ITO 6(1)(3), MUMBAI V. AROGYA BHARTI HEALTH PARK P.LTD, MUMBAI

ITA 2943/MUM/2014

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 5443 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 5 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 29-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MISHRA
• Assessee Lawyers: B V JHAVERI
• Keywords: Unexplained cash credit; Income from undisclosed sources; Share purchase agreement; Principle of natural justice; Source of fund; Retrospective amendment; Additional evidence; Fair market value; Corroborative evidences; Valuation report; Competent authority; Capital receipt; Commercial expediency
• Section: 68

Judgement Text

1 ITA 2943/MUM/2014 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH B, MUMBAI BEFORE SHRI JOGINDER SINGH(VICE PRESIDENT) AND SHRI G MANJUNATHA (ACCOUNTANT MEMBER) I.T.A NO.2943/MUM/2014 (ASSESSMENT YEAR: 2010-11) ITO-6(1)(3), MUMBAI VS AROGYA BHARTI HEALTH PARK PVT LTD 508, CEEJAY HOUSE, WORLI MUMBAI 400 018 PAN : AADCA0800E APPELLANT RESPONDENT APPELLANT BY SHRI S.K. MISHRA RESPONDENT BY SHRI B.V. JHAVERI DATE OF HEARING 18-09-2018 DATE OF PRONOUNCEMENT 17-10-2018 O R D E R PER G MANJUNATHA, AM: THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAI NST ORDER OF THE CIT(A)-14, MUMBAI DATED 24-02-2014 AND IT PERTAINS TO AY 2010-11. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL:- 1. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ACCEPTING ADDITIONAL EVIDENCES WITH OUT APPRECIATING THE FACTS THAT ASSESSEE HAS NOT FULFILLED ANY OF THE FOUR CON DITIONS LAID DOWN UNDER RULE 46A OF THE I.T.RULES,1962.' 2. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN FAILING TO APPRECIATE THAT 'ONUS' WAS ON THE ASSESSEE TO PROVE TO SATISFACTION OF THE A.O THE 'NATURE' AND 'SOURCE' OF THE CREDITS IN THE BOOKS OF ACCOUNTS.' 3. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ENTIRE ADDITION OF RS. 10 CRORES WITHOUT APPRECIATING THAT EVEN THOUGH THE SOURCE OF FUNDS F ROM XANDER GROUP STAND EXPLAINED IN THE COURSE OF APPEAL PROCEEDINGS, NO S ATISFACTORY REPLY WAS 2 ITA 2943/MUM/2014 FURNISHED BY THE ASSESSEE WITH REGARD TO 'NATURE' OF THE INVESTMENT MADE BY XANDER GROUP.' 4. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT SUSTAINING THE ADDITION WITH RE GARD TO 'SHARE PREMIUM' CHARGED 'OVER AND ABOVE THE INTRINSIC VALUE OF SHARES' OF THE COMPANY WHICH AS PER THE FINDING OF THE A.O WAS ONLY RS.2G7.90 PE R SHARE. NEEDLESS TO ,,AY, CIT(A) NEED TO EXAMINE THE 'SUBSTANCE' OF THE TRANSACTION AND NOT GET SATISFIED ONLY WITH THE 'FORM' OF TRANSACTION THE ''ECONOMIC REALITY' WILL CLEARLY SHOW THAT IN ARMS LENGTH RELATIONSHIP NO ONE WILL PAY ANYTHING MORE THAN THE 'INTRINSIC VALUE OF THE SHARES. THE CIT(A), THEREFO RE, OUGHT TO HAVE CONFIRMED ANYTHING PAID OVER AND ABOVE THE INTRINSIC VALUE OF SHARE AND CAN NOT ALLOW DEDUCTION FOR THE ENTIRE AMOUNT PAID AS 'SHARE PREM IUM' ONLY ON THE BASIS OF 'COMMERCIAL EXPEDIENCY'. 5. 'ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN ACCEPTING THE CLAIM OF THE ASSESSEE THAT CREDIT OF RS.10 CRORES RECEIVED FROM XANDER GROUP WAS FULLY EXPLAINED BOTH IN RESPECT OF 'NATURE' OF TRANSACTION AS WELL AS 'SOURCE' E\/EN WHEN THAT IS NO IOTA OF EVIDENCE PRODUCED TO SUBSTANTIATE THE 'JUSTIFICATION OF SHARE PREMIUM' OF RS.9,99,900 PER SHARE EITHER DURING THE COURSE OF ASSESSMENT PR OCEEDINGS OR IN THE COURSE OF REMAND PROCEEDINGS ONLY ON THE BASIS OF SURMISES, CONJECTURES AND PRESUMPTIONS' 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E COMPANY IS ENGAGED IN THE BUSINESS OF DEVELOPMENT OF HEALTH PA RKS, SPORTS COMPLEX, ETC., FILED ITS RETURN OF INCOME FOR AY 20 10-11 ON 25-09-2010 DECLARING TOTAL INCOME OF RS.3,92,903/-. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY, NOTICES U/S 143(2) AND 14 2(1), ALONG WITH A DETAILED QUESTIONNAIRE WERE ISSUED. IN RESPONSE TO THE NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FILED VARIOUS DETAILS, AS CALLED FOR. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTICED THAT THE ASSESSEE HAS R ECEIVED SHARE APPLICATION MONEY OF RS.10 CRORES IN THE YEAR UNDER CONSIDERATION FROM A NON RESIDENT, THEREFORE, CALLED UPON THE ASSESSEE TO FILE NECESSARY EVIDENCES TO JUSTIFY THE IDENTITY, GENUINENESS OF T RANSACTIONS AND 3 ITA 2943/MUM/2014 CREDITWORTHINESS OF THE PARTIES. IN RESPONSE TO NO TICE, THE ASSESSEE, VIDE LETTER DATED 14-12-2012, FILED COPY OF LEDGER OF SHARE APPLICATION MONEY ALONG WITH SUPPORTING EVIDENCES, COPIES OF MI NUTES OF BOARD MEETING AUTHORIZING ISSUE OF SHARES, COPY OF SUPPOR TING BANK STATEMENTS FOR RECEIPT OF SHARE APPLICATION MONEY THROUGH BANK ING CHANNEL. THE ASSESSEE ALSO FURNISHED COMPLETE NAME AND ADDRESSES OF SUBSCRIBERS TO THE SHARE CAPITAL ALONG WITH THE PURPOSE OF INVE STMENT. THE ASSESSEE, VIDE ITS LETTER DATED 05-12-2012 FURTHER SUBMITTED THAT THE AMOUNT OF SHARE APPLICATION MONEY BROUGHT INTO THE BOOKS OF T HE ASSESSEE IS NOT IN VIOLATION OF ANY OF THE PROVISIONS OF THE COMPANIES ACT OR ANY OTHER ACT AND HAS BEEN UTILIZED FOR THE INTENDED PURPOSE ONLY . HENCE, THE QUESTION OF ADDUCING EVIDENCE TO PROVE GENUINENESS OF THE TRANSACTION DOES NOT ARISE. IN ANY EVENT, THE PROVISIONS OF SE CTION 68 OF THE ACT, DOES NOT APPLY AS IT HAS OFFERED ADEQUATE EXPLANATI ON ABOUT THE NATURE AND SOURCE OF RECEIPT OF SHARE APPLICATION MONEY. AS REGARDS THE DETAILS OF INVESTOR, M/S XANDER INVESTMENT HOLDING XV LIMIT ED, THE ASSESSEE HAS ALREADY FURNISHED THE REQUIRED DETAILS INCLUDIN G THE ADDRESS AND THE REQUIRED DETAILS MAY BE DIRECTLY CALLED FOR TO ASCE RTAIN THE GENUINENESS OF TRANSACTION. 