S4 Carlisle Publishing Service P Ltd., CHENNAI V. DCIT Corporate Circle 6(1), CHENNAI

ITA 368/CHNY/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5081 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-03-2018
• Assessment Year: 2008-2009
• Appeal Filed On: 31-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIJAYKUMARPUNNA JR ST
• Assessee Lawyers: N V BALAJI
• Keywords: Unexplained cash credit; Share purchase agreement; Valuation report; Capital receipt
• Section: 143(3); 56(2); 68; 56

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , # BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER / I .T.A. NO: 368/CHNY/2018 / ASSESSMENT YEAR : 2008-09 M/S. S4 CARLISLE PUBLISHING SERVICE P LTD., PRAKASH TOWERS, 1 ST FLOOR, 141 RAJIV GANDHI SALAI (OMR) KOTTIVAKKAM, CHENNAI 600 041 [PAN: AAFCS 2900K] VS. DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRLCE 6(1) [FORMERLY COMPANY CIRCLE VI (1)] CHENNAI 600 034. ( / APPELLANT) ( / RESPONDENT ) ASSESSEE BY : SHRI. N.V. BALAJI, ADVOCATE REVENUE BY : SHRI. VIJAYKUMARPUNNA, JR. ST. COUNSEL % /DATE OF HEARING : 15.05.2018 % /DATE OF PRONOUNCEMENT : 28.06.2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THE ASSESSEE FILED THIS APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-15 , CHENNAI, IN ITA NO.63 (O LD) 30.11.2017/2014-15/ 673(NEW)/CIT(A)15/2016-17 DATED FOR THE AY 2008-0 9. :-2-: ITA NO. 368/CHNY/2018 2. M/S S4 CARLISLE PUBLISHING SERVICES P LTD, THE A SSESSEE, FORMALLY CALLED AS S-4 IND SOFTWARE PVTLTD, IS A COMPANY ENGAGED IN E -PUBLISHING AND SOFTWARE ENABLED SERVICES SINCE 08.08.2000. IN THE ASSESSMENT MADE U/ 143(3) R.W.S. 147 ON 31.3.2014, THE AO FOUND FROM THE BALANCE-SHEET SCHEDULE-2) THAT THE ASSESSEE HAD A BALANCE OF RS. 10,66,98,464 AGAINST SHARE PREMIUM ACCOUNT IN THE LIABILITIES SIDE. IN T HE ASSET SIDE , AS PER SCHEDULE 5, UNDER INVESTMENT, IT HAD SHOWN RS.11,85 ,16,000 AS AN INVESTMENT IN S4 CARLISLIE PUBLISHING INC (A FOREIGN WHOLLY OW NED SUBSIDIARY COMPANY) . THE AO HAS OBSERVED IN THE ASSESSMENT ORDER THAT UN EXPLAINED AMOUNT WAS CREDITED IN THE SHARE PREMIUM ACCOUNT WHICH WAS UTI LIZED FOR INVESTMENT IN A COMPANY WHICH WAS NOT THE MAIN BUSINESS OF THE ASS ESSEE; THE ASSESSEE COMPANY WAS UTILIZED AS A CONDUIT FOR UNEXPLAINED F UNDS. AFTER HEARING THE ASSESSEE , THE AO DETERMINED THE TOTAL INCOME AT R S. 10,45,L7,761/- BY MAKING A MAJOR ADDITION OF RS. 10,15,86,144/- AS UN EXPLAINED CREDITS IN THE BOOKS U/S 68. 