M/s Hariom Concast & Steel Private Limited, Hyderabad v. ITO., Ward-2(2), Hyderabad, Hyderabad

ITA 1775/HYD/2014 | 2009-2010
Pronouncement Date: 05-10-2016

Appeal Details

RSA Number 177522514 RSA 2014
Assessee PAN AABCH8825N
Bench Hyderabad
Appeal Number ITA 1775/HYD/2014
Duration Of Justice 1 year(s) 10 month(s) 10 day(s)
Appellant M/s Hariom Concast & Steel Private Limited, Hyderabad
Respondent ITO., Ward-2(2), Hyderabad, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 05-10-2016
Appeal Filed By Assessee
Bench Allotted B
Tribunal Order Date 05-10-2016
Date Of Final Hearing 19-09-2016
Next Hearing Date 19-09-2016
Assessment Year 2009-2010
Appeal Filed On 25-11-2014
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCHES B HYDERABAD BEFORE SMT. P. MADHAVI DEVI JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER I.T.A. NO. 1775/HYD/2014 ASSESSMENT YEAR: 2009-10 M/S. HARIOM CONCAST & STEEL PVT. LTD. HYDERABAD [PAN: AABCH8825N] VS INCOME TAX OFFICER WARD-2(2) HYDERABAD (APPELLANT) (RESPONDENT) FOR ASSESSEE : SHRI LAXMINIWAS SHARMA AR FOR REVENUE : S HRI K.J. RAO D R DATE OF HEARING : 1 9 - 0 9 - 201 6 DATE OF PRONOUNCEMENT : 05 - 1 0 - 201 6 O R D E R PER B. RAMAKOTAIAH A.M. : THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF THE LD.COMMISSIONER OF INCOME TAX (APPEALS)-III HYDERA BAD DATED 05-09-2014 CONFIRMING THE ADDITION OF RS. 2 18 50 000/- AS INCOME OF ASSESSEE WHICH WAS RECEIVED TOWARDS SHARE PREMIUM INVOKING THE PROVISIONS OF SECTION 68 OF THE INCOME TAX ACT [ACT]. 2. BRIEFLY STATED ASSESSEE DURING THE YEAR HAS IS SUED SHARES OF RS. 27 50 000/- WITH A PREMIUM OF RS. 2 1 8 50 000/- I.E. RS. 10/-FACE VALUE SHARE WAS ISSUED AT RS. 20 0/- WITH A I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 2 -: PREMIUM OF RS. 190/-. THE SHARES WERE RECEIVED FRO M THE FOLLOWING COMPANIES AND THE DETAILS ARE AS UNDER: SHARE PREMIUM SHARE CAPITAL (RS) SHARE PREMIUM (RS) SAHUWAN MOTORS FINANCE PVT LTD 75 000 14 25 000 EASTERN CREDIT CAPITAL LTD 50 000 9 50 000 PROCAL DEALCOMM PVT LTD 75 000 14 25 000 DASHMESH FINCAP PVT LTD 1 00 000 19 00 000 AASMA MERCANTILE PVT LTD 1 00 000 19 00 000 VIRGO TEXTILES PVT LTD 2 75 000 52 25 000 INEX INFOTECH PVT LTD 1 75 000 33 25 000 ESSEN MARKETING PVT LTD 2 00 000 38 00 000 NANCHI MARKETING PVT LTD 1 00 000 19 00 000 TOTAL: 11 50 000 2 18 50 000 3. AO ACKNOWLEDGED THAT THESE COMPANIES WERE NEITH ER ASSOCIATE COMPANIES NOR SISTER CONCERNS NOR ANY OF THE DIRECTORS OF THE COMPANY HAS INFLUENCE OVER THESE COMPANIES. HO WEVER HE ASKED FOR CONFIRMATION OF THE ABOVE INVESTMENTS FRO M VARIOUS COMPANIES WHICH ASSESSEE HAS FURNISHED. AO QUESTION ED THE RATIONALE FOR ISSUING SHARES AT A HUGE PREMIUM. AS SESSEE EXPLAINED THAT: A) THE ASSESSEE-COMPANY IS A RUNNING COMPANY MAKING PR OFITS; B) THE COMPANY HAS ALL THE LICENSES AND PERMISSIONS FO R RUNNING INDUSTRY IN PLACE; C) THE COMPANY IS ALREADY ESTABLISHED AND HAS GOOD FUT URE POTENTIAL OF EARNING PROFITS; D) THE COMPANY HAS GOODWILL AMONG