3. THE AO, AFTER CONSIDERING RELEVANT SUBMISSIONS O F THE ASSESSEE AND ALSO ON ANALYSIS OF PROVISIONS OF SECTION 68 OF THE ACT, HELD THAT THE 4 ITA 2943/MUM/2014 ALLEGED CAPITAL INTRODUCTION OF ASSESSEE ARE HELD T O BE NON GENUINE TRANSACTIONS ENTERED THROUGH THE PROCESS OF ACCOMMO DATION OR BOGUS ENTRIES TO BRING IN ASSESSEES OWN MONEY IN THE GUI SE OF CAPITAL. THE AO FURTHER OBSERVED THAT IN CASE ANY SUM FOUND CRED ITED IN BOOKS OF ACCOUNT OF THE ASSESSEE, THE ASSESSEE NEEDS TO PROV E THE IDENTITY, CAPACITY AND GENUINENESS, BUT THE ASSESSEE FAILED T O PROVE THE SAME. THE CASH CREDIT IS NOT SATISFACTORILY EXPLAINED AND HENCE, IT IS JUSTIFIED TO TREAT IT AS INCOME FROM UNDISCLOSED SOURCES. THE ASSESSEE HAS TO ESTABLISH THAT THE AMOUNT WAS EXACTLY GIVEN BY THE SUBSCRIBER, WHICH IT FAILED TO DO SO AND THE EXPLANATION IT GAVE WAS NOT SUPPORTED BY ANY DOCUMENTARY EVIDENCE AND, THEREFORE, THE DEEMING FI CTION PROVIDED UNDER SECTION 68 IS BEING INVOKED. THE IDENTITY OF THE ALLEGED SUBSCRIBER HAD NOT BEEN ESTABLISHED VOLUNTARILY. THE GENUINEN ESS OF TRANSACTIONS AND THE CREDITWORTHINESS OF THE ALLEGED SUBSCRIBERS AND THE PURPOSE OF THE INVESTMENT HAVE NOT BEEN PROVED AND ESTABLISHED . FINALLY, THE ONUS IS ON THE ASSESSEE TO PROVE THE BONAFIDES OF THE CL AIM MADE BY IT. THE BONA FIDES OF THE SUBSCRIBER ARE NOT PROVED TO THE SATISFACTION. DESPITE THE SHOW CAUSE NOTICES, THE ASSESSEE HAS FAILED TO PROVE THE BONA FIDES OF THE COMPANIES AND HAS NEVER PRODUCED THE PARTIES CONCERNED FOR VERIFICATION. THEREFORE, HE OPINED THAT THE SHARE APPLICATION MONEY RECEIVED FROM NON- RESIDENT INVESTOR IS UNEXPLAINED CASH CREDIT U/S 68 OF 5 ITA 2943/MUM/2014 THE INCOME-TAX ACT, 1961 AND ACCORDINGLY MADE ADDIT ION. 4. AGGRIEVED BY THE ASSESSMENT ORDER, THE ASSESSEE PREFERRED APPEAL BEFORE THE CIT(A). BEFORE THE CIT(A), THE ASSESSEE HAS REITERATED ITS SUBMISSIONS MADE BEFORE THE AO TO ARGUE THAT SHARE APPLICATION MONEY RECEIVED FROM XANDER GROUP INC. IS A GENUINE TRANSA CTION WHICH IS SUPPORTED BY VALID SHARE PURCHASE AGREEMENTS COUPLE D WITH SUPPORTING EVIDENCES LIKE FOREIGN INWARD REMITTANCE CERTIFICAT E, BANK STATEMENTS AND FINANCIAL STATEMENTS OF THE INVESTORS TO PROVE THE IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE SUBSCRI BERS. THE ASSESSEE FURTHER SUBMITTED THAT THE XANDER GROUP INC. IS AN INSTITUTIONAL VALUE INVESTMENT FIRM FOCUSED ON THE REAL ESTATE, INFRAST RUCTURE, HOSPITALITY, ENTERTAINMENT AND RETAIL SECTORS IN EMERGING MARKET S. THE XANDER GROUP INC HAS BEEN AN ACTIVE INVESTOR IN INDIA SINC E 2005 AND HAS INVESTED IN EXCESS OF USD 1.2 BILLION IN THE COUNTR Y ACROSS MULTIPLE COMPANIES PRIMARILY THROUGH THE FDI ROUTE. THE GRO UP HAS JOINT VENTURES WITH RELIANCE GROUP, TATA- TRENT, MANTRI DEVELOPERS , NHAI AND HAS VARIOUS OTHER PROJECTS. IN THIS REGARD, THE ASSESS EE HAS FILED VARIOUS DETAILS BEFORE THE CIT(A), WHICH WERE PART OF RECOR DS BEFORE THE AO. 5. THE CIT(A), AT THE TIME OF APPELLATE PROCEEDINGS , VIDE HER ORDER SHEET ENTRY DATED 26-08-2013 DIRECTED THE ASSESSEE TO FILE DETAILS 6 ITA 2943/MUM/2014 REGARDING THE CREDITWORTHINESS OF THE SUBSCRIBER. T HE ASSESSEE, VIDE LETTER DATED 07-09-2013 HAD FILED EVIDENCE REGARDIN G THE CREDITWORTHINESS OF XANDER INVESTMENT HOLDING XV LI MITED, INCLUDING CONFIRMATION REGARDING INVESTMENT IN ASSESSEE COMPA NY, BANK STATEMENTS, FINANCIAL STATEMENTS AND SHARE CERTIFIC ATE ISSUED BY THE ASSESEE COMPANY. THE LD.CIT(A), DURING APPELLATE P ROCEEDINGS HAS SENT ALL ADDITIONAL EVIDENCES ALONG WITH WRITTEN SU BMISSIONS FILED BY THE ASSESSEE TO THE AO FOR EXAMINATION AND REPORT. THE AO, VIDE HIS REMAND REPORT DATED 23-10-2013, HAS OBJECTED TO THE ADMISSION OF ADDITIONAL EVIDENCE FILED BY THE ASSESSEE IN THE AP PELLATE PROCEEDINGS BY STATING THAT SUFFICIENT OPPORTUNITIES WERE GRANT ED TO THE ASSESSEE AT THE TIME OF ASSESSMENT PROCEEDINGS. THE AO FURTHER STATED THAT THE ASSESSEE FAILED TO FILE REQUIRED EVIDENCES AT THE T IME OF ASSESSMENT PROCEEDINGS, THEREFORE, THE DOCUMENTS PRODUCED NOW CANNOT PROVE THE GENUINENESS OF THE TRANSACTION. IT IS FURTHER STAT ED THAT THE ASSESSEE IS ALSO NOT ABLE TO SATISFACTORILY EXPLAIN ISSUE OF SH ARES AT A HIGH PREMIUM OF RS.9,99,900 PER SHARE AS THE ASSESSEE HAS NOT GI VEN ANY JUSTIFICATION REGARDING THE ISSUE OF SHARES AT HIGH PREMIUM AND NATURE AND SOURCE OF CREDIT. THE AO FURTHER OBSERVED THAT THOUGH THE AM ENDMENT TO SECTION 68 OF THE ACT WAS INSERTED BY FINANCE ACT 2012 W.E. F 01-04-2013 TO TREAT SHARE APPLICATION MONEY WITHIN THE AMBIT OF SECTION 68, BUT SUCH 7 ITA 2943/MUM/2014 AMENDMENT IS CLARIFICATORY IN NATURE AND SHOULD HAV E RETROSPECTIVE EFFECT. THE LD.CIT(A) HAS SENT THE REMAND REPORT I SSUED BY THE AO TO THE ASSESSEE FOR ITS REJOINDER. THE ASSESSEE, IN R EPLY TO AOS REMAND REPORT HAS FILED DETAILED WRITTEN SUBMISSIONS WHICH HAS BEEN REPRODUCED BY THE LD.CIT(A) AT PARA 3.5 ON PAGES 6 TO 13 OF HI S ORDER. 