ASST CIT CIT 1, THANE V. BAYER SHEETS INDIA P.LTD, MUMBAI

ITA 2170/MUM/2017

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 5658 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-04-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 27-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: THARIAN OOMMEN
• Keywords: Gift; Transfer pricing; Capital receipt; Capital expenditure
• Section: 133(6); 201; 72; 68; 56

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL , B BENCH MUMBAI BEFORE : HON BLE JUSTICE P P BHATT, PRESIDENT & SHRI M.BALAGANESH, AM ITA N O. 2170 /MUM/ 201 7 ( ASSESSMENT YEAR : 20 11 - 12 ) ASST. CIT CI R 1 6 TH FLOOR, ASHAR IT PARK R.NO.22 ND NO. 16 Z WAGLE INDUSTRIAL ESTATE THANE (W) MUMBAI - 400 604 VS. M /S. COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE LIMITED) UNIT NO.SB - 801, 8 TH FLOOR EMPIRE TOWER CLOUD CAMPUS, THANE - BELAPUR ROAD AI ROLI, NAVI MUMBAI - 400708 PAN /GIR NO. AAECB0040L (APPELLANT ) .. (RESPONDENT ) REVENUE BY SHRI T HARIAN OOMMEN ASSESSEE BY SHRI NITESH JOSHI DATE OF HEARING 10 / 02 /202 1 DATE OF PRONOUNCEMENT 27 / 04 /202 1 / O R D E R PER M. BALAGANESH (A.M) : THIS APPEAL IN IT A NO. 2170 /MUM/20 17 FOR A.Y. 20 1 1 - 1 2 ARISES OUT OF THE ORDER BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) - 55 , MUMBAI IN APPEAL NO. CIT(A) - 55/DCIT(OSD)10(3)/IT - 111/15 - 16 DATED 30/11/2016 (LD. CIT(A) IN SHORT) AGA INST THE ORDER OF ASSESS MENT PASSED U/S.143( 3) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS ACT) ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 2 DATED 03/01/2014 BY THE LD. ASST. C IT CIR - 1 , MUMBAI (HEREINAFTER REFERRED TO AS LD. AO). 2. AT THE OUTSET, THE REVENUE HAD RAISED GROUND NO. 2 CHALLENGING THE DIRECTION OF THE LD . CIT ( A ) TO T HE LD . A O TO INCLUDE THE CUSTOMS DUTY WHILE WORKING OUT THE ARITHMETIC MEAN WITH REGARD TO TRANSFER PRICING ADJUSTMENT. THIS ISSUE WAS CONCEDED BY THE LD . AR BEFORE US AT THE TIME OF HEARING. THE SAME IS RECKONED AS A STATEMENT MADE FROM THE BAR. ACCORDI NGLY, TH E GROUND NO. 2 RAISED BY THE REVENUE IS ALLOWED. 3. THOUGH THE REVENUE HAD RAISED SEVERAL GROUNDS BEFORE US, THE ONLY EFFECTIVE ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN DELETING THE ADDITION MADE IN THE SUM OF RS 8 ,07,52,945/ - ON ACCOUNT OF SHARE PREMIUM RECEIVED BY THE ASSESSEE U/S 56(1) OF THE ACT, IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT THE ASSESSEE IS A PRIVA TE LIMITED COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING AND TRADING OF POLYCARBONATE SHEETS, ARTICLES AND HIGH IMPACT POLYSTYRENE ARTICLES. AND HAD FILED ITS RETURN OF INCOME FOR THE ASST YEAR 2011 - 12 ON 29 / 11 / 2011 DECLARING TOTAL LOSS OF RS 1 7,39,073 / - . WE FIND THAT THE ASSESSEE COMPANY WAS INCORPORATED IN FEBRUARY 2010 AND HAD COMMENCED BUSINESS OPERATIONS IN ASST YEAR 2011 - 12 I.E THE YEAR UNDER CONSIDERATION. 