In M/s. Classic Flour & Food Processing Pvt Ltd v. CIT, the division bench of the Income Tax Appellate Tribunal (ITAT), Kolkata held that the provisions of section 68 of the Income Tax Act relating to unexplained cash credits are applicable to share capital/ premium even before the amendment to the said provision vide 2012 Finance Act.
While dismissing the appeal filed by the assessee-company, the bench clarified that though the amendment to the provision has prospective effect, the wordings of the pre-amended section also covers share capital with premium.
The assessee-Company is engaged in the construction business. For the relevant assessment year, the Assessing Officer competed assessment against the assessee and observed that the assessee has received share capital and share premium of Rs.8,80,000/- and Rs.79,20,000/-. The Officer given a finding that notices under section 133(6) of the Income Tax Act were issued to the share applicants to verify the genuineness of the share applications and the replies received from them were verified and placed and no adverse inference were drawn. Revising the order of the Assessing Officer, the Commissioner of Income Tax found that the net asset value of the company was only Rs.42.37 as on 31.03.2007 and net asset value was Rs.78.74 as on 31.03.2008 respectively and there was no justification at a very high premium which was eight times of the share capital and that the AO failed to examine as to why such high premium was paid by a person acquiring shares of the assessee company. According to him, the facts and circumstances under which such high premium was charged raised serious concern and about the genuineness of the transactions as well as the source of funds. Consequently, he issued a direction to summon the share applicants in order to find out the genuineness of the transactions in the light of the share premium paid by them.
Questioning the order, the assessee contended that the order was passed without jurisdiction. It was also contended that the genuineness of the high share premium could not be investigated under section 68 of the Income Tax Act since the provision was made applicable to share capital vide Finance Act, 2012, which only has prospective operation.
Sustaining the impugned order, the division bench held that “since section 68 covers `any sum credited’ in the books without any exception, which, inter alia, includes share capital, it cannot be held that the examination of share capital with premium etc. was earlier outside the ambit of section 68 and now this amendment has brought it into its purview. The amendment has simply made express which was earlier implied. We are therefore of the view that the assessee is always obliged to prove the receipt of share capital with premium etc. to the satisfaction of the AO, failure of which calls for addition u/s 68 of the Act.”
Read the full text of the order below.