6. THE LD.CIT(A), AFTER CONSIDERING RELEVANT SUBMIS SIONS OF THE ASSESSEE AND ALSO RELYING UPON CERTAIN JUDICIAL PRE CEDENTS, REJECTED OBJECTIONS OF THE AO INSOFAR AS ADDITIONAL EVIDENCE FILED BY THE ASSESSEE BY HOLDING THAT THE LD.CIT(A) IS WELL WITHIN ITS RI GHT TO CALL FOR THOSE DETAILS IN SUPPORT OF GROUNDS OF APPEAL TAKEN BY TH E ASSESSEE ALTHOUGH, SUCH DETAILS HAVE NOT BEEN PART OF ASSESSMENT PROCE EDINGS. THE LD.CIT(A) FURTHER OBSERVED THAT VIDE APPELLATE ORDE R SHEET NOTING DATED 26-08-2013, THE AR OF THE APPELLANT WAS ASKED TO FI LE DETAILS REGARDING CREDITWORTHINESS OF THE PARTIES. IT IS PERTINENT T O MENTION THAT THE AR IS EMPOWERED TO FILE ALL RELEVANT DETAILS IN SUPPORT O F GROUNDS APPEAL. THOUGH, THE DETAILS WERE CLARIFICATORY IN NATURE, A LL THE DETAILS WERE FORWARDED TO THE AO FOR EXAMINATION AND COMMENTS. THEREFORE, NO EVIDENCE HAS BEEN ADMITTED AT THE BACK OF THE AO AN D THE PRINCIPLE OF NATURAL JUSTICE HAS NOT BEEN DENIED. THE LD.CIT(A) FURTHER OBSERVED THAT SECTION 250(4) GIVES VIDE DISCRETION TO THE CIT(A) TO MAKE SUCH FURTHER 8 ITA 2943/MUM/2014 ENQUIRIES AS HE THINKS FIT OR TO DIRECT THE AO TO M AKE FURTHER ENQUIRY AND REPORT THE RESULT TO HIM. EVEN RULE 46A(4) CLARIFI ES THAT NOTHING CONTAINED IN RULE 46A(1) SHALL AFFECT THE POWER OF THE CIT(A) TO DIRECT THE PRODUCTION OF ANY DOCUMENTARY EVIDENCE OR THE EXAMINATION OF A NY WITNESS TO ENABLE HIM TO DISPOSE OF THE APPEAL. EVEN CIRCULAR NO.108 DATED 20-03- 1973 ISSUED BY THE CBDT EXPLAINING THE AMENDMENT PE RTAINING TO INTRODUCTION OF RULE 46A ECHOS THE SAME VIEW. THER EFORE, ADDITIONAL EVIDENCE PRODUCED BEFORE THE CIT(A) PURSUANT TO HIS DIRECTION STAND ON A DIFFERENT FOOTING THAN A NEW EVIDENCE PRODUCED BE FORE HIM SUO MOTO BY THE ASSESSEE. NEEDLESS TO SAY, IN THE FORMER CA SE, RULE 46A(1) SHALL NOT BE APPLICABLE AND THERE SHALL NOT BE ANY NECESS ITY ON THE PART OF THE CIT(A) TO GET THEM SUBJECTED TO SCRUTINY BY THE AO. THEREFORE, HE OPINED THAT THERE IS NO RESTRICTION ON THE POWER OF THE CIT(A) TO ADMIT ADDITIONAL EVIDENCE AND ACCORDINGLY, THE SAME HAS B EEN ADMITTED AND THE OBJECTION OF THE AO WAS REJECTED. 7. INSOFAR AS THE ISSUE OF ADDITION MADE BY THE AO TOWARDS SHARE APPLICATION MONEY U/S 68 OF THE ACT, THE LD.CIT(A) HELD THAT THE ASSESSEE HAS FURNISHED COMPLETE DETAILS OF XANDER G ROUP INC AND ALSO ITS SCALE OF OPERATION. M/S XANDER GROUP INC IS AN INSTITUTIONAL VALUE FIRM FOCUSED ON THE REAL ESTATE, INFRASTRUCTURE, HO SPITALITY AND OTHER SECTORS AND HAS BEEN AN ACTIVE INVESTOR IN INDIA SI NCE 2005. THE GROUP 9 ITA 2943/MUM/2014 HAS MADE OVER USD 1.2 BILLION IN INDIAN IN ASSOCIAT ION WITH VARIOUS GROUPS. NONE OF THESE FACTS HAVE BEEN DISPUTED BY T HE AO. IN OTHER WORDS, THE EXPLANATIONS OF THE ASSESSEE RELATING TO IDENTITY AND CREDITWORTHINESS HAVE TO BE ACCEPTED AS SATISFACTOR Y. THE AO, IN MY CONSIDERED OPINION WAS NOT RIGHT IN IGNORING THE RI GHT ASPECT OF THE MATTER. THE AO HAS NOT BROUGHT ANY COGENT EVIDENCE ON RECORD TO DISPROVE THE IDENTITY AND GENUINENESS OF XANDER GRO UP INC FROM WHOM THE ASSESSEE HAS RECEIVED RS.10 CRORES TOWARDS SHAR E CAPITAL. INSOFAR AS ISSUE OF SHARES AT A HIGH PREMIUM, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE HAS FILED A VALUATION REPORT TO JUSTIFY IS SUE OF SHARES AT A HIGH PREMIUM, THEREFORE, THE AO WAS INCORRECT IN OBSERVI NG THAT THE SHARE PRICE OF AN ENTITY SHALL BE DETERMINED ONLY ON THE BASIS OF DISCOUNTED CASH FLOW BASIS. ON THE OTHER HAND, THE ASSESSEE H AS FILED NECESSARY EVIDENCE TO PROVE THAT ITS SHARE PRICE IS BASED ON THE INTRINSIC VALUE OF THE COMPANY AND SUCH VALUATION IS BASED ON THE DEVE LOPMENT RIGHTS, HISTORICALLY POSSESSED BY THE COMPANY AND NOT ON TH E BASIS OF THE BALANCE-SHEET OF THE COMPANY. THE DEVELOPMENT RIGH TS WERE ACQUIRED WAY BACK IN 1999, WHEREAS THE INVESTMENT HAS BEEN M ADE IN THE PREVIOUS YEAR 2010. IT IS OBVIOUS THAT THE MARKET VALUE OF THE PROPERTY WOULD NOT BE REFLECTED IN THE BOOKS OF ACCOUNT, AS THE ACCOUNTS BEING PREPARED ON HISTORICAL COST BASIS. THE DECISION OF THE INVESTOR TO MAKE 10 ITA 2943/MUM/2014 INVESTMENT INTO INCLUDING INTERALIA, THE PREMIUM PA YABLE BY THE INVESTOR IS NOT DEPENDENT ON THE PROFITS OF THE COMPANY AS O N THE DATE OF INVESTMENT, BUT ON THE BASIS OF ITS FUTURE POTENTIA L. IN THIS CASE, THE ASSESSEE HAS FILED ENORMOUS DETAILS TO PROVE THE VA LUE OF ITS SHARES, THEREFORE, THERE IS NO REASON FOR THE AO TO DISBELI EVE ISSUE OF SHARES ONLY ON THE BASIS OF HIGH PREMIUM. 8. THE LD.CIT(A), BASED ON THE EVIDENCE FILED BY TH E ASSESSEE OBSERVED THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND XANDER GROUP INC IS GENUINE TRANSACTION AND THE ASSESSEE HAS FIL ED NECESSARY DETAILS TO PROVE IDENTITY, GENUINENESS OF TRANSACTION AND C REDITWORTHINESS OF THE PARTIES. THE AO HAS MADE ADDITION PURELY ON SUSPIC ION AND SURMISES MANNER WITHOUT RECORDING ANY REASONS TO PROVE THAT THE TRANSACTION IS SHAM OR THE ASSESSEE HAS INTRODUCED ITS OWN MONEY I N THE FORM OF SHARE CAPITAL. NO EVIDENCE HAS BEEN BROUGHT ON RECORD BY THE AO TO SUBSTANTIATE IT AVERMENT THAT XANDER GROUP INC IS A N ENTRY OPERATOR. THE INVESTMENT BY THE PARTY IN ANY COMPANY IS A BUSINES S DECISION AND SO LONG AS THERE IS NO EVIDENCE TO DISPUTE THIS DECISI ON, IT NEEDS TO BE ACCEPTED. THEREFORE, THE LD.CIT(A) OPINED THAT THE SUM OF RS.10 CRORE RECEIVED FROM XANDER GROUP INC TOWARDS SHARE APPLIC ATION MONEY COULD NOT B ADDED AS UNEXPLAINED INCOME IN THE HANDS OF T HE ASSESSEE. ACCORDINGLY, DELETED