4.1. DURING A.Y.2011 - 12, ASSESSEE H AD ISSUED 7,00,000 SHARE S AT A PRICE OF RS. 125 . 361351 HAVING FACE VALUE OF RS 10 AND PREMIUM OF RS 1 1 5.361351 . ACCORDINGLY, IT ACCOUNTED FOR SHARE PREMIUM OF RS ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 3 8 ,0 7,52,945 IN THE BOOKS OF ACCOUNT FO R T HE YEAR UNDER CONS IDERATION. THE BREAK - UP OF THE SHARES ISSUED ARE AS UNDER: - - 3,5 7,000 SHARES WERE ISSUED TO A FORE IGN COMPANY NAMELY BAYER MATERIAL SCIENCE AO, FOR A MONE TARY CONSIDERATION AND - 3, 08,000 SHARES WERE ISSUED TO MALIBU PLASTIC A PRIVATE LIMITED ( MPPL ) AND 35,000 SHARES WERE ISSUED TO MALIBU TECH PRI VATE LIMITED ( MTPL ) FOR NON - M O NETARY CONSIDERATION I.E. CONSIDERATION IN THE FORM OF TANGIBLE ASSETS, INT ANGIBLE ASSETS AND W ORKING CAPITAL ACQUIRED ON PURCHASE OF POLYCARBON BATE EXTRUSI ON AND THEREMOFORMING SHEET BUSINESS FROM THE SAID INDIAN COMPANIES. 4.2. WE FIND THAT THE LD. AO H AD SOUGHT TO TREAT THE RECEIPT OF SHARE PREMIUM IN THE SUM OF RS.8,07,52,945/ - ( 7 00000 SHARES X RS.115.36 PER SHARE) AS TAXABLE U/S.56(1) OF THE ACT UNDER THE HEAD INCOME FROM OTHER SOURCES ON THE FOLLOWING G ROUNDS: - A ) THE FACE VALUE OF THE SHARES IS ONLY RS.10/ - . THE ASSESSEE HAS ADOPTED DISCOUNTED CASH FLOW METHOD (DCF) FOR JUSTIFICATION OF ITS SHARE PRICE AT RS. 125.36 WHICH INCL UDES PREMIUM OF RS.115.36 PER SHARE . THE ASSESSEE DID NOT FURNISH THE BUSINESS PLAN AND PROJECTIONS TO JUSTIFY TH E ISSUANCE OF SHARE S AT A PREMIUM OF RS. 115.36. ACCORD ING TO THE LD. AO, THE PREMIUM THAT IS JUS TIF IE D IN THE ASSESSEE S CASE WAS ONLY R S.80 PER SHARE. B ) THE YEAR UND ER CONSIDERATION BEING THE FIRST YEAR OF BUSINESS OPERA TIONS OF THE ASSESSEE COMPANY AND HEN CE, ASSESSEE I S NOT JUSTIFIED IN ISSUANCE OF SHARE S A T A PREMIUM OF RS.115 . 36 PER SHARE. ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 4 C ) THE SHARE PREMIUM RECEIVED BY THE ASSESSEE WAS WITHOUT ADEQUATE CONSIDERATION. D ) THE ASSESSEE COMPANY HAD UTILISED THE SHARE PREMIUM FOR PURPOSES OTHER THAN THOSE SPECIF IED U /S.78 OF THE COMPANIES ACT 1956 AND HENCE, THE RECEIPT OF SHARE PREMIUM PARTAKES THE CHARACTER OF THE REVENUE RECEIPT TAXA BLE AS INCOME. 4.3. WE FIND THA T THE LD. DR VEHE MENTLY RELIED UPON THE AFORESAID OBSERVATIONS OF THE LD. AO AND ALSO ARGUED THAT THE LD. CIT(A ) INSTEAD OF ADDRESSING THE AFORES AID I SSUES HAD ADDRESS ED THE ISSUE IN DISPUTE ON THE NON - APPLICABILITY OF PROVISIONS OF SECTION 56(2)(VII B ) OF THE ACT W HEN THE ADDITION HAS BEEN MADE BY THE LD. AO U/S.56(1) OF THE ACT. ACCORDINGLY, THE LD. DR ARGUED THAT THE ENTIRE CONCLUSION REACHED BY THE LD. CIT(A ) IS TOTALLY MISCONCE IVED. HE ALSO PLACED RELIANCE ON THE DECISION OF THE CO - ORDINATE BENCH OF BANGALORE TRIBUNAL IN THE CASE OF CO R N ERSTONE PROPERTY INVESTMENT PVT. LTD., VS. INCOME TAX OFFICER , WARD 2(1)(3), BAN GALORE IN ITA NO.665/ BANG/2017 DATED 09/02/2018 I N SUPPORT OF HIS CONTENTIONS. 