INVESTORS; E) INVESTORS UNANIMOUSLY HAVE BEEN ALLOTTED SHARES AT RS. 200/- PER SHARE; IT HAS ALSO BEEN BROUGHT TO AOS NOTICE THAT THE SH ARE PREMIUM DO NOT GO WITH THE BOOKS VALUE SINCE THERE ARE VARIOU S OTHER ASPECTS SUCH AS FUTURE PROFITABILITY POTENTIALITY AND EXPE CTATION TO EARN PROFIT BY THE INVESTOR . I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 3 -: IT WAS FURTHER JUSTIFIED STATING DURING THE FY. 2008-09 THERE WAS A BOOM IN THE STOCK MARKET. THE RELIANCE POWER SHARE S BEFORE EVEN THE COMPANY STARTED OPERATING WERE ISSUED AT RS. 48 0/- AND EENADU SHARES ISSUED TO MORGAN STANLEY AT RS. 300/- PER SHARE WHEN THE COMPANY WAS MAKING LOSSES. SIMILARLY IN T HE STEEL SECTOR THE SHARES OF SAIL JSW STEEL AND MANY OTHER COMPAN IES WERE SOLD AT VERY HIGH PREMIUM. THE NET PROFIT OF THE COMPAN Y WHICH WAS RS. 27.53 LAKHS FOR PERIOD ENDED 31-03-2008 HAS INCREAS ED TO RS. 216.98 LAKHS FOR THE PERIOD 31-03-2009. KEEPING IN VIEW ALL THESE THINGS THE INVESTORS HAVE LOOKED INTO THE POTENTIA LITY OF THE COMPANYS GROWTH. 3.1. HOWEVER AO DID NOT AGREE AND INVOKING THE PR OVISIONS OF SECTION 68 TREATED THE AMOUNTS AS UNEXPLAINED C ASH CREDITS HOLDING THAT AS THE GENUINENESS AND CREDITWORTHINESS OF THE PARTY GIVING PREMIUM IS DOUBTFUL AND DEFIES BUSINESS LOGI C . 3.2. BEFORE THE LD. CIT(A) ASSESSEE FILED DETAILE D SUBMISSIONS AND JUSTIFICATION. HOWEVER LD. CIT(A) NOTES THAT ASSESSEE HAS NOT FURNISHED ANY ASSESSMENT PARTICULA RS OF THE COMPANIES AS SOUGHT FOR AND REJECTED THE CONTENTION S BY STATING AS UNDER: 6.1 IT IS CLEAR THAT THE ISSUE OF SHARE PREMIUM CHA RGED BY THE COMPANIES MENTIONED IN THE ASSESSMENT ORDER NAMELY SAHUWAN MOTORS FINANCE PVT. LTD. EASTERN CREDIT CAPITAL LTD. PRO CAL DEALCOMM PVT. LTD. DASHMESH FINCAP PVT. LTD. AASMA MERCANTILE PVT. LT D. VIRGO TEXTILES PVT. LTD. INEX INFOTECH PVT. LTD. ESSEN MARKETING PVT. LTD. NANCHI MARKETING PVT. LTD. ALL OF WHICH HAVE JUST A TOTAL SHARE CAP ITAL OF RS.11 50 000/- IS SUSPECT IN NATURE. NONE OF THESE COMPANIES ARE PUBL IC/LISTED COMPANIES TO HAVE CHARGED A SUBSTANTIAL SHARE PREMIUM AS THEY AR E NOT ESTABLISHED OR KNOWN ENTITIES. HENCE THE SHARE PREMIUM OF RS.2 18 50 000/- IS NOTHING BUT A SHAM TRANSACTION AND COLOURABLE AND HENCE THE RATIO OF THE DECISION RELIED UPON BY THE ASSESSING OFFICER I.E. MC. DOW ELL VS. CTO 154 ITR 148 OF THE HON'BLE APEX COURT IS APPLICABLE. 6.2 IT IS OBVIOUS THAT THE APPELLANT COMPANY HAS SO UGHT TO INTRODUCE CASH CREDITS WITHOUT ESTABLISHING IDENTITY CREDITW ORTHINESS AND GENUINENESS AS REQUIRED U/S.68 OF THE IT. ACT. IN T HIS CONTEXT IT WOULD BE I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 4 -: MOST PERTINENT TO REFER TO THE RATIO OF DECISIONS I N A PLETHORA OF CASES INCLUDING THE CASES OF AGARWAL COAL CORPORATION VS ADDL.CIT [135 ITD 270-INDORE] DHINGRA GLOBAL CREDENCE (P) LTD VS ITO [1 ITR(T) 529 DELHI] NOVA PROMOTERS & FINLEASE [342 ITR 169-DELHI] NR P ORTFOLIO(P) LTD [263 CTR 456-DELHI] ONASSIS AXLES(P) LTD VS CIT [364 ITR 53-DELHI] GAYATHRI