2.1 ON APPEAL, THE LD. CIT(A) DISMISSED THE APPE AL. ON FURTHER APPEAL, THIS HONBLE ITAT VIDE ITS ORDER IN ITA NA. 192/MDS/ 2016 DATED13.06.2016 SET ASIDE THE ORDER OF THE LD. CIT(A) AND HELD AS UNDER : THE ORDER PASSED BY THE LD. CIT(A) IS VERY CRYPTIC ONE AND HE HAS NOT DISCUSSED... WE ARE UNABLE TO APPRECIATE THE ORDER OF THE LD. CIT(A) AND ACCORDINGLY WE REMIT THE SAME TO THE ID, CIT(A) TO GIVE FINDING ON THE SHARE PURCHASE AGREEMENT ENTERED INTO BY THE ASSESSEE WIT H FOREIGN COMPANY AND ALSO RELEVANT ALLOTMENT OF SHARE. ACCORDINGLY, WE S ET ASIDE THE ORDER OF THE LD. :-3-: ITA NO. 368/CHNY/2018 CIT(A) ON THIS ISSUE AND REMIT THE ISSUE BACK TO TH E LD. CIT(A) FOR FRESH CONSIDERATION AND TO PASS A DETAILED SPEAKING ORDER . 3. IN PURSUANCE OF THE ABOVE ORDER, THE LD. CIT(A) AFTER CONSIDERING THE ASSESSEES MATERIAL, SUBMISSIONS AND THE ASSESSME NT ORDER ETC HELD , INTER ALIA, THAT THE ASSESSEE COMPANY HAD AN AUTHORISED S HARE CAPITAL OF RS.25,00,000 (2,50,000 SHARES @ RS.10). DURING THE AY 2007-08, THE AUTHORIZED SHARE CAPITAL WAS INCREASED FROM 25 LAKH S TO 2.5 CRORES AND THE ASSESSEE ISSUED 15 LAKHS SHARES AT RS.10 EACH ,TOT ALLING TO RS. 1,50,00,000 WHICH IS DETAILED BELOW: NO. OF BONUS SHARE ISSUED: 12,50.000 AT RS, 10 EAC H VALUE OF BONUS SHARE ISSUED: 1,25,00,000 2,31,580 SHARES OF RS. 10 EACH WERE ISSUED OUT OF W HICH THE SHARES WERE CALLED UP AND PAID UP@ RS3.3 PER SHARE AND RECEIVED SHARE PREMIUM OF RS. 47 PER SHARE. VALUE OF SHARE PREMIUM RECEIVED : 2,31,580 X 47 = RS, 1,08,84,260 TOTAL SHARE CAPITAL INTRODUCED DURING AY 07-08 RS ,1,32,64,214 TOTAL SHARE PREMIUM INTRODUCED DURING AY 07-08 RS .L08,84,260 RS.2,41,48,474 SUBSEQUENTLY, DURING THE A. Y. 2008-09, THE ASSESSE E HAD FLOATED A WHOLLY OWNED US SUBSIDIARY BY NAME S4 CARLISLE PUBLISHING SERVICES INC. THE ASSESSEE COMPANY HAS ENTERED INTO A SHARE TRANSFER AND PURCHASE AGREEMENT ON 06-04-2007 WITH M/S. CARLISLE COMMUNICATION INC, US.A. CORPORATION :-4-: ITA NO. 368/CHNY/2018 INCORPORATED UNDER THE LAWS OF IOWA WHEREBY THE SHA REHOLDERS OF CARLISLE COMMUNICATION INC., AGREED TO SELL THE SHARES HELD BY THEM TO S4 CARLISLE PUBLISHING SERVICES INC, A WHOLLY OWNED FOREIGN SUB SIDIARY OF THE ASSESSEE COMPANY, FOR A TOTAL PURCHASE PRICE OF USD $3.5 MIL LION AND IN RETURN TO INVEST A SUM OF USD $ 2.5 MILLION IN THE ASSESSEE COMPANY SO AS TO HOLD 25% OF THE OUTSTANDING CAPITAL OF THE ASSESSEE COMPANY AS ON 3 1.03.2008.BY THIS, THE SHARE CAPITAL AND SHARE PREMIUM HAS CHANGED AS UNDE R: NO. OF SHARES ISSUED @ RS. 10 IS 5,77,194 TOTALLING RS. 82,71,940 NO.OF SHARES ISSUED AT PREMIUM OF RS. 166 IS 5,77,194 TOTALLING RS.9,58,14,204 TOTAL CAPITAL CREDITED IN THE BOOKS OF THE ASSESSEE RS. 10,15,86,144 COMPANY DURING THE A Y 08-09 PURSUANT TO SHARE TRANSFER AND PURCHASE 3.1 THUS, IN THE RELEVANT PREVIOUS YEAR, THE ASSESS EE ISSUED SHARES AT A PREMIUM TO A NON-RESIDENT COMPANY AT RS. 166/- PER SHARE AGAINST THE FACE VALUE OF RS. 10/- PER SHARE AND RECEIVED A TOTAL SH ARE PREMIUM AT RS. 10.67 CRORE. OUT OF IT , IT HAS INVESTED IN A FOREIGN COM PANY WHICH BECAME SUBSIDIARY COMPANY OF THE ASSESSEE. THE FOREIGN