4.4. PER CONTRA, THE LD. AR ARGUED THAT ASSESSEE BOUGHT BUSINE SS AND ALLOT TED SHARES IN KIND WITH THE SAME PREMIUM AS WAS ALLOTTED TO ITS HOLDING COMPANY. HE ARGUED THAT TH E LD . CIT(A ) HAD ADJUDIC ATED THE IS SUE BOTH U/S.56(1) OF THE ACT BY HOLDING THAT THE SAID RECEIPT OF SHARE PREMIUM CANNOT BE TAXED U/S.56(1) OF THE ACT AND AL SO BY H OLDING THAT THE PROVISIONS O F SECTION 56( 2 )(VII B) OF THE ACT COULD NOT BE I NVOKED AT ALL F OR THE YEAR UNDER CONSIDERATION A S THE SAME IS APPLICABLE ONLY FROM A SST YEAR 2013 - 14 ONWARDS. HE ALSO ARGUED THAT THE RECEIPT OF SHARE PREMIUM PER S E IS CAPI TAL RECEIPT WHICH HAS BEEN HELD IN FAVOUR OF THE ASSESSEE BY T HE LD. CIT(A). ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 5 4.5. WE FIND THAT T HERE IS ABSOLUTELY NO DISPUTE W ITH REGARD TO THE FAC T THAT A DDITION HAS BEEN MADE B Y THE LD. AO TOWARDS RECEIPT OF SHARE PREMIUM B Y TR EATING THE SAME AS INCO ME U/S.56(1) OF THE ACT. HENCE, WHAT IS TO BE ADJUDICATED BY US IS LIMITED AND CONFI NED TO THE FAC T AS TO W HETHE R RECEIPT OF SHARE PREMIUM PER SE COULD BE TREATED AS THE RE VENUE RECEIPT SO AS TO MAKE IT TAXABLE U/S.56(1) OF THE ACT. WE FIND FROM THE FINANCIALS OF THE ASSESSEE COMPANY FOR THE YEAR ENDED 31/03/2011 I.E THE YEAR UNDER CONSIDERATION, IT HAD RECEIV ED TOTAL RECEIPTS OF RS.9,78,38,703/ - AND HAD INC URRED EXPENSES INCLUDING THE IMPAIRMENT LOSS ON FIXED ASSETS (RS.1,44, 73,424/ - ), D EPRECIATION / AMORTIZATION ( RS.65,54,508/ - ) TO THE EXTENT OF RS.12,17,01,621/ - AND THEREBY INCURRING LOS S BE FORE TAX TO TH E EXTENT OF RS.2,38 ,62,918/ - FOR THE YEAR UNDER CONSIDERATION. THIS SHOWS THAT THE ASSESSEE COMPANY HAD STARTED ITS BUSINESS ACT IVITI ES EFFECTIVELY DURING THE YEAR UNDER CONSIDERATION . 4.6. WE HO LD THAT RECEIPT OF SHARE PREMIUM PER SE CANNOT BE T REATE D AS INCOME OR THE RE VENUE RECEIPT. WE HOLD THAT IN OR DER TO BRING A PARTICULAR RECEIPT TO BE TAXABL E WITHIN THE AMBIT OF SECTION 56 (1) OF THE ACT, THE RECEIPT SHOULD BE IN THE NATURE OF INCOME AS DEFINED IN SECTION 2(24) OF THE ACT. WE FIND THAT THE SHARE PREMIUM RECEIVED BY THE C OMPANY ADMITTEDLY FORMS PART OF SHARE CAPITAL AND SHARE HOLD E RS FUNDS OF THE ASSESSEE COMPANY. W HEN REC EIP T OF SHARE C APITAL PARTAKES THE CHARACTER OF A CAPITAL RECEIPT, THE RECEIPT OF SHARE PREMIUM ALSO PARTAKES THE CHARACTER OF C APITAL RECEI PT O NLY. HENCE, AT TH E THRESHOLD ITSELF , T HE REC EIPT IN TH E FORM OF SHARE PREMIUM CANNOT BE BROUGHT TO TAX AS THE RE VEN UE RECEIPT AND CONS EQUENTLY TREAT THE SAME AS INCO ME U/S.56(1) OF THE ACT . WE FIND THAT THE CO - ORDINATE BENCH OF THIS TRIBUN AL IN THE CASE OF ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 6 CREDIT SUISSE BUSINESS ANALYSIS (INDI A ) (P ) LTD., VS. ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE - 15(1)(2 ), MU MBAI REPORTED IN 72 TAXMANN. COM 131 HAD ADDRESSED THE VERY SAME ISSUE IN DISPUTE. IN THAT CASE AL SO, THE LD. AO HAD SOUGHT TO TREAT THE RECEIPT O F SHARE PREMIUM AS A TRADING RECEIPT TAXABLE U/S.56(1) OF THE ACT FOR THE VERY SAME REASONS AS POINTED OUT BY T HE LD. AO IN THE INSTANT CASE. WE FIND THAT THIS TRIBUNAL HAD DECIDED THE ISSUE IN FAV OUR OF THE ASSESSEE BY ELABORATELY ADDRE SSING ALL THE P OI NTS RAISED BY THE LD. AO WHICH ARE EXACTLY SIMILAR AND IDENTICAL TO THE ISSUE RAISED BY THE LD. AO IN THE INSTANT CASE. F O R THE SAKE OF CONVENIENCE, THE RELEVANT PORTION OF THE SAID ORDER OF THIS TRIBUNAL IS REPRODUCED HEREUNDER: - 5. WE HAVE HEARD TH E RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT THE FAA HAD UPHELD THE DISALLOWANCE BECAUSE HE WA S OF THE OPINION THAT THE ASSESSEE HAD NOT VIOLATED THE PROVISIONS OF CA. IN OTHER WORDS, IF THE ASSESSEE HAD NOT CONTRAVENED THE SECTION 78 OR 100 OF THE CA, THE AMOUNT IN QUESTION WOULD NOT HAVE BEEN LIABLE TO TAX . IN OUR OPINION, THE APPROACH OF THE FAA IS FUNDAMENTALLY WRONG. THE TAXABILITY OF AN AMOUNT HAS TO BE DECIDED WITHIN THE FOUR CORNERS OF THE INCOME TAX . SECTION 4 O F THE ACT IS T HE CHARGING SECTION AND SECTION 2 DEFINES THE WORD INCOME . EVEN THE INCLUSIVE DEFINITION OF INCOME DOES NOT STIPULATE THAT NON - COMPLIANCE OF ANY PROVISION OF OTHER ACT WOULD RESULT IN TURNING A CAPITAL RECEIPT A REVENUE RECEIPT. AN INFRINGEME NT OF A PARTIC ULAR ACT IS DEALT BY THAT ACT, UNLESS AND UNTIL IT DEALS WITH OTHER ACT/(S). FOR EXAMPLE PROVISIONS OF PREVENTION OF MONEY LAUNDERING ACT (PMLA)PROVIDE THAT CERTAIN OFFENCES COMMITTED UNDER OTHER STATUTES WOULD BE CONSIDERED SCHEDULED OFFENCE UNDER THE PML A. WITHOUT SUCH A CLEAR MANDATE NOTHING CAN BE IMPORTED TO BE IMPLEMENTED TO OTHER ACT/(S).WHILE DEALING WITH THE ASS ESSMENT OR APPEALS, UNDER THE PROVISIONS OF THE INCOME - TAX ACT, THE BASIC PRINCIPLE EVERY OFFICER OF THE DEPARTMENT HAS TO RE MEMBER THAT HE IS REPRESENTING THE SOVEREIGN AND HIS DUTY IS TO COLLECT DUE TAXES ONLY. FOR DETERMINING THE DUE TAXES THEY SHOU LD AVOID BRINGING FAR - FETCHED FANCIES AND IDEAS. IN THE CASE UNDER CONSIDERATION THEY HAVE DONE THE SAME. WITHOUT UNDERSTANDING THE BASIC P HILOSOPHY OF INCOME THEY HAVE REFERRED TO THE PROVISIONS OF CA, SO THAT THE AMOUNT IN QUESTION CAN BE TAXED AT ANY CO ST. IT IS NOT A FAIR OR JUDICIOUS APPROACH TO DEAL WITH THE SUBJECTS OF THE STATE. EVEN IF THE ASSESSEE HAD VIOLATED THE PROVISI ONS OF CA, IT WILL BE ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 7 PENALISED BY THE PROVISIONS OF THAT ACT. BUT, IT WOULD NEVER TURN A CAPITAL RECEIPT INTO REVENUE RECEIPT O R VICE VERSA . NOW, WE WOULD ALSO LIKE TO DISCUSS THE PROVISION OF SECTIONS 78 AND 100 OF THE CA ALSO. BUT, BEFORE TESTING THE