EQUIRUS SECURITIES PRIVATE LIMITED,MUMBAI V. JURISDICTION WARD 14(1)(2), MUMBAI, MUMBAI

ITA 5059/MUM/2024

AI Insights

The case involves Equirus Securities Pvt Ltd, which appealed against the order of the National Faceless Appeal Centre (NFAC), Delhi / CIT(A) for the assessment year 2012-13. The primary contention was regarding the additions made under section 68 and section 56 of the Income Tax Act, 1961, related to the share premium received by the company. The Assessing Officer had doubted the genuineness of the transactions and added a sum of Rs. 8,39,45,520 as unexplained cash credit. The Tribunal noted that the CIT(A) had not adequately considered the documents and submissions provided by the assessee and thus restored the matter for a fresh decision.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 46919 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-04-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Other Referred Cases: CIT v. Gagandeep Infrastructure Pvt.Ltd, CIT v. Orchid Industries (P.) Ltd, Vodafone India Services (P.) Ltd. v. Union of India, Green Infra Ltd. v. Income-tax Officer-1(1)-4, Major Metals, Rahuljee & Co. (P.) Ltd. Vs. ITAT, Parle Agro (P.) Ltd vs. Assistant Commissioner of Income Tax, Nagase India (P.) Ltd vs. ACIT
• Laws Referred To: Income Tax Act, 1961, Companies Act, 1956
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: HEMANSHU JOSHI
• Assessee Lawyers: ANIL SATHE
• Keywords: Retrospective amendment; Business expenditure; Corroborative evidences; Unexplained cash credit; Fair market value; Onus to prove; Commercial expediency; Capital receipt; Valuation report; Share purchase agreement; Bogus
• Section: 250; 56; 68; 22; 69; 133(6); 13; 12; 44AB; 37(1); 20; 101

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH MUMBAI BEFORE HON’BLE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER & HON’BLE SHRI OMKARESHWAR CHIDARA, ACCOUNTATN MEMBER ITA No. 5059/Mum/2024 (Assessment Year: 2012-13) Equirus Securities Pvt Ltd Unit No. 1201, 12th floor C Wing, Marathon Futurex, NM Joshi Marg Delisle Road, Mumbai – 400 013. Vs. ITO, Ward – 14(1)(2) Aayakar Bhavan, Mumbai. PAN/GIR No. AABCE9070E (Applicant) (Respondent) Assessee by Shri Anil Sathe, CA Revenue by Shri Hemanshu Joshi, Sr. DR Date of Hearing 12.02.2025 Date of Pronouncement 08.04.2025 आदेश / ORDER PER SANDEEP GOSAIN, JM: The present appeal has been filed by the assessee challenging the impugned order 01.08.2024 passed u/s 250 of the Income Tax Act, 1961 (‘the Act’), by the National Faceless Appeal Centre (NFAC), Delhi / CIT(A) for the assessment year 2012-13. 2 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai 2. The ground Nos 1 to 5 raised by the assessee are interrelated and interconnected and relates to challenging the order of Ld. CIT(A) in upholding the additions made u/s 68 of the Act or u/s 56 of the Act. In this regard, Ld. AR reiterated the same arguments as were raised by him before the revenue authorities and also relied upon the written submissions filed before the revenue authorities and the same is reproduced herein below: 1. During the year under consideration, the assessee had issued 6,36,366 equity shares of face value of Rs. 10/- each at a premium of Rs.100/- per share aggregating to Rs. 7,00,00,260/- including alleged issue of 2,72,728 equity shares to its Holding Company ie. Equirus Capital Pvt. Ltd. The share premium was credited to the 'Securities Premium account' under the head 'Reserves and Surplus' in the Balance Sheet. 2. The appellant also issued 1,00,000 0% redeemable preference shares of Rs. 10/- each at a premium of Rs. 990/- per share. The assessee has redeemed 40,000 share of redeemable preference share of Rs. 10/- each at a premium of Rs. 990/- during the relevant assessment year. 3. The Ld. Assessing Officer found the share premium of Rs. 2,45,45,520/- on 2,72,728 equity shares and that of Rs. 5,94,00,000/- on 60,000 preference shares as huge and accordingly, doubted the genuineness of the transaction and also invoked the provisions of section 56(1) of the Act. AO's Contentions: 1. Addition of a sum of Rs. 8,39,45,520/- was made u/s, 68 of the Act as unexplained cash credit on the ground that the appellant has not proved the identity, creditworthiness and 3 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai genuineness of the credit entries in respect of share premium received. The said addition was worked out as under: 1. Share premium on issue of equity shares to Equirus Capital Pvt. Ltd. 2,45,45,520/- 2. Share premium on issue of redeemable preference shares to Equirus Finance Pvt. Ltd. 5,94,00,000/- Total 8,39,45,520/- 2. The funds received on account of share premium have been utilized for the purposes other than those specified under section 78(2) of the Companies Act, 1956. 3. The appellant company has not submitted any valuation report other than stating that the premium charged was fully justified. 4. The transaction entered by the appellant lack and fail to satisfy all the conditions required to substantiate the genuineness of the credit entries. 