SUBSIDIARY COM PANY WAS EARLIER OWNED BY FOUR FOREIGN SHAREHOLDERS AND THE ASSESSEE PURCH ASED THEIR SHARES FOR RS. 11.85 CRORE. AFTER SELLING THE ASSESSEES 25% OF SH ARES WORTH 2.5 MILLION USD, THE PROMOTER SHARES IN THE ASSESSEE COMPANY WERE R EDUCED TO 75%. :-5-: ITA NO. 368/CHNY/2018 3.2 THE LD CIT(A) ASKED THE ASSESSE TO EXPLAIN WHY A SHARE WITH A FACE VALUE OF RA. 10/- PER SHARE, WAS VALUED AT RS. 166/ -. IN SPITE OF SPECIFIC OPPORTUNITY GIVEN, THE ASSESSEE COULD NOT SUBSTANTI ATE ITS EXORBITANT VALUATION OF SHARES AT RS. 166/- PER SHARE AS AGAINST THE SHA RE VALUE WORKED OUT AT RS.48/- PER SHARE DURING THE RELEVANT PERIOD BY TH E ASSESSEES OWN CHARTERED ACCOUNTANT BASED ON NET ASSET METHOD IE AFTER TAKIN G INTO CONSIDERATION THE COMPLETE ASSETS AND LIABILITIES. THE ARS ONLY DEF ENCE WAS THAT THE EXCESS SHARE VALUATION COULD BE ASSESSED U/S 56(2) CLAUSE (VIIB) ONLY WITH EFFECT FROM 1.4.2013. THE LD CIT(A) HELD THAT ALTHOUGH A SPECIF IC PROVISION WAS INTRODUCED TO ASSESS THE RECEIPT OF SHARE PREMIUM DISPROPORTIO NATE TO THE NET ASSET VALUE W.E.F. 1.4.2013, IT CANNOT BE SAID THAT PRIOR TO TH AT AMENDMENT, THERE WAS NO LEGISLATIVE INTENTION U/S 68 TO ASSESS SUCH RECEIPT WITHOUT ANY BASIS. ALTHOUGH THE ASSESSEE MAY HAVE RECEIVED THE SHARE THROUGH BA NKING CHANNEL WITH THE APPROVAL OF RBI, IT HAS TO SATISFACTORILY EXPLAIN W ITH CONVINCING REASON WHEN IT COMES TO VALUATION OF SHARE PREMIUM. THE AR WAS SPE CIFICALLY ASKED TO SUBMIT DOCUMENTARY EVIDENCE LEADING TO SUCH EXORBITANT VAL UATION AT THE STAGE OF NEGOTIATION WHICH THE ASSESSEE FAILED TO SUBMIT. RE LYING ON CERTAIN CASE- LAWS INWHICH IT WAS HELD THAT ALTHOUGH THEREMITTAN CES HAVE BEEN RECEIVED THROUGH BANKING CHANNEL, STILL THE ADDITION MADE U /S 68 WAS HELD TO BE VALIDETC, THE LD. CIT(A) HELD THAT THE ASSESSEE HA S FAILED TO SATISFACTORILY EXPLAIN THE GENUINENESS OF RECEIPT TOWARDS SHARE PR EMIUM RECEIVED. THE AO HAS CLEARLY BROUGHT OUT THE FACTS AND CIRCUMSTANCES WHICH PROVE THAT THE :-6-: ITA NO. 368/CHNY/2018 ASSESSEE COMPANY HAS RECEIVED SHARE PREMIUM AT EXO RBITANT VALUE , MUCH MORE THAN THE VALUATION DONE BY THE ASSESSEES C.A, FOR WHICH IT HAS NO CONVINCING EXPLANATION. THE ASSESSEE HAS RECEIVED SUBSTANTIAL FOREIGN REMITTANCE THROUGH A DUBIOUS TRANSACTION. THEREFOR E, THE LD CIT(A) HELD THAT THE AOS ADDITION OF RS. 10.15 CRORE MADE U/S. 68 IS UPHELD AND THE ASSESSEES GROUNDS ARE DISMISSED. 4. AGGRIEVED, THE ASSESSEE FILED THIS APPEAL WITH T HE FOLLOWING GROUNDS : 1) THE ORDERS OF THE ASSESSING OFFICER AND THAT OF THE COMMISSIONER OF INCOME TAX (APPEALS) CIT(A)9 ARE AGAINST THE LAW, THE FACT S AND CIRCUMSTANCES OF THE CASE AND THE PRINCIPLES OF EQUITY AND NATURAL JUSTI CE. 2) THE CIT(A) ERRED IN UPHOLDING THE ADDITION OF RS .10.15 CRORES UNDER SECTION 68 OF THE INCOME TAX ACT. 3) THE CIT(A) FAILED TO APPRECIATE THAT PROVISIONS OF SECTION 68 DOES NOT APPLY IN RESPECT OF CAPITAL AND SHARE PREMIUM RECEIVED FROM NON-RESIDENT INVESTORS. 