ADDITION MADE BY THE AO TOWARD S SHARE APPLICATION 11 ITA 2943/MUM/2014 MONEY U/S 68 OF THE ACT. AGGRIEVED BY THE ORDER, TH E REVENUE IS IN APPEAL BEFORE US. 9. THE LD.DR SUBMITTED THAT THE LD.CITERRED IN ACCE PTING ADDITIONAL EVIDENCE WITHOUT APPRECIATING THE FACT THAT ASSESSE E HAS NOT FULFILLED ANY OF THE FOUR CONDITIONS LAID DOWN U/R 46A OF I.T. RU LES, 1962. THE LD.DR FURTHER SUBMITTED THAT ALTHOUGH THE LD.CIT(A) HAS F ORWARDED THE ADDITIONAL EVIDENCE FILED BY THE ASSESSEE TO THE AO FOR HIS COMMENTS, THE AO HAS GIVEN REASONS FOR NOT ADMITTING ADDITION AL EVIDENCES, THEREFORE, THE LD.CIT(A) OUGHT TO HAVE GIVEN HER FI NDING WHY THE ADDITIONAL EVIDENCE SHOULD BE ACCEPTED, IN THE GIVE N FACTS AND CIRCUMSTANCES OF THE CASE. THE LD.DR FURTHER SUBMI TTED THAT ON THE ISSUE OF ADDITION MADE U/S 68 OF THE ACT, IN RESPEC T OF SHARE APPLICATION MONEY, THE ONUS WAS ON THE ASSESSEE TO PROVE TO THE SATISFACTION OF THE AO, THE NATURE AND SOURCE OF THE CREDITS FOUND IN T HE BOOKS OF ACCOUNT. THE ASSESSEE HAS FAILED TO GIVE ANY SATISFACTORY EX PLANATION IN RESPECT OF NATURE AND SOURCE OF CREDIT, THEREFORE, THE AO W AS RIGHT IN MAKING ADDITION TOWARDS SHARE APPLICATION MONEY RECEIVED F ROM XANDER GROUP INC AS UNEXPLAINED CASH CREDIT U/S 68 OF THE INCOME -TAX ACT, 1961. THE LD.DR FURTHER SUBMITTED THAT THOUGH THE AO HAS BROU GHT OUT VARIOUS REASONS FOR MAKING ADDITIONS, THE LD.CIT(A) HAS NEG ATED ALL OBSERVATIONS MADE BY THE AO WITHOUT RECORDING ANY R EASONS AS TO HOW 12 ITA 2943/MUM/2014 THE FINDINGS OF FACT RECORDED BY THE AO IS INCORREC T. THE ASSESSEE HAS FAILED TO EXPLAIN THE ISSUE OF SHARES AT A HIGH PRE MIUM OF RS.9,99,900 PER SHARE WITHOUT ANY CORRESPONDING BUSINESS ACTIVI TY AND ASSET BASE. ALTHOUGH, THE ISSUE OF SHARES AND SUBSCRIPTION OF S HARES IS A COMMERCIAL DECISION WHICH CANNOT BE QUESTIONED, MERELY FOR HIG H PREMIUM, BUT, FACT REMAINS THAT IN ORDER TO ESCAPE FROM THE RIGORS OF PROVISIONS OF SECTION 68, THE ASSESSEE HAS TO PROVE THE NATURE AND SOURCE OF CREDIT FOUND IN ITS BOOKS OF ACCOUNT. IN THIS CASE, THE AO HAS BRO UGHT OUT CLEAR FACTS TO THE EFFECT THAT THE VERY BASIC IDENTITY AND NATURE OF TRANSACTION IS IN DOUBT, THEREFORE, THE SUM FOUND CREDITED IN THE BOO KS OF ACCOUNT OF THE ASSESSEE IS ADDED AS UNEXPLAINED INCOME AND ACCORDI NGLY, HIS ORDER SHOULD BE UPHELD. 10. THE LD.AR, ON THE OTHER HAND, STRONGLY SUPPORTE D THE ORDER OF LD.CIT(A) AND SUBMITTED THAT THERE IS NO MERIT IN T HE GROUND TAKEN BY THE REVENUE IN THE LIGHT OF RULE 46A OF THE I.T. RULES, 1962 AS THE ASSESSEE HAS NOT FILED ANY ADDITIONAL EVIDENCES ON ITS OWN, BUT SUCH ADDITIONAL EVIDENCE HAS BEEN FILED ON A SPECIFIC QUERY FROM TH E LD.CIT(A), VIDE HER ORDER SHEET ENTRY DATED 26-08-2013. THE LD.CIT(A) HAS DEALT WITH THE ISSUE OF RULE 46A IN THE LIGHT OF VARIOUS JUDICIAL PRECEDENTS AND CATEGORICALLY OBSERVED THAT THE LD.CIT(A) HAS WIDE DISCRETION U/S 250(4) TO MAKE FURTHER ENQUIRY AS HE THINKS FIT OR TO DIRE CT THE AO TO MAKE 13 ITA 2943/MUM/2014 FURTHER ENQUIRY AND REPORT THE RESULT TO HIM. THE LD.AR FURTHER SUBMITTED THAT THE LD.CIT(A) HAS DISCUSSED THE ISSUE IN DETAI L IN THE LIGHT OF CIRCULAR NO.108 DATED 20-03-1973 WHICH EXPLAINS THE POSITION OF INTRODUCTION OF RULE 46A. EVEN OTHERWISE, THE LD.CIT(A) HAS FORWAR DED ALL EVIDENCES FILED BY THE ASSESSEE TO THE AO FOR HIS VERIFICATIO N. THEREFORE, THE QUESTION OF ADMISSION OF ADDITIONAL EVIDENCE BEHIND THE BACK OF THE AO IN VIOLATION OF PRINCIPLES OF NATURAL JUSTICE DOES NOT ARISE. THE LD.AR FURTHER SUBMITTED THAT WHEN THE ASSESSEE HAS FILED CERTAIN ADDITIONAL EVIDENCES AS PER THE DIRECTIONS OF THE APPELLATE CO MMISSIONER, THE SAID EVIDENCE IS GOVERNED BY RULE 46A(4) WHICH IS NOT RE QUIRED TO SATISFY THE CONDITION OF RULE 46A(1). THEREFORE, THERE IS NO M ERIT IN THE GROUND TAKEN BY THE REVENUE CHALLENGING VIOLATION OF RULE 46A. IN THIS REGARD, HE RELIED UPON VARIOUS JUDICIAL PRECEDENTS INCLUDIN G THE DECISION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF SHANKAR KANDASSARI SUGAR MILLS LTD VS CIT 193 ITR 669(KAR). THE LD.AR FURTH ER SUBMITTED THAT THE LD.CIT(A) HAS ADMITTED ADDITIONAL EVIDENCE, WHEN TH E AO HAS REFUSED TO ADMIT ADDITIONAL EVIDENCE FILED BEFORE HIM. THEREF ORE, THERE IS NO QUESTION OF VIOLATION OF RULE 46A AND HENCE, THE GR OUND TAKEN BY THE REVENUE MAY BE DISMISSED. 11. INSOFAR AS ADDITION MADE BY THE AO TOWARDS SHAR E APPLICATION MONEY RECEIVED FROM XANDER GROUP INC, THE LD.AR SUB MITTED THAT THE 14 ITA 2943/MUM/2014 ASSESSEE HAS FILED ENORMOUS DETAILS TO PROVE THE ID ENTITY, CREDITWORTHINESS AND GENUINENESS OF THE SUBSCRIBER TO THE SHARE CAPITAL WHICH IS EVIDENCED FROM THE FACT THAT THE LD.CIT(A) HAS DEALT WITH THE ISSUE AT LENGTH IN THE LIGHT OF EVIDENCES FILED BY THE ASSESSEE, THEREFORE, THE AO WAS TOTALLY INCORRECT IN MAKING ADDITION TOW ARDS SHARE APPLICATION MONEY ONLY FOR THE REASON THAT THE ASSESSEE HAS ISS UED SHARES AT A HIGH PREMIUM. THE LD.AR FURTHER SUBMITTED THAT THE ASSE SSEE HAS FILED COMPLETE DETAILS OF NAMES AND ADDRESS OF THE SUBSCR IBER TO THE SHARE CAPITAL AND ALSO FILED CONFIRMATIONS FROM XANDER IN VESTMENT HOLDING XV LTD CONFIRMING THE INVESTMENT IN THE EQUITY SHARES OF THE ASSESSEE COMPANY. THE ASSESSEE ALSO FILED BANK STATEMENT AL ONG WITH FOREIGN INWARD REMITTANCE CERTIFICATE TO PROVE THE GENUINEN ESS OF TRANSACTIONS. THE