5. Although sec 56(2)(viib) is applicable from AY 2013-14, the share premium of Rs. 8,39,45,520/- received during the year can be taxed u/s 56(1) of the Act. Appellant's Submission: 1. During the year under consideration, the appellant had issued 6,36,366 equity shares of face value of Rs. 10/- each at a premium of Rs.100/- per share aggregating to Rs. 7,00,00,260/- including alleged issue of 2,72,728 equity shares to its Holding Company i.e. Equirus Capital Pvt. Ltd. The share premium was credited to the 'Securities Premium account' under the head 'Reserves and Surplus' in the Balance Sheet. The appellant also issued 1,00,0000% redeemable preference shares of Rs. 10/- each at a premium of Rs. 990/- per share. The assessee has redeemed 40,000 shares of redeemable preference share of Rs. 10/- each at a premium of 4 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Rs. 990/- during the relevant assessment year. Out of the above, the Ld. Assessing Officer alleged the share premium of Rs. 2,45,45,520/- received from Holding Company, M/s Equity Capital Private Limited and Rs. 5,94,00,000/- received from fellow subsidiary, M/s Equity Finance Private Limited and accordingly made an addition of Rs. 8,39,45,520/- Documentary evidences filed - 2. During the course of assessment proceedings, the appellant company had submitted the following documents in support of the issue of equity shares to its shareholders, as under: a. Copy of income tax return, bank statement, Balance Sheet and Profit and Loss Account of the shareholders; (Page no 55- 96 of Paper Book) b. Copy of Board Resolution for allotment of equity and preference shares; (Page no 101 - 102 of Paper Book) c. Ledger Confirmation of the shareholders (Page no 97-98 of Paper Book) d. Form No. 2 for allotment of shares; (Page no 103-118 of Paper Book) e. Justification of the share premium received, and (Page no 119-126 of Paper Book) f. Details of profitability of the appellant company in the previous years. (Page no 120 of Paper Book) 3. As a matter of fact, the appellant company has strived hard and increased Its profitability in subsequent years which shows the company is taking earnest efforts to increase its profitability, which is produced below for Your Honour's reference- Assessment Year Gross Revenue Net profit 2014-15 8,16,20,337 2,20,38,051. 5 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai 2015-16 9,63,56,936 1,13,40,418 Onus to prove genuineness u/s 68 of the Act- 4. It is submitted that the company is required to prove the genuineness, purpose or justification for charging a premium on shares. Issuance of shares at a premium is only a manner of funding whereby the required funds to be issued are bifurcated between the share capital and premium. In this regard, the appellant company has provided the details of the shareholders to whom the shares were issued such as return of income, financials, bank statement to ascertain the creditworthiness of the investors which fully justifies the three Ingredients viz., identity of the investors, genuineness of the transaction and creditworthiness of the investors as envisaged u/s 68 of the Act. 5. Your Honour would appreciate that on submission of the documents mentioned in the preceding paragraph, the appellant has duly discharged its onus to substantiate the investment transaction viz: a) Identity-ITR acknowledgement filed by the Investor alongwith the details of PAN and address b) Genuineness - Confirmation from the investor and bank statement of the appellant company reflecting the receipt of the investment amount alongwith minutes of the board meeting and Form 2 regarding allotment of shares c) Creditworthiness - Annual Accounts of the investors 6. Further, genuineness cannot be doubted as the funds are either received from the Holding Company or from Fellow Subsidiary company and not from outsiders or so called entry providers. Non-Applicability of proviso to section 68 of the Act - 6 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai 7. Your Honour's attention is invited to the fact that the proviso to section 68 requiring the assessee company to establish source of source was not in operation during the year under consideration i.e. A.Y. 2012-13 and was introduced only w.e.f A.Y.2013-14: Provided that where the assessee is a company, (not being a company in which the public are substantially interested) and the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer aforesaid has been found to be satisfactory: Accordingly, Your Honour may appreciate that the appellant company is only required to offer explanation of the nature and source of the amount credited to the books of accounts and is not obligated to explain the source through which the said share application money was received by the said applicant company. In this regard, attention is invited to the following judicial precedents wherein it is observed that no addition can be made u/s. 68 for failure on the part of assessee to explain the source of source and that in such cases addition if any has to be made in the case of such share applicants. a. CIT v. Gagandeep Infrastructure Pvt.Ltd [2017] 80 taxmann.com 272 (Bom.) The proviso to section 68 has been introduced by the Finance Act, 2012 with effect from 1-4-2013. 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 as in 7 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1-4- 2013 was its normal meaning. The Parliament did not introduce to proviso of section 68, with retrospective effect nor does the proviso to 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 is immaterial and does not change the interpretation of section 68 both before and after the adding of the proviso .... The Apex Court in a case in this context to the pre-amended section 68 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 shareholder 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\" b. CIT v. Orchid Industries (P.) Ltd [2017] 88 taxmann.com 502 (Bom) 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. 