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2023 (1) TMI 896
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.... in enhancing the income of appellant assessee by sum of Rs. 75,20,000/- acting ultra vires to statutory limitation of enhancement powers u/s 251 of the Act is ab initio void and fundamentally flawed action. 4. The Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant assessee by sum of Rs. 75,20,000/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. 5. 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. 6. 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. 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." It is prayed that it be held that additions/disallowance are not in accordance with law and therefore, the additions/disallowance so made may kindly be deleted and appeal of the ....
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.... material on record and gave our thoughtful consideration. 8. The Ground No. 1 is general in nature which requires no adjudication. Ground No. 2 is regarding the sustaining the addition of Rs. 42,50,000/- made u/s 68 of the Act on account of unexplained share premium and share capital. 9. The Ld. A.O. on the basis of various details filed by the AR found that the assessee had received 75,20,000/- share premium on 1,88,000/- shares at premium of Rs. 40 per share the details of the same are as under:- Name of Person No. of shares Nominal value per share (Rs) Premium per share (Rs.) Amount of premium (Rs.) Total amount paid including premium (Rs.) Herculese Builders Coimbatore Private Limited 16000 10 40 6,40,000 8,00,000 Best Realcon India Private Limited 20000 10 40 8,00,000 10,00,000 Goodluck Industries Ltd. 55000 10 40 22,00,000 27,50,000 Best Propmart Private Limited 17000 10 40 6,80,000 8,50,000 MRS Contractors Private Limited 50000 10 40 20,00,000 25,00,000 Pearl Homecon India Pvt. Ltd. 10000 10 40 4,00,000 5,00,000 Rishikesh Buildcon Pvt. Ltd. ....
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....ndustries(P) Ltd. S. No. Particulars Page No. of the paper book 1 Copy of Certificate of Incorporation, along with MOA & AOA Attached with this 2 Copy of confirmation of accounts dated 01.04.2015 from the period of 01.04.2014-31.3.2015 from the assessee company showing the net amount of Rs. . 27,50,000/- received from the investor company by the assessee company. 191 3 Copy of share application form. 192 4 Copy of investor company's bank account statement showing the debit entry of Rs. 15,00,000 on 19.01.2015 and of Rs. 12,50,000/- on 12.02.2015. 193-94 5 Copy of acknowledgement of return of income for AY 2015- 16 along with computation of income tax. 195-96 6 Copy Auditor's report, Balance Sheet and trading and profit & loss account as on 31.3.2015 along with notes to financial statement. - 195-207 7 Copy of Share Certificate of Investor Company issued by the Assessee Company. 208 II. M/s Pearl Homecon India Pvt. Ltd. S. No. Particulars Page no of the paper book 1 Copy of Certificate of Incorporation, along with MOA & AOA Attached with this synopsis 2 Copy of confirmation of ac....
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....C)/[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 portions are 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 creditworthiness of investor and genuineness of transaction of the share applicant has been proved in the light of the ratio laid down by the M.P. High Court, Delhi High Cour....
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....C details. Therefore, we delete the addition of Rs. 42,50,000/- made u/s 68 of the Act. Accordingly, the Ground No. 2 of the Assessee is allowed. 16. Ground No.3, 5 & 6 are regarding enhancement of income. The Ld. AR submitted that the Ld.CIT(A) enhanced the income without giving a mandatory notice as required u/s 250(1) of the Income Tax Act. It is the case of the assessee that the income of the assessee was enhanced which has been done in violations of principals of natural justice. 17. In our opinion, when the CIT(A) deem it fit to enhance the assessed income, shall give mandatory notice u/s 250(1) of the Act. In the present case, the Ld. DR has not brought anything on record to prove that the Ld. CIT(A) has issued notice u/s 250(1) of the Act before enhancing the income of the assessee. Therefore, the action of the Ld.CIT(A) in enhancing the income of the assessee is found to be erroneous. Therefore, Ground No. 3, 5 & 6 of the assessee requires to be allowed. 18. Ground No. 4 is regarding enhancing the income of the assessee by sum of Rs. 75,20,000/- by invoking Section 56(2) (viib) of the Act by rejecting valuation method taken by the assessee. According to the Ld. A.....
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....ause of unprofitable for the last 2 years. The 'A' already earning 9- 12% interest on capital, has taken a conservative profit at 14-16%. It is quit It is quite normal in the building material business (PB 49-49B) where profit from FY 2014-15 to FY 2016- 17 has been calculated. The assessee has assumed RF only at 6% as per Govt Securities. (PB 49-49B). Expected return from the Market (RM) It was taken @ 15.80%. The 'A' has taken about 14-16% which is below the market rate of return which is 14%, but reduced its capital by 14% to arrive at the Present Value. (PB 49A- & 49B). Since, the company has no debt, hence Ke i.e Cost of Equity has been taken at 14% as Weighted Average Cost of Capital (WACC). (PB 49A- 49B) Beta Movement of Share Price as per the Market Due to higher debt to value ratio, it has a larger Beta. The 'A' has taken 1 (PB 49-49B) Since, the assessee has no debt, Beta has been correctly assumed at 1 as there is no risk of debt. Disclaimer The valuer clearly states that the valuation of shares is not realistic and figures in the valuation report have been cooked up without providing any reliable basis as to how assumptions took place....
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.... there is no mandate to the Assessing Officer to arbitrarily reject the valuation done by the assessee on his own surmises and whims. We are in tandem with such a reasoning of the ld. Counsel, because the deeming fiction not only has to be applied strictly but also have to be seen in the context in which such deeming provisions are triggered. It is a trite law well settled by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar & Sons (supra) that in the 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 o....
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...., of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;" Further, as per clause (i) of the Explanation as reproduced above, the FMV is to be determined in accordance with such method as may be prescribed. Clause (ii) admittedly is not applicable on the facts of the Assessee's case. The method to determine the FMV is further provided in Rule 11UA(2). The relevant extract of the applicable rules 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 a....
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....ction of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA (2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee. 33. Section 56(2) (viib) is a deeming provision and one cannot expand the 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 valua....
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....tted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actual to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors 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....