If Share premium defies commercial prudence, it cannot be assessed as unexplained credit

Relevant Extract of the Judgment

(a) Before the Tribunal, the Revenue raised a new plea viz. that the so-called share premium has also to be judged on the touchstone of Section 68 of the Act which provides for cash credit being charged to tax. The impugned order of the Tribunal allowed the issue to be raised before it for the first time, overruling the objection of the respondent­assessee.

(b)The impugned order examined the applicability of Section 68 of the Act on the parameters of the identity of the subscriber to the share capital, the genuineness of the transaction and the capacity of the subscriber to the share capital. It found that the identity of the subscribers was confirmed by virtue of the Assessing Officer issuing a notices under Section 133(6) of the Act to them. Further, it holds that the Revenue itself makes no grievance of the identity of the subscribers. So far as the genuineness of the transaction of share subscriber is concerned, and reflected it concludes as the entire transaction is recorded in the Books and reflected in the financial statements of the assessee since the subscription was done through the banking channels as evidenced by bank statements which were examined by the Tribunal. With regard to the capacity of the subscribers the impugned order records a finding that 98% of the shares is held by IDFC Private Equity Fund­-II which is a Fund Manager of IDFC Ltd. Moreover, the contributions in IDFC Private Equity Fund-­II are all by public sector undertakings.

(c) Mr. Chhotaray the learned counsel for the Revenue states that the impugned order itself holds that share premium of Rs.490/­ per share defies all commercial prudence. Therefore it has to be considered to be cash credit.We find that the Tribunal has examined the case of the Revenue on the parameters of Section 68 of the Act and found on facts that it is not so hit. Therefore, Section 68 of the Act cannot be invoked. The Revenue has not been able to show in any manner the factual finding recorded by the Tribunal is perverse in any manner.