TaxTMI 
TaxTMI 
2018 (10) TMI 1400
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....dition of share premium on capital on protective basis u/s 56(2)(viib) of the Act. 3. Before us, claim of the assessee is that the first addition of Rs. 20 crores cannot be made as complete information was and assessee has discharged its onus u/s 68 of the act. The ld AR took us through various evidences filed to show that the assessee has completely discharged its onus. He also referred to several judicial precedents to show that merely non-production of director of Investor Company cannot result in addition u/s 68 of the act. He also hastened to add that assessee at anytime ready to produce the directors of the investor company for verification of them by the ld AO on the documents submitted by the assessee. 4. With respect to taxability u/s 56(2)(viib) of the Act, he submitted that same is based on the valuation report of Chartered Accountant for share issue price in accordance with law. Such valuation also does not exceed the Fair market value of such shares; therefore, there is no incidence of taxation. He submitted that valuation report is submitted which is Discounted cash flow method , one of the acceptable method u/IT Rules 1962. In view of this, he submitted that on....
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....(viib) on protective basis. These are the only two issues in the appeal. 8. Brief facts of the case shows that the assessee is a company who filed its return of income as stated above and the case of the assessee was selected for scrutiny for verification of large share premium received during the year and low income in pursuance to high loans and advances and investment in shares. 9. During the course of hearing the ld AO noted that the assessee has issued share capital of Rs. 20 crores in the name of 7 companies. Therefore, the assessee was asked to furnish certain details about the identity and creditworthiness of the shareholders and the genuineness of the transactions. The ld AO discussed the issue vide his order as under:- "The assesses filed its return digitally on 25.09.2014 declaring a loss off 3,53,777/-. The case was selected for scrutiny for the verification of large share capital/premium raised by the assessee during the year, which is reproduced as under:- Large share premium received during the year. Low income in comparison to high loans/advances/investment in shares. 2. Accordingly notice u/s 143(2) dated 28.08.2015 was iss....
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....t the assessee company genuineness of investment as share capital is beyond their creditworthiness. In continuation of examination of creditworthiness of share holders company single page bank accounts statements were examined thoroughly and noticed that either exact or approximate amount is being deposited on same day of remittance in assessee's account or one day before the remittance and the similar practices has been adopted in all seven bank accounts. In addition to the measure and negligible income of the assessee, the claimed net worth of these share subscribers companies was verified / reconciled with the nature of current and non-current assets/investment shown in relevant schedule of the financial statement/balance sheet of these companies and found that the net worth with evidence. Because whatever asset/investment reflected in the balance sheet of these share subscriber companies were investment in unlisted shares at huge premium in released/ group companies which are expediting the accommodation entry affairs as happened in the assessee's case. These share subscriber companies are doing no business but to making investment & doing so-calledshare trading busine....
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....0 4017663 24.03.2014 S70822830 RTGS 50141131000981 ASPIRE SALE CR 2500000 6517663 24.03.2014 S70824597 RTGS S014I131000981 ASPIRE SALE CR 3500000 10017663 24.03.2014 S71082790 RTGS SD1119397209 STR YTON EXIM INDIA PVT LTD DR 5000000 5017663 24.03.2014 S71082790 Charges for RTGS Customers Payment SD 11193972009 DR 51 5017602 24.03.2014 S71088863 RTGS SD1119398027 STR YTON EXIM INDIA PVT LTD DR 5000000 17602 24.03.2014 S71088863 Charges for RTGS Customers Payment SD 1119398027 DR 51 17541 31.03.2014 Ml 68550 KAMSON 150300 CR 500000 517541 It is pertinent to mention here that a single page of bank account statement has been given by the assessee as well as by the shareholder companies. However, scrutiny of entries established the paucity of funds in these share subscriber companies as detailed in instances above. Besides, the above all seven-share holder companies are maintaining accounts with the same bank i.e. Punjab National Bank and the very same branch also. The purp....
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....nvestment of any one of them f) The entities did not have assets to justify any business activity g) The assessee did not substantiate the source of money received in any of these share applicants nor did the financials of these applicants substantiate there creditworthiness. 4, The assessee is a Private Ltd Company so it cannot go for any Public issue of shares. Therefore, all the Share Applicants in the company must have had been persons known to the Directors/Principal Officer of the assessee company. In view of this, the AR vide note sheet dated 07.11.2016-. 21.111.2016 (order sheet) & 02.12.2016 was requested; a) to provide the details of source of money received in investing entities alongwith documentary evidence b) to produce the directors of the entities from whom it had received Snap; Application Money, along with their details as asked vide notice u/s 133(6) of the act. 5. Instead of producing such persons and the directors of assessee company- the assessee has tried to discharge its onus u/s 68 of the Act by submitting the acknowledgement of ITR, Balance Sheet & part bank statements of such persons. However, the repl....
