M/S GREENSAPHIRE INFRATECH PVT. LTD , BATHINDA V. THE INCOME TAX OFFICER, WARD 1(1), BATHINDA

ITA 213/ASR/2017

• Counselvise Citation: [2021] 104 COUNSELVISE.COM (IT) 5754 (ITAT-AMRITSAR)
• Duration Of Justice: 4 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-12-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 23-04-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Capital receipt
• Section: 68; 143(3); 133(6)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AMRITSAR. BEFORE SH. MAHAVIR PRASAD, JUDICIAL MEMBER AND DR. M. L. MEENA, ACCOUNTANT MEMBER I.T.A. No. 213/Asr/2017 Assessment Year: 2012-13 Greensaphire Infratech Pvt. Ltd., # 16639, Basant Vihar, Bathinda [PAN: AAECG 5494K] (Appellant) Vs . The Income Tax Officer, Ward 1(1), Bathinda. (Respondent) Appellant by Sh. Sudhir Sehgal, Adv. Respondent by Sh. S. M. Surendranath, D. R. Date of Hearing 06.12.2021 Date of Pronouncement 23.12.2021 ORDER Per Dr. M. L. Meena, AM: This appeal of the assessee is directed against the order of Ld. CIT(A), Bathinda dated 16.03.2017 in respect of A.Y. 2012-13. 2. The assessee has raised the following grounds of appeal: 2 I.T.A. No. 213/Asr/2017 “1. That the Ld. CIT(A), Bathinda erred on facts and law in confirming the addition of Rs.2,58,00,000/- made by the AO vide order u/s 143(3) dated 27.03.2015. 2. That the Ld. CIT(A), Bathinda erred on facts and law in confirming the action of the AO of making an addition of Rs.2,58,00,000/- u/s 68 of the Income Tax Act, 1961 on account of share capital/premium received by the assessee. The explanation submitted during the course of assessment as well as appellate proceedings has been rejected without rebutting the same. 3. Notwithstanding the above grounds of appeal, the Ld. CIT(A), Bathinda has erred on facts and law in confirming the action of the AO of making an addition of Rs.2,58,00,000/- u/s 68 of the Income Tax Act, 1961 on account of share capital/premium received by the assessee while rejecting the contention of the assessee that the Proviso to section 68, putting the onus on the person in whose name credit is recorded in the books of the assessee company to offer an explanation about the nature and source of sum so credited, was brought on the statute w.e.f A.Y. 2013-14 but the case of the assessee company related to A.Y. 2012-13. Hence the provisions of the amended section 68 did not apply to the case of the assessee company and, thus, the CIT (A) has ignored the binding judgment of Hon’ble Supreme in the case of Roshan Di Hatti as reported in 107 ITR 938. 4. That the Ld. CIT(A), Bathinda erred on facts and law in confirming the action of the AO of making an addition of Rs.2,58,00,000/- u/s 68 of the Income Tax Act, 1961 on account of share capital/premium received by the assessee despite the fact that this was the first year of incorporation of the company and it was not possible for assessee company to earn income of Rs. 2,58,00,000/- which could be assessed u/s 68. 5. That the Appellant craves leave to add or amend the grounds of appeal before the appeal is finally heard or disposed off.” 3 I.T.A. No. 213/Asr/2017 3. The common issue in this appeal is with regard to the addition on account of Share Capital to the tune of Rs. 6,14,000/- and Share Premium of Rs. 2.51 crores under section 68 of the Act. 4. Briefly, facts are that the appellant company is engaged in the business of trading of construction materials. For the Assessment Year 2012-13, the return was selected for scrutiny on the ground of ‘receipt of large share premium’. The AO noticed that the appellant company, during the year under consideration, increased its share capital by Rs. 2,58,00,000/- by way of share capital and share premium to five private companies and two individuals as under: Sr. No. Name Share capital Share premium Total 1 M/s Nachiketa Agrotech (P) Ltd. 2,02,000/- 98,98,000/- 1,01,00,000/- 2 M/s Domain Enterprises Pvt. Ltd. 38,000/- 18,62,000/- 19,00,000/- 3 M/s Legacy Mercantile Pvt. Ltd. 80,000/- 39,20,000/- 40,00,000/- 4 M/s Kabir Enterprises Pvt. Ltd. 1,14,000/- 55,86,000/- 57,00,000/- 5 Directy Mercantile Co. Pvt. Ltd. 80,000/- 39,20,000/- 40,00,000/- 6 Shri Akshay Bhardwaj 50,000/- --- 50,000/- 7 Shri Sanjay Kumar 50,000/- --- 50,000/- Total 6,14,000/- 2,51,86,000/- 2,58,00,000/- 4 I.T.A. No. 213/Asr/2017 5. In the assessment