Case Law Details
PCIT Vs M/s. Chain House International (P) Ltd. (Madhya Pradesh HC)
Conclusion: Addition under section 68 on account of bogus share capital and exorbitant premium was not justified as where the funds had been received through banking channel and there was no dispute about the identity, creditworthiness and genuineness of the investors. Also, it was a prerogative of the Board of Directors of a company to decide the premium amount and it was the wisdom of shareholder whether they wanted to subscribe to shares at such a premium or not and moreover the section 68 did not envisages any law on share premium it only requirement is to identity of the investors, the genuineness of the transaction and the creditworthiness of the share applicants which same had been discharged by assessee.
Held: During search, assessee had received an unsecured loan from M/s. BSPL who shown to have got a bogus share application money and premium from 5 entry providing companies in the form of accommodation entries and some share capital with exorbitant premium from the said 5 companies against payment of unaccounted cash which was inter-alia routed back as share capital and share premium. AO treated the amount of Rs.55 Crores as income of assessee company under Section 68. Such addition was made by AO in the hands of assessee company on protective basis and substantive addition was made in the hands of sister concerned on the ground that assessee-company had transferred such share capital to its group companies. It was held assessee company having receipt share application money through bank channel and furnished complete details of bank statements, copy of accounts and complied with notices issued and the directors of the subscriber company also appeared with books of accounts before the appellate authority and confirmed the investment made by them with assessee company, therefore, the identity and creditworthiness of investor and genuineness of transaction of the share applicant had been proved and the onus cast upon assessee has been duly discharged by the assessee and the identity of the share subscriber, creditworthiness and genuineness of the transaction was not to be doubted. Moreso, issuing the share at a premium was a commercial decision. It was the prerogative of the Board of Directors of a company to decide the premium amount and it was the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates was fixed by any Govt. Authority or unless there was any restriction on the amount of share premium under any law, the price of the shares was decided on the mutual understanding of the parties concerned. Once the genuineness, creditworthiness and identity were established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much was a reasonable premium having regard to the circumstances of the case.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
This order shall govern the disposal of ITA No.112/2017, ITA No.111/2017, ITA No.110/2017, ITA No.113/2017, ITA No.114/2017 and ITA No.115/2017. For the sake of convenience, the facts are borrowed from ITA. No.112/2017.
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