8 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Not a case where anything adverse is unearthed 8. It is also not a case where the Ld. Assessing Officer has made any enquiry and have found adverse against the appellant regarding the alleged transaction. In fact, the Ld. Assessing Officer has made the addition merely on his own suspicion, surmises and conjectures without bringing on record any cogent evidences whatsoever. From the above mentioned facts and judicial precedents, it can be observed that the appellant is only required to prove the nature and source of the amount credited in the books of accounts and not the source of source. Further, the appellant has discharged its onus to prove the identity, genuineness & creditworthiness of the investor as envisaged u/s 68 of the Act and hence, the addition made u/s 68 of the Act is uncalled for. High Share premium cannot be base for addition u/s 68 9. The appellant company has issued 6,36,366 equity shares of Rs. 10 each at a premium of Rs. 90 per share and 1,00,000 0% redeemable preference shares of Rs. 10 each at a premium of Rs. 990 per share. Both the shares have differenct rights as per the companies Act. The equity shares cannot be redeemed once it is issued, while the preference shares must be redeemed within ten years' time therefore different premium in both the type of the shares are fully justified. In short the preference share are capital liability of the company which is to be repaid within maximum ten years time. The appellant company was incorporated in FY 2007-08 and during the three years the appellant company made the profits as per the chart given below - Assessment Year Gross Revenue Net profit 2008-09 2,75,343 1,26,593 2009-10 26,29,526 12,71,589 2010-11 25,78,287 3,56,575 9 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai From the above chart your goodself can easily verify that the company was making the profit and therefore issuing the shares at a premium is fully justified. It is further stated that during the accounting year 2008-09 & 2009-10 it made profits even though there was worldwide recession and even Indian government also considered relief and concession to Indian industries, during that period. Therefore, on merit the premium is fully justified. 10. In respect of the issue of 60,000 Redeemable Preference Shares (\"RPS\") at a price of Rs. 1,000/-, the appellant submits that RPS do not bear any dividend as they are 0% RPS. The RPS has been redeemed on 27.03.2015 at the same price at which they have been issued. Thus, the fact that RPS do not bear any dividend and are to be redeemed at the same price at which they are issued, itself justifies the issue price of RPS and moreso the fact that these were received from the fellow subsidiary company. 11. The appellant further submits that the equity and preference shares are issued to shareholders being holding company and fellow subsidiary company which have agreed to subscribe at the price decided by the board of directors, which is a commercial decision between the willing buyer and issuer and will not depend merely on the valuation report. There are several other commercial and economic factors / considerations such as future growth of the company, potential of having a private equity investor, experience in the industry, future cash generating potential of the company, market conditions in the industry in which the company is engaged, whether the investment is a long-term investment, etc. All these factors cannot be objectively gauged while working out the valuation which will have a significant bearing on the price. More importantly, the nature of this transaction is funding to group concern for its business prospects the terms of which are mutually decided between therm and it is most respectfully submitted that the Ld. Assessing Officer cannot meddle into 10 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai decide as to what shall be the premium to be fetched on issue of shares. 12. Your Honour would appreciate that the Id. Assessing Officer has no jurisdiction to question the share premium charged by the appellant. It is submitted to Your Honour that the appellant has issued equity shares to its parent company at a price of Rs. 110/- per share. In view of the same, the price at which the shares are issued to Equirus Capital Pvt. Ltd. is at the valued price and accordingly, the Id. Assessing Officer has failed to ascertain the actual factual position. With respect to issue of preference shares to Equirus Finance Private Limited the share price is decided mutually between the parties and considering several other factors like future growth of the company, potential of having a private equity investor experience in industry etc. Thus, no disallowance ought to have been made in respect of equity shares issued to the parent company to the extent of Rs. 2,45,45,520/- and preference shares to the tune of Rs. 5,94,00,000/-. 