proceedings, the AO, not being satisfied about the identity and genuineness of the allottees of shares of the appellant company, deemed the share capital and premium of Rs. 2,58,00,000/- as income of the appellant company by invoking the provisions of section 68 vide order dated 27/03/2015 under section 143(3) of the Income Tax Act, 1961 [henceforth, “the Act”]. Aggrieved by this order of assessment, the assessee preferred appeal before the Ld. CIT(A) on 30 th of April, 2015, who has confirmed the addition vide para 8 of the impugned order by observing as under: “8. The appellant is a private company which has a very small scale of trading operations from which a very small income has been generated. It does not have the capacity to attract such a large premium as has been shown to have been received for allotment of shares. Besides, one of the promoters of the company and also shareholder viz Shri Akshay Bharadwaj was investigated independently at Faridabad by the Investigation Wing of the Department and was found to be involved in making such shell companies and routing unaccounted money through a web of such companies. Report of such investigation was forwarded to the Assessing Officer. It can, thus, be called an investigation by the AO for the purposes of forming his opinion as to the genuineness of the share creditors. Empty formality of merely providing the names of the subscribers of share capital do not establish the genuineness in any manner whatsoever. The paper •documentation of filing returns in the ROC regarding the existence of the companies is all too well known to be considered as genuinely genuine. In the circumstances and also preponderance of the surrounding facts, it is apparent that the unaccounted money of the promoters of the appellant company have been brought in and clothed as share capital and premium. It cannot but be treated as income exigible to tax under the provisions of section 68 of the 5 I.T.A. No. 213/Asr/2017 Act. All the grounds of appeal pertaining to this issue are, thus, rejected. It is ordered accordingly.” 6. The ld. Counsel for the assessee has argued that all the investment in the company have been made through ‘banking channel’ and the identity of all the subscribers to the Share Capital and Share Premium have been proved and further, in the balance sheet of the company, the said amount has been reflected as ‘Share Capital’ and ‘Share Premium’. 7. It has been stated by the Ld. Counsel that the assessee attended the hearing before the Assessing Officer and produced audited books of accounts which were examined by the Assessing Officer and the return was filed on the basis of the audited books of accounts and no defects have been pointed out by him. During the course of assessment proceedings, the counsel of the assessee further argued that the Assessing Officer required the assessee to prove the identity, capacity and genuineness of the transactions as required u/s 68 of the Income Tax Act, 1961. The Assessing Officer also mentioned in the assessment order that as per the report of the ‘Investigation Wing’, the companies, who had subscribed towards Share Capital and Share Premium were not found to be in-existence. In compliance, during the course of assessment proceedings, submissions were made by the assessee, as per para 2.4 of 6 I.T.A. No. 213/Asr/2017 the order of the Assessing Officer, giving the details of the PAN numbers of the assessee and audit reports of the respective companies and, besides, that certificate of incorporation with the Registrar of Companies, Memorandum of Association and Form No. 23AC as filed by the respective companies and no defects in such explanation had been pointed out by the Assessing Officer. 