Case Law Details

Case Name : M/s Anshika Investments Pvt. Ltd. V.s. CIT (A) (ITAT Delhi)
Appeal Number : ITA No.2262/Del/2013
Date of Judgement/Order : 05/09/2016
Related Assessment Year : 2009-10
Courts : All ITAT (1730) ITAT Delhi (428)

The only ground raised by the Revenue in this appeal reads as under:-

“On the facts and in the circumstances of the case, the CIT(A) has erred in deleting the addition of Rs. 4,00,00,000/- made by the Assessing Officer under section 68 of the Income Tax Act, 1961.”

At the time of hearing before us, it is submitted by the learned DR that during the accounting year relevant to assessment year under consideration, the assessee company has raised the share capital of Rs. 4 crores by issuing the share of Rs. 100/- each at a premium of Rs. 39,900/-per share. That the assessee is a private limited company and there cannot be any justification for such a huge premium. That M/s Adhyay Equi Pref Pvt.Ltd. (hereinafter referred to as ‘AEPPL’) claimed to have acquired such shares from the assessee by investing huge sum of Rs. 4 crores just for 1,000 equity shares of Rs. 100/- each. The assessee could not give any satisfactory explanation for such a high premium. That on investigation of bank account of AEPPL, it is noticed that there was a meager balance in the bank account on the date of issue of Rs. 4 crores to the assessee. There has been credit of Rs. 12 crores on the same day against which cheques to the assessee and two other entities were issued. On these facts, the Assessing Officer rightly treated the credit of Rs. 4 crores as unexplained and made the addition there for. Learned CIT(A) deleted the addition without properly appreciating the facts of the case. He, therefore, submitted that the order of learned CIT(A) should be reversed and that of the Assessing Officer may be restored.

Learned counsel for the assessee, on the other hand, pointed out that the identical issue has been considered by the ITAT in assessee’s own case for assessment year 2006-07 wherein the similar additions were made by the Assessing Officer in the case of the assessee and other group companies. In that year also, the shares of Rs. 100/- were allotted at a premium of Rs. 39,900/-. The ITAT, vide order dated 31′ December, 2013 in ITA No.2749/Del/2010, after considering all the facts, has upheld the order of learned CIT(A) wherein the credit of share capital was treated as explained. That Revenue had filed the appeal before Hon’ble Jurisdictional High Court against the above order of the Tribunal. Hon’ble Jurisdictional High Court, vide order dated 16th April, 2015 in ITA No.523/2014, dismissed the appeal of the Revenue. He further stated that the assessee and other four private limited companies are holding the major equity stakes in the Uflex group of companies. The assessee has referred to its paper book where there is calculation of net worth of the three companies and shareholding pattern of the group and has pointed out that the value of each share comes to Rs. 40,616/-. He, therefore, stated that the issue of per share at Rs. 40,000/- was quite justified and it was at a lesser rate than the book value of the assets of the company which are ultimately held by these private limited companies. He further pointed out that the actual market value of the assets held by Uflex group of companies is much more than the book value. If the land of Uflex group of companies at Noida is valued as per market value on the basis of stamp duty valuation by the competent authority, then the land itself is worth more than then the land itself is worth 2000 crores while its book value is only 38.17 crores. Thus, the issue of shares at then the land itself is worth 40,000 per share is at a much lesser rate than the worth of the assets ultimately controlled by these private limited companies. He also stated that these shares acquired by AEPPL have not been sold till date. He also referred to the balance sheet of AEPPL and pointed out that the worth of AEPPL is more than Rs. 100 crores which has mainly been invested in shares. He further pointed out that the credit in the account of AEPPL on the date of issue of cheque and other concern was out of the sale proceeds of shares of another company. Thus, AEPPL has sold the shares of some other companies and invested in the assessee and two other concerns. He also referred to the income tax returns of AEPPL, copy of which is placed at page 161 of the assessee’s paper book. He further referred to the certificate of incorporation of AEPPL and pointed out that the said company is in existence since 1994 and is regularly investing in the shares of various companies. He, therefore, submitted that the assessee has duly established the identity, creditworthiness and genuineness of transactions of AEPPL.

We have carefully considered the submissions of both the sides and have perused the material placed before us. Admittedly, the onus is upon the assessee to prove the credit in its books of account whether by way of loan or share capital. To discharge such onus, the assessee has to establish the identity and creditworthiness of the shareholder and the genuineness of the transaction. In this case, there is no dispute with regard to the identity of the share applicant. However, the Assessing Officer doubted the creditworthiness of the share applicant as well as genuineness of the transaction. At the outset, we may point out that this issue is squarely covered by the decision of ITAT as well as Hon’ble Jurisdictional High Court in assessee’s own case. We find that in assessment year 2006-07, similar additions were made in the case of the assessee and other group concern. We find that in the case of the assessee, there was total credit by way of share capital amounting to then the land itself is worth 12,78,60,000/-. In that year also, the share of then the land itself is worth 100/- was sold at a premium of then the land itself is worth 39,900/-. The Assessing Officer made the addition treating the credit by way of share capital as unexplained. The same was deleted by the CIT(A). Hence, the Revenue was in appeal. The ITAT, vide order dated 31St December, 2013 in ITA No.2749/Del/2010, sustained the order of learned CIT(A). The Revenue filed the appeal before Hon’ble Jurisdictional High Court and Hon’ble Jurisdictional High Court in ITA No.523/2014 vide order dated 16th April, 2015 sustained the order of the ITAT. The relevant finding of Hon’ble Jurisdictional High Court reads as under:-