13. Without prejudice to point no.12, Your Honour would appreciate that the equity shares are being valued in accordance with Rule 11UA of the Income Tax Rules, 1962 read with section 56(2)(viib) of the Act, and accordingly, no addition in respect of the issue of equity shares ought to be made. Your Honour's kind attention is invited on the below calculation of book value of the shares calculated as From the above calculation it can be observed that the book value of the share is Rs. 106 per share and the appellant had issued the share at Rs. 110 per share, hence in the instant case the shares are not issued at a huge premium. 14. Without prejudice to the above, the appellant submits that the equity shares were issued to its parent company and its associate company, since, the shares are issued to its associated parties, the price at which the shares are issued is based on mutual considerations and once the genuineness of the transaction has been established, the valuation of the shares does not have any relevance. In this regard, although 11 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai section 56(2)(viib) has been admittedly by Ld. Assessing Officer not applied to the present facts, reference may be made to the following cases where Hon' ITAT, has held that sec 56(2)(viib) does not apply to the genuine transaction, viz. Sudhir Menon (Mum - ITA no. 676/M/2015) & Vaani Estate (P.) Ltd (Chennai ITAT - [2018] 98 taxmann.com 92) 15. In view of the above factual position, Your Honour would appreciate that the case laws relied upon by the Id. Assessing Officer are distinguishable on facts and not applicable in the present facts of the case. 16. Your Honour' attention is invited to the well settled judicial law that the addition u/s. 68 is unjustified merely on the count of high share premium as has been held in the following cases: a. CIT v. Gagandeep Infrastructure Pvt.Ltd [2017] 80 taxmann.com 272 (Bom.) 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 ie. 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 with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit. b. CIT v. Green Infra Ltd. [2017] 78 taxmann.com 340 (Bombay High Court) Mr. Chhotaray the leamed counsel for the Revenue states that the impugned order itself holds that share premium of Rs. 490/- per share defies all commercial prudence. Therefore, it has to be considered to be cash credit. We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. 12 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner. Addition of Share Premium u/s 56 of the Act 17. The appellant submitted that the premium is a capital receipt which has to be dealt with in accordance with section 78 of the companies Act, 1956 and other related provisions of the Act. In this regard reliance is place on the following judicial precedents mentioned below- a. Vodafone India Services (P.) Ltd. v. Union of India [2014] 50 taxmann.com 300 (Bom.) In view of the above, there is substance in the assessee's case that neither the capital receipts received by the assessee on issue of equity shares to its holding company, a non-resident entity, nor the alleged short-fall between the so-called fair market price of its equity shares and the issue price of the equity shares can be considered as income within the meaning of the expression as defined under the Act.... ...There is also merit in the submission of the assessee that with effect from 1-4-2013, the definition of income under section 2(24)(xvi) includes within its scope the provisions of section 56(2)(viib). This indicates the intent of the Parliament to tax issue of shares to a resident, when the issue price is above its fair market value. In the instant case, the revenue's case is that the issue price of equity share is below the fair market value of the shares issued to a non-resident. Thus, Parliament has consciously not brought to tax amounts received from a non-resident for issue of shares, as it would discourage capital inflow from abroad. The revenue has not been able to meet the above submission but have in their written submission only submitted that the above provisions would have no application to the present facts. b. CBDT circular no. 2/2015 13 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Your Honour's attention is invited to the fact that the Hon'ble CBDT vide its Instruction No. 2/2015 has accepted the aforesaid judgement and further has directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. c. Green Infra Ltd. v. Income-tax Officer-1(1)-4 [2013] 38 taxmann.com 253 (Mumbai - Trib.) A simple reading of section 56(1) shows that income of every kind which is not to be excluded from the total income shall be chargeable to income-tax. The emphasis is on that income of every kind. Therefore, to tax any amount under this section, it must have some character of income. It is a In this regard kind attention is also invited to the decision of Hon'ble Bombay High Court in case of CIT v. Gagandeep Infrastructure Pvt.Ltd [2017] & CIT v. Green Infra Ltd. [2017] wherein it was held that the addition u/s. 68 of the Act is unjustified merely on the count of high share premium. 21. Utilisation of share premium under section 78 of the Companies Act, 1956 Your Honour would affirm that the utilization of the balance in the share premium account is at the discretion of the individual company. It may also be noted that the sub-section (2) provides for application of securities premium account and not cash received on that account. The said section 78 of companies act, 1956 is only in relation to the application of share premium account for certain prescribed purposes and has nothing to do with the utilisation of funds raised through share premium. Even, otherwise without prejudice, even if section 78 is not followed, that ipso facto cannot tantamount to addition in the hands of the appellant company as its income without any authority of law in this regard. 