4) THE CIT(A) FAILED TO APPRECIATE THAT THE APPELLA NT HAS DISCHARGED HIS ONUS OF PROOF, I.E THE IDENTITY OF THE PERSONS, CAPACITY OF THE PERSONS TO TRANSFER MONEY AND GENUINENESS OF THE TRANSACTION. THE ADDITION MA DE UNDER SECTION 68 IS THEREFORE BAD IN LAW. 5) THE CASE LAWS RELIED BY THE CIT(A) ARE NOT APPLI CABLE TO THE FACTS AND CIRCUMSTANCES OF THE CASE. THE CIT(A) FAILED TO APP RECIATE THAT THE APPELLANT HAS SATISFIED THE CONDITIONS STATED IN THE CASE LAWS RE LIED BY THE CIT(A). IT IS THEREFORE SUBMITTED THAT THE ORDER OF THE CIT(A) IS BAD IN LAW. 6) THE CIT(A) FAILED TO APPRECIATE THAT THE RATE OF ISSUE OF SHARE AT RS.176/- (INCLUDING A PREMIUM OF RS.10/-) WAS ARRIVED AT BAS ED ON AGREEMENT BETWEEN THE PARTIES. THE NATURE AND SOURCE OF THE SUM WAS E XPLAINED TO THE CIT(A). 7) THE ADDITION UNDER SECTION 68 CAN ONLY BE MADE W HEN THE APPELLANT FAILED TO EXPLAIN THE NATURE AND SOURCE OF TRANSACTION. THE A PPELLANT HAVING EXPLAINED THE SAME, THE CIT(A) ERRED IN SUSTAINING THE ADDITION U NDER SECTION 68 MERELY ON THE GROUND THAT THE SHARES WERE ISSUED AT HUGE PREMIUM. THE ASSESSING OFFICER AND :-7-: ITA NO. 368/CHNY/2018 CIT (A) ERRED IN CONSIDERING THAT THE EXPLANATION O FFERED BY THE APPELLANT AS NOT SATISFACTORY. 8) THE CIT (A) ERRED IN NOT CONSIDERING THE SUBMISS ION OF THE APPELLANT THAT NEITHER SECTION 56 NOR PROVISO TO SECTION 68 APPLY TO THE CASE OF THE APPELLANT PARTICULARLY WHEN THE THOSE PROVISIONS WERE NOT PAR T OF THE ACT DURING THE RELEVANT ASSESSMENT. 5. THE LD AR SUBMITTED THAT DURING THE YEAR ,THE AS SESSEE ENTERED INTO A SHARE PURCHASE AND SHARE TRANSFER AGREEMENT WITH M/ S CARLISLE COMMUNICATIONS INC,. USA, WHO WERE INTO SIMILAR BUS INESS AS THAT OF THE ASSESSEE. THE SHAREHOLDING OF M/S CARLISLE COMMUNI CATIONS INC, USA WAS AS UNDER : MARIBETHCARLISLEGOLUS 270.7925 JOHN CARLISLE 270.7925 JULIE CARLISLE KANE 270.7925 WILLIAM CARLISLE 536.9325 TOTAL 1349.31 PURSUANT TO THE SHARE PURCHASE AGREEMENT DATED 06.0 4.2007, THE ASSESSEE ISSUED 5,77,194 SHARES OF RS. 10/- EACH AT A PREMIU M OF RS. 166/- PER SHARE. THE ASSESSEE RECEIVED THE FOLLOWING AMOUNTS TOWARDS SHARES AT PREMIUM AND CREDITED IN ITS BOOKS . RS. SHARE CAPITAL (5,77,194 SHARES AT RS. 10 EACH) 57,7 1940 SHARE PREMIUM (RS. 166/ SHARE*577194) 9,58,14,204 TOTAL 10,15,86,144 :-8-: ITA NO. 368/CHNY/2018 5.1 THE LD AR INVITED OUR ATTENTION TO THE COPIES O F THE FOREIGN INWARD REMITTANCE CERTIFICATES AND SUBMITTED THAT THEY EVI DENCE THE DATE OF PAYMENT, AMOUNT OF INWARD REMITTANCE AND THE NAME OF THE REMITTER . THE ASSESSEE HAD ALLOTTED SHARES TO THE NEW INVESTORS MENTIONED ABOVE AND HAD FILED