ASSESSEE ALSO FILED FINANCIAL STATEMENTS OF THE INVESTOR FOR LAST TWO FINANCIAL YEARS TO PROVE THE CAPACITY OF THE INVEST OR IN SHARE APPLICATION MONEY. THEREFORE, ONCE THE ASSESSEE HAS DISCHARGED ITS INITIAL BURDEN CAST UPON U/S 68 OF THE ACT, THEN THE BURDEN SHIFTS ON THE REVENUE TO PROVE OTHERWISE. IN THIS CASE, THE AO HAS NOT BROU GHT OUT ANY EVIDENCE ON RECORD TO DISBELIEVE INVESTMENT IN SHARE APPLICA TION MONEY. THEREFORE, MERELY FOR THE REASON THAT THE SHARES FO UND ISSUED AT A HIGHER PREMIUM, ADDITION CANNOT BE MADE U/S 68 OF THE ACT. 15 ITA 2943/MUM/2014 12. THE LD.AR, FURTHER REFERRING TO THE PROVISO IN SERTED TO SECTION 68 OF THE ACT, BY THE FINANCE ACT, 2012 WEF 01-04-2013 SU BMITTED THAT THE PROVISO INSERTED TO SECTION 68 OF THE ACT IS PROSPE CTIVE IN NATURE WHICH IS APPLICABLE FROM AY 2013-14, THEREFORE, THE SAID AME NDMENT CANNOT BE APPLIED TO THE ASSESSMENT YEAR IN QUESTION. THE LD .AR FURTHER SUBMITTED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT LTD VS UOI 368 ITR 1 (BOM) MADE IT VERY CLEAR THAT AMOUNT RECEIVED ON ACCOUNT OF SHARE APPLICATION MON EY IS A CAPITAL RECEIPT AND THE NATURE AND SOURCE OF THE INVESTMENT IS EXPLAINED, THEN THERE IS NO SCOPE FOR MAKING ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961. THE LD.AR FURTHER SUBMITTED THAT THE ASSESSEE HAS F ILED VARIOUS DETAILS TO PROVE VALUATION OF SHARES AND SUCH VALUATION IS BASED ON VALUATION OF THE DEVELOPMENT RIGHTS HISTORICALLY POSSESSED BY TH E ASSESSEE AND NOT ON THE BASIS OF THE BALANCE-SHEET OF THE COMPANY. THE ASSESSEE HAS FILED VARIOUS DETAILS TO PROVE THAT THE COMPANY IS HAVING A DEVELOPMENT RIGHT OF A PRIME PLACE WHICH IS HAVING POTENTIAL AN D INVESTOR HAS CONSIDERED ALL THOSE FACTORS TO MAKE INVESTMENTS IN ASSESSEE COMPANY WHICH IS EVIDENT FROM THE FACT THAT A SALE PURCHASE AGREEMENT IS ENTERED INTO BETWEEN THE PARTIES SPECIFYING THE TERMS AND C ONDITIONS OF THE INVESTMENT, THEREFORE, THE AO WAS INCORRECT IN DISB ELIEVING ALL THESE EVIDENCES TO MAKE ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961. 16 ITA 2943/MUM/2014 13. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. WE SHALL FIRST DEAL WITH THE ISSUE OF GROUND TAKEN BY THE REVENUE CHALLENGING VIOLATION OF RULE 46A OF I.T. RULES, 1962. THE LD.CIT(A) HAS DEALT WITH THIS ISSUE IN DETAIL IN THE LIGHT OF EVIDENCES FILED BY THE AS SESSEE TO CAME TO THE CONCLUSION THAT SUCH ADDITIONAL EVIDENCE HAS BEEN F ILED ON THE DIRECTIONS OF THE CIT(A) AND NOT VOLUNTARILY BY THE ASSESSEE. WE FURTHER NOTICE THAT THE LD.CIT(A) HAS CALLED FOR ADDITIONAL DETAILS REG ARDING THE CREDITWORTHINESS OF THE SUBSCRIBER VIDE HER ORDER S HEET ENTRY DATED 26- 08-2013 FOR WHICH THE ASSESSEE, VIDE LETTER DATED 0 7-09-2013 HAD FILED ADDITIONAL EVIDENCE INCLUDING CONFIRMATION FROM THE SUBSCRIBER, BANK STATEMENTS, THE FINANCIAL STATEMENTS OF XANDER INVE STMENT HOLDING XV LTD AND SHARE CERTIFICATE ISSUED BY THE ASSESSEE CO MPANY. ALL THE AFORESAID EVIDENCES HAVE BEEN FILED AT THE INSTANCE OF THE LD.CIT(A) AND, THEREFORE, THE SAID EVIDENCE IS COVERED BY RUL E 46A(4) WHICH DOES NOT REQUIRE TO SATISFY THE CONDITIONS OF RULE 46A(1 ) OF INCOME-TAX RULES, 1962. WE FURTHER NOTICE THAT UNDER THE PROVISIONS OF SECTION 250(4), THE CIT(A) HAS WIDE DISCRETION TO MAKE SUCH FURTHER ENQ UIRY, AS HE THINKS FIT OR TO DIRECT THE AO TO MAKE FURTHER ENQUIRY IN THE LIGHT OF GROUNDS TAKEN BY THE ASSESSEE. EVEN RULE 46A(4) CLARIFIES THAT N OTHING CONTAINED IN RULE 46A(1) SHALL CURTAIL THE CIT(A)S POWER TO DIR ECT THE PRODUCTION OF 17 ITA 2943/MUM/2014 ANY DOCUMENT OR THE EXAMINATION OF ANY WITNESS TO E NABLE HIM TO DISPOSE OF THE APPEAL. THIS FACT HAS BEEN FURTHER CLARIFIED BY THE BOARD VIDE CIRCULAR NO.108 DATED 20-03-1973. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THERE IS NO MERIT IN THE GROUN D TAKEN BY THE REVENUE IN THE LIGHT OF RULE 46A AS THE CIT(A) HAD GIVEN AN OPPORTUNITY TO THE AO TO COMMENT ON ADDITIONAL EVIDENCE FILED B Y THE ASSESSEE BY WAY OF A REMAND REPORT. ACCORDINGLY, THE GROUND TA KEN BY THE REVENUE IS REJECTED. 14. COMING TO THE ISSUE IN HAND. THE AO HAS MADE AD DITION TOWARDS SHARE APPLICATION MONEY RECEIVED FROM XANDER INVEST MENT HOLDING XV LTD, A MAURITIUS BASED NON-RESIDENT INVESTOR ON THE GROUND THAT THE ASSESSEE HAS FAILED TO PROVE THE IDENTITY, GENUINEN ESS OF TRANSACTION AND CREDITWORTHINESS OF THE INVESTOR WHICH IS A PRE -CONDITION TO ESCAPE FROM THE RIGORS OF PROVISIONS OF SECTION 68 OF THE INCOME-TAX ACT, 1961. THE AO HAS GIVEN VARIOUS REASONS TO DISBELIEVE INVE STMENTS MADE BY XANDER INVESTMENT HOLDING XV LTD. ACCORDING TO THE AO, ALTHOUGH THE ASSESSEE HAS FURNISHED CERTAIN EVIDENCES TO PROVE T HE IDENTITY OF THE PARTY, BUT FACT REMAINS THAT THE ASSESSEE FAILED TO FILE FURTHER EVIDENCES TO JUSTIFY ISSUE OF SHARES AT A HIGH PREMIUM OF RS. 9,99,900 PER SHARE. THEREFORE, HE CAME TO THE CONCLUSION THAT THE ALLEG ED CAPITAL RECEIVED FROM XANDER INVESTMENT HOLDING XV LTD IS A NON GENU INE TRANSACTION 18 ITA 2943/MUM/2014 ENTERED THROUGH THE PROCESS OF ACCOMMODATION OR BOG US ENTRIES TO BRING IN ASSESSEES OWN MONEY UNDER THE GUISE OF CAPITAL IN THE COMPANY. THE AO HAS BASICALLY QUESTIONED DOCUMENTATION FURNI SHED BY THE ASSESSEE TO PROVE THE CREDIT FOUND IN ITS BOOKS OF ACCOUNT. ACCORDING TO THE AO, ALTHOUGH THE ASSESSEE HAS FILED BANK STATEM ENT TO PROVE THE TRANSFER OF MONEY THROUGH BANKING CHANNEL, BUT THE BANK STATEMENT DOES NOT GIVE DETAILS OF INVESTMENTS. THE AO FURTHER OB SERVED THAT THE IDENTITY OF THE ALLEGED SUBSCRIBER HAS NOT BEEN EST ABLISHED VOLUNTARILY. THE GENUINENESS OF THE TRANSACTION AND CREDITWORTHI NESS OF THE ALLEGED SUBSCRIBER AND THE PURPOSE FOR WHICH THE MONEY HAS BEEN INVESTED HAS NOT BEEN PROVED AND ESTABLISHED. THE ASSESSEE HAS NOT OFFERED ANY PLAUSIBLE EXPLANATION ABOUT THE NATURE AND SOURCE T HEREOF AND THE EXPLANATIONS OFFERED BY THE ASSESSEE ARE NOT SATISF ACTORY AND NOT SUPPORTED BY ANY AUTHENTIC EVIDENCES. 