8. Again, the counsel stated that the Assessing Officer during the course of assessment proceedings made enquiries u/s 133(6) from the subscribers to the Share Capital/Share Premium and as per the para no. 2.7 of the order, it has been confirmed by the Assessing Officer that, though, the confirmations have been received in response to the enquires made u/s 133(6), but they were on the letter pads, which did not carry the telephone numbers, though, the AO admitted that the balance sheets, Audit Report and other details have been furnished and all such evidences are part of the paper book furnished by the assessee as under: Name of the Company Relevant Paper book page Documents Submitted Direct Mercantile Company 19 to 29 Confirmation of the amount contributed as ‘Share Capital’ and ‘Share Premium’ in the 7 I.T.A. No. 213/Asr/2017 form of letter addressed to the AO along with the audit report as on 31.03.2012 with all the annexures. Domains Enterprises Pvt. Ltd. 30 to 40 Confirmation of the amount contributed as ‘Share Capital’ and ‘Share Premium’ in the form of letter addressed to the AO along with the audit report as on 31.03.2012 with all the annexures. M/s. Nachiketa Agotech Pvt. Ltd. 41 to 54 Confirmation of the amount contributed as ‘Share Capital’ and ‘Share Premium’ in the form of letter addressed to the AO along with the audit report as on 31.03.2012 with all the annexures. M/s. Kabir Enterprises Pvt. Ltd. (Now known as Blooms Tax Pvt. Ltd.) The document of change of name is attached at page 56. 55 to 70 Confirmation of the amount contributed as ‘Share Capital’ and ‘Share Premium’ in the form of letter addressed to the AO along with the audit report as on 31.03.2012 with all the annexures. M/s. Legacy Mercantile Pvt. Ltd. 71 to 96 Confirmation of the amount contributed as ‘Share Capital’ and ‘Share Premium’ in the form of letter addressed to the AO along with the audit report as on 31.03.2012 with all the annexures. 8 I.T.A. No. 213/Asr/2017 9. It was argued by the Ld. Counsel that before the CIT(A), submissions were made, which has been reproduced at page no. 2 to 5 of the order of the CIT(A) and the CIT(A) has given his findings from, para 5 to para 8, of his order and confirmed the addition, on the basis of ‘general arguments’ mentioning that, though the dominant view of the judiciary is that in the case of bogus share capital, action has to be taken in the case of share subscribers and not against the company, whose shares have been subscribed, but then CIT(A) has referred to the amendment to the Section 68 of the Income Tax Act, 1961 which was inserted by the Finance Act, 2012 w.e.f. 01.04.2013 i.e. from Assessment Year 2013-14 and finally according to the Ld. CIT(A), higher onus is lies on such companies and further held in para 7 of the order, that this amendment to Section 68 has a retrospective application and that on the basis of preponderance of surrounding facts, the addition was confirmed, as made by the Assessing Officer u/s 68 of the Income Tax Act, 1961. 10. The Ld. Counsel of the assessee vehemently argued that the year under consideration is Assessment Year 2012-13 i.e. before the amendment to Section 68 and as per the settled law now, the amendment to Section 68 cannot be held to be retrospective and it has to be applicable 9 I.T.A. No. 213/Asr/2017 only from the Assessment Year 2013-14 and, further, by relying upon the decision of the ‘Vodafone India Services (P) Ltd.’, reported in 368 ITR 1 (Bom.), wherein, it had been held that the amount received as Share Capital, including share premium are undoubtedly ‘capital receipt’ in the absence of express legislation. The Ld. Counsel further relied upon the decision of the Apex Court in the case of ‘G. S. Homes and Hotels P. Ltd.’, reported in 387 ITR 126, in which, it has been held that that Share Capital received from the various shareholders, ought not to have been treated as ‘business income’ and thus, the Hon’ble Apex Court reversed the order of the Hon’ble High Court. It has further been argued by the Ld. Counsel by relying upon the decision of the Bombay High Court in the case of ‘PCIT vs. ‘Apeak Infotech’, reported in 88 taxmann.com 695 (Bombay), CLPB-II, Pg. 111 to 114 wherein, it has been held that the issue of share capital and share premium are on ‘capital account’ and cannot be considered to be the income of the assessee. 11. Further, the Ld. counsel of the assessee invited our attention to the question of law before the Hon’ble High Court and referred to para 6 at page 112 of the said judgment wherein, the Hon’ble Bombay High Court has relied upon the judgment of the ‘Vodafone India Services (P) Ltd.’ vs. 10 I.T.A. No. 213/Asr/2017 Union of India and also the judgment of the Apex Court in the case of G. S. Homes & Hotels P. Ltd. and also one unreported judgment of the Hon’ble Bombay High Court in the case of ‘Idea Cellular Ltd. vs Union of India’ reported in 40 taxmann.com 112 and whereby dismissing the appeals of the revenue, it was held that the Share Premium being on capital account cannot be brought to tax as income and finally, same dictum have been by rendered by the Hon’ble High (CLPB-II, Pg. 114). 