THE RETURN OF ALLOTMENT WITH THE REGISTRAR OF COMPANIES IN FORM. 2 AS REQUIRED UNDER THE COMPANIES ACT 1956. THE ASSESSEE ALSO REPORTED THE TRANSACTION OF NON-RESIDENT INVESTMENT OF 577194 EQ UITY SHARES OF RS. 10/ - EACH INTO ITS SHARE CAPITAL AT A PREMIUM RS 166/- P ER SHARE TO THE RESERVE BANK OF INDIA IN FORM FCGPR DATED 29.6.2009 AND THE SAME WAS ACKNOWLEDGED BY RBI, VIDE ITS LETTER DATED 8.1.2010 . FOR THE ISSUANCE OF SHARES AT PREMIUM, THE ASSESSEE HAD FOLLOWED THE GU IDELINES FOR VALUATION AS PRESCRIBED UNDER THE FOREIGN EXCHANGE MANAGEMENT AC T AND THE VALUATION AS PER THE CHARTERED ACCOUNTANTS VALUATION WAS AT RS. 48/- PER SHARE. THE COPY OF THE RBIS LETTER AND FORM FCGPR REPORTED BY THE ASSESSEE AND THE VALUATION REPORT OF THE CHARTERED ACCOUNTANT WERE ENCLOSED IN THE PAPER BOOK.THUS, THE TRANSACTION OF RECEIPT TOWARDS SHAR E CAPITAL AND PREMIUM WAS MADE IN ACCORDANCE WITH LAW, FOLLOWING THE ALL THE STATUTORY REQUIREMENTS. FURTHER, THE LD AR SUBMITTED THAT THE SHARES WERE VALUED AT RS. 48 AS PER THE GUIDELINES OF ERSTWHILE CONTROLLER OF CAPITAL I SSUES. THE APPELLANT HAD ISSUED THE SHARES AT 176 (INCLUDING THE PREMIUM), B ASED ON ITS AGREEMENT WITH THE PROSPECTIVE NEW SHAREHOLDERS. THE DIFFEREN CE BETWEEN THE VALUE AS PER THE GUIDELINES AND THE PREMIUM RECEIVED BY THE APPELLANT IS ONLY A CAPITAL :-9-: ITA NO. 368/CHNY/2018 RECEIPT AND IS DULY CREDITED TO THE SHARE PREMIUM A CCOUNT. APART FROM THE FACT THAT THE SAID RECEIPT IS ONLY A CAPITAL RECEIPT, IT IS SUBMITTED THAT THERE IS NO PROVISION UNDER WHICH THE SAID DIFFERENCE COULD BE BROUGHT TO TAX. ALTHOUGH, IT WAS NOT THE CASE OF THE ASSESSING OFFICER THAT S ECTION 56 WOULD APPLY, IT IS SUBMITTED THAT THE SAID SECTION HAS BEEN INSERTED BY FINANCE ACT 2012, WITH EFFECT FROM 01.04.2013 AND EVEN THEN IT IS ONLY APP LICABLE TO CASES WHERE THE SAID CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED FROM A RESIDENT. THE SECTION IS NOT APPLICABLE TO THE PRESENT CASE SINCE THE SHA RES ARE ISSUED TO NON RESIDENTS AND ALSO THE TRANSACTIONS ARE MUCH BEFORE 01.04.2013. IN VIEW OF THE SAME, IT IS SUBMITTED THAT NO PART OF THE CONSI DERATION OF RS. 10,15,86,144/- [2.50 MM USD] IS TAXABLE IN THE HAND S OF THE ASSESSEE. 5.2 THE ASSESSING OFFICER ADDED THE ENTIRE SUM OF R S 10,15,86,144/- AS UNEXPLAINED CREDITS UNDER SECTION 68. SECTION 68 OF THE INCOME TAX CAN BE INVOKED ONLY WHEN THE ASSESSEE FAILED TO EXPLAIN AB OUT THE NATURE AND SOURCE OF THE SUMS CREDITED IN IT BOOKS OF ACCOUNTS OR WHE N THE EXPLANATION OFFERED BY THE ASSESSEE IS NOT SATISFACTORY. IN THIS CASE, THE ASSESSEE PROVIDED ALL THE MATERIAL BEFORE THE ASSESSING OFFICER (WHICH ARE PA RT OF THE PAPER BOOK) TO PROVE THE IDENTITY OF THE NEW SHAREHOLDER. THE GENU INENESS OF THE TRANSACTION IS ALSO ESTABLISHED BASED, SINCE