22. Applicability of Section 56(1) of the Act 14 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai The Ld. Assessing Officer id of the view that amount of Rs. 8,39,45,520/- received by the appellant company in the guise of share premium is treated as Income from Other Sources u/s 56(1) of the Act. In this regard kind attention is invited to the decision of Hon'ble Bombay High Court in case of Vodafone India Services (P.) Ltd. v. Union of India [2014] wherein it was held that with effect from 1-4-2013, the definition of income under section 2(24)(xvi) includes within its scope the provisions of section 56(2)(viib) and the receipt of share premium received was on account of capital nature and the same cannot be taxed u/s 56 of the Act. Your Honour's attention is invited to the fact that the Hon'ble CBDT vide its Instruction No. 2/2015 has accepted the aforesaid judgement and further has directed that the ratio decidendi of the judgment must be adhered to by the field officers in all cases where this issue is involved. 23. Case Laws relied upon by Ld. Assessing Officer The case laws relied upon by the Ld. Assessing Officer in the impugned order are on completely different footing and distinguished facts. Further, we would also like to deal with the decision of Hon'ble Bombay High Court in case of Major Metals as referred by the Ld. Assessing Officer is not applicable as the decision was rendered on distinguished facts where in that case, none of the investors had a financial standing or creditworthiness to justify payment of high premium and even the nature and source of the transaction entered was not accepted to be genuine. Further, notice u/s 133(6) of the Act was also issued but not compiled with. Whereas in appellant's case, the appellant has clearly established the three ingredients viz. Identity of the investor, genuineness of the transaction and creditworthiness of the investor u/s, 68 of the Act and the Ld. Assessing Officer has not even issued u/s 133(6) of the Act Therefore, it is not a case where the Id. Assessing Officer has enquired and found anything fishy against the receipt of share premium 24. Conclusion 15 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai In view of the above submission, the identity, genuineness and creditworthiness of the share premium received of Rs. 8,39,45,520/- clearly stands explained and hence; neither sec 69 nor sec 56(1) of the Act could have been invoked by the Id. Assessing Officer. It is therefore, humbly prayed before Your Honour to kindly delete the addition of Rs. 8,39,45,520/- made by the Ld. Assessing Officer being totally unjustified and uncalled for. 3. On the contrary, Ld. DR relied upon the orders passed by the revenue authorities. 4. We have heard the counsels for both the parties and perused the material placed on record, Judjements cited before us and orders passed by the revenue authorities. From the records we noticed that assessee had submitted documents which are at paper book Sr. 3 to 23 which are in the shape of; Copy of IT Returns & Computation for A.Y 2012-13 Financial Statements for A.Y, 2012-13 Audit Report u/s 44AB for A.Y. 2012-13 Letter addressed to AO dated 27/01/2015 Letter addressed to AO dated 12/02/2015 Letter addressed to AO dated 17/02/2015 Letter addressed to AO dated 14/03/2015 Details of Equirus Capital Private Ltd Details of Equirus Finance Private Ltd Confirmation from Equirus Capital Pvt Ltd Confirmation from Equius Finance Pvt Ltd PAN Card of Equirus Finance Pvt Ltd PAN Card of Equirus Captal Pvt Ltd 16 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Resolution of Equirus Securities for Issue of Equity Shares Resolution of Equirus Securities for Issue of Preference Shares Return of allotment Return of allotment Return of allotment Return of allotment Letter to AO dated 14/03/2015 Bank Statement of Equirus securities In order to substantiate that no addition u/s 68 of the Act or any other section could be made by the revenue authorities. Moreover the assessee has also drawn our attention to the fact that he has filed a detailed written submissions as had been incorporated in above paras but the AO as well as CIT(A) has failed to considered the documents and the submissions filed by the assessee. Whereas both the revenue authorities simply made the additions by merely relying upon the judicial pronouncement and have not at all adjudicated not at all adjudicated this ground by evaluating and appreciating the documents placed on record by the assessee, although it was specifically argued by the Ld. AR that during the course of assessment proceedings, the documents were filed before the revenue authorities. However, while passing the order Ld. CIT(A) has categorically held that there is no mention in the order of AO regarding the furnishing of details by the assessee including the confirmation of receipt of share premium. It was also 17 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai mentioned by the Ld. CIT(A) that opportunities were given to the assessee but he fail to establish with the details of documentary evidences and therefore in the absence of basic material or documents the plea of the assessee was rightly rejected. 