ASSOCIATES VS ITO [221 TAXMAN 143-ANDHRA PRADESH] DR. D. SIVA SANKARA RAO VS ITO[356 ITR 117-ANDHRA PRADESH] SRI CHAKRA CEMENTS LTD VS ITO [221 TAXMAN 181-ANDHRA PRADESH] VIJAY KU MAR TALWARVS CIT[330 ITR 1-SUPREME COURT] CIT VS MAF ACADEMY(PV T) LTD[361 ITR 258- DELHI]. CONSIDERING THE RATIO OF THE PLETHORA OF TH ESE DECISIONS IN BRIEF IT IS CLEAR THAT THE THREE VITAL LIMBS OF SECTION 68 OF T HE IT ACT I.E. IDENTITY CREDITWORTHINESS AND GENUINENESS HAVE TO BE CLEARLY ESTABLISHED. WHILE AGREEING WITH THE FINDINGS OF THE ASSESSING OFFICER IT IS CLEAR THAT THE SHARE PREMIUM RECEIVED FROM THE VARIOUS COMPANIES IS CLEA RLY CASH CREDITS AS THE IDENTITY GENUINENESS AND CREDITWORTHINESS OF T HE COMPANIES MENTIONED IN THE ASSESSMENT ORDER IS DOUBTFUL AND T HERE IS NO REASON TO INTERFERE WITH THE FINDING OF THE ASSESSING OFFICER . THE ASSESSMENT ORDER IN THIS CASE REFLECTS A GOOD ATTEMPT MADE BY THE ASSES SING OFFICER TO BRING OUT THE MODUS OPERANDI AND HENCE THE SAME HAS BEEN BROU GHT OUT IN DETAIL IN THIS APPELLATE ORDER. THE ORDER OF THE ASSESSING OF FICER IS UPHELD. 4. ASSESSEE IS AGGRIEVED AND CONTESTED BY RAISING THE FOLLOWING GROUNDS: 1. THE LEARNED CIT ERRED IN FACTS AND LAW WHILE PAS SING THE ORDER. 2. THE LEARNED CIT ERRED IN ARRIVING AT THE CONCLUS ION THAT THE COMPANY HAS SOUGHT TO INTRODUCE CASH CREDITS WITHOU T ESTABLISHING IDENTITY CREDITWORTHINESS AND GENUINENESS AS REQUI RED U/S. 68 THOUGH THE ASSESSEE HAS PROVIDED THE DETAILS OF THE INVESTOR COMPANIES ALONG WITH THE LETTERS CONFIRMING THE INV ESTMENT. 3. THE LEARNED CIT (A) ERRED IN TREATING THE TRANSA CTIONS AS UNEXPLAINED CASH CREDITS EVEN THOUGH ALL THE TRANSA CTIONS WERE MADE THROUGH BANKING CHANNELS. 4. THE LEARNED CIT ERRED IN CONCLUDING THAT ANY OUT SIDER WILL NOT PAY SUCH HIGH AMOUNT OF PREMIUM FOR THE PRESENT SITUATI ON OF BUSINESS OF THE ASSESSEE THOUGH THE ASSESSEE HAS ALSO PROVID ED THE LOGICAL REASONS FOR ISSUE OF SHARES AT PREMIUM AND IT IS TH E INVESTOR JUDGEMENT TO INVEST. 5. THE CIT ERRED NOT TO CONSIDER THE CASE OF GREEN INFRA LTD. V. ITO [TS-420-IT AT2013(MUM) INCOME-TAX APPELLATE TRIBUN AL (TRIBUNAL) WHEREIN IT WAS HELD THAT THE SHARE ALLOTMENT AT PRE MIUM BY A NEWLY I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 5 -: INCORPORATED COMPANY CANNOT BE TAXED AS INCOME INVO KING SECTION 56(1) OF THE INCOME TAX ACT (ACT). FURTHERMORE IF THE GENUINENESS AND IDENTITY OF THE DEPOSITOR IS ESTABLISHED AND TH E TRANSACTION WAS CARRIED OUT THROUGH BANKING CHANNELS THE TRANSACTI ON CANNOT BE TAXED UNDER SECTION 68 OF THE ACT. 6. FOR THESE AND OTHER GROUNDS WHICH MAY BE RAISED DURING OR BEFORE HEARING OF APPEAL IT IS PRAYED THAT RELIEF SOUGHT BE GRANTED. 