12. The Ld. Counsel further relied upon the decision of the Bombay Bench of the ITAT in the case of ‘Arogya Bharti Health Park Pvt. Ltd.’, reported in ITA NO. 2943/Mum/2014 (Mumbai), (CLPB. Pg. 89 to 109) and in that judgment, on the same issue of the share capital, where the addition was made u/s 68 on the basis that amendment in Section 68 by Finance Act, 2012 had a retrospective in nature for the year involved was Assessment Year 2010-11 wherein after considering each & every aspect in detail and at length it was held in para 17, page 104 to 105, that provisions of Section 68, as amended by Finance Act, 2012 is to be considered prospective in nature and applicable to Assessment Year 2013- 14 only and while giving this judgment, they have relied upon the earlier decision of the Bombay High Court in the case of the ‘CIT vs. Gagandeep 11 I.T.A. No. 213/Asr/2017 Infrastructure Ltd.’ reported in 394 ITR 680 (Bombay). The judgment of the Gagandeep Infrastructure Ltd. (CLPB, Pg. 1 to 5), in which, it has been held that no addition could be made in the hands of the assessee but addition, if any, could be made only in the hands of the subscribers of such share applicants. 13. The Ld. Counsel again referred to page 106 of the above judgment of the Mumbai Bench, relevant para 18, wherein, it has been elaborately discussed about the relevant provisions of Section 56(viib) and it was held that Section 56(1) does not provide for charge to tax on capital transactions of issue of shares. It was further observed as under: “It was further observed that amendment to Section 2(24) and insertion of Section 56(2)(viib) w.e.f. 01.04.2013 relevant to AY 2013-14 and therefore, prior to insertion of Section 56(2)(viib), share premium cannot be charged to tax as it is in the nature of the capital receipt.” 14. It has further been argued by the Ld. Counsel that in the said judgment, reliance have been placed on the judgment of the Hon’ble Apex Court in the case of ‘G. S. Homes & Hotels (P) Ltd.’ and ‘Vodafone India Services (P) Ltd. (Supra)’ and further held that the definition of income as provided u/s 2(24) of the Act at the relevant time did not define as income on account of consideration received for issue of shares in excess of the 12 I.T.A. No. 213/Asr/2017 Fair Market Value, since the said amendment came into effect w.e.f. 01.04.2013 i.e. AY 2013-14 and also the amendment to Section 68 and Section 56(2)(viib) are only from AY 2013-14 and, thus, the order of the CIT(A) was sustained by the Bench as the addition was deleted by the CIT(A). 15. The Ld. Counsel relied upon the judgment of the Bombay High Court in the case of ‘Paradise Inland Shipping (P) Ltd.’ reported in 84 taxmann.com 58 (Bombay High Court) which had been approved by the Hon’ble Apex Court reported in [2018] 98 taxmann.com 84 (SC), where again, it has been held that once the identity of the parties have been established then the onus would be on the revenue. 16. The Ld. Counsel also relied upon the decision of the Hon’ble Apex Court in the case of ‘Adamine Construction (P) Ltd.’ reported in [2018] 99 taxmann.com 45 (SC) and also on the other decisions placed on the paper book to substantiate that no fault has been found by the lower authorities about the PAN Numbers of the subscribers and the confirmations received by the Assessing Officer on the basis of the enquiries made u/s 133(6) and it was argued, that while the Assessing Officer made the addition by relying upon the report of the ‘Investigation Wing’, which was not valid as per the 13 I.T.A. No. 213/Asr/2017 decision of the Delhi High Court in the case of ‘PCIT vs. Krishna Devi’ reported in 431 ITR 361, copy placed at paper book 49 to 57, in which, similar facts are there and rather the facts in the case of the assessee were strong in the sense that enquiries u/s 133(6) were made, which were replied by the respective subscribers to the Share Capital/Share Capital and, thus, the confirmation of addition by the CIT(A) on the preponderance of the surrounding facts was not proper and he prayed for the deletion of the addition. 