AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 366
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....e assessee filed the requisite details from time to time. 2.1. During the course of assessment proceedings the A.O. noted that the assessee company during the impugned assessment year has allotted 57500 equity shares of Rs.10/- per share at a premium of Rs.70/- per share to four entities, the details of which are as under : Name of Person No. of Shares Nominal value per share (Rs.) Premium per share (Rs.) Share Capital Amount of Premium (Rs.) Total amt. paid including premium (Rs.) M/s Pearl Multicon Pvt. Ltd. 9,375 10 70 93,750/- 6,56,250/- 7,50,000 M/s Pearl Nestbuild Pvt. Ltd. 16,875 10 70 1,68,750/- 11,81,250/- 13,50,000/- M/s Rishi Credit and Industries Pvt. Ltd. 18,750 10 70 1,87,500/- 13,12,500/- 15,00,000/- M/s Zeya Developers Pvt. Ltd. 12,500 10 70 1,25,000/- 8,75,000/- 10,00,000/- Total 57,500 5,75,000/- 40,25,000/- 46,00,000/- 2.2. On being asked by the A.O. to justify the issue of such shares at a premium of Rs.70/-, the assessee company filed various details such as Income Tax Return, Computation of Income, Audit Report, Bala....
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....t. Ltd. 7,50,000/- 2. Pearl Nestbuild Pvt. Ltd. 13,50,000/- 3. Rishi Credit & Industries Ltd. 15,00,000/- 4. Zeya Developers Pvt. Ltd. 10,00,000/- Total 46,00,000/- 10.1 . The appellant has relied upon confirmed ledger account, copy of ITR, audit report, balance sheet and bank account in respect of share capital/ share premium received during the year. In order to examine their genuineness and creditworthiness, the documents submitted by the appellants/ furnished by the by the appellant have been gone through by the undersigned. A brief description regarding financial and other relevant details regarding the share applicants and the appellant as noted from the perusal of these documents is under: 1) M/s Pearl Multicon Pvt. Ltd., 341/36A, 2nd Floor, Mangal Sain Building, Bagh Kare Khan, Kishan Ganj, Delhi. This entity has made payment of Rs.7.5 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. ....
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....ome of Rs.2,15,635/- income for A.Y. 2016-17. On the basis of these facts it can be safely inferred that the above share applicant is paper company, created just on papers having no business worth or creditworthiness. 3) M/s Rishi Credit & Industries Ltd., 13, 6th Floor, Bonfield Lane, Kolkata This entity has made payment of Rs.15 Lacs in the F.Y. 2015-16 to the appellant during the previous year relevant to the assessment year under consideration. The appellant has not furnished any confirmation in respect of the said transaction. Therefore, genuineness of such transaction is not established. From its Balance sheet as on 31.03.2016, it is noted that it has shown paid up capital Rs.l Crore (Rs.l Crore as on 31.03.2015) with share premium of Rs.4.61 Crore (Rs.4.61 Crore as on 31.03.2015). It has shown accumulated loss for Rs. (-)814483/- as on 31.03.2016 (Rs.(-)894829/- as on 31.03.2015) in the reserve and surplus account. It has made investment of its fund mainly in shares of private limited companies and loans and advances to others. It has NIL fixed assets in its balance sheet. It has shown profit of Rs.116274/- as on 31.03.2016 (Rs.186574/- as on 31.03....
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.... noted that there are no business activities carried out in the prior years also. In the absence of fixed assets of any type, it is difficult to presume the genuineness of any business existence of the appellant. The submission of the Ld. AR that the appellant was negotiating with other companies to start business activities has remained unsubstantiated as no corroborating details have been furnished. During the appellate proceedings it has been gathered that till date no business activities have been commenced. From the above facts it can be safely concluded that though these are companies registered with ROC, having PAN, having bank accounts, filing their Income Tax Returns etc. but in fact these are just existing of papers. All the share applicants have been found audited by the common auditors, common directors and even common addresses. In fact transactions have been routed through banking channels to hide the real transactions. Therefore, the claim of the appellant GBPhat it has proved the identity, creditworthiness and genuineness of transaction in respect of credits by furnishing copy of ITR, bank account, balance sheet, confirmations is not proved. Mere filing of ....
