TaxTMI 
TaxTMI 
2022 (12) TMI 1314
X X X X Extracts X X X X
X X X X Extracts X X X X
....00/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. 4. 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. 5. 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 assesssee. 6. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition of Rs. 4,84,407/- on account of disallowance of business expenses. 7. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds." 3. There is a delay of 49 days in filing the above appeal. The assessee has pleaded in the affidavit that the Chartered Accountant was unwell due to highly diabetic condition and was not able to look after the matter and prepare the appeal on time after receiving the copy of the order from Ld. CIT(A). Therefore, the assessee has engaged the service of another Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n the shares. The identity and creditworthiness of the investors are suspicious and needs detailed enquiries. The Ld. Assessing Officer was of the opinion that the submissions made by the assessee are not acceptable in regard with the identity, creditworthiness and genuineness, therefore held that the investors are bogus and not genuine and their creditworthiness and identity are also fake beyond doubt. Accordingly, share capital and share premium amount collected/received by the assessee from the four parties amounting to Rs. 94,00,000/- are not genuine and the same has been treated as unexplained source of income of the assessee and brought to tax under section 68 of the Income Tax Act. Further expenditure of Rs. 4,84,407/- claimed by the assessee has been disallowed. Accordingly, the assessment order came to be passed under section 143(3) of the Act on 29.12.2017. 7. As against the assessment order dated 29.12.2017, the assessee has preferred an appeal before the Ld. CIT(A). The Ld. CIT(A) has partly allowed the appeal filed by the assessee, by confirming the addition of Rs. 49,00,000/- made under section 68 of the Act. Confirmed the income of the assessee of Rs. 25,14,500/- ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the absence of contrary materials. 12. Further, we placed reliance on the judgment of the Supreme Court in the case of PCIT Vs. Rohtak Chain Co. (P) Ltd. 59 (SC) [2019] 110 taxmann.com wherein the Apex Court held that once the genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on the ground that the shares are issued at excess price. The relevant portion is as under:- "51. The learned ITAT after due examination of the order of CIT (Appeals) and the documents on record insofar as identity creditworthiness, genuineness of transaction of M/s. Aadhaar ventures (I) Ltd, M/s. Dhanush Technologies Ltd, M/s. Emporis Projects Ltd and M/s. L.N. Industries Ltd (formerly known as L.N. Polyster Ltd) came to the conclusion that the assessee company having receipt share application money through bank channel and furnished complete details of bank statements, copy of accounts and complied with notices issued and the directors of subscriber company also appeared with books of accounts before the appellate authority and confirmed the investment made by them with the assessee company, therefore, the identity and creditwort....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... provided materials to prove the genuineness of the share holders apart from giving the Pan Card, name and ROC details. Therefore, we delete the addition of Rs. 49,00,000/- made u/s 68 of the Act. Accordingly, the Ground No. 2 of the Assessee is allowed. 14. Ground No. 3 is regarding confirming the income of the assessee of Rs. 25,14,500/- by invoking Section 56(2) (viib) of the Act on protective basis on the reasons that the assessee has received a premium of Rs. 25,14,5000/- on issue of shares to various parties. According to the Ld. A.O, the value of the shares issued to the parties are very high in comparison to fair market value of such shares. It is the contention of the Ld. AR that the valuation of the shares has been done as per DCF Method which is prescribed under Rule 11 UA to Income Tax Rules (2)(b) which has been and also certified by the Assessee's qualified Charted Accountant. In our considered opinion, the Valuation Method adopted by the assessee is one of the Methods accepted under law which cannot be disturbed by the Revenue authorities without bringing any contrary material on record to sow that the method adopted by the assessee is incorrect. 15. Further, t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of investors as it is their tax paid money invested, duly disclosed and confirmed by them; and nothing has been brought on record that it is unaccounted money of assessee company routed through circuitous channel or any other dubious manner through these accredited investors. If such a strict view is adopted on such investment as have been done by the Assessing Officer and by ld. CIT(A), then no investor in the country will invest in a 'start-up company', ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es is reproduced below: "11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,- (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date. of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method." 30. Ergo, the assessee has an option to do the valuation and determine the fair market value either on DCF Method or NAV Method. The assessee being a 'start-up company' having lot of projects in hand had adopted DCF method to value its shares. Under the DCF Method, the fair market value of the share is required to be determined either by the Merchant Banker or by the Chartered Accoun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Whereas in a DCF method, the value is based on estimated future projection. These projections are based on various factors and projections made by the management and the V....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups." iii) DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) "10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actual after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed". The aforesaid ratios clearly endorsed our view as above. 34. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 16. The Coordinate Bench of the Tribunal while lying down the above ratio has also considered the decision of the Coordinate bench in Agro Portfolio Pvt. Ltd. Vs. ITO which has been relied by the CIT(A). Therefore, we are inclined to follow the ratio ....