Treatment of share application money/share capital and share premium under the Income Tax Act

The Income Tax Appellate Tribunal (ITAT) Mumbai has ruled that the provisions of Section 56(2)(viib) of the Income Tax Act, concerning the treatment of share application money and share premium, were not applicable to the assessment year 2012-13. The tribunal found that the Assessing Officer (AO) had no power to question the premium charged by the assessee on share issuance, as the relevant section only came into effect from Assessment Year 2013-14 onwards. Consequently, the appeal by the revenue was dismissed.

IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI

BEFORE HON’BLE SHRI PAVAN KUMAR GADALE, JM AND HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM (Hearing through Video Conferencing Mode)

I.T.A. No. 103/Mum/2020

Assessment Year: 2012-13

Revenue by :Ms. Usha Gaikwad– Ld. Sr. DR
Assessee by: Shri J. P. Bairagra– Ld. AR

Date of Hearing : 30/08/2021

Date of Pronouncement : 03/09/2021

O R D E R

1.The Ld. Sr. DR, drawing attention to the financial statements of the investor entities, submitted that these entities did not have sufficient income and the investments were sourced out of reserves & surplus. Hence, Ld. CIT(A) erred in deleting the additions. Reliance has been placed on the decision of Hon’ble Delhi High Court in the case of CIT V/s Independent Media Pvt. Ltd. (210 Taxman 14) as well as the decision of Hon’ble Apex Court in Durga Prasad More (82 ITR 540 26/08/1971).

2. During assessment proceedings, it transpired that the assessee issued 35250 number of shares of face value of Rs.10/- each to as many as 14 corporate entities, as detailed in para 5.1 of the assessment order. Out of this, major shares (22000 in number) were issued at premium of Rs.1370/- per share to an entity namely M/s Rossari India Biotech Pvt. Ltd.

3. In the course of assessment proceedings, the assessee was asked to justify the share premium and file supporting documents of all the investor entities to substantiate these transactions. The assessee submitted that the assessee had immoveable property / office premises at prime location of Lower Parel, the estimated value of which was more than Rs.2000 Lacs. Based on the market vale, the value per share as on 31/03/2011 would be Rs.1418.49 per share.

4. Proceeding further, we find that the only reason to treat the share application money as unexplained cash credit is the quantum of premium charged by the assessee. However, as rightly observed by Ld. CIT(A), the provisions of Sec.56(2)(viib) were not applicable to the year under consideration since these provisions would be applicable only from AY 2013-14. Therefore, Ld. AO had no power to question the wisdom of the assessee to command differential premium from investor entities.

5. In the result, the appeal stands dismissed. Order pronounced on 3rd September, 2021.

Please find attached the enclosed file for the full judgement