Case Law Details
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:-
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High premium is just the window to escape the stamp duty and keep the equity low.