5. LD. COUNSEL FOR ASSESSEE SUBMITTED THAT ORDER O F THE CIT(A) IS BOTH FACTUALLY INCORRECT AS WELL AS LEGAL LY. IT WAS SUBMITTED THAT THOSE COMPANIES HAVE THEIR OWN SHARE CAPITAL AND WHAT THE LD. CIT(A) HAS NOTED AS TOTAL SHARE CAPITA L OF RS. 11 50 000/- IS THE SHARE CAPITAL ALLOTTED BY THE AS SESSEE-COMPANY TO THEM AS NOTED IN THE AOS ORDER. THEREFORE THE FINDING OF THE CIT(A) THAT THEY HAVE MEAGER SHARE CAPITAL IS NOT C ORRECT. FURTHER IT WAS SUBMITTED THAT ASSESSEE-COMPANY HAS ALLOTTED SHARES AT A PREMIUM NOT ONLY IN THIS YEAR BUT ALSO IN EARLIER YEAR AS CAN BE SEEN FROM THE ASSESSMENT ORDER ITSELF. IN EARLIER YEAR AS ON 31-03- 2008 1.30 CRORES OF SHARE CAPITAL WAS ISSUED WITH A PREMIUM OF RS. 2.29 CRORES. THIS WAS ACCEPTED. IT WAS FURTHE R SUBMITTED THAT ASSESSEE HAS JUSTIFIED THE PREMIUM WITH MARKET COND ITIONS AT THAT POINT OF TIME AND BUSINESS PROFILE OF ASSESSEE-COMP ANY. LD. COUNSEL RELIED ON THE CASE LAW FOR VARIOUS PROPOSIT IONS TO SUBMIT THAT REVENUE AUTHORITIES CANNOT QUESTION THE CHARGI NG OF SUCH HUGE PREMIUM WHICH HAS NO BAR BY ANY LEGISLATED LAW OF THE LAND. IT WAS FURTHER SUBMITTED THAT THE DETAILS OF THE SU BSCRIBERS ARE BEFORE THE AUTHORITIES AND WITHOUT MAKING ANY ENQUI RIES THE ANNUAL REPORTS AND OTHER DETAILS FILED BY ASSESSEE WERE DOUBTED AND THE TRANSACTION WAS HELD TO BE SHAM AND BOGUS. HE RELIED ON THE PROPOSITION THAT SHARE PREMIUM REALISED FROM TH E ISSUE OF SHARES IS OF CAPITAL NATURE AND FORMS PART OF SHARE CAPITAL OF THE I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 6 -: COMPANY AND THEREFORE CANNOT BE TAXED AS REVENUE RECEIPT. IT IS ALSO SETTLED PROPOSITION OF LAW THAT ANY EXPENDITUR E INCURRED TO THE EXPANSION OF CAPITAL BASE OF A COMPANY IS TO BE TRE ATED AS CAPITAL EXPENDITURE AS HAS BEEN HELD BY THE SUPREME COURT IN THE CASE OF CIT VS. ALLAHABAD BANK LTD. [73 ITR 745]. IT WAS SUBMITTED THAT THE SHARE PREMIUM RECEIVED BY THE COMPANY CANNOT BE TAXED U/S. 56(1) OF THE ACT. IT WAS SUBMISSION OF LD. COUNSEL THAT THE SHARE PREMIUM BY ITS VERY NATURE AS A CAPITAL RECEIPT A ND IS NOT INCOME IN ORDINARY SENSE. HE RELIED ON THE FOLLOWING CASE LAW: I. ITO VS. LANYARD FOODS LTD. ITA NO. 5549/MUM/2003; II. CIT VS. DIVIND LEASING & FINANCE LTD. ITA NO. 53/2 005(DEL); III. CIT VS. LOVELY EXPORT PVT LTD. ITA NO. 305/2006 (D EL); IV. DCIT VS. M/S. MISTY MEADOWS (P) LTD. NEW DELHI ITA NO. 422/JP/2012; V. ACIT VS. SALASAR NYLON PVT. LTD. ITA NO. 2997/AHD/ 2008; VI. ARL INFRATECH LTD. VS. ACIT ITA NO. 619/JP/2013; VII. ITO WARD-11(1) VS. M/S. EMPIRE BUILDTECH PVT. LTD. ITA NO. 4656/DEL/2009; VIII. ITO VS. M/S. TRIDENT SHELTERS PVT. LTD. ITA NO. 1160/HYD/2012; IX. GREEN INFRA LTD. VS. ITO [TS-420-ITAT-2013(MUM)]; 6. LD. DR SUBMITTED THAT THERE IS NO JUSTIFICATION FOR RECEIVING SO MUCH PREMIUM AND THEREFORE THE SAME I S TO BE CONSIDERED AS CASH CREDITS AND HENCE THE ORDERS O F THE AO AND CIT(A) ARE CORRECT ON FACTS. I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 7 -: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE ORDERS OF AUTHORITIES. THERE IS NO DENIAL THAT ALL THE SAID NINE COMPANIES ARE ASSESSEES ON RECORD AND THEY HAVE CON FIRMED INVESTING IN THE ASSESSEE-COMPANY. WHATEVER MAY BE THE REASON FOR ISSUING SHARES AT A PREMIUM THE SHARE PREMIUM PER SE CANNOT BE CONSIDERED AS CASH CREDITS IN THE ABSENCE