Amount received as share premium: Applicability of Section 68.
- The Assessee Company was engaged in the business of trading and distribution of goods. It filed its return of income on 16.08.2012 declaring total income of Rs.15,500/-. During the year, the Assessee had raised share capital including premium amounting to Rs.1.13 crores. The Assessing Officer conducted enquiries and the Assessee presented the share holders including the directors of the share holding companies before the Assessing Officer.
- After due enquiry, the Assessing Officer accepted the explanations of the Assessee that the cash credits in the form of share capital were genuine, except in the case of M/s. Seacom Merchants, which had applied for shares. An amount of Rs. 20 lakhs pertaining to M/s. Seacom Merchants, was added. The Assessee’s case was re-opened and the order was passed under section 144 read with section 147 on the same amount of Rs. 20 lakhs.
- Section 68 of the Act provides that if any sum found credited in the year in respect of which the assessee fails to explain the nature and source shall be assessed as its undisclosed income. The emphasis is on genuineness of all the three aspects: identity, creditworthiness and the transaction.
- In the facts of this case, the source of the share application received was fully explained by the Assessee. The share application money and share premium money which were received by the Assessee Company from the two share applicant companies – Prism Vintrade Private Limited, and M/s. Gannet during the period December, 2012 to March, 2013 had already suffered disallowance under section 68 of the Act. As these two share applicant companies invested the same money in the Assessee Company, therefore, no further disallowance was warranted in the hands of the Assessee Company as once taxed income could not be taxed again.
- What was disquieting in the present case was that when the assessment was completed, the investigation report which was specifically called from the concerned department was available but not discussed by the Assessing Officer. Had he cared to do so, the identity of the investors, the genuineness of the transaction would have been apparent. Even otherwise, the share applicants’ particulars were available with the Assessing Officer in the form of balance sheets income returns, PAN details etc. While Assessing Officer did not consider it worthwhile to make any further enquiry but based on his order on the high nature of the premium and certain features which appeared to be suspect, to determine that the amount had been to the share applicants’ account. As held concurrently by the Commissioner (Appeals) and the Tribunal, the conclusions made by the Assessing Officer were clearly baseless and false. The Tribunal was constrained to observe that the Assessing Officer, with his duty considered all the materials on record, ignoring specifically the most crucial documents.
- Since, the Assessee had fulfilled all the conditions prescribed in section 68 and also the fact that share Assessee Company was assessed to tax under section 143(3) of the Act and the source of money in question was brought to tax, no further additions could be made in the case of the Assessee company.