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....ld not file the copy of bank account statement to reevaluate the bank statement furnished by you earlier and as such the creditworthiness of all share holder companies remained unexplained as yet. Therefore, you are requested to expenditure the personal deposition of the directors of the aforesaid companies along with details requisitioned by the notice u/s 133(6) issued from this office earlier. The all 7 Directors may be produced on 22.11.2016 or on the date convenient for your as well as Directors which prior intimation to the undersigned. Vide order Sheet entry dated 20.11.2016. Vide Final Show Cause notice date! 02. 12.2016: Please refer to show cause notice dated 07,11.2016, vide which you are requested as follows: "In reply to notices issued u/s 133(6), all the seven share holder companies has filed their replies along with copy of ITR but could not filed the copy of bonk account statement to reevaluate the bank statement furnished by you earlier and as such the creditworthiness of all share holder companies remained unexplained as yet. Therefore, you are requested to expenditure the personal deposition of the directors of the aforesaid 1 companies along wi....
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....resolution of the Board/AGM of the company authorizing the company to purchase shares of the assessee company. 4. Source of funds available to purchase the share of the company along with documentary evidence to substantiate the creditworthiness of the source. 5. The latest bank account of the company as well as the bank account from which payment made for purchase of shares. 6. Copy of contract note for purchase of shares of the company, Copy of share delivery note along with share purchase register. 7. Explanation in respect of purchase of shares at such a huge premium of the company whose asset is so little and no major project in its hand. 8. Also furnish notes on business wisdom of the Director to invest such a huge amount in premium out of such a meager income/ asset of share subscriber company. 9. Copy of share purchase register along with valuation report of these shares as on date. 10. Produce books of account and other relevant details to justify tire valuation of share of your company at such a huge premium earning share on the date of valuation. Please note that in case of failure to produce the Directors of....
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....lose and proximate relationship between the promoters/directors and the shareholders. The closely held companies are permitted to accept the subscriptions of share capital or deposits only from the general friends or relatives of the promoters/directors and such companies are not allowed to accept subscriptions; or deposits from the general public. As such, there should have been ho difficulty on the part of the assessee to produce somebody from the said entity, had the whole apparatus not been merely a conduit to plough back the unaccounted money of the assesseecompany in the garb of share application money. Even if the work setup is presumed to be correct, for the sake of argument, it is necessary to examine as to how the "investor" came to know of the requirements of funds by the assessee-company in the absence of a public issue or any advertisement by the assessee-company. For accepting the identity and the availability of funds in its hands of the entity in its own capacity, it is necessary to have at least some idea, if not complete details, of the actual business in which it is it is said to be engaged. 11. The assessee had been accorded enough opportunity to lead b....
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....roduction of such persons was a farfetched requirement, the assessee did not even give a justification for non-production of such entities. Thus it is a case of clear human ingenuinity with the clear and contumacious intention to defraud the revenue. Amendment has been made to Sec 68 by Finance Act 2012 w.e.f AY 2013-14 which under consideration. The provision now reads as: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the (Assessing] Officer, satisfactory, the sum so credited ray; be charged to income- tax as the income of the assessee of that previous year: "Provided that where the assessee is a company (not being a company in which the public are substantially interested), and the sum so credited consists of share application Money, share capital, share premium or any such amount by whatever name called, any explanation offered by such assessee-company shall be deemed to be not satisfactory, unless- (a) the person, being a resident in whose name such credit is....
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....ee was determined at Rs. 19,96,46,220/- against the loss of Rs. 3,53,777/- as disclosed in the return of income. 4. Aggrieved with' the aforesaid assessment by AO, assessee is in present appeal. The grounds of appeal taken by him are as under:- "1. The Ld. AO has erred in law and on facts in making an addition of Rs. 20 crore on account of share application money on illegal and untenable grounds. Hence, the addition, as such, must be deleted. 2. The Ld. AO has erred in law and on facts in making of an assessment u/s 143(3) without serving mandatory notice u/s 143(2) on the assessee; hence the assessment is bad and may be quashed. 3. The Ld. AO has erred in law and on facts in making of warranted deemed addition of Rs. 19,90,00,000/- on account of share premium based on untenable and illegal ground; hence the addition as such may be deleted. 4. The Ld. AO has erred in law and on facts in assessing the case as a completed scrutiny as against limited scrutiny prescribed, hence the whole assessment as such is bad and may be quashed. 5. The appellant craves leave to add, substitute or modify any grounds of appeal on or before dat....
