Sec 68: Share Premium to Company of IIT Graduate having potential in gaming business cannot be held bogus

The assessee’s return of income on 30.09.2012 declaring total income Rs. 19,27,150. This is company formed by IITian i.e. Mr. Puneet Kumar, for developing gaming machines as a startup company along with founder of “Indiagames” Mr. Vishal Gondal i.e. Sweat and Blood Ventures Group. Out of 5000 shares, 4999 equity shares of Rs. 10 and one equity share of Rs. 10 each were allotted and fully paid to the Group and Mr. Puneet Kumar respectively. In view of the prospectus of entering into designing and manufacturing arcade gaming machines, the assessee-company valued its shares at Rs 1080.84.

The Assessing Officer was of the view that accumulated profits of the assessee-company were brought back in the price of the share premium, therefore, in view of the provision of S. 68 of the IT Act, 1961, he treated the entire value of the share along with share premium of Rs. 1,99,99,816 as unexplained cash credit u/s 68 of the Act.

On appeal, the Ld. CIT(A) deleted the addition observing that the Assessing Officer has not disputed the source of the funds and only raised doubts on the justification of the share premium.

Aggrieved, the Revenue is before the Tribunal raising the grounds regarding the share premium received by the company. The AO had given categorically finding that the source of funds was not doubted. The Ld. CIT(A) had also considered the decision in case of Major Metal Ltd. v. UOI wherein the addition was sustained on the ground that genuineness of the transaction was not proved and the creditworthiness of the creditor was also not proved whereas, in the present case the Assessing Officer has accepted the nature and source of funds. In the opinion of the tribunal, when the source of fund is not doubted by the AO then he is not justified in making addition in terms of S. 68 of the Act. Any addition for receipt of share premium having a value more than the market value of the shares could be made in terms of S. 56(2) of the Act and not u/s 68 of the Act. The Ld. CIT(A) has passed a reasoned order and no error was found in it. Hence, the tribunal upheld the same and grounds raised by revenue were dismissed.