Income Tax, Issue Update

Amount received as share premium: Applicability of Section 68

Case: ITO vs Aravali Prime Consultants Pvt Ltd, Jaipur ITAT

The issue that arises here is that whether the amount received as share premium can be characterised as income chargeable to tax under section 68 of the Act.

The Assessing Officer was duty bound to investigate the creditworthiness of the creditors/ subscribers, verify the identity of the subscribers and ascertain whether the transaction is genuine or these are bogus entries of name lenders but it was not properly done. Hence, the additions under section 68 were uncalled for.  See Facts & Key Points.

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Facts

  • The Assessee had issued share capital at premium. During the course of the assessment proceedings, the Assessing Officer made additions under section 68 on account of disallowance of share premium received on issue of shares.

Key points

  • The Assessing Officer had not been able to prove that the premium charged by the Assessee was unjustified or bogus or sourced from undisclosed or unexplained funds/ source. From the available records that most of the corporate subscribers were filing returns and they were being regularly assessed to tax. The Assessing Officer had not brought any adverse findings against them. The records that the Assessee had submitted a valuation report for charging of premium before the Assessing Officer during the assessment proceeding but the same had neither been mentioned nor controverted in the assessment order by the Assessing Officer.
  • If the Assessing Officer had any doubts regarding the source of investment of the subscribers, he could have examined the bank accounts from where the investment was routed. The Assessing Officer was duty bound to investigate the creditworthiness of the creditors/ subscribers, verify the identity of the subscribers and ascertain whether the transaction is genuine or these are bogus entries of name lenders but it was not properly done. Hence, the additions under section 68 were uncalled for.

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