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....w of voluminous records produced in support of case upheld deletion of addition of share application money under section 68 of the Income Tax Investment by share subscriber company in unlisted share at huge premium in related/group company which are expediting accommodation entry affairs as happened in assesses case First of all, there is no reason as alleged to be an accommodation entry by the LD AO, this is out of general perception that he has jumped to this conclusion without there being any record available with him. Even this is not a case of any information from investigation unit or any other source. With regard to huge premium, this is submitted that this is an idea or good. business opportunity that fetch premium in the market. Here, the investment in USA which is considered as the best economy in the world d that too in the business of coal mines is sufficient to fetch good or huge premium fro i n the market. Further, again this is a purely business decision of the investor company that whether he wants to invest at premiums or not in the appellant company. All 7 share, holder company are having account in the same bank with s....
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....eager or no income is incorrect and not tenable. Total combined income of all applicants is much less than the investment of any one of them There is no law that income should be equivalent to investment. There is a difference between capital and income and capital is sum total of money invested by sftartnn'der, loan and profit earned over period of time. Investment - pf any concern is generally out of investor fund and profit earned over a period of time, loan and some times out of rotation of business. Hence, this issue is not relevant. The assesses didn't substantiate source of money received in any of their share applicant nor the financial of these applicant substantiate their creditworthiness. This is a general comment being made by the Ld AO without reference to any specific material which lead to such belief. The assessee in order to substantiate his claim has submitted whole lots of documents as stated above during the course of assessment proceedings. Even the hank statement of subscriber of the capital in investor company were filed, before the LD AO. which is confirmed by the LD AO in the assessment ....
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.... verdict holding that its conclusion was not unreasonable or perverse or based on no evidence, Since the conclusion is based on some evidence on which a conclusion could be drawn, it was held that no addition is warranted in this case. Further, we may submit as follows: 1 There is no information or report with the Ld AO from any source that there is any accommodation entry to the assessee. 2 Further, there is no evidence with the revenue that this is assesses's money which has been rounded up in the form of share application money UK assesses company. 3 There was no material to conclude that investor companies were paper companies they have been regularly assessed to tax & paid good amount of tax. 4 The assesses had discharged primarily onus to prove the identity genuineness & creditworthiness of said shareholders. 5 All the notices sent under section 133(6) to the investor company served and reply received as stated in the assessment order also. As the addition is under section 68, so it is necessary to understand and analysis the section in respect of share application money Law concern Section 68 of the Act ....
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....ity to make w-e investment. Their returns may be reopened by the Department: * 7. In any case what is clinching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. This has not been done in so far as the present case is concerned and that has been noted by the Tribunal also. 8. Under the circumstances, we are of the view that the Tribunal has not committed any error in deleting .the addition. 9. No substantial question of law arises " Bhav Shakti Steel Mines (P) Ltd. v. CIT (2009) 179 Taxman 25. wherein the Honble Delhi High Court has observed as under:- .. "In any event we also are also note that the Supreme Court in the case of CIT v. Lovely Export (P) Ltd. [2008] 216 CTR Page 195 considered the question as to whether the share application money can be regarded as undisclosed income under Section 68 of the Income Tax Act, 1961. The Supreme Court dismissing the SLP observed that if the share money is....
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.... out any discrepancy in the evidences relied upon by the assessee, He has neither brought out any direct or inferential evidence to contradict the contention of the assessee. Though, the share-applicants could not be examined by the AO, since they were existing on the file of the Income Tax Department and their income- tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to-also, have them examined by the respective AOs having jurisdiction over them (share-applicants), which has not been done by him. Under the facts and circumstances of the case stated above, it is held that the addition of Rs. 70,00,000/- cannot be sustained and accordingly, the same is directed to be deleted CIT vs OASIS HOSPITALITIES (PVT.) LTD., 333 ITR 119 DHC In a batch of cases, the Court had to consider whether the addition made by the AO u/s 68 on account of unexplained share application money was justified. After a comprehensive review of all the important cases on s. 68, the following principles were laid down: (i) S. 68 provides that if the assessee is not able to give sati....