5. Whereas on the contrary, Ld. AR has drawn our attention to its paper book which contains list of documents and the details thereof along with certification of all these documents were placed on record before the AO and CIT(A) in physical form as well. 6. Be that as it may in our view, since the details filed by the assessee had escaped the attention of the AO and also that of CIT(A) therefore we are of the view that the specific contentions along with supportive documents raised by the assessee have not been adjudicated on merits by passing a speaking order. Therefore we restore this issue back to the file of CIT(A) with a direction to adjudicate this ground afresh after taking into consideration the specific Averment raised by the assessee and documents mentioned therein. Thus, keeping in view the above factual position, this ground is restored to the file of CIT(A) for deciding it afresh on merits by providing opportunity of hearing to the parties. The assessee shall 18 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai not seek any adjournment on frivolous grounds and remain cooperative during the course of proceedings. 7. Before parting, I make it clear that my decision to restore the matter back to the file of the CIT(A) shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be adjudicated by the CIT(A) independently in accordance with law. Ground No. 6 “The Ld. CIT(A) erred in confirming the disallowance of Rs. 8,33,332/- for registration with SEBI, without appreciating that the sum was primarily for purpose of registration and the period for which the registration was subsist was only an incident and not the dominant purpose” 8. This ground raised by the assessee relates to challenging the order of Ld. CIT(A) in confirming the disallowance for registration with SEBI and in this regard Ld. AR relied upon the written submissions filed by him before Ld. CIT(A) and the same is reproduced below: Ground No. 5: Addition of Rs. 8,33,332/- u/s 37(1) of the Act Facts - The appellant has incurred a sum of Rs 10,00,000/- as fees towards Portfolio Management Services (PMS) registration fee to Securities Exchange Board of India (SEBI) for the period 29.06.2011 to 28.06.2014. AO's contention - 19 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai The Ld. Assessing Officer disallowed a proportionate sum of Rs.8,33,332/- on the ground that the expense was not incurred for the previous year 2011-12 relevant to assessment year 2012-13. The appellant has made advance payment of PMS registration fees and only expenditure incurred during the previous year amounting to Rs. 1,66,668 is allowable as per the provisions of Sec 37(1) of the Act. Appellant's Submission - The appellant submits that no new assets come in to existence, therefore, the same cannot be spread for the other years. The PMS fees paid to SEBI is revenue in nature, and hence the same should be allowed as and when the same was paid by the appellant. The appellant submits that in the case of Sasoon J. David & Co. P. Ltd. V CIT [(1979) 118 ITR 261 (SC)] the Supreme Court explain the words of 'wholly and 'exclusively' and held that 'wholly refers to the quantum of the expenditure, the sum of money spent and 'exclusively' has reference to the 'purpose' behind the expenditure and 'not the motive or object' of expenditure. The appellant, therefore submits that the Ld.AO ought to be directed to delete the disallowance of a sum of its 8,33,332/- in respect of PMS feels paid to SEBI. 9. On the contrary Ld. DR relied upon the orders passed by the revenue authorities. 10. We have heard the counsels for both the parties and perused the material placed on record, judjements cited before us and orders passed by the revenue authorities. From the records we find that AO after considering the facts of the case has passed the following order: 20 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai On verification of details filed by the assessee, during the course of scrutiny assessment proceedings, it is seen that during the year, the assessee has paid an amount of Rs.10 lacs as SEBI Fees towards PMS Registration fee for the period 29.06.2011 to 28.06.2014. Since the expense Incurred for the previous year 2011-12 relevant to A.Y.2012-13 is only for 6 months, the assessee, vide order sheet noting dated 12.02.2015 was asked to explain as to why proportionate expenses not pertaining to the current year should not be disallowed. In response to the same, the assessee has simply submitted that the charges were paid The assessee's contention is considered, however the same is not acceptable, as the assessee has made advance payment of PMS Registration fee and only expenditure Incurred during the previous year amounting to Rs.166668/- (@Rs.27,778/- for 6 months) is allowable as per provisions of section 37(1) of the I.T.Act. Hence, the balarice amount of Rs.8,33,332/- being prepaid amount in advance for subsequent assessment years, is disallowed and added back to the total income of the assessee as not pertaining to the previous year. However, the assessee is allowed to claim the disallowed expenditure in subsequent years. Penalty proceedings and furnishing Inaccurate u/s.271(1)(c) of the I.T. Act are separately initiated for concealment and particulars of income. 