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....tained for the previous year under consideration. Further as per the proviso to section 68 of the Act, the onus was on the appellant to furnish the satisfactory explanation regarding the source and nature of such sum in the hands of the such share applicants. From the above analysis in respect of the share applicants and the appellant, it is noted that the above share applicants' entities are not doing any tangible business activities to support the availability such large funds at their disposal to make such investment with the appellant. In the view of the above facts, it is noted that real identity, creditworthiness of the share applicants and genuineness of the above transactions has not been established from the above documents. The above entities have been found to have been existing only on papers without having any real or physical worth to support the alleged investments made with the appellant and are in the nature of shell companies. 10.4. In view of the above detailed facts, the reliance of the Ld. AR on the case laws referred above does not help its case as facts of this case are entirely different from the referred cases. It is relevant to mention here th....
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.....70/- against face value of Rs.10/-. Once it is proved that credits have not been explained then, there is no duty upon the AO to point out the source from which the money was received by the assessee. Reliance is put on the decision of the Hon'ble Apex Court in the case of A. Govindarajulju Mudaliaar v. CIT (1958) 34 ITR 807, Commissioner of Income-tax vs Independent Media (P.) Ltd. 210 TAXMANN 14 (Delhi) (2012). 10.7. The AO has confronted the appellant through a detailed show cause on 07.12.2018 before making the addition. Various adverse findings have been confronted to the appellant during the assessment proceedings. Adequate opportunities of being heard have been provided during in the appellate proceedings. Therefore, there is no merit in such ground of appeal taken by the appellant. Further reliance is placed upon the decision of Hon'ble Supreme Court in the case of CIT vs Durga Parsad More 82 ITR 540 where it has been held that the apparent must be considered as real until it is shown that there are reasons to believe that apparent is not real. In this case enough material has been brought on record to show that the apparent is not real. Further reliance i....
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.... is in appeal before the Tribunal by raising the following grounds : 1. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) erred in confirming the addition of Rs.46,00,000/-, received by the appellant on account of share capital and securities premium thereon, made by Ld Assessing officer under section 68 of the act which is bad in law and liable to be set aside. 2. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the action of learned Assessing Officer of treating Rs.46,00,000/- as unexplained cash credit under section 68 of the Act without appreciating the fact that appellant had furnished the enough material to prove the identity, veracity and genuineness of the transaction at the Assessment proceedings or Learned Commissioner of Income Tax (Appeal). 3. On the facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in upholding the exteriors consideration of the LD AO and not considered the evidences which was filed before the ....
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....missioner of Income Tax (Appeals) grossly erred in returning the contrary finding against the material on record that appellant has not submitted the valuation report which is wrong, based on whims or surmises and even contrary to the assessment order passed u/s 143(3) of the act by the LD AO. Therefore, enhancing the addition on adducing a wrong presumption is wrong and bad in law. 8. Without prejudice to the Ground no 6 and 7, on the fact and circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in enhancing the assessment without appreciating the fact that there is enough material placed on record which is not only accepted by the LD AO but also not required by him to make the addition under section 56(2)(viib) of the act. Hence, enhancing the assessment order on protective basis is based on surmises, whims and conjectures." 4. Learned Counsel for the Assessee strongly challenged the order of the Ld. CIT(A) in upholding the addition made by the A.O. under section 68 of the I.T. Act, 1961. He submitted that assessee during the course of assessment proceedings have filed voluminous details to prove, identity, creditw....