THE SAME AROSE OUT OF CONTRACT BETWEEN PARTIES THROUGH BANKING CHANNELS WITH KYC NORMS DUL Y FOLLOWED. FURTHER, THEN ON RESIDENTS WHO HAVE FOR THE SHARE CAPITAL AN D SHARE PREMIUM, HAD :-10-: ITA NO. 368/CHNY/2018 ADEQUATE SOURCE FOR THE SUMS CREDITED. THE NEW SHAR E HOLDERS TO WHOM SHARES HAVE BEEN ISSUED AT PREMIUM RESULTING IN THE CREDIT TO THE SHARE CAPITAL AND SHARE PREMIUM ACCOUNT HAD SOLD THEIR SH AREHOLDING IN M/S CARLISLE HAD THE SOURCE FOR THE CREDITS IN THE BOOKS OF ACCO UNTS OF THE APPELLANT IS ON ACCOUNT OF TRANSFER OF SHARES TO THE ERSTWHILE SHAR EHOLDERS OF THE SUBSIDIARY. ALL THE TRANSACTIONS HAVE BEEN ROUTED THROUGH BANKI NG CHANNELS AND THE FULL DETAILS OF THE NAMES AND ADDRESS OF THE PARTIES IN THE AGREEMENTS AND THE REMITTANCE CERTIFICATES ARE AVAILABLE. THE ASSESSEE HAD PROVIDED COMPLETE IDENTITY OF THE NEW SHAREHOLDERS ARID ALSO ESTABLIS HED THE GENUINENESS OF THE TRANSACTION BEYOND ALL DOUBTS BEFORE THE ASSESSING OFFICER, THE ASSESSEE HAS ALSO COMPLIED WITH ALL THE RELEVANT STATUTORY PROVI SIONS LIKE FILING OF THE ROC RETURNS AND REPORTING OF THE TRANSACTION WITH THE R ESERVE BANK OF INDIA. 5.3 WITH REGARD TO THE CREDIT WORTHINESS OF THE INV ESTOR, THE ASSESSEE DREW OUR ATTENTION TO THE SHARE TRANSFER AGREEMENT BETWE EN THE ASSESSEE AND THE SUBSIDIARY DATED 06.04.2007 AND ITS SUBSEQUENT COMP LIANCES THROUGH BANKING CHANNEL ETC .UPON PURCHASE OF THE SHARES FROM THE N ON RESIDENTS, THE SAID CARLISLE COMMUNICATIONS LTD BECAME A 100% SUBSIDIAR Y OF THE ASSESSEE. THE SAID COMPANY CHANGED ITS NAME AS S4 CARLISLE PUBLIS HING SERVICE, INC AND ISSUED SHARE CERTIFICATE TO THE ASSESSEE FAR THE 13 49.31 SHARES WHICH WERE PURCHASED BY THE ASSESSEE. THE ASSESSEE ALSO DULY R EPORTED ITS OUTBOUND INVESTMENT TO RESERVE BANK OF INDIA THROUGH ITS AUT HORIZED DEALER M/S CITI :-11-: ITA NO. 368/CHNY/2018 BANK, CHENNAI. IT IS THUS EVIDENT THAT THE NEW SHAR EHOLDERS INVESTORS COLLECTIVELY HAD 3.5 MILLION USD AS SOURCE TO INVES T INTO THE SHARES OF THE APPELLANT. THE TRANSACTION BETWEEN THE ASSESSEE AND THE INVESTORS HAPPENED IN MULTIPLE TRANCHES. INVITING OUR ATTENTION TO PAR A 8.11 OF THE ASSESSMENT ORDER, WHEREIN THE ASSESSING OFFICER HAD MENTIONED THAT THE INVESTORS HAD SHOWN ONLY 1 MILLION USD AS SALE CONSIDERATION IN T HEIR RETURN OF INCOME FILED, THE LD AR SUBMITTED THAT IN THE OPINION OF GPAS, B ASED ON WHOSE ADVICE THE INVESTORS HAD OFFERED ONLY 1 MILLION USD AS CONSIDE RATION. IT IS SUBMITTED THAT AS PER THE TAXATION LAW IN THE NATION OF THE INVEST ORS (USA) ONLY 1 MILLION USD IS TO BE OFFERED TO TAXATION, BEING THE NET SUM REC EIVED BY THE INVESTORS. THE REMAINING AMOUNT WILL ONLY BE TAXABLE ON SALE OF T HE SHARES BY THE INVESTORS. IT IS SUBMITTED THAT AT ANY RATE, THE ASSESSING OFF ICER DID NOT REJECT THE NON RESIDENTS