A PPLICABILITY OF THE SAID SECTIONS, WE WOULD LIKE TO REFER TO THE SUBMISSIONS MADE BY THE ASSESSEE IN THAT REGARD. NEITHER THE AO NOR THE FAA HA S PROVED THAT THE SHARE PREMIUM MONEY WAS UTILISED BY IT FOR RUNNING ITS DAY - TO - DAY BUSINESS . THE ASSESSEE HAD PR OVED THAT THE OPENING AND THE CLOSING BALANCE OF THE SHARE PREMIUM MONEY ACCOUNT WAS SAME FOR THE YEAR UNDER CONSIDERATION. WE F IND THAT THE FA CTUAL POSITION ASSAILED BY THE ASSESSEE WAS NOT PROVED INCORRECT BY BOTH THE AUTHORITIES. IF THERE WAS NO DIFFERE NCE IN THE BALANCES HOW THE CONCLUSION WAS DRAWN THAT THE SHARE PREMIUM MONEY WAS UTILISED FOR BUSINESS PURPOSES AND NOT PRESERV ED FOR THE PURP OSES FOR WHICH IT WAS COLLECTED. WITHOUT ANY EVIDENCE BOTH THE AUTHORITIES HELD THAT THE ASSESSEE HAD USED THE MO NEY FOR PURPOSES OTHER THAN THE PURPOSES FOR WHICH IT WAS COLLECTED. THEREFORE, IN OUR OPINION THERE WAS NO FOUNDATION OF THE BU ILDING THAT WAS BUILT BY THEM. WE ARE NOT IN A POSITION TO VALIDATE SUCH A CLASSICAL FACTUAL BLUNDER. SECTION 100 OF THE CA DEAL S WITH REDUCTION OF SHARE CAPITAL. IN SHORT, THE STAND TAKEN BY THE FAA IS NOT ENDORSEABLE EITHER LEGALLY NOR FACTUALLY. WE WOUL D ALSO LIKE TO MENTION THAT THE FACTS OF THE CASE OF T.V. SUNDARAM IYENGAR & SONS LTD . ( SUPRA ), RELIED UPON BY THE FAA, HAS NOT R ELEVANCE TO DECIDE THE ISSUE BEFORE US. IT DOES NOT DEAL WITH THE ISSUE OF SHARE PREMIUM MONEY AND ITS TAXABILITY. SO, CONSIDERI NG THE FACTS AN D CIRCUMSTANCES OF THE CASE, WE ARE REVERSING THE ORDER OF THE FAA. EFFECTIVE GROUND OF APPEAL IS DECIDED IN FAVO UR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. 4. 7 . WE ALSO FIND THAT THE SIMILAR VIEW HAS BEEN TAKEN BY THIS TRIBUNAL IN THE CASE OF GR EEN INFRA LTD., VS. ITO REPORTED IN 38 TAXMANN.COM 253. THE RELEVANT OPERA TIVE PORTION OF THE SAID ORDER IS REPRODUCED HEREUNDER : - 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND CAREFULLY PERUS ED THE ORDERS OF TH E LOWER AUTHORITIES AND THE MATERIAL EVIDENCES BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. THE ENTIRE DISPUTE REVOLVES AROUND T HE CHARGING OF SHARE PREMIUM OF RS. 490/ - PER SHARE ON A BOOK VALUE OF RS. 10/ - EACH. THIS DISPUTE IS MORE SO BECAUSE OF THE FAC T THAT THE ASSESSEE COMPANY WAS INCORPORATED DURING THE YEAR UNDER CONSIDERATION. THEREFORE, ACCORDING TO THE REVENUE AUTHORITIE S, IT IS BEYOND ANY LOGICAL REASONING THAT A COMPANY WITH ZERO BALANCE SHEET COULD GARNER RS. 490/ - PER SHARE PREMIUM FROM ITS SU BSCRIBERS. ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 8 SUCH TRANSACTION MAY RAISE EYEBROWS BUT CONSIDERING THE SUBSCRIBERS TO THE ASSESSEE COMPANY, THE TEST FOR THE GENUINE NESS OF THE TRANSACTION GOES INTO OBLIVION. IT IS AN UNDISPUTED FACT ADMITTED BY THE REVENUE AUTHORITIES THAT 10,19,000 EQUITY S HARES HAS BEEN SUBSCRIBED AND ALLOTTED TO IDFC PE FUND - II WHICH COMPANY IS A FRONT MANAGER OF IDFC LTD., IN WHICH COMPANY GOVERN MENT OF INDIA IS HOLDING 18% OF SHARES. THE CONTRIBUTORS TO THE IDFC PE FUND - II WHO IS A SUBSCRIBER TO THE AS SESSEE'S SHARE CAPI TAL, ARE LIC, UNION OF INDIA, ORIENTAL BANK OF COMMERCE, INDIAN OVERSEAS BANK AND CANARA BANK WHICH ARE ALL PUBLIC SECTOR UNDERT AKINGS. THEREFORE, TO RAISE EYEBROWS TO A TRANSACTION WHERE THERE IS SO MUCH OF INVOLVEMENT OF THE GOVERNMENT DIRECTLY OR INDIRE CTLY DOES NOT MAKE ANY SENSE. 10.1 NO DOUBT A NON - EST COMPANY OR A ZERO BALANCE COMPANY ASKING FOR A SHARE PREMIUM OF RS. 490/ - PER SHARE DEFIES ALL COMMERCIAL PRUDENCE BUT AT THE SAME TIME WE CANNOT IGNORE THE FACT THAT IT IS A PREROGAT IVE OF THE BOARD OF DIRECTORS OF A COMPANY TO DECIDE THE PREMIUM AMOUNT AND IT IS THE WISDOM OF THE SHARE HOLDERS WHETHER THEY WANT TO SUBSCRIBE T O SUCH A HEAVY PREMIUM. THE REVENUE AUTHORITIES CANNOT QUESTION THE CHARGING OF SUCH OF HUGE PREMIUM WITHOUT A NY BAR FROM ANY LEG ISLATED LAW OF THE LAND. DETAILS OF SUBSCRIBERS WERE BEFORE THE REVENUE AUTHORITIES. THE AO HAS ALSO CONFIRMED THE TRANSACTION FROM THE SUBSCRIBERS BY ISSUING NOTICE U/S. 133(6) OF THE ACT. THE BOARD OF DIRECTORS CONTAINS PERSONS WHO ARE ASSOCIATED WITH ID FC GROUP OF COMPANIES, THEREFORE THEIR INTEGRITY AND CREDIBILITY CANNOT BE DOUBTED. THE ENTIRE GRIEVANCE OF THE REVENUE REVOLVE S AROUND THE CHARGING OF SUCH OF HUGE PREMIUM SO MUCH SO THAT THE REVENUE AUTHORITIES DID NOT EVEN BLINK THEIR EYES IN INVOKING P ROVISIONS OF SEC. 56(1) OF THE ACT. 10.2 LET US CONSIDER THE PROVISIONS OF SEC. 56(1) OF THE ACT: '56. INCOME FROM OTHER SOURC ES . (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEA BLE TO INCOME - TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT IS NOT CHARGEABLE TO INCOME - TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 1 4, ITEMS A TO E.' 10.3 A SIMPLE READING OF THIS SECTION SHOW THAT INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLU DED FROM THE TOTA L 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 SETTLED PROPOSITION OF LAW THAT CAPITAL RECEIPTS , UNLESS SPECIFI CALLY TAXED UNDER ANY PROVISIONS OF THE ACT , ARE EXCLUDED FROM INCOME. THE HON'BLE SUPREME COURT HAS LAID DOWN THE RATIO THAT SHARE PREMIUM REALIZED FROM THE ISSUE OF SHARES IS OF CAPITAL IN NATURE AND FORMS PART OF THE SHARE CAPITAL OF T HE COMPANY AND TH EREFORE CANNOT BE TAXED AS A REVENUE RECEIPT. IT IS ALSO A SETTLED PROPOSITION OF LAW THAT ANY EXPENDITURE INCURRED FOR THE EXP ANSION OF THE CAPITAL BASE OF A ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 9 COMPANY IS TO BE TREATED AS A CAPITAL EXPENDITURE AS HAS BEEN HELD BY THE HON'BL E SUPREME COURT I N THE CASE OF PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPN. LTD. V. CIT [1997] 225 ITR 792/93 T AXMAN 5 AND IN THE CASE OF BROOKE BOND INDIA LTD. V. CIT [1983] 140 ITR 272 /[1982] 10 TAXMAN 18 (CAL.) . THUS THE EXPENDITURE AND THE RECEIPTS DIRECTLY RELATING TO THE SHARE CAPITAL OF A COMPANY ARE OF CAPITAL IN NATURE AND THEREFORE CANNOT BE TAXED U/S. 56(1) OF THE ACT. THE ASSESSEE SUCCEEDS AND REVENUE FAILS ON THIS ACCOUNT. . 