TaxTMI 
TaxTMI 
2021 (8) TMI 769
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....000 1000000 Palani Buikders Pvt. Ltd. 7500 10 70 600000 Texcity Constructions (Kovai) Pvt. Ltd. 25000 10 70 2000000 Lekh Nath Pandey 8625 10 70 690000 Rishi Credit & Industries Pvt. Ltd. 3625 10 70 290000 Total 57250 4007500 4580000 3. The AO called for information u/s 133(6) from the above referred investors. Some of the investors responded by giving various details except Mr. Lekh Nath Pandey and M/s Best Buildmart Pvt. Ltd. From the perusal of the information, the Assessing Officer observed that the covering letter of all the companies is of same font and none of the companies have any telephone number against them. The financial statement of these companies indicate that these are shell companies and have no real business. The assessee also did not file the bank statement of the above companies. From the various details furnished by these companies, the AO noted that those details are of typical paper companies having no real business but only credit and equal amount of debit entries. He, therefore, was of the view that the credit worthiness and genuineness of the transactions remain highly suspicious.....
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....f the Act in this case. It is further noted that the appellant has justified the share premium on the basis of valuation report under Rule 11UA(2). The said valuation report for the shares as furnished by the appellant under Rule 11UA(2) has been perused. It is noted that the appellant in the said report for the DCF has considered cash flow from the equity for Rs. 90 Lacs for the financial year 2015-16 relevant to Asstt. Year 2016-17. On this basis value of each share has been determined @ Rs. 40/- per share. No corroborating details have been furnished to substantiate the cash flow of Rs. 90 Lacs from the equity for the F.Y. 2015-16. From the above facts it has been noted that the appellant has no business worth. There is no tangible business activity being carried out by the appellant since incorporation. There are no fixed assets or any other intangible assets in possession of the appellant to justify such kind of cash flow in the subsequent years. In the absence of any business worth of the appellant, the reliance of the appellant on the valuation report for the premium charged of Rs. 3G/- on each share under Rule 11UA does not carry any force. Such valuation report has been fo....
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....are premium and share capital. iii. The Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant assessee by sum of Rs. 40,07,500/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. iv. The Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant assessee by not issuing valid show cause notice as mandated. v. The Ld. CIT(A) has erred in law as well as on facts in confirming and enhancing the addition without giving cogent reasons and by recording incorrect facts and by disregarding the all the documentary evidences furnished by assessee. vi. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds. 7. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in upholding the addition of Rs. 40,07,500/- lakh u/s 56(2)(viib) of the Act. Referring to the above provision which was inserted by the Finance Act, 2012 and as existed during the relevant assessment year, the ld. Counsel submitted that as per the said provision where a company receives any consideration ....
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.... aforesaid valuation was furnished before the AO to justify that the shares issued by the assessee was at fair market value which was computed in accordance with the Rule 11UA(2)(a) of the IT Rules, 1962. However, the AO arbitrarily rejected the valuation furnished by the assessee by holding that the assessee is not having any worth of receiving any share premium. He submitted that the AO has adopted the FMV of shares at Rs. 10/- (at the face value) without appreciating the formula provided in Rule 11UA and has completely given a go by to the value of assets and liabilities shown in the balance sheet. He has not made any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962. He submitted that the adoption of the fair market value of shares @ Rs. 10 per share as against Rs. 82 per share as computed by the assessee without recourse to the formula as provided in Rule 11UA is unsustainable in law as for the purpose of section 56(2)(viib) of the Act, the fair market value of the shares has to be computed only in accordance with Rule 11UA. Further, the ld. CIT(A) without considering the statutory provision and without computing the fair mar....
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....n sustained u/s 56(2)(viib) has been deleted. 12. So far as the addition of Rs. 22,90,000/- sustained by the learned CIT(A) u/s 68 of the Act is concerned, he submitted that the assessee has discharged the onus cast on it by proving the three ingredients of section 68 i.e. the identity and creditworthiness of the share applicants & genuineness of the transaction. The share applicants have directly responded to the Assessing Officer in their response to notice u/s 133(6) of the Act. The addition was made basically on presumption & surmises and therefore, the same is liable to be deleted. 13. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). Referring to para 12.2 of the order of the CIT(A), the ld. DR drew the attention to the same which reads as under:- "12.2 The valuation report for the shares as furnished by the appellant under Rule 11UA(2) has been perused. It is noted that the appellant in the said report has considered share premium of Rs. 1,28,28,924/- as on 31.03.2014. From the above facts it has been noted that the appellant has no business worth. There is no tangible business activity being carried out by the appellant since incorporation. There....
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....he assessee to justify the premium charged by the assessee on issue of shares. He, therefore, held that the reliance of the assessee on the valuation report for the premium charged at Rs. 70/- on each share under Rule 11UA does not carry any force. Relying on the decision of the Hon'ble Delhi High Court in the case of Agro Portfolio Pvt. Ltd. vs. ITO, 171 ITD 74, the ld.CIT(A) held that the valuation report for the premium charged of Rs. 70/- on each share under Rule 11UA does not carry any force. 16. It is the submission of the ld. Counsel for the assessee that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with the Rule 11UA of IT Rules, 1962. As per the said Rule, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ Rs. 80 per share (face value of Rs. 10 per share + premium at Rs. 70 per share) as on 31.03.2015 and the valuation of each share ....
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....e, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (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 than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the b....
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....he Tribunal in the case of Agro Portfolio Private Ltd. (supra) relied on by the Ld. CIT(A) is concerned, the same in my opinion is not applicable to the facts of the present case. In that case, the shares were valued on the basis of discounted cash flow method and it was found by the Tribunal that the assessee did not produce any evidence to substantiate the basis of projections in cash flow but relied on the valuer's report contending that such a report cannot be disturbed by the AO and at no point of time the assessee tried to explain where did the AO went wrong in his comments in the figures reflected in the valuation report. However, in the instant case, the assessee has issued the shares at fair market value computed in accordance with Rule 11UA(a) of the IT Rules 1962 and no fault has been found in the method applied by the assessee and the lower authorities have made the addition u/s 56(2)(viib) purely on presumptions and surmises. Therefore, in my considered opinion, such action of the lower authorities being not in accordance with law is unsustainable. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assess....
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....responded to notice issued u/s 133(6) of the Act by the Assessing Officer. Entire addition made by the Assessing Officer and sustained by the learned CIT(A) in this case is merely based on presumption and surmises. The various details furnished before the Assessing Officer were neither proved to be false or untrue. I therefore direct the Assessing Officer to delete the addition of Rs. 6,00,000/- in respect of M/s Palani Builders Pvt. Ltd. 23. So far as the share capital and share premium from Mr. Lekh Nath Pandey (Rs. 6,90,000/-) is concerned, neither the said party responded to the notice u/s 133(6) of the Act nor the assessee filed any supportive documents and failed to explain to the satisfaction of the lower authorities. Similarly, in the case of M/s Best Buildmart Pvt. Ltd., the said party also did not respond to the notice u/s 133(6) of the Act issued by the Assessing Officer. Although the assessee had filed certain details/documents to substantiate the identity and creditworthiness of the above two parties and genuineness of the transaction, however, the fact remains that both the parties did not respond to the notice u/s 133(6) of the Act. 24. For explaining any cash cred....