17. The Ld. DR relied upon the findings of the Assessing Officer and the CIT(A) and stated that the provision of Section 68 were retrospective in nature and the genuineness of the Share Capital/Share Premium and the capacity of the subscribers to the share capital and the premium have not been proved and therefore, sought the confirmation of the addition. 18. We have heard both the sides, carefully gone through the order of the Assessing Officer, CIT(A), the arguments, brief synopsis of the Ld. Counsel of the assessee and various case laws relied upon. It is an undisputed fact that parties to the Share Capital/Share Premium had responded to the enquiries made by the Assessing Officer u/s 133(6) as per the evidences placed in the paper book and reproduced as above. The identity of the 14 I.T.A. No. 213/Asr/2017 parties have been established and their PAN have also been provided and nothing adverse have been pointed out by the Assessing Officer/CIT(A). Even the existence of the parties have been proved by the voluminous documents submitted by such subscribers to the ‘Registrar of Companies’ like ‘Certificate of Incorporation’, ‘Memorandum of Association’, ‘Form No. 23AC’ and thus, identity of the subscribers to the Share Capital stands established. 19. We have gone through the judgments of the ‘G. S. Homes & Hotels P. Ltd.’ and of the Bombay High Court in the case of Apeak Infotech (Supra), and of the Vodafone India Services (P) Ltd. (supra) wherein, it has been held as under: “2. After hearing the learned counsels for the parties and perusing the relevant material, we modify the order of the High Court by holding that the amount (Rs. 45,84,000) on account of share capital received from the various share-holders ought not to have been treated as business income.” Similarly in the case of ‘Apeak Infotech’, it has been held as under: “Section 4 of the Income Tax Act, 1961 – Income – Chargeable as (Share capital premium) – Assessment year 2013-13 – Amount received on issue of share capital as premium are on capital account and cannot be considered to be income [In Favor of assessee] ........... 15 I.T.A. No. 213/Asr/2017 We find that the impugned order of the Tribunal upheld that the view of the Commissioner of Income Tax (Appeals) to hold that share premium is capital receipt and therefore, cannot be taxed as income. This conclusion was reached by the impugned order following the decision of this court in Vodafone India Ltd. (Supra) and of the apex court in G. S. Homes & Hotels (P.) Ltd. (Supra). In both the above cases the court has held that the amount received on issue of share capital including premium are on capital account and cannot be considered to be income.” 20. It is seen that there was an amendment in Section 68 by Finance Act, 2012 w.e.f. 01.04.2013, which placed heavy onus on the assessee- company, where the sum credited consists of the Share Capital, Share Application Money and Share Premium which was not there upto AY 2012- 13. Similarly, there is an amendment to Section 56(viib) by Finance Act, 2012 w.e.f. 01.04.2013, coupled with the definition of income as per clause (xvi) of Section 2(24) of the Income Tax Act, 1961 which was also amended from 01.04.2013. Thus, all these sections were amended from 01.04.2013 and which have been analyzed at length by the Bombay Bench of ITAT in the case of ‘Arogya Bharti Health Park P. Ltd. (supra)’, copy placed at CLPB, pages 81 to 109 and this issue of Section 68, 56(2)(viib) and Section 2(24) has been threadbare discussed and also analyzed the provisions of Section 68 r.w.s. 56(2)(viib) along with the amendment to 16 I.T.A. No. 213/Asr/2017 Section 2(24) of the Act and it was held in para 18 & 19 of that judgment, that all these three sections were amended w.e.f. 01.04.2013 i.e. AY 2013- 14 and for that purposes, the relevant paras of the judgment is being reproduced as under: “18. Coming to another aspect of the matter. The Ld.AR for the assessee submitted that the amount received on account of share application money is capital in nature and could not be taxed u/s 68, if the explanation offered by the assessee of the nature and source is not satisfactory, in the opinion of the AO. We find that the issue of taxability of share premium has been considered by the Hon’ble Bombay High Court in the case of Vodafone India Services Pvt Ltd vs UOI 308 ITR 1 (Bom) and after considering