves and surplus position of the investor as per Note-2 has been specifically built by securities premium account of Rs.4.36 crores which proves that the investor company has not been genuinely doing any kind of business but dealing only in providing the accommodation entries of share premium and share application money in the garb of genuine business activity.
Thus it can be inferred that the assessee has taken an accommodation entry from one of its associate concern M/s. Illusion Securities Pvt. Ltd. and the nature and the source both cannot be proved by any means. Thus share premium remains unjustified and hence an amount of Rs.4,23,00,000/- received during the year on account of issue of shares at a high premium is hereby added back to the total income of the assessee u/s. 68 of the Income Tax Act, 1961.
4. Against the above order, the assessee appealed before the ld. Commissioner of Income Tax (Appeals). The ld. Commissioner of Income Tax (Appeals) noted that during course of assessment, the assessee filed necessary details of Share Holder, their PAN, I.T. Acknowledgement receipt, CIN Master data, Certificate of Incorporation, Share Application Forms, Board Resolution, Confirmation of Account, Balance Sheet, Bank Statements and Assessment Order u/s 143(3) of M/s Illusion Securities Pvt. Ltd (Share Holder Company) to prove the Identity, Genuineness and Credit Worthiness of Share-holders in question. The Assessing Officer had accepted the genuineness of the 4 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
share capital allotted during the year of Rs 47,00,000/- (470000 shares of face value of Rs.10/-). However, made the addition u/s 68 of the IT Act, 1961, treating the share premium money of Rs.4,23,00,000/- (470000 share @ Rs.90/- per share) as undisclosed income of the assessee.
5. Referring to the provisions of section 68, the ld. Commissioner of Income Tax (Appeals) held as under:
5.6 On perusing of the documents furnished on record, it is observed that the appellant had filed the PAN card, CIN Master Data (ROC), Certificate of incorporation and Memorandum of Association of M/s. Illusion Securities (P) Ltd which establishes the identity of the shareholder. The appellant had furnished the copies of Share Application Forms, Board Resolution and Confirmation of Account to prove the genuineness of the transaction. The appellant had filed the I.T. Acknowledgement Receipt, Balance Sheet as on 31.03.2012, Bank Statements and Assessment Order u/s 143(3) of the I T Act, 1961 for A.Y-2012-13 of M/s. Illusion Securities (P) Ltd to prove the credit worthiness of such shareholder. The Assessing Officer had not disputed the correctness of the above stated documents furnished on record which reasonably establishes the identity and genuineness of the transaction and proves the credit worthiness of the shareholder. Further, once the Assessment case of M/s. Illusion Securities (P) Ltd (shareholder), then correspondingly the transaction cannot be held as ingenuine in case of the appellant.
5.7 The appellant had discharged its onus to prove the transaction. The Assessing Officer had not brought any contrary documentary evidence on record to disprove the transaction and involvement of unaccounted money belonging to the appellant. It is observed that Assessing Officer did not even issue the notice u/s 133(6) of the I T Act, 1961 to the shareholder or to the banker of such shareholder to verify the source of funds. In any case, the appellant is not required to prove the source of source of funds. The Assessing Officer had not found any fault in the documents furnished by the appellant on assessment record. It is also observed that appellant had received the share premium money of Rs.2,16,00,000/- during current year and balance Rs.2,07,00,000/- had been received in earlier years during A.Y.2010-11 and A.Y. -2011-12. Thus, as such, the addition u/s 68 of Rs.2,07,00,000/- received 5 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
in earlier years cannot be taxed u/s 68 in impugned year. The AO had accepted the genuineness of share capital money received from same shareholder of Rs.48,00,000/-, thus is not justified in treating the share premium money of Rs. 4,23,00,000/- as ingenuine. The appellant had furnished adequate documents to prove the Identity, Genuineness and Credit Worthiness of the Share-Holder, the Assessing Officer is not justified in simply brushing aside such documents, thus, the addition made in assessment u/s. 68 of the I. T. Act, 1961 needs to be deleted.
6. Further, the ld. Commissioner of Income Tax (Appeals) referred to the ITAT Mumbai Bench decision in the case of Green Infra Ltd. vs. ITO (ITA No. 7762/Mum/2012 dated 23.08.2013 for A.Y. 2009-10) and also the Hon'ble Supreme Court decision in the case of Lovely Exports Pvt. Ltd. i317 ITR 218 (SC) and the Hon'ble Bombay High Court decision in the case of and the CBDT Instruction No.2/2015 dated 29.01.2015 ald the Hon'ble Bombay High Court decision in the case of M/s. Vodafone India Services Pvt. Ltd. vs. Addl. CIT (268 ITR 001).
7. The ld. Commissioner of Income Tax (Appeals) concluded as under:
5.16 In view of the discussion and also following the judicial decisions stated above, I hold that the share premium money received by appellant is of capital nature and does not constitute a revenue receipt, thus addition u/s 68 the I T Act, 1961 deserves to be deleted. The provision of Section 56(2)(viib) had been inserted w.e.f 01.04.2013, accordingly would not apply for the 'impugned year.
