AI Drafter 
TaxTMI 
TaxTMI 
2022 (10) TMI 217
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....ive transactions. The assessee has filed the return of income electronically for the A.Y 2015-16 on 29.09.2015 disclosing a total income of Rs.1,54,770/- and the return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for limited scrutiny under CASS and notice u/s 143(2) and 142(1) of the Act were issued. In compliance to the notice, the Ld. AR of the assessee appeared from time to time and submitted the details as called for and the case was discussed. The A.O on perusal of the financial statements in particular Audited balance sheet found that the assessee has issued 9,90,000 shares at the face value of Rs. 10/- each at a premium of Rs.91/- each and the assessee was required to explain the basis for valuation of shares to determine/ substantiate the premium charged. In compliance, the assessee has filed explanations by letter dated 22.11.2017 mentioning the facts and the complete details and the basis for which the shares have been issued on bulk basis considering the long term prospects of the company. Whereas the shareholders have invested in the shares of the company considering its business model as well as the future profitability of the com....
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....ssee and the relevant documents in the paper book and the provisions of Sec. 68 and 56(2)(viib)of the Act. The CIT(A) perused the details referred at Para 2.5.4 of the Order and observed that while section 68 taxes income from undisclosed sources, the relevant section in the instant case is Sec. 56(2)(viib) of the Act. Whereas the CIT(A) is of the opinion that the provisions of Sec. 56(2)(viib) of the Act brings to tax any money received by the assessee from a resident on the issue of the shares to the extent it exceed the fair market value(FMV)of the shares issued. The CIT(A) relied on the decision the Coordinate Bench of this Tribunal in the case of Innoviti Payment Solutions Pvt Ltd, Bangalore, wherein it was decided that the AO has power to challenge the computation of DCF methodology of the Assessee. Further on the decision of the Honble Tribunal in the case of TUV Rheinland NIFE Academy Pvt Ltd., held that the assessee was unable to substantiate the projections based on which the value was determined using the DCF method and the very basis for the DCF valuation does not hold good. Hence, considering the facts that the A.O. has rightly rejected the valuation adopted by the ass....
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....y and the methodology of the valuation discussed by the valuer with respect to DCF method and also the method that has been worked out and the projections of the future cash flow provided by the management and respective assumptions. The Ld.AR emphatically explained the cost and discounted rate of return and the working of the average cost of capital. 8. Further the Ld.AR referred to the Para 5 in relation to the information provided by the management has been considered and in Para 6 the valuer has considered the contributing factors for valuation of stock value categories mentioning the projections provided by the company are reviewed for the purpose of valuation and the expenditure and investments along with the weighted average cost of capital and terminal values. The Ld. AR referred to the value of the share under the DCF method and substantiated the submissions relying on the following judicial decisions as under: (i) Green Infra Ltd. Vs. ITO, [2013] 38 taxmann.com 253 (Mumbai-Trib), held as under: Section 56, read with section 68, of the Income-tax Act, 1961 Income from other sources Chargeable as [Share premium] Assessment year 2009-10 Assessee-company was in....
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....lea that assessee had not commenced its business, nor its business was that of money lending and, as such, it had kept unused funds in FDR and earned interest income - Period of holding FDR on which assessee earned interest was very short - Whether in light of holding period, interest earned was to be taxed under head business income - Held, yes [Para 22] [In favour of assessee] (ii) ITO Vs. Chiripal Poly Films Ltd., [2019] 104 taxmann.com 172 (Mumbai - Trib.) 1. Section 68 of the Income-tax Act, 1961 - Cash credit (Share application money) - Assessment year 2011-12 - Assessee-company issued 1.98 lakhs shares of Rs. 10 each to company OMIL, Mauritius at a premium of Rs. 990 per shares - Assessing Officer noted that authorized share capital of assessee was only Rs. 3 crores; out of which assessee had already issued share capital worth Rs. 1.78 crores and assessee could have allotted shares to OMIL to extent of Rs. 1.21 crores only - Accordingly, Assessing Officer made additions to income of assessee under section 68 - However, for issuing of shares, assessee complied with all requirements of RBI guidelines by filing FIRE with RBI - IT had also filed Unique Identification....
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....avour of assessee] IV. Section 56, read with section 4, of the Income-tax Act, 1961 Income from other sources Chargeable as (Interest) - Assessment year 2011-12 Assessee-company earned interest on deposit placed with a bank with object of availing credit facilities for importing equipments for setting up of its new plant - Whether interest income earned on such deposit was inextricably linked or connected to setting up of plant and, therefore, interest was to be treated as capital receipt - Held, yes [Paras 28 and 29] [In favour of assessee] V. Section 115JB, read with section 14A, of the Income-tax Act, 1961 and rule 8D of the Income-tax Rules, 1962 - Minimum alternate tax (Section 14A application) - Assessment year 2008-09 - Whether while computing book profit under section 115JB Commissioner (Appeals) was justified in deleting addition of expenses relatable to exempt income, being interest and other charges paid to bank, capitalized in 'capital work in progress' account by invoking provisions of section 14A, read with rule 8D - Held, yes [Paras 30 to 32] [In favour of assessee] (iii) Cinestaan Entertainment P. Ltd., Vs. ITO, [2019] 106 taxmann.com 30....
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....ear 2015-16 Whether valuation of shares is itself is a projection of future events or activities and no doubt it has to be done with some accuracy, however, no person at time of projecting events or result can project with 100 per cent of accuracy - Held, yes - Assessee company had issued shares of face value of Rs. 10/- each at a premium of Rs. 14.70 per share and, accordingly, received share premium Shares were issued after duly valuing shares based on Discount Cash Flow (DCF) method and valuation was done by a merchant banker Assessing Officer was of view that valuer had not independently valued prospects of assessee company and merely relied on information supplied by assessee and; accordingly, he proceeded to value fair market value of shares based on Net assets value added method - CIT(A) accepted DCF method adopted by assessee - However, he proceeded to compare projections adopted by valuer with actual results or actual performance of assessee company in subsequent years and arbitrarily he held that business was growing at 40 per cent and, hence, enterprise value of assessee should also be taken up by merchant banker Thus, he determined share value at Rs. 11.17 per share and....
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....harging of premium in the absence of information and it is the duty of the assessee to justify that the shares are issued to these parties at fair market value. The Ld. AR submitted that the additions made by the AO is on the basis of presumptions though the information was filed. The CIT(A) has upheld the action of the AO in making addition. 10. Whereas the AO in the assessment order dealt on the provisions of Sec. 56(2)(viib) of the Act as regards valuation of shares, however made the addition not u/s 56(2)(viib) but u/s 68 of the Act as the genuineness and creditworthiness of the shareholders are not proved. The AO is satisfied with the applicability of provisions of Sec. 56(2)(viib) of the Act but made addition u/s 68 of the Act and whereas the CIT(A) has confirmed the addition considering the fact of valuation. We found that there are two different analysis has come into effect where the AO having dealt on the provisions of Sec. 56(2)(viib) of the Act has called for the information in respect of Discounted valuation of shares and dealt on the facts in Assessment Order and made an addition. Further the AO also has gone into the basic requirements of cash credits u/s 68 of th....