15. THE PROVISIONS OF SECTION 68 OF THE INCOME-TAX ACT, 1961 GIVES A STATUTORY RECOGNITION TO THE PRINCIPLE THAT CASH CR EDITS WHICH ARE NOT SATISFACTORILY EXPLAINED MAY BE ASSESSED AS INCOME. THIS PROVISION EMPOWERS THE AO TO MAKE ENQUIRY REGARDING THE CASH CREDIT. IF HE SATISFIED WITH THESE ENTRIES ARE NOT GENUINE, HE HA S EVERY RIGHT TO ADD THE AMOUNT AS INCOME FROM OTHER SOURCES. THE SATISFA CTION OF THE AO IS 19 ITA 2943/MUM/2014 THE BASIS FOR MAKING ADDITION U/S 68 AND THE SATISF ACTION MUST BE DERIVED FROM THE RELEVANT FACTORS ON THE BASIS OF PROPER EN QUIRY. IT IS WELL SETTLED THAT THE ASSESSEE IS REQUIRED TO PROVE PRIMA FACIE THE TRANSACTIONS WHICH RESULTS IN CASH CREDITS IN ITS BOOKS OF ACCOUNT. S UCH PROOF INCLUDES THE PROOF OF IDENTITY OF ITS CREDITOR, THE CAPACITY OF SUCH CREDITOR TO ADVANCE MONEY AND LASTLY, THE GENUINENESS OF THE TRANSACTIO N. THESE THINGS MUST BE PROVED PRIMA FACIE BY THE ASSESSEE AND ONLY AFTER ASSESSEE HAS ADDUCED EVIDENCE, THE ONUS SHIFTS TO THE DEPART MENT. IN THIS LEGAL BACKGROUND, WHEN WE EXAMINE THE FACTS OF THE PRESEN T CASE, WHETHER THE AO WAS RIGHT IN MAKING ADDITION TOWARDS SHARE A PPLICATION MONEY RECEIVED FROM XANDER INVESTMENT HOLDING XV LTD, UND ER SECTION 68 OF THE INCOME-TAX ACT, 1961. THE ASSESSEE HAS FILED V ARIOUS DETAILS INCLUDING NAMES AND ADDRESS OF THE SUBSCRIBERS TO T HE SHARE CAPITAL. THE ASSESSEE ALSO FILED NUMBER OF DOCUMENTS INCLUDI NG SHARE PURCHASE AGREEMENT BETWEEN THE ASSESSEE AND XANDER INVESTMEN T HOLDING XV LTD, FINANCIAL STATEMENTS OF THE INVESTORS, BANK ST ATEMENT AND FOREIGN INWARD REMITTANCE CERTIFICATE TO PROVE THE TRANSFER OF MONEY THROUGH PROPER BANKING CHANNELS. THE ASSESSEE FURTHER FILE D CONFIRMATION FROM XANDER INVESTMENT HOLDING XV LTD. ON PERUSAL OF DE TAILS FILED BY THE ASSESSEE INCLUDING SHARE PURCHASE AGREEMENT, WE FIN D THAT THE PARTIES HAVE ENTERED INTO SHARE PURCHASE AGREEMENT SETTING FORTH TERMS AND 20 ITA 2943/MUM/2014 CONDITIONS OF INVESTMENT. AS PER THE SAID AGREEMEN T, XANDER INVESTMENT HOLDING XV LTD HAS TO INVEST IN ASSESSEE COMPANY FOR THE PURPOSE OF DEVELOPMENT OF A HEALTH PARK. THE AGREE MENT FURTHER STATED THAT THE ASSESSEE SHALL ISSUE SHARE AT A PREMIUM OF RS.9,99,900 PER SHARE. TO SUPPORT THIS, THE ASSESSEE HAS FILED BAN K STATEMENTS ALON GWITH FINANCIAL STATEMENTS OF INVESTORS TO PROVE TH E CAPACITY OF INVESTORS. WE FURTHER NOTICE THAT THE ASSESSEE HAS FILED NUMBE R OF OTHER DETAILS IN RESPECT OF XANDER INVESTMENT HOLDING XV LTD TO PROV E THAT THE SAID COMPANY IS PART OF XANDER GROUP WHICH IS HAVING MOR E THAN USD 1.2 BILLION INVESTMENTS IN INDIA IN VARIOUS SECTORS INC LUDING REAL ESTATE, HOSPITALITY, INFRASTRUCTURE, ENTERTAINMENT, ETC. T HE GROUP IS AN ACTIVE INVESTOR IN INDIA SINCE 2005 IN JOINT VENTURES WITH RELIANCE GROUP, TATA -- TRENT, MANTRI DEVELOPERS, NHAI AND OTHER PROJECTS. THE ASSESSEE HAS FILED VARIOUS NEWSPAPER REPORTS IN RESPECT OF XANDE R GROUP INVESTMENTS IN INDIA IN VARIOUS SECTORS. ALL THESE EVIDENCES G O TO PROVE AN UNDOUBTED FACT THAT THE INVESTMENT RECEIVED FROM XA NDER INVESTMENT HOLDING XV LTD IS A GENUINE TRANSACTION WHICH IS SU PPORTED BY VALID EVIDENCES. HAD IT BEEN A CASE OF THE AO THAT THE I DENTITY OF THE INVESTOR IS NOT KNOWN AND THE GENUINENESS AND CREDITWORTHINE SS OF THE INVESTOR IS DOUBTFUL, THEN THE MATTER WOULD BE DIFFERENT. IN T HIS CASE, THE AO HAS DOUBTED THE IDENTITY AND GENUINENESS OF TRANSACTION , BUT THE FINDING OF 21 ITA 2943/MUM/2014 THE AO IS BASED ON A SUSPICION AND SURMISES AND NOT ON ANY COGENT EVIDENCE. THE AO HAS FAILED TO BRING ON RECORD ANY EVIDENCE TO PROVE THAT THE TRANSACTIONS BETWEEN THE ASSESSEE AND XAND ER GROUP IS A SHAM TRANSACTION AND THE ASSESSEE HAS INTRODUCED ITS OWN MONEY IN FORM OF SHARE CAPITAL. THE FINDINGS OF THE AO IS PURELY BA SED ON SUSPICIOUS AND SURMISES WHICH IS EVIDENT FROM THE FACT THAT THE AO DISBELIEVED COMPLETE DETAILS INCLUDING SHARE PURCHASE AGREEMENT BETWEEN THE PARTIES TO MAKE ADDITION ON FLIMSY GROUNDS. MOREOVER, WHEN A CREDIT IS RECEIVED FROM A NON-RESIDENT THE STATUE HAS GIVEN WIDE POWERS TO TH E AO TO CONDUCT NECESSARY ENQUIRES THROUGH COMPETENT AUTHORITY, I.E . FT&TR, DEPARTMENT OF REVENUE, MINISTRY OF FINANCE, GOVT. O F INDIA. BUT, THE AO NEITHER CONDUCTED REQUIRED ENQUIRIES ON ITS OWN NOR RESORTED TO THE PROPER MECHANISM PROVIDED UNDER THE STATUE FOR EXCH ANGE OF INFORMATION UNDER BILATERAL TAX TREATY FROM THE COU NTY FROM WHERE THE FUNDS HAS COME IN ORDER TO VERIFY GENUINENESS OF TR ANSACTION. THE AO WITHOUT EXERCISING HIS OPTION PROVIDED UNDER THE ST ATUE SIMPLY CAME TO THE CONCLUSION THAT THE AMOUNT OF INVESTMENT RECEIV ED FROM A NON- RESIDENT IS NON-GENUINE TRANSACTION ON SUSPICIOUS A ND SURMISES MANNER. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT ONCE THE INITIAL BURDEN CAST ON THE ASSESSEE HAS BEEN SUCCESSFULLY PROVED W ITH NECESSARY EVIDENCE, THEN THERE IS NO REASON FOR THE AO TO DOU BT A GENUINE 22 ITA 2943/MUM/2014 BUSINESS TRANSACTION BETWEEN TWO PARTIES AS A SHAM TRANSACTION TO MAKE ADDITION U/S 68 OF THE INCOME-TAX ACT, 1961. 16. COMING TO THE ALLEGATIONS MADE BY THE AO IN RES PECT OF ISSUE OF SHARES AT A PREMIUM. THE AO HAS QUESTIONED ISSUE OF SHARES AT A PREMIUM. ACCORDING TO THE AO, THERE IS NO JUSTIFIC ATION FOR ISSUE OF SHARES AT A PREMIUM OF RS.9,99,900 PER SHARE, WHEN THERE IS NO CREDIBLE BUSINESS AND ASSET BASE. ACCORDING TO THE AO, THE ASSESSEE HAS NOT SUBSTANTIATED THE ISSUE OF SHARES AT A HUGE PREMIUM . WE DO NOT FIND ANY MERIT IN THE FINDINGS OF THE AO FOR THE REASON THAT THE ASSESSEE HAS FILED NECESSARY EVIDENCE INCLUDING SHARE PURCHASE A GREEMENT BETWEEN THE PARTIES WHICH EXPLAINS THE PURPOSE OF INVESTMEN T. THE ASSESSEE FURTHER EXPLAINED THAT THE INVESTMENT OF XANDER INV ESTMENT HOLDING XV LTD IS ON THE BASIS OF INTRINSIC WORTH OF THE COMPA NY BASED ON THE VALUATION OF DEVELOPMENT RIGHTS HISTORICALLY POSSES SED BY THE ASSESSEE AND NOT ON THE BASIS OF BALANCE-SHEET. THE DEVELOP MENT RIGHTS WERE ACQUIRED WAY BACK IN 1999 WHEREAS THE INVESTMENT HAS BEEN BASED IN THE PREVIOUS YEAR 2010. IT IS OBVIOUS THAT THE MAR KET VALUE OF THE PROPERTY WOULD NOT BE REFLECTED IN THE BOOKS OF ACC OUNT, AS THE ACCOUNTS BEING PREPARED ON HISTORICAL COST BASIS. THE MERE FACT THAT THERE IS NO INCOME DERIVED / EARNED BY THE COMPANY WOULD NOT RE DUCE OR AFFECT THE VALUATION OF THE COMPANY ON THE BASIS OF THE MARKET VALUE OF THE ASSETS. 23 ITA 2943/MUM/2014 THE ASSESSEE HAS FILED NECESSARY DETAILS TO PROVE T HE VALUE OF THE PROPERTY POSSESSED BY THE COMPANY IN CURRENT MARKET PRICE AT RS.49 CRORES AND IT IS ON THIS BASIS THAT A POTENTIAL INV ESTOR WOULD CONSIDER INVESTING IN SHARES. WE FURTHER OBSERVE THAT THE D ECISION OF THE INVESTOR TO MAKE INVESTMENT INTO THE COMPANY INCLUDING INTER ALIA THE PREMIUM PAID BY THE INVESTOR IS NOT DEPENDENT ON THE PROFIT OF THE COMPANY AS ON THE DATE OF INVESTMENT, BUT ON THE BASIS OF ITS FUT URE POTENTIAL. AS CLAIMED BY THE ASSESSEE, THE COMPANY IS IN THE PROC ESS OF DEVELOPING A COMMERCIAL PROJECT AND SUCH ACTIVITY CANNOT COMMENC E ALMOST IMMEDIATELY IN VIEW OF THE FACT THAT VARIOUS PERMIS SIONS AND SANCTIONS ARE REQUIRED TO COMMENCE OPERATIONS. THE ASSESSEE H AS EXPLAINED REASONS FOR DELAY IN PROJECT. THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT VALUATION OF SHARES OF ANY ENTERPRISES DOES NO T DEPEND UPON BOOK VALUE, BUT IT IS BASED ON VARIOUS OTHER FACTORS, IN CLUDING GOOD WILL, ITS BUSINESS POTENTIAL AND ASSETS. HENCE, MERELY FOR TH E REASON THAT THERE IS A HUGE PREMIUM ON SHARES, THE GENUINE TRANSACTION B ETWEEN TWO COMPANIES CANNOT BE DOUBTED BY THE AO, MORE PARTICU LARLY, WHEN THE ASSESSEE HAS DISCHARGED ITS INITIAL BURDEN BY FILIN G NECESSARY DETAILS TO PROVE THE IDENTITY, GENUINENESS OF TRANSACTIONS AND CREDITWORTHINESS OF THE PARTIES. THE ISSUE OF SHARE CAPITAL WITH PREMI UM AND SUBSCRIPTION TO SUCH SHARE CAPITAL IS A COMMERCIAL DECISION BETWEEN TWO PARTIES AND THE 24 ITA 2943/MUM/2014 AO DOES NOT HAVE TO PLAY ANY ROLE AS LONG AS THE CR EDIT IN RESPECT OF SHARE APPLICATION MONEY PASSED THE TEST OF IDENTITY , GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF THE PARTIES. I N THIS CASE, ON PERUSAL OF DETAILS AVAILABLE ON RECORD, WE FIND THAT THE ID ENTITY OF THE SUBSCRIBER TO THE SHARE CAPITAL IS NOT IN DOUBTFUL BECAUSE THE RE IS A SHARE PURCHASE AGREEMENT BETWEEN THE PARTIES, WHICH ESTABLISHES TH E IDENTITY OF THE CREDITOR. THE GENUINENESS OF TRANSACTIONS AND CRED ITWORTHINESS OF THE PARTIES IS ALSO NOT IN DOUBTFUL AS THE ASSESSEE HAS FILED NECESSARY EVIDENCES TO PROVE THE GENUINENESS OF TRANSACTION B Y FILING BANK STATEMENTS AND FOREIGN INWARD REMITTANCE CERTIFICAT E. IN RESPECT OF CREDITWORTHINESS, THE ASSESSEE HAS FILED FINANCIAL STATEMENT OF INVESTORS WHICH IS SELF EXPLANATORY, AS PER WHICH THE INVESTO R HAS CAPACITY TO EXPLAIN SOURCE OF INVESTMENT IN SHARE APPLICATION M ONEY OF THE ASSESSEE. 17. COMING TO ANOTHER ASPECT OF THE ISSUE, THE AO H AS MADE ADDITION TOWARDS SHARE APPLICATION MONEY RECEIVED FROM XANDE R INVESTMENT HOLDING XV LTD U/S 68 OF THE ACT, ON THE BASIS OF H IGHER PREMIUM CHARGED ON ISSUE OF SHARES. THE PROVISION OF SECTI ON 68 HAS BEEN AMENDED BY INSERTING A PROVISO BY THE FINANCE ACT, 2012 W.E.F 01-04- 2013. AS PER THE SAID AMENDMENT, WHERE THE ASSESSE E IS A COMPANY AND THE SUM SO CREDITED CONSISTS OF SHARE APPLICATI ON MONEY, SHARE 25 ITA 2943/MUM/2014 CAPITAL, SHARE PREMIUM OR ANY SUCH AMOUNT BY WHATEV ER NAME CALLED, ANY EXPLANATION OFFERED BY SUCH ASSESSEE COMPANY SH ALL BE DEEMED NOT SATISFACTORY UNLESS THE PERSON BEING A RESIDENT IN WHOSE NAME SUCH CREDIT IS RECORDED IN THE BOOKS OF SUCH COMPANY ALS O OFFERS AN EXPLANATION ABOUT THE NATURE AND SOURCE OF SUCH SUM SO CREDITED AND SUCH EXPLANATION IN THE OPINION OF THE AO AFORESAID HAS BEEN FOUND TO BE SATISFACTORY. IN THIS CASE, THE ASSESSEE HAS EX PLAINED THE CREDIT FOUND IN ITS BOOKS OF ACCOUNT WITH NECESSARY EVIDEN CE TO PROVE IDENTITY, CREDITWORTHINESS AND GENUINENESS OF TRANSACTION AND , THEREFORE, WE ARE OF THE CONSIDERED VIEW THAT THE