The appellant had filed sufficient documentary evidences to establish the identity of the shareholder, genuineness of the transactions and capacity of the share holder. Further, the assessment order of the shareholder M/s. Illusion Securities Pvt Ltd had been completed u/s.143(3) of IT. Act, 1961, thus transactions made by such company with the appellant cannot be treated as ingenuine. Accordingly, addition made in assessment of share premium money of Rs.4,23,00,000/- cannot be sustained and is hereby deleted. 1 direct Assessing Officer to delete the addition of Rs.4,23,00,000/- made u/s 68 of the I T Act, 1961.
6ITA No. 118/Mum/2016 (A.Y. 2012-13)
Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
8. Against the above order, the Revenue is in appeal before us.
9. The ld. Departmental Representative relied upon the orders of the Assessing Officer. He reiterated the case law of Hon'ble jurisdictional High Court in the case of Major Metals vs. Union of India (WP No. 397 of 2011) (19 taxmann.com 176)(2012 Bom) as mentioned in the grounds of appeal.
10. Per contra, the ld. Counsel of the assessee relied upon the orders of the ld. Commissioner of Income Tax (Appeals). He further submitted several decisions for the proposition that addition u/s. 68 cannot be made once identity, genuineness and creditworthiness is established. In this regard, he inter alia referred to the ITAT decision and the Hon'ble Bombay High Court decision in the case of Green Infra Ltd. (supra) and ACIT vs. Gagandeep Infrastructure Pvt. Ltd. (ITA No. 5784/Mum/2011 dated 23.04.2014). He further submitted that amendment to section 68 is not retrospective. For this he referred to the Hon'ble Bombay High Court decision in the case of Gagandeep Infrastructure Pvt. Ltd. (supra). In this regard, the ld. Counsel of the assessee referred to a catena of case laws as under:
Sr. No. PARTICULARS
1. CIT vs. Orchid Industries Pvt Ltd 397 ITR 136 (Bom-HC)
2. CIT vs. Goa Sponge and Power Ltd ITA No. 16 of 2012 (Bom-HC)
3. ACIT vs. Gagandeep Infrastructure Pvt Ltd ITA No.5784/ Mum/ 2011
4. CIT vs. Gagandeep Infrastructure Pvt Ltd ITA 1613 of 2014 (Bom-HC)
5. Green Infra Ltd vs. ITO 38 Taxmann.com 253 (Mum-ITAT)
6. CIT vs. Green Infra 3 92 ITR 7 (Bom-HC)
7. CIT vs. Creative World Telefilms Ltd 333 ITR 100 (Bom-HC)
8. CIT vs. Expo Globe India Ltd 361ITR147(Del-HC) 7 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
9. Jaya Securities Ltd vs. CIT 166Taxmann7(All-HC) [SLP dismissed by Supreme Court]
10. Pr. CIT vs. Laxman Industrial Resources Ltd ITA No. 169/20 17 dated 14/03/20 17 (Del-HC)
11. CIT vs. Vacmet Packaging (India) Pvt Ltd 88 CCH 65 (All-HC)
12. CIT vs. Lovely Exports Ltd 216 ITR 195 (SC)
13. CIT vs. Stellar Investment Ltd 251 ITR 263 (SC)
14. CIT vs. Gagandeep Infrastructure Pvt Ltd ITA 1613 of 2014 (Bom-HC)
15. CIT vs. Orchid Industries Pvt Ltd 397 ITR 136 (Bom-HC)
16. Mod Creations Pvt Ltd vs. ITO 354ITR282(Del-HC)
17. CIT vs. Divine Leasing and Finance Ltd 299ITR268(Del-HC)
18. CIT vs. Dwarkadhish Investment Pvt Ltd 330ITR298(Del-HC)
19. CIT vs. Samir Bio-tech Pvt Ltd 325ITR294(Del-HC)
20. CIT vs. Orchid Industries Pvt Ltd 397ITR136(Bom-HC)
21. CIT vs. Creative World Telefilms Ltd 333ITR100(Bom-HC)
22. Orient Trading Co. Ltd vs. CIT 49 ITR 723 (Bom-HC)
23. CIT vs. Tania Investment Pvt Ltd 322 ITR 394 (Bom-HC)
24. CIT vs. Dwarkadhish Investment Pvt Ltd 330ITR298(Del-HC)
11. We have heard the counsels and perused the records. We find that the assessee in this case has received share capital and share premium from its associate concern M/s. Illusion Securities P. Ltd. The Assessing Officer is of the opinion that the share premium received is unjustified. Hence, he has added the share premium amount of Rs.4.23 crores to the total income of the assessee u/s. 68. In the assessment order, the Assessing Officer has noted that the investor company has insignificant asset and no significant source of income. He has observed that the reserve and surplus position of the investor has been made of security premium account of Rs.4.36 crores which as per Assessing Officer proves that the investor has not been genuinely doing any kind of business. On the other hand, the ld. Commissioner of Income Tax (Appeals) has 8 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
noted that all the requisite details including the bank statement of the investor company have been submitted. He has noted that the Assessing Officer has accepted the genuineness of the share capital but has added the share premium amount as undisclosed income. The ld. Commissioner of Income Tax (Appeals) has also noted that the assessee has received share premium amount of Rs.2,16,00,000/- during the current year and balance of Rs.2,07,00,000/- has been received during the earlier year, i.e., assessment year 2010-11 and assessment year 2011-12. The ld. Commissioner of Income Tax (Appeals) has held that there is no justification of adding the share premium of earlier years during the current year. Furthermore, the ld. Commissioner of Income Tax (Appeals) has noted that the assessee has discharged its onus and the Assessing Officer has not brought any contrary documentary evidence to dispute the transaction and involvement of unaccounted money belonging to the assessee. The ld. Commissioner of Income Tax (Appeals) has further observed that the Assessing Officer has not even issued the notice u/s. 133(6) in this regard to verify the source of the funds. Hence, placing reliance upon certain decisions from the ITAT, Hon'ble jurisdictional High Court and Hon'ble Apex Court, the ld. Commissioner of Income Tax (Appeals) has deleted the addition.