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....ade u/s 68 in the hands the assessee. (vi) The Department is free to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remedy- less. CIT vs FIVE VISION PROMOTERS PVT.LTD, DHC, 380 ITR 289 (Delhi) Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the Assessee had discharged the primary onus of proving their creditworthiness and genuineness. They had responded to the summons issued to them. The mere fact that some of the investors have a common address is not a valid-basis to doubt their identity or genuineness. Also, the fact that the shares of the Assessee were subsequently sold at a reduced price indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares. Reliance i....
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.... the entries of share application money/premium of the aforesaid amounts from share applicants, is a private limited company different from the public limited companies wherein public are substantially interested and where the share application money comes out with an initial public offers and wherein shares are listed on stock exchange and are widely traded. In such cases, it is very difficult for the company to know of them closely and have no control/mechanism to verify the creditworthiness and the burden of proof in such case is difficult. But there is another class of companies which are closely held and in which public are not substantially interested and which are mostly family controlled closely held companies, and they raise their share capital and loans from their family members, relatives and friends and in these companies since share capital and loans are received from the close knit circles who are mostly known to the companies/promoters, the onus required u/s 68 of the Act is very heavy to prove the capacity of the share holders and lenders and genuineness of the transactions to satisfy cumulatively the ingredients of section 68 of the Act to the satisfaction of the A....
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....e., creditworthiness and genuineness, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd. (supra) has held that the bank accounts do not reflect the creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondentassessee, did not give any share dividend or interest to the said entry, operators/subscribers. The profit motive is normal in case of investment, which should reflect from accounts. In the present case, no profit or dividend was declared on the shares during the year, rather, loss of Rs. 3,53,777/- has been declared. It is on record that though the appellant company was incorporated on 19.03.2004 but no business activity were carried out by it till the raising of share premium in the year under consideration. Even in the subsequent three years also, no profit or dividend was declared by appellant. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining the creditworthiness and the genuineness of the transactions. It is further h....
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.... 5.6 In addition, as mentioned by AO, the case of appellant is covered by the 1st proviso of section 68 also. As per this proviso, in the case of a company, if the sums so credited consist of share application money, share capital, share premium or any such amount by whatever name called, the explanation ordered by such company shall be deemed to be not satisfactory, unless (a) the person, Japing a resident in whose name such credit is recorded in the books of such company also offers an explanation about the nature and source of such sums so credited; and (b) such explanation in the opinion of Assessing Officer has been found to be satisfactory. In the case of appellant, it has failed to explain the nature and source of sums credited to its books of account in the names of share applicant companies, therefore, has been held that the said sums are unexplained, as per the main provisions of section 68 of the Act. The appellant could not prove the identity, creditworthiness and genuineness of transactions in the case of its own creditors, leave alone proving the nature and source of the funds received by its creditor companies as per the 1st proviso of section 68 of the Act. Not ....
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....rgued vehemently that when the complete details are available of investors before ld AO, it is not necessary to produce the share holders directors and stated that Even otherwise mere non production of those shareholder cannot result in addition u/s 68 of the act when complete details were filed. He further submitted and promised that the assessee is ready to produce the directors of the company. He further argued that the ld AO should have issued summons u/s 131 of the Act to the directors of the investor companies in case if he wishes to make such a huge addition for only that reason. He further submitted that no independent enquiry has been made by the ld AO. He further stated that in reply notice u/s 133(6) of the 7 shareholders have filed their replies with the return of income. He further submitted that the ld AO has wrongly followed the decision of Hon'ble Delhi High Court in Sanraj Engineering Pvt. Ltd ITA 69/ 2016 wherein, the other decisions cited were not considered. He further referred to the provision of section 68 of the Act and proviso there to and stated that the assessee has furnished proper explanation about the nature and source of such credit, however, the l....
