ITO Vs Saffron Comtrade Pvt. Ltd. (ITAT Kolkata)
The issue under consideration is that Whether the ld. CIT(A) was correct in deleting the addition made u/s 68?
The company decided to raise its capital by issue of 15325 equity shares by issue of shares of Rs. 10/- each at a premium price of Rs. 1990/- each. The share subscribing company, namely, M/s Jyotika Commercial Pvt. Ltd, who agreed to subscribe 15325 shares of Rs. 10/- each at a premium of Rs. 1990/- each. As per terms of agreement the assessee company agreed to allot 15325 shares of Rs. 10/- with premium of Rs.1990/- each to Jyotika commercial Pvt. Ltd. against handing over its investments in other companies. The assessee also filed copy of agreement with Jyotika Commercial Pvt Ltd for transfer of its share holdings in three other companies as the consideration for allotment of 15325 shares.
At the outset itself, ld Counsel for the assessee submitted before us that section 68 of the Act is not applicable on the facts of the assessee’s case, since no money transaction took place between assessee and share subscribing companies. It is a simple case of shares being allotted in lieu of shares held by the share subscribers. That is, it is just swapping of shares, i.e. shares are exchanged from another shares, therefore, section 68 does not attract in the assessee’s case under consideration.
Considering the above facts and circumstances of the case and respectfully following the aforesaid judicial precedents relied upon hereinabove, ITAT hold that the ld. AO had erroneously invoked the provisions of section 68 of the Act to the facts of the instant case, which, in our considered opinion, are not at all applicable herein. This is a simple case of acquiring shares of certain companies from certain shareholders without paying any cash consideration and instead the consideration was settled through issuance of shares to the respective parties. That is, section 68 of I.T. Act, 1961 does not apply to cases of purchase of share assets and allotment of shares by the appellant when purchase and allotment are under a barter That being so, ITAT decline to interfere in the order passed by the ld CIT(A), his order on this issue is hereby upheld and grounds of appeal raised by the Revenue is dismissed.
FULL TEXT OF THE ITAT JUDGEMENT
The captioned appeal filed by the Revenue, pertaining to assessment year 2012-13, is directed against the order passed by the Commissioner of Income Tax (Appeal)-4, Kolkata, which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 23/03/2015.
2. Grounds of appeal raised by the Revenue are as follows:
1. Whether the ld. CIT(A) was correct in deleting the addition made u/s 68 of the Act by following the decision of the Hon ’ble Apex Court in the case of CIT vs Lovely Exports P Ltd. and ignoring the decision of Hon ’ble Delhi High Court in the case of CIT vs. Nova Promoters & Finlease P ltd. (2012) 18 Taxmann.com 217 (Del) despite the fact that the facts of the case were similar to the facts the case decided by the Hon ’ble Delhi High Court?
2. Whether the ld. CIT(A) was correct in rejecting the findings of the A.O. that the assessee–company has purposefully failed to discharge its onus of proving the genuineness of transactions and identity and creditworthiness of the subscribers and in not looking into the circumstances as to whether the shares of the company really command astronomically high premium and in relying upon the submission of the assessee-company despite the fact that the onus of proving the genuineness of share application money was lying on the assessee company which remained un-discharge and which was essential condition set by the Apex Court and also by the Hon ’ble High Court in the case of CIT vs. Roseberry Mercantile P Ltd. ?
3. Whether the ld. CIT(A) was correct in not looking into the surrounding circumstances which warrant that the assessee company could not have been able to raise the share capital with unusually high premium with despite the fact that the book value of such shares was negligible?
4. That the appellant craves to add, delete or modify any of the grounds of appeal before or at the time of hearing.
3. At the outset itself, ld Counsel for the assessee submitted before us that section 68 of the Act is not applicable on the facts of the assessee`s case, since no money transaction took place between assessee and share subscribing companies. It is a simple case of shares being allotted in lieu of shares held by the share subscribers. That is, it is just swapping of shares, i.e. shares are exchanged from another shares, therefore, section 68 does not attract in the assessee’s case under consideration.
4. Brief facts qua the issue are that during the year under consideration, the company decided to raise its capital by issue of 15325 equity shares by issue of shares of Rs. 10/- each at a premium price of Rs. 1990/- each. The share subscribing company, namely, M/s Jyotika Commercial Pvt. Ltd, who agreed to subscribe 15325 shares of Rs. 10/- each at a premium of Rs. 1990/- each. As per terms of agreement the assessee company agreed to allot 15325 shares of Rs. 10/- with premium of Rs.1990/- each to Jyotika commercial Pvt. Ltd. against handing over its investments in other companies as detailed below: –