OF A NY EVIDENCE TO THE CONTRARY. IT IS A FACT THAT THOSE COMPANIES IN VESTED IN THE SHARE CAPITAL AND THEY WERE ALLOTTED SHARES ALSO. IF IT IS KEPT AS A SHARE APPLICATION MONEY THEN A PRESUMPTION CAN BE RAISED THAT THE AMOUNTS WERE RECEIVED AS SHARE APPLICATION MON EY INSTEAD OF LOANS OR CREDITS HOWEVER IN THIS CASE THESE AMOU NTS ARE RECEIVED AS SHARE CAPITAL AND SHARES WERE ALLOTTED TO THOSE COMPANIES. IT IS ALSO TRUE THAT THOSE COMPANIES ALSO REFLECTED THE I NVESTMENTS AND SHOWN THE AMOUNTS INVESTED IN ASSESSEE-COMPANY IN I TS BALANCE SHEETS. HOWEVER AO INSTEAD OF ENQUIRING WITH THOS E COMPANIES SIMPLY DREW PRESUMPTIONS WHICH ARE NOT BASED ON ANY FACTS. IF HE IS DOUBTING THE EXTENT OF PREMIUM AS WELL AS RECEIP T OF MONEYS HE SHOULD ENQUIRE FROM THOSE COMPANIES OR AT LEAST REC ORD SOME STATEMENTS FROM THOSE PARTIES SO AS TO EXAMINE THE VERY NATURE OF THE TRANSACTION. NOTHING WAS DONE BY THE AO. 7.1. CO-ORDINATE BENCH IN THE CASE OF M/S.GREEN IN FRA LTD. IN ITA NO. 7762/MUM/2012 DT. 23-08-2013 HAS CONSID ERED SIMILAR TREATMENT OF SHARE PREMIUM OF RS. 47 97 10 000/- ON THE ISSUE OF EQUITY SHARES TO THE SHAREHOLDERS AS INCOM E OF THAT ASSESSEE. THE ITAT CONSIDERED THE ISSUES WHICH ARE SIMILAR TO THE PRESENT CASE AND HELD AS UNDER: 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND C AREFULLY PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL EVIDENCES I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 8 -: BROUGHT ON RECORD IN THE FORM OF PAPER BOOK. THE EN TIRE DISPUTE REVOLVES AROUND THE CHARGING OF SHARE PREMIUM OF RS. 490/- P ER SHARE ON A BOOK VALUE OF RS. 10/- EACH. THIS DISPUTE IS MORE SO BEC AUSE OF THE FACT THAT THE ASSESSEE COMPANY WAS INCORPORATED DURING THE YEAR U NDER CONSIDERATION. THEREFORE ACCORDING TO THE REVENUE AUTHORITIES IT IS BEYOND ANY LOGICAL REASONING THAT A COMPANY WITH ZERO BALANCE SHEET CO ULD GARNER RS. 490/- PER SHARE PREMIUM FROM ITS SUBSCRIBERS. SUCH TRANSA CTION MAY RAISE EYEBROWS BUT CONSIDERING THE SUBSCRIBERS TO THE ASS ESSEE COMPANY THE TEST FOR THE GENUINENESS OF THE TRANSACTION GOES IN TO OBLIVION. IT IS AN UNDISPUTED FACT ADMITTED BY THE REVENUE AUTHORITIES THAT 10 19 000 EQUITY SHARES HAS BEEN SUBSCRIBED AND ALLOTTED TO I DFC PE FUND-II WHICH COMPANY IS A FRONT MANAGER OF IDFC LTD. IN WHICH C OMPANY GOVERNMENT OF INDIA IS HOLDING 18% OF SHARES. THE CONTRIBUTORS TO THE IDFC PE FUND-II WHO IS A SUBSCRIBER TO THE ASSESSEES SHARE CAPITAL ARE LIC UNION OF INDIA ORIENTAL BANK OF COMMERCE INDIAN OVERSEAS B ANK AND CANARA BANK WHICH ARE ALL PUBLIC SECTOR UNDERTAKINGS. THER EFORE TO RAISE EYEBROWS TO A TRANSACTION WHERE THERE IS SO MUCH OF INVOLVEMENT OF THE GOVERNMENT DIRECTLY OR INDIRECTLY DOES NOT MAKE ANY SENSE. 