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....forms and return of allotment of shares. The ld AO issued inquiry letter to companies u/s 133 (6) of the act which were also replied to. The ld AO based n the bank statements found that the returned income of the companies is not commensuration with the amount of investments made in the assessee company and also the bank statements furnished by the assessee I only a one pager statement which shows that prior to transfer of moneys as share capital with the assessee, RTGS ( Real Time Gross Settlements) funds received from other accounts. Therefore according to ld AO source of sources of funds are not proved. Ld AO was also of the view that when the bank accounts of all the investors are in same branch of the bank, there is some doubt. So the ld AO asked assessee to produce the directors of the company. Assessee requested ld AO to issue summons u/s 131 of the act. The final show cause notice was issued by the dl AO on 20/12/2016 and assessee was asked to produce the directors by 26/12/2016. Naturally, assessee reiterated the same documentary evidence furnished by the assessee but did not produce the directors of the investors companies. The Ld AO made the addition u/s 68 of the act. T....
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....f the transactions. Further if assessee produces the directors of the investor companies before the Lord assessing officer and they are examined by Ld. assessing officer, it will conclusively decide the whole issue. Accordingly, on the request of both the parties, we set aside the first issue covering ground number one of the appeal back to the file of the Learned AO with a direction to the assessee to produce the directors of the investor companies for examination before the assessing officer. The AO is also directed to examine them on the basis of documents submitted by the assessee. Accordingly, ground number one of the appeal of assessee is allowed with above direction. 16. Ground No. 2 is with respect to the addition u/s 56(2)(viib) of the Act on protective basis by the ld AO. As the assessee has received share capital of Rs. 20 crores of the face value of Rs. 10 each at a premium of Rs. 1990 per share therefore, the ld AO held that the provision of section 56(2)(viib) of the Act are attracted. He further made the addition of Rs. 19.90 crores of share premium u/s 56(2)(viib) of the Act holding vide para No. 2 of his order as under:- "2. Addition of share capital se....
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.... 7 Also furnish (i) Bank statement of the company which shares capital and premium were received, (ii) In the case where shareholders are companies provide detail of directors of all such companies with their name, PAN, Address; (iii) The proof of identity and creditworthiness the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital/premium account; (iv) The working and quantum of Book Value of Shares and justification for the quantum of premium; (v) Valuation report' of the share price. " Vide reply dated 02.09.20l6, the assessee has submitted the detail of share capital issued and detail of share premium charged. In its reply dated 07.12.2016 the assessee has submitted working of cash flow etc. Further during the course of the assessment proceedings the assessee was asked to submit the valuation report for share price determination and basis of issuance of the share. Vide reply dated 07.12.2016 the assessee has submitted few pages of the valuation report. The report which was submitted by the assessee without any annexure, exhibits as referred ....
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....ategory of incomes that shall be chargeable to income-tax under the head "Income from other sources". It was inserted a new clause in section 56(2). The new clause is applicable where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head "Income from other sources. Further, it is also important to provide the company an opportunity to substantiate its claim regarding the fair market value. This amendment has taken place effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years. Section 56 (2)(viib) relevant to Assessment Year (AY) 2013-14] is given below: "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident,....
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....as advance tax payment iv. any amount shown in the balance-sheet as an asset including the unamortized amount of deferred expenditure which does not represent the value of any asset L. Book value of liabilities shown in the Balance Sheet (as on the date of transfer/ receipt) but not including the following amounts i. the paid-up capital in respect of equity shares; ii. the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; iii. reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; iv. any amount representing provision for taxation, other that amount of TDS or TCS or as advance tax payment. The quantum of TDS or TCS or advance tax needs to be reduced by the amount of tax claimed as refund under the IT A; v. any amount representing provisions made for meeting liabilities, other than ascertained liabilities; vi. any amount representing contingent liabilities other than arrears of dividends ....
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....e and does not contained any material information through which the valuation priced should have been supported. The assessee has willfully hide to submit the complete report as there was no justification of share premium received. It is important to note that Clause (ii) needs to be restricted asset based valuation methodology by putting forth the argument that the language of Clause (ii) is very clear and it requires the value to be substantiated with reference to the value of assets. The section does not permit- any other alternative format of methodology. It is also noted that, for the purposes of objective determination and for simplicity, the legislature may normally describe method, which is based on net asset value. To illustrate, in respect of provisions of S.56(2)(viia), the valuation of shares is based on breakup value as per books. Likewise, Rule ID provides for breakup method for the purposes of wealth tax. It is likely that similar / same method may get prescribed for Clause (i) of S.56 (2) (viib). In such a case, the officer may suggest that legislative in to determine value which is linked to asset base - under Clause (i) the same is calculated with referen....