RECEIVED 3.50 MN USD OR THAT THEY HAVE IN VESTED 2.50 MN USD. MERE FACT THAT THEY WERE LIABLE FOR TAX ONLY FOR 1 MN USD IN THEIR COUNTRY DOES NOT MEAN THAT THEY HAD SOURCE ONLY FOR 1 MN USD THE ASSESSING OFFICER DID RIOT EVEN GIVE CREDIT FOR THE SOURCES THE NON RESID ENT HAD EVEN ACCORDING TO HIS OWN JUDGMENT . THUS, THE AO WITHOUT APPRECIATIN G FULL FACTS ERRED GROSSLY IN HOLDING THAT THE NON- RESIDENTS WHO HAVE INVESTE D INTO THE CAPITAL OF THE ASSESSEE DID NOT HAVE SOURCE. WITHOUT PREJUDICE TO THE SUBMISSION THAT THE NEW SHAREHOLDERS HAD ADEQUATE SOURCE, THE ASSESSEE CANNOT BE CALLED UPON TO ESTABLISH THE SOURCE OF THE SHAREHOLDERS AS PER THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF LOVEY EXPORTS P LTD. [ 2008] 216 CTR 195 (SC). :-12-: ITA NO. 368/CHNY/2018 THE FIRST PROVISO TO SECTION 68 INSERTED BY FINANCE ACT 2013 WITH EFFECT FROM 1.4.2013 IS ONLY PROSPECTIVE. FURTHER, THE SAID PRO VISO DOES NOT APPLY WHERE THE CREDIT FOR THE SHARES STAND IN THE NAME OF ANON RESIDENT. ADMITTEDLY ,IN THE CASE OF THE ASSESSEE, THE NEW SHAREHOLDERS ARE NON RESIDENTS. THEREFORE THE PROVISO IS NOT APPLICABLE. AT ANY RATE, THE NON -RESIDENTS HAVE ALSO ADMITTED THAT THE CREDIT TO SHARE CAPITAL IN THE AS SESSEES ACCOUNTS IS ON ACCOUNT OF INVESTMENT MADE BY THEM AT A PREMIUM. TH IS IS ESTABLISHED BY THE SHARE PURCHASE AGREEMENT. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE ASSESSING OFFICER/ THE LD CIT (A) GROSSLY ERRED IN HOLDING THAT THE EXPLANATION OF THE ASSESSEE REGARDING THE CREDIT TO THE SHARE C APITAL AND SHARE PREMIUM ACCOUNT IS NOT SATISFACTORY. IT IS SUBMITTED THAT T HE CONCLUSION OF THE LOWER AUTHORITIES ARE AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE AND AGAINST THE LAW. IN VIEW OF THESE SUBMISSIONS, THE LD AR PL EADED TO ALLOW THE APPEAL AND RENDER JUSTICE. 6. PER CONTRA, THE LD. JUNIOR STANDING COUNSEL INV ITED OUR ATTENTION TO THE FINDINGS RECORDED BY THE AO THAT THE ASSESSEE COMP ANY HAD SOURCE FOR ONLY 3,60,000 U.S.D. WHEREAS BY MEANS OF SHARE TRANSFER AND PURCHASE AGREEMENT THE ASSESSEE COMPANY HAS BOOSTED ITS BALANCE SHEET S TO SHOW CREDITS OF RS. 10.15 CRORES IN ITS BOOKS FOR THE RELEVANT YEAR. FU RTHER, HE INVITED OUR ATTENTION TO SHARE VALUATION MADE BY THE ASSESSEE T HROUGH A CA AS ON 31.3.2007 AT RS.48 PER SHARE ON THE BASIS OF EARN INGS CAPITALISATION METHOD AND RS.23 PER SHARE AS PER NET ASSET METHOD . THIS BEING SO, AS RECORDED BY :-13-: ITA NO. 368/CHNY/2018 THE LD CIT(A), THE ASSESSEE COULD NOT SUBSTANTIATE ITS EXORBITANT VALUATIONS OF SHARE AT RS. 166 PER SHARE AGAINST THE FACE VALUE O F RS. 10 PER SHARE. ONCE, THE ASSESSEE IS NOT ABLE TO ESTABLISH THE REASONABL ENESS OF THE VALUATION, THEN ONE OF THE INGREDIENTS REQUIRED TO ESTABLISH THE SO URCES OF CREDIT U/S 68, IE THE GENUINENESS OF THE TRANSACTIONS, FAILS AND HENCE TH E AO HAS TO ASSESS THE DIFFERENCE U/S. 68. THE LD. JUNIOR STANDING COUNSEL PLEADED THAT THE ORDER OF THE LD. CIT(A) MAY BE CONFIRMED. 