Bharathi Cement Corporation Pvt. Ltd. Vs ACIT (ITAT Hyderabad)
Conclusion: In the matter f Issue of Share at High Premium AO should not resort to rely on circumstantial evidence or on test of human probabilities but on factual evidence of passing of benefit to the shareholders/directors. Hence ITAT remanded the matter back to AO to re-assess whether the assessee was used as a vehicle to pass on the benefit to the shareholder / director.
FACTS –
Assessee, a company, is engaged in manufacture and sale of cement. Assessee issued 0% convertible preferential shares in private placement to 3 investors with face value of INR 10 per share at a premium of INR 1440 per share.
AO issued summons u/s 133(1) to the investors and brought on records various incidences in which the above investors have benefitted from the State Govt. policies and treated the receipts of share premium by the assessee as income u/s 28(iv).
CIT(A) issued a notice of enhancement to the assessee asking to show cause as to why the entire receipt of INR 70.32 crore should not be assessed under the head ‘income from other sources’.
Assessee submitted that money was received in the form of investment in preference shares. Assessee submitted that investment in share, inclusive of share premium, is a capital investment and hence cannot be taxed as revenue receipt.
HELD –
Preferential shares were issued with huge share premiums, however, the shares were issued and allotted within the four corners of law.
AO should not resort to rely on circumstantial evidence or on test of human probabilities but on factual evidence of passing of benefit to the shareholders/directors.
The fact that the premium is abnormally high as per test of human probabilities is not sufficient. The AO has to lift the corporate veil & determine whether any benefit is passed on to the shareholders/directors. Directions issued to AO to establish whether assessee company was used as a vehicle to pass on the benefit to shareholders/directors
FULL TEXT OF THE ITAT JUDGMENT
Both these appeals filed by the assessee are directed against the orders, both, dated 25/02/2014 of CIT(A) – III, Hyderabad for AYs 2009-10 & 2010-11.
2. Briefly the facts as taken from AY 2009-10 are, assessee is a company engaged in the business of manufacture and sale of cement under the name Bharathi Cement. It filed its return of income for the AY 2009-10 on 30/09/2009 declaring total income of Rs.2,91,01,250/-.
2.1 During this AY, assessee has offered income of Rs. 2,91,01,250/- as ‘income from other sources’ on account of interest earned on fixed deposits and it did not commence its business during this AY, hence, there is no income form the head ‘income from business or profession’.
2.2 During the assessment proceedings, AO noted that assessee was incorporated in the year 1999 as the company with limited liability and initially it is registered as Raghuram Cements. The name of the company was changed to the present name in August’2008. The assessee has its manufacturing unit established at Nallalingayapalli Village, Kamalapuram Mandal, Kadapa District, A.P. with a licensed capacity of 5 million tonnes per annum. The details of shareholders and directors of the company are as under:
