Share Premium from Earlier Year Not Taxable: ITAT Deletes ₹6.40 Lakh Addition u/s 68 [Read Order]

The Mumbai bench of Income Tax Appellate Tribunal (ITAT) deleted the ₹6.40 Lakh addition, holding that the share premium from an earlier year was not taxable in the assessment year under dispute.

The assessee filed its return of income on 25/09/2010 declaring total income at Rs. 1,50,270/-. The return was selected for scrutiny assessment, and accordingly, statutory notices were issued and served upon the assessee.

The assessee is trading in diamonds. While scrutinising the return of income, the AO noticed that the assessee had raised share application money of Rs.70,00,000/- and share premium is shown at Rs. 6,40,000/-.

The Tribunal observed that, insofar as the share application money of Rs. 6,40,000/- is concerned, evidence on record shows that it was received during FY 2007-08 pertaining to AY 2008-09. This fact has also been accepted by the AO. Since this amount pertains to FY 2007-08,relevant to AY 2008-09, the same cannot be considered under Section 68 of the Act for the assessment year under consideration.

The issue regarding the share application money of Rs. 70,00,000/- was also taken into consideration by the Tribunal. The share application money,which was received during the year under consideration, the assessee has accepted share application money from the parties

The AO issued notices under section 133(6) to the share investors at the addresses provided by the assessee. Four notices were returned undelivered, and the assessee was asked to produce the investors.

The assessee stated that all investors were located in Raipur and furnished the details sought in the notices. On scrutiny, the AO observed that each investor had deposited cash either on the date of transfer to the assessee or earlier, which led the AO to question the genuineness of the transactions and the capacity of the investors.

At the ITAT stage, the assessee filed affidavits from all investors explaining the sources of their funds. The D/R objected, arguing that the additional evidence was filed after several years without a proper explanation.

The assessee’s counsel clarified that the affidavits were meant to emphasise that the investors had sufficient cash balances in their books to make the investments, a fact already pointed out during assessment proceedings.

The ITAT admitted the affidavits, observing that they go to the root of the matter, but restored the issue to the AO for verification. The AO was directed to examine the contents of the affidavits through due process of law and after providing the assessee a reasonable opportunity to be heard. Consequently, the addition of ₹70 lakh was set aside to the file of the AO for fresh adjudication.

The two-member bench of Saktijit Dey(Vice President) and Narendra Kumar Billaiya(Accountant Member) held that the ₹6.40 Lakh addition cannot be considered under Section 68 of the Act for the assessment year under consideration.

Therefore, the AO was directed to delete the same, and consequently, the addition of ₹70 lakh was set aside to the file of the AO for fresh adjudication.

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