10.1. NO DOUBT A NON-EST COMPANY OR A ZERO BALANCE COMPANY ASKING FOR A SHARE PREMIUM OF RS. 490/- PER SHARE D EFIES ALL COMMERCIAL PRUDENCE BUT AT THE SAME TIME WE CANNOT IGNORE THE FACT THAT IT IS A PREROGATIVE OF THE BOARD OF DIRECTORS OF A COMPANY TO DECIDE THE PREMIUM AMOUNT AND IT IS THE WISDOM OF THE SHARE HOLDERS WH ETHER THEY WANT TO SUBSCRIBE TO SUCH A HEAVY PREMIUM. THE REVENUE AUTH ORITIES CANNOT QUESTION THE CHARGING OF SUCH OF HUGE PREMIUM WITHO UT ANY BAR FROM ANY LEGISLATED LAW OF THE LAND. DETAILS OF SUBSCRIBERS WERE BEFORE THE REVENUE AUTHORITIES. THE AO HAS ALSO CONFIRMED THE TRANSACT ION FROM THE SUBSCRIBERS BY ISSUING NOTICE U/S. 133(6) OF THE AC T. THE BOARD OF DIRECTORS CONTAINS PERSONS WHO ARE ASSOCIATED WITH IDFC GROUP OF COMPANIES THEREFORE THEIR INTEGRITY AND CREDIBILITY CANNOT BE DOUBTED. THE ENTIRE GRIEVANCE OF THE REVENUE REVOLVES AROUND THE CHARGI NG OF SUCH OF HUGE PREMIUM SO MUCH SO THAT THE REVENUE AUTHORITIES DID NOT EVEN BLINK THEIR EYES IN INVOKING PROVISIONS OF SEC. 56(1) OF THE AC T. 10.2. LET US CONSIDER THE PROVISIONS OF SEC. 56(1) OF THE ACT: 56.1. INCOME FROM OTHER SOURCES INCOME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FR OM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UN DER THE HEAD INCOME FROM OTHER SOURCES IF IT IS NOT CHARGEABLE TO INC OME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14 ITEMS A TO E. 10.3. A SIMPLE READING OF THIS SECTION SHOW THAT IN COME OF EVERY KIND WHICH IS NOT TO BE EXCLUDED FROM THE TOTAL INC OME SHALL BE CHARGEABLE TO INCOME TAX. THE EMPHASIS IS ON THAT INCOME OF EVERY KIND THEREFORE TO TAX ANY AMOUNT UNDER THIS SECTION IT MUST HAVE SOM E CHARACTER OF I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 9 -: INCOME. IT IS A SETTLED PROPOSITION OF LAW THAT C APITAL RECEIPTS UNLESS SPECIFICALLY TAXED UNDER ANY PROVISIONS OF THE ACT ARE EXCLUDED FROM INCOME. THE HONBLE SUPREME COURT HAS LAID DOWN THE RATIO THAT SHARE PREMIUM REALIZED FROM THE ISSUE OF SHARES IS OF CAP ITAL IN NATURE AND FORMS PART OF THE SHARE CAPITAL OF THE COMPANY AND THEREF ORE CANNOT BE TAXED AS A REVENUE RECEIPT. IT IS ALSO A SETTLED PROPOSITION OF LAW THAT ANY EXPENDITURE INCURRED FOR THE EXPANSION OF THE CAPIT AL BASE OF A COMPANY IS TO BE TREATED AS A CAPITAL EXPENDITURE AS HAS BEEN HELD BY THE HONBLE SUPREME COURT IN THE CASE OF PUNJAB STATE INDUSTRIA L CORPORATION LTD. VS CIT 225 ITR 792 AND IN THE CASE OF BROOKE BOND INDI A LTD. VS CIT. THUS THE EXPENDITURE AND THE RECEIPTS DIRECTLY RELATING TO THE SHARE CAPITAL OF A COMPANY ARE OF CAPITAL IN NATURE AND THEREFORE CANN OT BE TAXED U/S. 56(1) OF THE ACT. THE ASSESSEE SUCCEEDS AND REVENUE FAILS ON THIS ACCOUNT. 11. THE LD. DEPARTMENTAL REPRESENTATIVE HAS RAISED AN ALTOGETHER PLEA BY STATING THAT THE NATURE OF THE TRANSACTION SHOULD ALSO BE JUDGED WITHIN THE PARAMETERS OF THE SEC. 68 OF THE ACT. TH E COUNSEL FOR THE ASSESSEE STRONGLY OBJECTED TO THIS BUT IN THE INTER EST OF JUSTICE AND FAIR PLAY WE ALLOWED THE DR TO RAISE THIS ISSUE. FOR TH IS WE DRAW SUPPORT FROM THE DECISION OF THE HONBLE SUPREME COURT IN T HE CASE OF KAPURCHAND SHRIMAL VS CIT 131 ITR 451 WHEREIN THE HONBLE SUP REME COURT HAS LAID DOWN THE RATIO THAT IT IS WELL KNOWN THAT AN APPELLATE AUTHORITY HAS T HE JURISDICTION AS WELL AS THE DUTY TO CORRECT ALL ERR ORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE IF NECESSARY APPROPRIAT E DIRECTIONS TO THE AUTHORITY AGAINST WHOSE DECISION THE APPEAL IS PREF ERRED TO DISPOSE OF THE WHOLE OR ANY PART OF THE MATTER AFRESH UNLESS FORB IDDEN FROM DOING SO BY STATUTE. 