SHARE PREMIUM CANNO T BE BROUGHT TO TAX WITHIN THE AMBIT OF PROVISIONS OF SECTION 68 BEFORE INSERTION OF PROVISO TO SECTION BY THE FINANCE ACT, 2012 WEF 01-04-2013 WHI CH IS EVIDENT FROM THE FACT THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS GAGANDEEP INFRASTRUCTURE LTD VS 394 ITR 680 (BOM ) OBSERVED THAT THE PROVISO INSERTED WEF 01-04-2013 IS CONSIDERED TO BE PROSPECTIVE IN NATURE AND APPLICABLE TO AY 2013-14. THIS FACT IS FURTHER STRENGTHENED BY THE LATEST DECISION OF HONBLE 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 HONBLE HIGH COURT HAS CONSID ERED THE QUESTION OF ADDITION MADE U/S 68 IN RESPECT OF SHARE PREMIUM AND HELD THAT AMENDMENT TO SECTION 68 OF THE ACT, BY THE INSERTIO N OF PROVISO THERETO 26 ITA 2943/MUM/2014 TOOK PLACE WEF 01-04-2013, THEREFORE, IT IS NOT AP PLICABLE TO THE SUBJECT ASSESSMENT YEARS PRIOR TO AY 2013-14. HENCE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS INCORRECT IN MAKING ADDITION T OWARDS SHARE APPLICATION MONEY INCLUDING SHARE PREMIUM U/S 68 OF THE INCOME-TAX ACT, 1961. 18. COMING TO ANOTHER ASPECT OF THE MATTER. THE LD. AR FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT RECEIVED ON ACCO UNT OF SHARE APPLICATION MONEY IS CAPITAL IN NATURE AND COULD NO T BE TAXED U/S 68, IF THE EXPLANATION OFFERED BY THE ASSESSEE OF THE NATU RE AND SOURCE IS NOT SATISFACTORY, IN THE OPINION OF THE AO. WE FIND TH AT THE ISSUE OF TAXABILITY OF SHARE PREMIUM HAS BEEN CONSIDERED BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE INDIA SERVICES PVT LT D VS UOI 308 ITR 1 (BOM) AND AFTER CONSIDERING RELEVANT PROVISIONS INC LUDING THE PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT HELD THAT ALTHOUG H SECTION 56(1) OF THE ACT WOULD PERMIT INCLUDING WITHIN ITS HEAD ANY INCO ME NOT OTHERWISE EXCLUDED, IT DOES NOT PROVIDE FOR A CHARGE TO TAX O N CAPITAL ACCOUNT TRANSACTION OF ISSUE OF SHARES AS IS SPECIFICALLY P ROVIDED FOR IN SECTION 45 OR SECTION 56(2)(VIIB) OF THE ACT AND INCLUDED WITH IN THE DEFINITION OF INCOME IN SECTION 2(24) OF THE ACT. IT WAS FURTH ER OBSERVED THAT AMENDMENT TO SECTION 2(24) AND INSERTION OF SECTION 56(2)(VIIB) WEF 01- 04-2013 RELEVANT TO AY 2013-14 AND THEREFORE, PRIOR TO INSERTION OF 27 ITA 2943/MUM/2014 SECTION 56(2)(VIIB), SHARE PREMIUM CANNOT BE CHARGE D TO TAX AS IT IS IN THE NATURE OF CAPITAL RECEIPT. THIS LEGAL POSITION IS FURTHER REITERATED BY THE HONBLE BOMBAY HIGH COURT, NAGPUR BENCH IN A SE RIES OF TAX APPEALS IN INCOME-TAX APPEALS NO. 26 TO 31 OF 2017 DATED 08-06-2017, WHERE THE HONBLE HIGH COURT HAS CONSIDERED THE QUE STION OF TAXABILITY OF SHARE PREMIUM IN THE LIGHT OF ITS EARLIER DECISI ON IN CASE OF VODAFONE INDIA SERVICES PVT LTD VS UOI (SUPRA) AND ALSO CONS IDERING THE RATIO OF JUDGEMENT OF HONBLE 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 INCOME AS PROVIDED U/S 2(24) OF THE ACT AT THE RELEVANT TIME DID NOT DEFINE AS INCOME IN CONSIDERA TION 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 APPLI CATION TO THE SHARE PREMIUM RECEIVED BY THE RESPONDENT ASSESSEE IN THE PREVIOUS YEAR RELEVANT TO THE AY PRIOR TO 2013-14. SIMILARLY, TH E AMENDMENT TO SECTION 68 OF THE ACT, BY ADDITION OF PROVISO WAS MADE SUBS EQUENT TO PREVIOUS YEAR RELEVANT TO THE SUBJECT ASSESSMENT YEAR AND CA NNOT 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 O F THE ACT, AS IT IS ON ACCOUNT OF CAPITAL A RECEIPT DOES NOT COME WITHI N THE AMBIT OF DEFINITION OF INCOME. 28 ITA 2943/MUM/2014 19. COMING TO THE CASE LAWS RELIED UPON BY THE LD.D R. THE LD.DR HAS RELIED UPON THE DECISION OF HONBLE KERALA HIGH COU RT IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES INDIA PVT L TD 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 IT S FACE VALUE, IF THE COMPANY IS NOT ONE IN WHICH THE PUBLIC IS SUBSTANTI ALLY 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 B E 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 T HE PRESENT CASE AND FIND THAT THE CASE LAWS RELIED UPON BY THE LD.DR HAS NO APPLICATION AS IN THE CASE CONSIDERED BY THE HONBLE KERALA HIGH COURT, T HERE IS NO CLARITY WHETHER THE DECISION PERTAINS TO THE POSITION OF LA W 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-AMEN DED PROVISIONS OF SECTION 68 AND SECTION 56(2)(VIIB) OF THE INCOME-TA X ACT, 1961. 20. IN THIS VIEW OF THE MATTER AND CONSIDERING THE RATIOS OF CASE LAWS DISCUSSED HERINABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE AO WAS ERRED IN MAKING ADDITION TOWARDS SHARE APPLICATION MONEY RECEIVED FROM XANDER INVESTMENT HOLDING XV LTD U/S 68 OF THE ACT, DESPITE THE 29 ITA 2943/MUM/2014 ASSESSEE HAS PROVED THREE INGREDIENTS, I.E. IDENTIT Y, GENUINENESS OF TRANSACTION AND CREDITWORTHINESS OF PARTY WITH NECE SSARY EVIDENCES. THE LD.CIT(A), AFTER CONSIDERING RELEVANT FACTS HAS RIG HTLY DELETED ADDITION MADE BY THE AO. WE DO NOT FIND ANY ERROR IN THE FI NDINGS OF THE LD.CIT(A); HENCE, WE ARE INCLINED TO UPHOLD THE FIN DING OF LD.CIT(A) AND DISMISS THE APPEAL FILED BY THE REVENUE. 21. IN THE RESULT, APPEAL FILED BY THE REVENUE IS D ISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH OCTOBER, 2018. SD/- SD/- (JOGINDER SINGH) (G MANJUNATHA) VICE PRESIDENT ACCOUNTANT MEMBER MUMBAI, DT : 17 TH OCTOBER, 2018 PK/- COPY TO : 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR /TRUE COPY/ BY ORDER SR.PS, ITAT, MUMBAI