Share Premium Not Taxable Under Section 68, Rules ITAT

The case pertained to the assessee M/s Aamby Valley Limited for AY 2013-14, wherein the Assessing Officer had made several additions, whereby they treated the share premium amounting to Rs 568 crores received from Sahara group companies as unexplained cash credit under Section 68. They had also rejected the business loss/write-off amounting to Rs. 23.01 crores, besides making TP adjustments regarding the share premium claimed.

The assessee submitted that full documentary proof, including documents like bank account statements, accounts, and records pertaining to the taxpayer/investor companies, had been provided to establish their credentials/identity/genuineness and that share premium is a capital receipt and TP provisions do not apply. Being aggrieved by the additions made, both parties moved the Tribunal.

Issue Raised: Whether transfer pricing provisions apply to share premium received from non-residents?

Tribunal Held: The ITAT Delhi ruled against the revenue’s appeal and partially upheld the assessee’s appeal. The decision held that the addition made under Section 68 on share premium was unwarranted because the assessee had established the identity, creditworthiness, and genuineness of the investors. It explained that a mere high share premium does not suffice for addition, especially where Section 56(2)(viib) was not applicable in the concerned year.

In regard to business loss, the Tribunal permitted the write-off of Rs 23.01 crore, observing that advances given in the course of business, which prove to be irrecoverable, would constitute business loss regardless of whether such transactions may be classified as bad debts. With respect to the transfer pricing aspect, the Tribunal reaffirmed that issuance of shares being a capital transaction and not constituting any income, TP provisions could not be employed to tax any premium earned on share issuance based on settled legal principles. Therefore, several additions were struck off, while some were partly allowed.

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