11. After having gone through the orders passed by the AO, we find that the assessee had made advance payment of PMS registration and also expenditure incurred during the previous year amounting to Rs. 1,66,668 @ 27,718/- for sixth month which are found to be allowable as per the provisions of Sec. 37(1) of the Act therefore the balance amount was considered as prepaid amount in advance for subsequent assessment years. Therefore, the same was rightly disallowed and at the same time assessee was 21 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai given liberty to claim the disallowed expenditure in subsequent years. Thus, in our view the orders passed by the AO and Ld. CIT(A) on this issue are valid and needs no interference, therefore this ground raised by the assessee stands dismissed. Ground No. 7 The Ld. CIT(A) erred in confirming the disallowance of Rs. 80,738/- for foreign travel without appreciating that in the business of the appellant exploratory visits were essential and were for the purposes of business. 12. This ground relates to challenging the disallowance of foreign travel expenses, In this regard, Ld. AR reiterated the same arguments as were raised by him before the revenue authorities and also relied upon the written submissions filed before the revenue authorities and the same is reproduced herein below: 1. During the previous year relevant to the assessment year under appeal, the appellant has incurred a sum of Rs.80,738/- towards foreign travel for contacting the financial institution based in Singapore and Hong Kong, which is incurred during the ordinary course of its business. 2. The appellant submitted the invoices/bills for travelling expenditure incurred during the previous year relevant to the assessment year under appeal. 3. The expenses have been incurred by the appellant in the regular course of its business and are essential to run its day- 22 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai to-day business activities and the same ought to be allowed as business expenses. AO's contention 1. in absence of documentary evidence, it is difficult to ascertain that the whole expenditure was incurred wholly and exclusively for the purpose of the business, as the onus is upon the assessee to justify the claim of such expenditure as business expense. Also, the personal element cannot be ruled out. Appellant's Submission 1. During the year under consideration the employee has undertaken a foreign travel to meet Foreign Institutional Investors based at Singapore and Hong Kong for the prospect of future business. The said visit was undertaken by Mr. Bhavin Shah, the Chief Executive Officer of the appellant company. However, the visit could not be crystalized into business In support of this, kind attention is drawn to copies of invoices and ledger of foreign travelling expenses provided at page no. 130-133 of paper book 2. Your Honour would appreciate that the travel of the CEO was made alone and not with any family/ friends for a personal trip. Further, the travel was also only for a limited number of days being 5-6 days solely for the business purpose, although not fructified. . Following judicial precedents has also been relied upon - a. Rahuljee & Co. (P.) Ltd. Vs. ITAT (Delhi High Court) - The revenue has not doubted the incurring of the expenditure of foreign travel by 'P'. The only question is as to whether this was for business purpose. It is recorded that the nexus between the foreign travel of 'P' and the business of the assessee has not been established. Normally, it would have been a finding of fact, as argued by the revenue. However, in the present case, the only reason for disallowing the 23 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai expenditure is that 'P' was neither a director nor an employee. Second reason given is that it has not been established that the assessee had any business in brass during the year or that 'P' is expert in brass sheet or that any agreement was entered into between him and the assessee. There are totally irrelevant considerations. If there is a foreign travel in connection with the business, merely because in the said foreign travel, no business could be transacted or the foreign travel did not result in bagging any contract is not the determinative factor. It is not also necessary that the expenditure on 'P' could be claimed by the assessee only if he was a director or an employee. The relevant factor was as to whether he was sent by the assessee abroad in connection with the business of the assessee. In order to prove this, the assessee had produced the resolution of the company authorizing 'P' to undertake the said foreign travel. The assessee had even filed the affidavit to this effect. These documents really clinch the issue, which would indicate that 'P' had undertaken the travel solely for the purpose of the assessee's business and for which purpose, he was duly authorized by the board of directors of the assessee. This material aspect is brushed aside on the specious ground that 'P' was neither a director nor an employee. [Para 9] Thus, there is a perversity in the findings of the Tribunal as it ignored the material facts and addressed the issue from a wrong angle. [Para 11] The assessee is accordingly entitled to deduction of travel expenses. b. Parle Agro (P.) Ltd vs. Assistant Commissioner of Income Tax (Mumbai ITAT) \"...the assessee's explanation with the details of foreign travel could not be doubted. The business and commercial expediency had to be seen from the point of view of a businessman and if proper explanation with supporting evidence had been given, disallowance could not be made on some flimsy ground. The Commissioner (Appeals) confirmed the expenses mainly on the ground that travel expenses for more than Rs. 1 lakh. Any expenditure less than 24 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai Rs. one lakh had been deleted by him holding it to be so for business purpose and other for non-business purpose without pointing out any personal uses. Thus, the finding of the Commissioner (Appeals) based on such a dichotomy was not sustainable.