The amount received as share premium: Applicability of Section 68
- The Assessee had filed the return on 15.01.2013. The case was selected for scrutiny and the assessment order under section 143(3) was passed on 25.03.2015. Subsequently, notice under section 263 was issued by the Principal Commissioner of Income Tax owing to various reasons including the fact that the Assessing Officer had not carried out detailed investigation regarding the credit worthiness of the shareholders and genuineness of the transactions and merely accepted the submission of the Assessee in this regard. The order under section 263 was passed on 12.05.2016.
- In the instant case, the credit was in the form of receipt of share capital with premium from share applicants. The nature of receipt towards share capital was seen from the entries passed in the respective balance sheets of the companies as share capital and investments. In respect of the source of credit, the Assessee had to prove the three necessary ingredients i.e. identity of share applicants, genuineness of transactions and creditworthiness of share applicants. For proving the identity of share applicants, the Assessee had furnished the name, address, Registrar of Companies details, PAN of share applicants together with the copies of balance sheets and Income Tax Returns.
- With regard to the creditworthiness of share applicants, the companies were having capital in several crores of rupees and have the capacity to make the investment in the Assessee Company. These transactions were also duly reflected in the balance sheets of the share applicants, so creditworthiness was proved. The third ingredient was the genuineness of the transactions, for which it was noted that the monies have been directly paid to the Assessee company by account payee cheques out of sufficient bank balances available in their bank accounts on behalf of the share applicants.
- Even the source of the source was brought to the notice of Assessing Officer/ Principal Commissioner of Income Tax. The share applicants had confirmed the share application in response to the notice under section 133(6) of the Act and had also confirmed the payments which are duly corroborated with their respective bank statements and all the payments were by account payee cheques. The Assessee had discharged its onus of proving the identity of the creditors, genuineness of the transactions and credit-worthiness of the creditors. Since the Assessee had fulfilled all the conditions prescribed in section 68, the share application money could not have been treated as income of the Assessee by the application of the said section.