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....xcess premium of Rs. 19,90,00,000/- applicants whose creditworthiness has not been proved, is also deemed to be income from other sources u/s 56(2)(viib) r.w.s. 2(24)(xvi) of the Act. Accordingly, warranted deemed addition of Rs. 19,90,00,000/- is made in the hands of the assessee company u/s 56(2)(viib) of the Act. However, this addition will become substantive'& operative if the addition u/s 68 is not upheld by Appellate Authorities." 17. Assessee preferred appeal before the ld CIT(A) who vide para No. 6 of his order confirmed the above addition as under:- "6. The Ground No. 03 pertains to the addition of Rs. 19,90,00,000/- made by AO on protective basis on account of share premium received by appellant as mentioned above. The AO applied the provisions of section 56(2)(viib) of IT Act in the case of the appellant on the premium of Rs. 19,90,00,000/- on the face value of Rs. 10,00,000/- of one lakh shares. During the appellate proceedings, appellant has agitated to the addition made by AO and submitted as under:- "Ground No. 3 -Proposed Illegal addition of Rs. 19,90,000.00 under section 56(2)(viib) Facts The Appellant issued 1,00,000.00 shares dur....
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....98.99 8 15-Dec-14 19,02,815.43 9 31-Dec-14 9,54,498.50 10 15-Apr-15 46,50,261.59 11. 26-May-15 1,61,76,876.79 12 24-Nov-15 4,49,64,448.90 Total 14,68,63,291.71 Copy of HDFC bank Statement reflecting the above remittances enclosed. The LD AO raised the issue of issuing the shares at such a high premium and proposed CIT(A) to add the amount under section 56(2)(vii)(b) if the addition under section 68 fails. In this regard, the law relating to it is being produced below:- Law Section 56(2)(viib) Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of sect. shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be ....
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.... a) Book value on the date of consideration or if balance sheet not drawn up to that date than book value as per last audited balance sheet. b) Value on the date of share allotment. For consideration received on or after 29.11.2012 fair market value shall be the higher of a, Book value on the date of consideration or if balance sheet not drawn up to that date liar: book value as per last audited balance sheet. b) Value on the date of share allotment. c) Fair value determined by a Chartered Accountant or a Merchant Banker using discounted free cash flow method. From the perusal of above, it is clear that the legislator has given option to assessee to either opt for book value method or discounted cash flow method. This is a total discretion of the assessee to opt for either and no discretion is given to AO to interfere into it. Why DCFM in the case Further, DCFM is used to estimate the attractiveness of an investment opportune cash flow analysis uses future free cash flow projections-' add discounts them to arrive at a present value, which is used to evaluate the potential for investment. If we look....
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.... - Employment Agreement dated 24.09.2014 - Consulting Agreement dated 24.09.2014 - Operating agreement for Strytone Minerals and Resource, LLC - Approval letter from environment industry - Financial statement of Strytone Minerals and Resource, LLC C.Y.2016 - Financial statement of Strytone Minerals and Resource, LLC C.Y.2015 - Financial statement of Strytone Minerals and Resource, LLC C.Y.2014 - Proof of submission of APR to RBI for C.Y.2014,2015,2016. - Proof of remitting fund to USA - Valuation report 3 Valuation are not on different date of issue of share application money The decision to invite share application money was taken in one board meeting and the rate was fixed in that meeting and immediately after that search for investor was initiated in this case. As far as the Sate of valuation on each date of investment is concerned, it is applicable in the case of book value method where the valuation is done on today net worth basis and not in the case of DCFM, where the investment is made on future cash flow method. 4 Annexure and exhibits are not missing The....
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.... has conferred a power to do an act and had laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. 5. Danish Aarthi C.R.P. (NPD) (MD) Nos. 475 & 476 of 2004, dated 28-1- 2009]: In this case hon'ble Madras High Court was dealing with an eviction petition and observing the petitioner therein has not followed the procedure prescribed under section 8 of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 and held that 'when the statute prescribes to do a particular thing in a particular manner, the same shall not be done in any other manner than prescribed under the law. For coming tp this conclusion, the court relied on the judgments of the Hon'ble Supreme Court cited above. Though the facts and circumstances under which the above rulings have been given are distinguishable, your honor will find that the legal principles laid don in the above judgments are clearly applicable to the facts of the case. Further, this is mentioned that the intention of the statute behind this section is to curb black money being converted to white without....
