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12-07-2019, TARA MERCANTILE, Section 56(2)(viib), 68, Tribunal Delhi

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3 months 6 days ago #10060 by amit
Section - 56(2)(viib), 68
Order Date - 12-07-2019
Favouring - Assessee
Court - Tribunal Delhi
Respondent - DCIT
Justice - H.S. SIDHU JM & B.R.R. KUMAR AM
Citation - 719Taxpundit157
Appeal No. - I.T.A. No. 1572/DEL/2017
Asstt. Year - 2011-12



This appeal by the Assessee is directed against the impugned order dated 19.1.2017 passed by the Ld. CIT(A)-9, New Delhi on the following grounds:-

1. The Ld. CIT(A) erred in fact and in law confirming the addition of Rs. 1,12,17,750/- on account of share premium being in excess of NAV as unexplained credit u/s. 68 of the Income Tax Act, 1961.

2. That the Ld. CIT(A) erred in fact and in law in confirming the action of the AO in invoking the provision of section 56(2)(viib) which is not only illegal but void ab initio as the amendment is effective from 1.4.2013.

3. The assessee company has craved it’s indulgence to alter, amend, delete or to make any additional grounds of appeal.

2. The brief facts of the case are that the assessee company filed its return of income for the assessment year 2011-12 on 29.9.2011 at declaring total income of Rs. 33,93,309/-. The case of the assessee was taken up under scrutiny and statutory notice u/s. 143(2) of the Income Tax Act, 1961 (in short “Act”) was issued to the assessee company on 26.9.2012 and served upon the assessee company. Later on detailed questionnaire dated 29.10.2013 was sent to the assessee company alongwith notice u/s. 142(1) of the Act. In response to the same the assessee’s AR attended the proceedings from time to time. During the year the assessee company engaged in the business of manufacturing and trading of chemicals. During the course of assessment proceedings, AO observed that that the assessee company has received a share application money of Rs. 1,25,00,000/-. Such share application money was received for the allotment of 12500 equity share of Rs. 10/- each at a premium of 990/-. AO vide notice dated 26.3.2014, asked the assessee to establish the credit worthiness and genuineness of transactions of share application money failing which it would be added as unexplained credit. The assessee has invited share application at a premium of Rs. 990/- and was asked to justify the reasons for such a high premium as NAV comes to Rs. 20.58. In response to the same, the assessee has submitted that the decision of the premium amount while issuing shares is a prerogative of the Board of Directors of the company and subscription of shares at a premium is the wisdom of the investors of the share capital of the company. It is a commercial decision which does not require any justification under any law. The Board of Directors while deciding the premium amount considered the present business status of the company, future prospects of the company and the investors were convinced with the future potential of the company based on which the investors invested in the company. AO after considering the same, observed that after introduction of the provisions to section 68 w.e.f. 1 4 2013, if credit in the books of the company by way of share application money, share capital, share premium or any other amount by whatever name called the company has not only to prove the nature but has to prove the source of such credit the source of such sum. Therefore, not only the credit is to be proved but the source of such credit has also be proved. Whether the word “source” will include source of source and whether the AO can go beyond the source of source and proceed to third, fourth or fifth layer will again be a question to be decided by the Court. But the proviso, though added w.e.f. 1.4.2013 yet the same being procedural will apply to all pending proceedings. Hence, the AO by relying upon the decision of the Hon’ble Delhi High Court in the case of Nova Promoters & Finlease (P) Ltd. On 15.2.2012 and having regard to legislative intent especially in light of the fact that the assessee company issued shares at a premium of Rs. 900/- per share, has added the sum of Rs. 1,21,17,750/- u/s. 68 of the Act vide order dated 31.3.2014 passed u/s. 143(3) of the Act. Against the assessment order, the assessee appealed before the Ld. CIT(A), who vide his impugned order dated 19.1.2017 has dismissed the appeal of the assessee by upholding the action of the AO. Aggrieved with the impugned order dated 19.1.2017 assessee is in appeal before the Tribunal.

3. At the time of hearing Ld. Counsel for the assessee stated that the solitary issue involved in the instant appeal is regarding an addition of Rs. 1,21,17,750/- u/s. 68 of the Act and stated that during the year under consideration assessee raised share application money of Rs. 1,25,00,000/- which would be evident form page 7-9 of the Paper Book from four shares holders and the shares were allotted on 31.3.2012 which would be evident from annual return at page no. 90-94 of the Paper Book. He further submitted that the said allotment was made by issuing shares at Rs. 10/- per share and share premium at Rs. 990/- per share. He further submitted that the AO had made the addition of Rs. 1,21,17,750/- and has accepted the share capital and part share premium and while arriving to the said conclusion he held that the net asset value as per equity share of assessee was Rs. 30.58 per share and, therefore, balance sum was brought as income u/s. 68 of the Act. He further submitted that the AO has invoked provision to section 68 and section 56(2)(viia) and (viib) of the Act. But none of the provisions are applicable to the instant year and infact they are applicable

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