12. At the outset, we agree with the ld. Commissioner of Income Tax (Appeals) that earlier years share premium accounts cannot be added during the present assessment year. Secondly, we note that for addition on account of unjustified share 9 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
premium and examination of the source of source of share capital and share premium, etc. & section 56 (viib) was bought in statute and section 68 was amended by Finance Act, 2012 w.e.f. 01.04.2013. Hence, addition on account of unjustified share premium alone cannot be made by placing reliance upon these amended provisions as they are not applicable to the concerned assessment year. This was held by the Hon'ble jurisdictional High Court in the case of Gagandeep Infrastructure Pvt. Ltd. (supra). The observation by the Hon'ble jurisdictional High Court in this regard may be gainfully referred 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 of Section 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 10 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit.
13. Furthermore, we note that the amount has been received from the associate concern of the assessee company. The only reason for the Assessing Officer's opinion that the investor company lacks creditworthiness is that it has received share capital and share premium account from other concerns. The Assessing Officer has not made any enquiry in this regard. As noted by the ld. Commissioner of Income Tax (Appeals), he has not even issued the notice u/s. 133(6) of the Act to make any enquiry in this regard. Without any enquiry, there cannot be any presumption that the share capital and share premium account of the investor company are bogus transaction. Hence, in our considered opinion, the above Hon'ble jurisdictional High Court which also refers to the Hon'ble Apex Court decision duly supports the finding of the ld. Commissioner of Income Tax (Appeals) that the addition in this case is not sustainable. The various case laws referred by the ld. Counsel of the assessee referred hereinabove also supports the assessee's case.
14. In the grounds of appeal, the Revenue has only placed reliance upon the decision of Hon'ble jurisdictional High Court in the case of Major Metals (supra) and has urged that the addition u/s. 68 on account of share premium is justified on the basis of the said case law. We find that in the said case law, the Hon'ble jurisdictional High Court has affirmed the settlement commission finding and noted that the 11 ITA No. 118/Mum/2016 (A.Y. 2012-13) Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
settlement commission has considered all the materials on record including the material which had bearing on the creditworthiness and financial standing of the alleged subscribing companies to the share capital of the assessee. None of the companies was held to be of financial standing or creditworthiness which would justify of making such a large investment of Rs.6 crores at a premium of Rs.990/- per share. Thus, from the above it is evident that the Hon'ble jurisdictional High Court has not interfered with the finding of the settlement commission regarding the lack of creditworthiness of the share applicants. In the present case, we note that no enquiry whatsoever has been done by the Assessing Officer. Hence, without any enquiry there cannot be any presumption that the investor company had no creditworthiness to make the share application for the shares at a premium. Hence, this case law does not fructify the case of the Revenue.
15. Accordingly, in the background of the aforesaid discussion and precedent, we do not find any infirmity in the order of the ld. Commissioner of Income Tax (Appeals). Accordingly, we uphold the same.
16. In the result, this appeal by the Revenue stands dismissed.
प रणामतः राज व क अपील खा रज क जाती है ।
Order pronounced in the open court on 14.02.2018
Sd/- Sd/-
(Amarjit Singh) (Shamim Yahya)
या यक सद य / Judicial Member लेखा सद य / Accountant Member
मुंबई Mumbai; दनांक Dated : 14.02.2018
व. न.स./Roshani, Sr. PS
12
ITA No. 118/Mum/2016 (A.Y. 2012-13)
Asst. CIT vs. M/s. Sankalp Corporate Pvt. Ltd.
आदे श क त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent
3. आयकर आयु त(अपील) / The CIT(A)
4. आयकर आयु त / CIT - concerned
5. वभागीय त न ध, आयकर अपील य अ धकरण, मुंबई / DR, ITAT, Mumbai
6. गाड फाईल / Guard File
आदे शानुसार/ BY ORDER,
उप/सहायक पंजीकार (Dy./Asstt. Registrar)
आयकर अपील य अ धकरण, मुंबई / ITAT, Mumbai