“6. The onus cast upon the assessee under Section 68 of the Act to satisfy the department about the true identity of an investor, its creditworthiness and genuineness of a transaction was explained by the Supreme Court in CIT Vs. Lovely Exports (P) Ltd., 216 CTR 295. Whilst, the AO acted legitimately in enquiring into the matter, the inferences drawn by him were not justified at all in the circumstances of the case. Whether the assessee company charged a higher premium or not should not have been the subject matter of the enquiry in the first instance. Instead the issue was whether the amount invested by the share applicants were from legitimate sources. The objection of Section 68 is to avoid inclusion of amount which are suspect. Therefore, the emphasis on genuineness of all the three aspects, identity, creditworthiness and the transaction. What is disquieting in the present case is when the assessment was completed on 31.12.2007, the investigation report which was specifically called from the concerned department in Kolkata was available but not discussed by the AO. Had he cared to do so, the identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants would have been apparent. Even otherwise, the share applicants’ particulars were available with the AO in the form of balance sheets income tax returns, PAN details etc. While arriving at the conclusion that he did, the AO did not consider it worthwhile to make any further enquiry but based his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been routed from the assessee’s account to the share applicants’ account. As held concurrently by the CIT (Appeals) and the ITA T, these conclusions were clearly baseless and false. This Court is constrained to observe that the AO utterly failed to comply with his duty considers all the materials on record, ignoring specifically the most crucial documents. We place these observations on the record and direct a copy of the judgment to be furnished to the concerned income tax authorities for appropriate action towards reflecting these observations suitably in service record of the concerned AO to avoid such instances in the future.

7. For the above reasons, this Court is of the opinion that the concurrent findings of fact, as to the true identity of the share applicants, their creditworthiness and genuineness of the transaction, are based on sound reasoning and do not call for interference. No substantial question of law arises. The appeals are dismissed.”

The facts of the year under consideration are identical and, therefore, the ratio of the above decision of the ITAT as well as Hon’ble Jurisdictional High Court in assessee’s own case would be squarely applicable. However, for the sake of completeness, we wish to mention the facts of this year as well. At page 161 of the assessee’s paper book, there is copy of income tax return of AEPPL wherein the income of more than Rs. 30 lakhs has been disclosed. At page 166 of the assessee’s paper book, there is balance sheet from which we find that the share capital is Rs. 7.16 crores and reserves and surplus is Rs. 96.48 crores. Thus, the net worth of the share applicant company is Rs. 103.64 crores which is mainly invested in shares. The company was incorporated in the year 1994 for which certificate of incorporation is placed on record. The amount has been paid by cheque. Copy of bank statement is also placed on record. The Assessing Officer doubted the creditworthiness on the ground that before the issue of cheque to the assessee company, there was credit of Rs. 12 crores in the account of AEPPL. However, we find that such credit was by way of sale of shares of another company. AEPPL has investment of about Rs. 100 crores in shares and, therefore, if the said company has sold the shares of one company and invested in another company, the creditworthiness cannot be doubted. Therefore, we hold that creditworthiness of AEPPL was duly established.

Coming to the genuineness of transactions, the Assessing Officer has doubted the genuineness mainly on the ground that share premium was too high. Apparently, it looks so. However, the assessee has explained why the share premium is so high. The assessee has explained that appellant company is one of the promoters of Uflex group of companies. The assessee company along with the other co-promoters has promoted various operating companies of Flex Group. The major companies promoted by assessee company are :-

(i) Uflex Ltd.

(ii) Flex Foods Ltd.

(iii) Ultimate Flexipack Ltd.

The first two companies are listed in the stock exchanges and third one is an unlisted manufacturing company. The assessee company along with other four investment companies is holding major equity stakes in the operating companies of the Uflex Group and even in some cases holding 100% equity shares. These five companies including the assessee company are further shareholder in each other and holding almost 97 to 98% of shares holding in each other. The remaining shareholders are the individual promoters and outside shareholders. Since all these investment companies are cross holding the shares of each other, hence any outsider by becoming shareholder in any of these companies also automatically becomes the shareholder in the other four companies. In nutshell, if a person becomes shareholder in the assessee company, it automatically becomes shareholder in the remaining four holding companies. He further submitted that if the net book value of the assets is divided by the number of shares of the assessee company, the worth of each share is more than Rs. 40,000/-.

From the working submitted by the Appellant, it is evident that the value of each share is worked out at Rs. 40,616/-. Thus, apparently, higher share premium of Rs. 39,900/- is justifiable because of limited number of shares of the assessee company who are actual owner of assets of worth more than Rs. 60 crores. Moreover, in the earlier year also, the shares were allotted at a premium of Rs. 39,900/- per share and in AY 2006-07, the Assessing Officer even got the verification made through the Investigation Wing of Kolkata and the ITAT has accepted the credit in the form of share capital after considering the report of Investigation Wing of Kolkata. Hon’ble Jurisdictional High Court has also upheld the order of the ITAT in assessee’s own case for assessment year 2006-07 after taking due note of high share premium. In view of the above, we are of the opinion that considering the facts of the case, the genuineness of the transactions is duly established. In view of the above, we hold that the assessee has duly discharged the onus of proving the credit of share capital in its account and learned CIT(A) was fully justified in accepting the same and in deleting the addition.

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Posted Under

Category : Income Tax (20860)
Type : Judiciary (8910)
Tags : ITAT Judgments (3704) Section 68 (137)
  • Neelam Gandhi

    High premium is just the window to escape the stamp duty and keep the equity low.