relevant provisions including the provisions of section 56(2)(viib) of the Act held that although section 56(1) of the Act would permit including within its head any income not otherwise excluded, it does not provide for a charge to tax on capital account transaction of issue of shares as is specifically provided for in section 45 or section 56(2)(viib) of the Act and included within the definition of “income” in section 2(24) of the Act. It was further observed that amendment to section 2(24) and insertion of section 56(2)(viib), share premium cannot be charged to tax as it is in the nature of capital receipt. This legal position is further reiterated by the Hon’ble Bombay High Court, Nagpur Bench in a series of tax appeals in Income-tax Appeals No. 26 to 31 of 2017 dated 08-06- 2017, where the Hon’ble High Court has considered the question of taxability of share premium in the light of its earlier decision in case of Vodafone India Services Pvt Ltd vs UOI (supra) and also considering the ratio of judgement of Hon’ble Apex Court in the case of G.S. Homes & Hotels Pvt Ltd vs DCIT in Civil Appeal No.7370 to 7380 of 2016 dated 09-08- 2016 held that definition of 17 I.T.A. No. 213/Asr/2017 income as provided u/s 2(24) of the Act at the relevant time did not define as income in consideration received for issue of shares in excess of its fair market value. This came into the statute wef 01-04-2013 and thus would have no application to the share premium received by the respondent assessee in the previous year relevant to the AY prior to 2013-14. Similarly, the amendment to section 68 of the Act, by addition of Proviso was made subsequent to previous year relevant to the subject assessment year and cannot be invoked. Therefore, we are of the considered view that even under this count no addition can be made towards share premium u/s 68 of the Act, as it is on account of capital a receipt does not come within the ambit of definition of “income”. 19. Coming to the case laws relied upon by the Ld. DR. The Ld. DR has relied upon the decision of Hon’ble Kerala High Court in the case of Sunrise Academy of Medical Specialities India Pvt Ltd vs ITO in W.A. No.1297 of 2018 dated 12-07-2018 to argue that any premium received by a company on sale of shares come in excess of its face value, if the company is not one in which the public is substantially interested, would be treated as ‘Income from other sources’, as seen from section 56(2)(viib) of the Act, which we do not think can be controlled by the provisions of section 68 of the Act. We have gone through the case law relied upon by the Ld. DR in the light of facts of the present case and find that the case laws relied upon by the Ld. DR has no application as in the case considered by the Hon’ble Kerala High Court, there is no clarity whether the decision pertains to the position of law as enumerated in pre-amended or post amended provisions, therefore, the same cannot be applied to the facts of the present case because the issue involved in this case clearly fall within the ambit of pre-amended provisions of section 68 and section 56(2)(viib) of the Income-tax Act, 1961. 18 I.T.A. No. 213/Asr/2017 21. Following the judgment of the Hon’ble Bombay High Court in case of ‘Gagandeep Infrastructure’, and ‘Paradise Inland Shipping Pvt. Ltd.’ (supra) and we hold that the said amendment to Section 68 cannot be said to be retrospective in nature and it has to be prospective i.e. from AY 2013-14. The judgements of the Hon’ble Apex Court in the case of ‘G. S. Homes & Hotels Pvt. Ltd.’ and of the Bombay High Court in the case of ‘Apeak Infotech read with Vodafone India Services P. Ltd.’ are quite apt to the issue that ‘share capital’ and ‘share premium’ are on ‘capital account’ and cannot be considered as income of the assessee. Accordingly, the addition as made by the Assessing Officer and confirmed by the CIT(A) deserves to be deleted and as such, we delete the addition made u/s. 68 of the Act. 22. In result, the appeal stands allowed. Order pronounced U/R 34(4) on 23.12.2021 Sd/- Sd/- (Mahavir Prasad) (Dr. M. L. Meena) Judicial Member Accountant Member Dated: 23/12/2021 *GP/Sr./P.S.* Copy of the order forwarded to: (1)The Appellant (2) The Respondent (3) The CIT 19 I.T.A. No. 213/Asr/2017 (4) The CIT (Appeals) (5) The DR, I.T.A.T. True Copy By Order