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....upport of value of each share the assessee had also furnished valuation certificate of a Chartered Accountant. The Learned Counsel for the Assessee drew the attention of the Bench to the following details/calculation:- "Book value of Assets - Book value of liability x Total amount of paid up Paid up value of such shares equity share capital i.e., 2,33,83,034.23(-) 38,22,653)/23,81,250 x 10 =82.028 Book Value of Assets as on 31.03.2015 (Amount in Rs.) Cash and cash equivalent- 32,312.23 Short term loans and advances- 2,29,93,818.00 Other current assets- 3,56,904.00 Total 2,33,83,034.23 Book Value of Liability as on 31.03.2015 (Amount in Rs.) Trade Payables 37,37,500.00 Other Current Liabilities 1,655.00 Short term Provisions. 83,498.00 Total 38,22,653.00 Paid-up Value of Shares 23,81,250,00/- Face Value of Shares 10.00 4.2. Referring to the above, he submitted that the aforesaid valuation was furnished before the AO to justify that the shares issued by the assessee was at fair market value w....
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....asis of discounted cash flow method and the Tribunal noted that the assessee did not produce any evidence to substantiate the basis of projections of cash flow but relied on the valuer's report vehemently contending that such a report cannot be disturbed by the ld. AO and at no point of time the assessee tried to explain where did the ld. AO went wrong in his comments on the figures reflected in the above valuation report of the expert. The ld. Counsel submitted that since the assessee had issued shares at fair market value computed in accordance with Rule 11UA of the Rules, no fault has been found in the method applied by the assessee and the addition u/s 56(2)(viib) was made merely on assumptions and presumptions, therefore, the addition made by the AO and sustained by the CIT(A) being not in accordance with the law should be deleted. Referring to the decision of the Co-ordinate Bench of the Tribunal in the case of Mantram Commodities (P). Ltd. vs ITO vide ITA No.6170/Del/2019, order dated 12.02.2021 for A.Y. 2015-16, he submitted that identical issue has been decided by the Tribunal and appeal filed by the assessee has been allowed. 5. The ld. DR, on the other hand, heavily r....
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....submission of the Learned 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 was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 6.1. I find an identical issue had come-up before the Tribunal in the case of Mantram Commodities (P.) Ltd. (supra), wherein, the Tribunal has allowed the appeal filed by the assessee and set aside the order of the Ld. CIT(A) by observing as under : "13. I have considered the ....
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....nder 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 was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- "(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 such 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 f....
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.... 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 book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method." 16. A combined reading of section 56(2)(viib) read with Rule 11UA states that for the purpose of section 56(2)(viib) of the Act the valuation of the shares ....
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....ued 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 assessee are accordingly allowed. 18. In the result, the appeal filed by the assessees is allowed." 6.2. Since, the facts of the instant case are identical to the facts of the case decided by the Tribunal, therefore, respectfully following the order of the Tribunal in the case, cited (supra) I hold that the Ld. CIT(A) was not justified in making the addition of Rs.40,25,000/- lakhs on protective basis by invoking the provisions of Section 56(2)(vii)(b) of the I.T. Act, 1961. 6.3. So far as the addition under section 68 of the I.T. Act, 1961 is concerned, I find the assessee has filed the details such as P & L A/c, balance-sheet, bank statements, confirmation letters, PA....
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....rged its burden of proving identity, capacity and genuineness of the transaction. The Assessing Officer has not brought any material to show that the funds to ACL were provided by the Assessee. Under the circumstances, it cannot be said that the cash credit in question has remained unexplained. There is absolutely no material to link the Assessee with the sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL. 9. In view of the concurrent findings of the fact given by the two authorities that there is no material to link the Assessee with a sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL, as such, no case is made out for making addition under Section 68 of the Act, since there was no material with the Assessing Officer to come to the conclusion regarding any genuineness or fictitious identity of the entries or non-capacity of the lender. 10. Under these circumstances, we do not find any infirmity or perversity in the order passed by the Tribunal and in our opinion no substantial question of law arises in this case. With the result, the present appeal is not maintainable and the same is hereby dismissed." [Emphasis Supplie....