11.1. CONSIDERING THE SUBMISSIONS OF THE LD. DR IN THE LIGHT OF THE ABOVE RATIO LET US TEST THE TRANSACTION IN THE LIG HT OF THE PROVISIONS OF SEC. 68 OF THE ACT. AS PER SECTION 68 THE INITIAL ONUS IS UPON THE ASSESSEE TO ESTABLISH IDENTITY GENUINENESS OF THE TRANSACTION AND THE CAPACITY OF THE LENDER OR THE DEPOSITOR. THE SUBSCRIBERS TO THE SHA RE CAPITAL ARE ALL COMPANIES. THE CONFIRMATIONS OF THE TRANSACTIONS HA VE BEEN RECEIVED BY THE AO BY ISSUING NOTICE U/S. 133(6) OF THE ACT TH EREFORE IDENTITY HAS BEEN ESTABLISHED BEYOND ALL REASONABLE DOUBTS NOR T HE REVENUE AUTHORITIES HAVE QUESTIONED THE IDENTITY OF THE SHA RE HOLDERS. THE GENUINENESS OF THE TRANSACTION CAN ALSO BE SAFELY C ONCLUDED SINCE THE ENTIRE TRANSACTION HAS BEEN DONE THROUGH THE BANKIN G CHANNELS DULY RECORDED IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE D ULY REFLECTED IN THE FINANCIAL STATEMENT OF THE ASSESSEE. THE BANK STATE MENT IS EXHIBITED AT PAGES 101 AND 102 OF THE PAPER BOOK IN WHICH THE TR ANSACTION RELATING TO THE ALLOTMENT OF SHARES ARE DULY REFLECTED . IN THE INSTANT CASE THE CAPACITY OF THE SHARE HOLDERS CANNOT BE DOUBTED AS HAS BEEN POINTED OUT ELSEWHERE IN OUR ORDER THAT 98% OF THE SHARE IS HEL D BY IDFC PRIVATE EQUITY FUND-II WHICH IS A FRONT MANAGER OF IDFC LTD . AND THE CONTRIBUTORS I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 10 -: IN IDFC PRIVATE EQUITY FUND-II ARE LIC UNION OF IN DIA ORIENTAL BANK OF COMMERCE INDIAN OVERSEAS BANK AND CANARA BANK WHIC H ARE PUBLIC SECTOR UNDERTAKINGS. 11.2. NOW THE ONLY POINT OF DISPUTE IS THE NATURE O F TRANSACTION WHICH ACCORDING TO THE REVENUE AUTHORITIES IS BEYON D ANY LOGICAL SENSE AND WHICH IS THE CHARGING OF SHARE PREMIUM AT THE R ATE OF RS. 490/- PER SHARE. ACCORDING TO THE REVENUE AUTHORITIES THIS IS A SHAM TRANSACTION . SO FAR TILL NOW WE HAVE SEEN AND EXAMINED THE SOURCES OF FUNDS. LET US SEE THE APPLICATION OF FUNDS AND WHO ARE THE ULTIMATE B ENEFICIARIES OF THIS SHARE PREMIUM WHICH MAY CLEAR THE CLOUDS OVER THE T RANSACTION ALLEGED TO BE A SHAM. WE FIND THAT THE ASSESSEE COMPANY HAS IN VESTED FUNDS IN ITS THREE SUBSIDIARY COMPANIES NAMELY (I) GREEN INFRA C ORPORATE WIND LTD. (II) GREEN INFRA WIND ASSETS LTD AND (III) GREEN INFRA W IND FARMS LTD. WHEREIN THE ASSESSEE IS HOLDING 99.88% OF SHARE CAP ITAL WHICH MEANS THAT THE FUNDS HAVE NOT BEEN DIVERTED TO AN OUTSIDE R. THIS CLEARS THE DOUBT ABOUT THE APPLICATION OF FUNDS AND THE CREDIBILITY OF THE COMPANY IN WHOM THE FUNDS HAVE BEEN INVESTED. SINCE THE ASSESSEE IT SELF IS HOLDING 99.88% OF SHARES AND IN TURN THE ASSESSEE COMPANYS 98% OF SHARES ARE HELD BY IDFC PE FUND-II THIS ENTIRE SHARE HOLDING STRUCTUR E CANNOT BE SAID TO