12. WE HAVE CONSID ERED THE GRIEVANCE OF THE REVENUE FROM ALL POSSIBLE ANGLES AND BY APPLYING THE PROVISIONS OF SEC. 56 OF THE ACT AND AT OUR STAGE WE HAVE GONE TO THE EXTENT OF TES TING THE TRANSACTION WITHIN THE PARAMETERS OF SECTION 68 OF THE ACT. WE COULD NOT FIND A SINGL E EVIDENCE WHICH COULD LEAD TO THE ENTIRE TRANSACTION AS SHAM. OUR VIEW IS ALSO FORTIFIED BY THE SHARE HOLDING PATTERN AS EXPLAINED TO US AND AS SUBSTANTIATED BY THE MATERIAL EVIDENCE ON RECORD. WE FIND THAT THE SHARE HOLDERS IN ALL THE RELATED TRANSACTION UNDER ISSUE ARE DIRECTLY OR INDIRECTLY RELATED TO THE GOVERNMENT OF INDIA. THEREFORE, CONSIDERING THE ENTIRE ISSUE IN THE LIGHT OF THE MATERIAL EVIDENCE BROUGHT ON RECORD, IN OUR CONSIDERATE VIEW, THE REVENUE AUTHORITIES HAVE ERRED IN TREATING THE SHARE P REMIUM AS INCOME OF THE ASSESSEE U/S. 56(1) OF THE ACT. IN OUR CONSIDERATE VIEW, FOR THE REASONS DISCUSSED HEREINABOVE, WE DO NOT FIND IT NECESSARY TO APPLY THE P ROVISIONS OF SEC. 68 OF THE ACT. WE, THEREFORE, DIRECT THE AO TO DELETE THE ADDITION OF RS. 47 ,97,10,000/ - . GROUND NO. 2 & 3 ARE ACCORDINGLY ALLOWED. 4. 8 . WE ALSO FIN D THAT THIS ORDER WAS SUBJECT MATTER OF CHALLE NGE BY THE REVEN UE BEFORE THE HON BLE HIGH COURT AND THE QUESTION OF L AW WAS NOT ADMITTED BY THE HON B LE JURISDICTIONAL HIGH COURT ON THE ADDITION MADE U/S.56(1) OF THE ACT THOUGH T HE VERY SAME ADDITION WAS CHALLENGED BY T HE REVENUE U/S.68 OF THE ACT WHICH WAS ADMITTED BY THE HON BLE HIGH COURT. WE FIND THAT THE HON B LE JURISDICTIONAL HIGH COURT IN THE SA ID CASE REPORTED IN 392 ITR 7 DECID ED THE ADDITION MADE U/S.68 OF THE ACT IN FAV OU R OF THE ASSESSEE. 4. 9 . WITH REGARD TO YET ANOTHER OBSERVATION MADE BY THE LD. AO IN HIS ORDER THAT RECEIPT OF PREMIUM WAS AKIN TO GI FT AND HENCE TAXABLE ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 10 U/S.56(1) OF THE ACT, WE FIND TH AT RECEIPT OF SHARE CAPITA L AND SHARE PREMIUM IS NORMAL IN CASE OF A LIMIT ED COMPANY AND THE SA ME AT ANY STRETCH OF IMAGINATION CANNOT BE EQU ATED WITH GIFT. MOREOVER , GI FT CAN BE RECEIVED ONLY BY INDIVIDUALS OR HUFS AND CANNOT BE RECEIVED BY A COMPANY. HENCE, THIS OBSERVATION MADE BY THE LD. AO IS DISMISSED IN LIMINE. 4. 