\" We find the Departmental authorities have not doubted genuineness of the incurring of expenditure. They have not brought anything to prove that the expenditure had element of personal use. It is the prerogative of an assessee to incur or not to incur an expenditure and to decide its business needs. Therefore, reversing the order of the FAA and following order of the Tribunal for the earlier assessment year, we decide the third ground of appeal in favour of the assessee. c. Nagase India (P.) Ltd vs. ACIT (Mumbai ITAT) - We have heard the rival submissions and also perused the material placed on record. The only case of the Department is that the assessee was not required to incur expenses on foreign travelling as the same should have been borne by the parent company, because the assessee is only selling the products of the parent company and such an expenses has been incurred mainly on behalf of the parent company, therefore, the same is not allowable. Such a view cannot be sustained, firstly, for the reason that once, the assessee has shown that its employees have undertaken foreign travelling for the purpose of indenting business on which it has earned commission income and also on the business of import and export of goods, then same cannot be doubted until and unless it has been found that these expenses are either personal in nature or it was not for the business purpose at all; secondly, the Revenue cannot decide who should bear the expenses and why the assessee was required to incur such expenses. The decision to incur expenses is upon the assessee, so long as it is for the purpose of business. In this case, the assessee has filed exhaustive details of the foreign travelling expenses along with the evidences on which no infirmity or discrepancy has been found either by the Assessing Officer or by the learned Commissioner of Income-tax (Appeals). Once, the assessee has incurred these expenses, which are fully verifiable and have shown to be for 25 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai the business purpose, then adverse presumption cannot be drawn that such expenses were genuine or were not required to be incurred by the assessee. Thus, the view taken by the leamed Commissioner of Income-tax (Appeals) for confirming the disallowance cannot be sustained and as such stands deleted. In the result, ground No. 2 raised by the assessee is allowed. 3. In view of the above mentioned facts and judicial precedents, foreign travel expenses of Rs. 80,783/- should be allowed as the same was incurred for the purpose of business in the normal course and are essential to run its day to day activities of the business. 13. On the other hand Ld. DR relied upon the orders passed by the revenue authorities. 14. We have heard the counsels for both the parties and perused the material placed on record, judjements cited before us and orders passed by the revenue authorities. From the record we noticed that AO had correctly mentioned that assessee had failed to justify or substantiate the claim of expenditure even the basic details have not be mentioned thereof it was difficult to being that whole of such expenditure was incurred wholly and exclusively for the purpose of business. Since the onus is upon the assessee to justify the claim of such expenditure as business expenditure. However, Assessee could not validly discharge onus cast upon him. Therefore Ld.AO rightly disallowed as assessee could not prove nexus between the expenditure incurred with 26 ITA No. 5059/Mum/2024 Equirus Securities Pvt Ltd, Mumbai reference to the business activities carried out. Therefore, we find no reasons to interfere into the well reasoned order passed by Ld. CIT(A) as no new material has been placed before us in order to controvert or rebut the lawful findings recorded by Ld. CIT(A). therefore this ground raised by the assessee stands dismissed. 15. In the result the appeal filed by the assesse is partly allowed for statistical purposes. Order pronounced in the open court on 08.04.2025. Sd/- Sd/- (OMKARESHWAR CHIDARA) (SANDEEP GOSAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 08/04/2025 KRK, PS आदेश की \bितिलिप अ\u000eेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u000eथ / The Respondent. 3. संबंिधत आयकर आयु\u0019 / The CIT(A) 4. आयकर आयु\u0019(अपील) / Concerned CIT 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, मु\u0003बई / DR, ITAT, Mumbai 6. गाड फाईल / Guard file. आदेशानुसार/ BY ORDER, स\u000eािपत ित //True Copy// 1. उप/सहायक पंजीकार ( Asst. Registrar) आयकर अपीलीय अिधकरण, मु\u0003बई मु\u0003बई मु\u0003बई मु\u0003बई / ITAT, Mumbai "