7. WE HEARD THE RIVAL SUBMISSIONS AND HAVE GONE THR OUGH THE RELEVANT MATERIAL. THE MAIN ISSUE IS WHATIS THE VALUE TO BE ADOPTED PER SHARE. THE ASSESSEES SHARES ARE NOT QUOTED. HENCE, IT VALUED ITS SHARES THROUGH A CA AS ON 31.3.2007 AT RS.48 PER SHARE ON THE BASIS OF E ARNINGS CAPITALISATION METHOD AND AT RS.23 PER SHARE AS PER NET ASSET METH OD. THE COPIES OF THIS VALUATION CERTIFICATE WAS FURNISHED BEFORE THE LD. CIT(A) ALSO. HOWEVER BEFORE US, THE ASSESSEE FILED A COPY OF VALUATION O F SHARES DONE BY THE SAME CA DATED 16.02.2007 IN WHICH THE SAME AUDITOR HAS V ALUED THE SHARES AS PER DISCOUNTED CASH FLOW METHOD AND ARRIVED AT THE FAIR VALUE PER SHARE AT RS. 154 IN SUPPORT OF ITS STAND. THUS, WE NOW HAVE THR EE DIFFERENT VALUATIONS BEING RS.23 PER SHARE BY NET ASSET METHOD, RS.48 PE R SHARE ON THE BASIS OF EARNINGS CAPITALISATION METHOD AND RS. 154 PER SHAR E AS PER DISCOUNTED CASH FLOW METHOD . THE ASSESSEE TRANSFERRED THE SHARES AT RS. 176PER SHARE INCLUDING THE PREMIUM. THUS, THE ASSESSEE HAS ADOPT ED A FIGURE UNSUPPORTED BY ANY OF THE VALUATIONS ALSO. IT IS ALSO NOT KNOW N AS TO WHICH VALUATION HAVE :-14-: ITA NO. 368/CHNY/2018 BEEN PRODUCED BEFORE THE AO. HOWEVER, IT IS NOTICE D THAT NEITHER THE AO NOR THE ASSESSEE HAS APPLIED THE PRESCRIBED METHODS FOR DETERMINATION OF THE FAIR VALUE OF THE UNQUOTED SHARES OF THE ASSESSEE COMPAN Y. IN THE FACTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE B ACK TO THE AO FOR A FRESH EXAMINATION. SINCE, THE ASSESSES SHARES ARE NOT Q UOTED, THE AO WOULD EXAMINE WHETHER, THE VALUATION OF SHARES DONE BY TH E ASSESSEE IS IN ACCORDANCE WITH THE LAW/RULE AND PROCEED TO DETERMI NE THE CORRECT VALUE OF SHARE AND INCOME AFTER AFFORDING ADEQUATE OPPORTUN ITY TO THE ASSESSEE. THE ASSESSEE SHALL PLACE ALL THE MATERIALS IN ITS S UPPORT BEFORE THE AO AND COMPLY TO THE AOS REQUIREMENTS AS PER LAW. THE A O IS FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT, BUT HE SHALL FU RNISH ADEQUATE OPPORTUNITY TO THE ASSESSSEE ON THE MATERIAL ETC TO BE USED AGAINST IT AND DECIDE THE MATTERS IN ACCORDANCE WITH LAW. THE CORRESPONDING GROUNDS OF THE ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. 8. IN THE RESULT, THE CORRESPONDING GROUNDS OF TH E ASSESSEE ARE TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON THURSDAY, THE 28 TH DAY OF JUNE, 2018 AT CHENNAI. SD/- ( ) (GEORGE MATHAN) ! ' /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) ' /ACCOUNTANT MEMBER :-15-: ITA NO. 368/CHNY/2018 /CHENNAI, * /DATED: 28 TH JUNE, 2018 JPV %-./0/ /COPY TO: 1. 1/ APPELLANT 2. -31 /RESPONDENT 3. 4 ) (/CIT(A) 4. 4 /CIT 5. /- /DR 6. /GF