10 . WITH RE GARD TO Y ET ANOTHER OBSERVATION MADE BY THE LD. AO THAT ASSESSE E HAD ACQUIRED CERTAIN INTANGIBLE ASSETS AT THE TIME OF AC QUISITION OF BUSINESS AND T HOSE INTANGIBLE ASSETS WERE IMPA IRED IN THE SAME YEAR AND THAT THIS FACT ITSELF PROVES MALAFIDE INTENTION OF THE ASSESSEE FOR ALLOTMENT OF S HARES AT A PREMIUM. WE ARE UNAB LE TO PERSUADE OURSELF TO ACCEPT TO THI S CONTENTION OF THE LD. AO IN VIEW OF THE FACT THAT THOUGH TH E ASSESSEE HAD AC QUIRED CERTAIN IN TA NGIBL E ASSETS WHILE ACQ UIRING BUSINESS, AND THOUGH THE SAID INTANG IBLE ASSETS HAD BEEN WRITTEN OFF DURING THE YEAR DUE T O IMPAIRMENT, WE FIND THAT ASSESSEE COMPANY HAD NOT CLAIMED THE SAME AS DEDUCTION. HENCE, THE RELEVANT OBSERVATION OF THE LD. AO IN THIS REGA RD IS BASEL ESS AND DE V OI D OF ANY MERIT. 4. 11 . WITH REGARD TO RELIANCE PLACED BY THE LD . DR ON THE DE CISION OF BANG ALORE TRIB UNAL IN THE CASE OF CO R N ERSTONE PROPERTY INVESTMENT PVT. LTD., VS. INCOME TAX OFFICER , WARD 2(1)(3), BAN GALORE IN ITA NO.665/ BANG/20 17 DATED 09/02/2018 , WE FIND THAT THE SAID DECISION IS DISTINGUISHABLE O N FACTS IN AS MUCH AS THE LD. AO IN THAT C ASE HAD MADE ADDITION U/S.68 OF THE ACT BY DOUBTING THE GENUINENESS OF THE PARTIES FROM WHOM SHARE PREM IUM HAS BEEN RECEIVED. F URTHER IN THAT CASE , THE LD. AO HAD EXAMINED THE GENUI N ENESS OF THE CREDITS IN THE BOOKS OF ACCOUNTS BY MAKING RELEVANT ENQUIRIES WHICH ESTABLISHED THAT ASSESSEE ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 11 WAS A CTING AS A CONDUIT AND PART OF THE LAYERING PROCESS WHICH EN ABLED THE FLOW OF FUNDS TO MOVE FROM ONE COM PANY TO ANOTHER COMPANY. IN THE INSTANT CASE , WE FIND T HE ADDITION HAS BEEN ADMITTEDLY MADE BY THE LD. AO U/S.56(1 ) OF THE ACT AND NO SUCH ENQUIRIES DOUBTING THE GENUINENESS OF THE TRA NSACTIONS OR THE GENUINE NESS OF THE INVE STORS WERE DOUBTED BY THE LD. AO IN THE INSTA NT CASE. HENCE, THE DECISION RELIED BY THE LD. DR , IN OUR CONSIDERED OPINION, WOULD NOT ADVANCE THE C ASE OF THE RE VENUE. WE FIND THAT ALL THE NECESSARY DOCUMENTS R ELATING TO THE ALLOTMENT O F SHARES WITH PREMIUM TOGETHER WITH RELEVANT DOCUMENTARY EV IDENCES WERE INDEED SUBMITTED BY THE ASSESSEE BEFORE THE LD. AO WHICH ARE NOT DOUBTED AT ALL. 4.1 2 . IN V IEW OF OUR AFORESAID OBSER VATIONS AND RESPECTFUL LY FOLLOWING THE VARIOUS JUDICIAL PRECED ENTS RELIED UPON HEREINABOVE, WE HOLD THAT THE LD. CIT(A) HAD R IGHTLY DELETED THE ADDITION MADE U/S.56(1) OF THE ACT ON ACCOUNT OF RECEIPT OF SHARE PREM IUM FOR THE A.Y.2011 - 12. ACCORDINGLY, THE GROUN D NO.1 TO 1.5 RAISED BY THE REVE NUE ARE DISMISSED. 5. THE GROUND NO S. 3 & 4 RAISED BY THE REVENUE ARE GENERAL IN NATURE AND DOES NO T REQUIRE ANY SPECIFIC ADJUDICATION. 6. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED. ORDER PRONOUNCED ON 27 / 04 /202 1 BY WAY OF PROPER MENTIONING IN THE NOTICE BOARD. SD/ - ( JUSTICE P P BHATT ) SD/ - (M.BALAGANESH) PRESIDENT ACCOUNTANT MEMBER MUMBAI ; DATED 27 / 04 / 2 021 ITA NO . 2170/MUM/2 0 17 COVESTRO INDIA PRIVATE LIMITED (FORMERLY KNOWN AS BAYER SHEETS INDIA PRIVATE L IMITED) 12 KARUNA , SR.PS COPY OF TH E ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2 . THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COP Y//