GENERATE ANY TRANSACTION WHICH COULD BE SAID TO BE SHAM. 12. WE HAVE CONSIDERED THE GRIEVANCE OF THE REVENUE FROM ALL POSSIBLE ANGLES AND BY APPLYING THE PROVISIONS OF S EC. 56 OF THE ACT AND AT OUR STAGE WE HAVE GONE TO THE EXTENT OF TESTING THE TRANSACTION WITHIN THE PARAMETERS OF SECTION 68 OF THE ACT. WE COULD NOT F IND A SINGLE EVIDENCE WHICH COULD LEAD TO THE ENTIRE TRANSACTION AS SHAM. OUR VIEW IS ALSO FORTIFIED BY THE SHARE HOLDING PATTERN AS EXPLAINED TO US AND AS SUBSTANTIATED BY THE MATERIAL EVIDENCE ON RECORD. W E FIND THAT THE SHARE HOLDERS IN ALL THE RELATED TRANSACTION UNDER ISSUE ARE DIRECTLY OR INDIRECTLY RELATED TO THE GOVERNMENT OF INDIA. THEREFORE CONS IDERING THE ENTIRE ISSUE IN THE LIGHT OF THE MATERIAL EVIDENCE BROUGHT ON RE CORD IN OUR CONSIDERATE VIEW THE REVENUE AUTHORITIES HAVE ERRED IN TREATIN G THE SHARE PREMIUM AS INCOME OF THE ASSESSEE U/S. 56(1) OF THE ACT. IN OU R CONSIDERATE VIEW FOR THE REASONS DISCUSSED HEREINABOVE WE DO NOT FIND I T NECESSARY TO APPLY THE PROVISIONS OF SEC. 68 OF THE ACT. WE THEREFORE DIRECT THE AO TO DELETE THE ADDITION OF RS. 47 97 10 000/-. GROUND NO. 2 & 3 ARE ACCORDINGLY ALLOWED. 8. THE OTHER CASE LAW RELIED ON BY ASSESSEE IS ALS O ON THE ISSUE THAT SHARE PREMIUM CANNOT BE BROUGHT TO TAX I NVOKING THE PROVISIONS OF SECTION 68 UNLESS THERE IS A LINK WI TH EITHER QUID PRO QUO TRANSACTION OR INVESTING BY ASSESSEE-COMPANY IN TH EIR ACCOUNTS SO AS TO RECEIVE IT BACK AS SHARE CAPITAL. NO SUCH I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 11 -: EVIDENCE WAS BROUGHT ON RECORD. ON THE GIVEN FACTS OF THE CASE AND ON THE BASIS OF THE CONFIRMATION FILED BY THE C OMPANIES WE CANNOT HOLD THAT THIS AMOUNT CAN BE BROUGHT TO TAX INVOKING THE PROVISIONS OF SECTION 68. THE GENUINENESS AND CREDI T WORTHINESS OF THOSE COMPANIES IS NOT IN DISPUTE. WHAT AO DISPUTED WAS THE AMOUNT OF PREMIUM. MOREOVER IF THE AMOUNTS ARE DOU BTED FROM THOSE COMPANIES THE AMOUNT OF SHARE CAPITAL AT RS. 10 WAS NOT DOUBTED. ONLY AMOUNT OF PREMIUM WAS DOUBTED. THEREF ORE THE COMPANIES TRANSACTIONS WITH ASSESSEE ARE PARTLY ACC EPTED AS GENUINE. ON FACTS OF THE CASE PROVISIONS OF SEC. 68 CAN NOT BE INVOKED. RESPECTFULLY FOLLOWING THE PRINCIPLES LAI D DOWN BY THE CO- ORDINATE BENCH IN THE CASE OF M/S.GREEN INFRA LTD. IN ITA NO. 7762/MUM/2012 DT. 23-08-2013 (SUPRA) WE HAVE NO HE SITATION IN HOLDING THAT THE ORDERS OF THE AO AND CIT(A) ARE BA D IN LAW. IN VIEW OF THIS WE DELETE THE ADDITION SO MADE BY AO AND CONFIRMED BY CIT(A). 9. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH OCTOBER 2016 SD/- SD/- (P. MADHAVI DEVI) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEM BER HYDERABAD DATED 05 TH OCTOBER 2016 TNMM I.T.A. NO. 1775/HYD/2014 M/S. HARIOM CONCAST & STEEL PVT. LTD. :- 12 -: COPY TO : 1. M/S. HARIOM CONCAST & STEEL PVT. LTD. 15-8-511/ 1/2 FEELKHANA HYDERABAD. 2. THE INCOME TAX OFFICER WARD-2(2) HYDERABAD. 3. CIT (APPEALS)-III HYDERABAD. 4. THE CIT - II HYDERABAD. 5 . D.R. ITAT HYDERABAD. 6. GUARD FILE.