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.... it has been informed by the management that the only source of income is investment in subsidiary company in USA namely Stryton Minerals and Resources, LLC. It has been further mentioned that they have considered the projected income of next three years to evaluate the fair value of shares. However, aftfr giving the basis of valuation of shares and discussing the relevant facts and aspects of generation of income, the Valuer has expressed many reservations on the method of valuation of shares and qualified the report on many aspects, which are reproduced as under:- "7. Caveat 7.1 The provision of valuation, recommendation and considerations of the issues described in this report are areas of our regular corporate advisory practice. The services do not represent accounting, assurance, consulting, transfer pricing, domestic or international tax related services 7.2 We have relied on explanations and information provided by the management of the company and accepted the information provided to us as accurate-and complete in all respects. Although, we have reviewed such data for the consistency and reasonableness, we have not investigated or otherwise verifi....
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....2016-17 and 2017- 18 and against it, the expenses of Rs. 80,43,000/-, Rs. 3,21,72,000/- and Rs. 3,03,72,000/- respectively. The basis of these projections has been claimed the due diligence report received by appellant from its subsidiary company at USA. However, nothing has been given to support the aforesaid income or expenditure projected by appellant in the future years. Contrary to this, the actual figure of income and expenditure is Rs. Nil/- for the preceding years or subsequent three years against which the appellant has projected aforesaid income expenses. From the details submitted by appellant, it clearly reflects that till the end of F.Y. 2016-17, not a single rupee was received by appellant from its subsidiary company out of the projected business of mining in USA. Thus, it is clear that to justify the premium received, the figures of projected income and expenditure have been manufactured by appellant ^whereas, in reality, there is neither such income nor expenditure in actual, terms. Moreover, the basis of valuing the shares on such a high premium, as given by appellant is also not justified and practical for the reasons that as explained, it was on the basis of divi....
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....rther submitted that disclaimer shown in the valuation report is the regular disclosure and therefore, merely based on the same it cannot be excluded. He further stated that the provision of section 56(2)(viib) of the Act are not applicable in the case of the assessee. He further stated that the learned commissioner appeals was provided with all the details with respect to the valuation aspect of the shares of the company, which has been reproduced by him in paragraph number six of his order however he did not consider any of these evidences. He further stated that all the issues raised by the learned AO were also clarified before him, but same were not at all considered. He further stated that assessee has given a valuation report which is supported by enough evidences but same has been rejected by the lower authorities. He submitted that it may be possible that at the time of repression of the discounted cash flow valuation of the shares certain exemptions have been made but same have not been fulfilled in those years but subsequently they have been fulfilled, but that does not make the valuation report unsustainable. He further stated that in case of an opinion of the chartered ....
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....ustify its what is the fair market value of the share premium received by it of Rs. 19.90 crores. Assessee company submitted a valuation report according to which the valuation per share was determined at Rs.Rs. 2 035.53 per share whereas it has received the share premium of Rs. Rs. 1 990 per share. In the valuation report submitted by the assessee the valuation of Rs. 2 035.53 per share was received by adopting discounted cash flow method in accordance with rule 11 UA of the income tax rules 1962. The rational disclosed by the assessee for such a valuation was that assessee company got an opportunity to invest in a coal mine in the USA. For this it entered into an agreement with the promoters of the coal mine and a new company was formed by the name and style of M/s Stryton Minerals & Resources LLC in USA as a special purpose vehicle. Therefore according to the assessee huge profit was expected to be received in that company and therefore on the projected cash flow method the valuation of share was made. The assessee also stated that that investment of the assessee itself is 3050000 US dollars in the special purpose vehicle company or undertaking the business of coal mines. The as....
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....ion report is prepared by the professionals such as chartered accountant, or merchant bankers for which their respective professional bodies have laid down specific disclosure requirements. Those disclosure requirements are binding on them. Therefore merely because they have given certain caveats and disclaimers, those factors should not sway the mind of the learned assessing officers or commissioner appeals. Further in the present case before us the assessee has claimed that its investment in coal mines in USA is based on certain proposals, due diligence report, coal lease agreement , agreement for transfer of lease rights, engineering service agreement, consulting agreement, approval from environment Ministry and approval of reserve Bank of India for making an overseas investment. Therefore the valuation report submitted by the assessee is required to be objectively evaluated based on these evidences. It is apparent that lower authorities have not given any credence to these details. It is further not possible to ascertain what happened in subsequent years to the business of the coal mine. It is neither found from the assessment orders or appellate orders or submission of the ass....