Bangalore bench of ITAT in the case of M/s. Cornerstone Property Investments Pvt. Ltd. vs. Income Tax Officer, ruled that Share premium received can be assessed as undisclosed income if the high premium is not justified by a valuation report and the high premium is not supported by the financials.
In instant case Assessee engaged in the business of Real Estate filed its revised return declaring a loss. Following the consequential proceedings notice under section 147 issued, later dropped by the AO and finally, assessment was completed with the income of Rs.49.50 Crores shown as “Share Premium” as ‘Income from other sources’.
On appeal, the CIT (A) upheld the action of the AO and the Assessee carried the matter to this tribunal. It was observed by the Assessing Officer that a company by name, M/s. Walden Properties Pvt. Ltd., had invested an amount of Rs.50 Crores and in lieu, thereof the assessee had issued 5 lakh shares of face value of Rs.10 per share. Accordingly, AO held the transaction was not the genuine one.
HN Khincha, Chartered Accountant at the behest of Assessee contended that the aforementioned shares invested are genuine transactions supported by regular banking channels and is properly documented and also added the details of the source of fund and payee also submitted relevant documents which establish the genuinity of the transaction.
The Assessee also cited the decision of Calcutta High Court in the case of Pragati Financial Management Pvt. Ltd. vs. CIT where it has been held that Sec. 68 of the Act can be invoked to conduct the enquiry on the genuineness of share premium transactions.
The bench comprising of Judicial Member Sunil Kumar Yadav and Accountant Member Jason P Boaz, while dismissing an appeal of Assessee, the impugned order proves that AO can seek the help of section 68 of the Act to examine the genuineness of the transaction and therefore his action cannot be faulted on this score.
Finally, the bench found that Assessee couldn’t bring up any cogent evidences to controvert and repudiate any of the findings rendered by the Assessing Officer.
The bench also observed the strong points of AO that assessee failed to substantiate the high premium, based on the manner in which such valuations are done supported by financials. All these facts lead to such conclusion to this tribunal that share premium which is not supported by valuation report and by the financials are concluded as undisclosed income.
Subscribe Taxscan Premium to view the Judgment
