AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (7) TMI 1079
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....e Id. CIT (A) has erred in law as well as on facts in confirming addition of Rs. 96,00,000 us 68 of the IT Act, 1961 on account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction. 2. That the Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant as 251(1) of the Act by Rs. 64,00,400/- under the head income from other sources by applying section 56(2)(viib) of the Act on protective basis and rejecting the valuation report furnished under Rule 11UA(2)(b) of Income Tax Rules, 1962 i.e., Discounted Cash Flow Method. 3. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant by not issuing valid show cause notice as mandated w/s 250(2) of the Act. 4. That the Ld. CIT(A) has grossly erred in enhancing the income of appellant on protective basis u/s 56(2)(viib) r.w.r 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny to verify "whether the funds received in the form of share premium are from disclosed sources and have bee....
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....re capital and investments. Hence, the nature of receipt is proved by the appellant beyond doubt. The investors have furnished the bank statements through which money towards subscription of the share capital in the Assessee Company and Ld.AO is wrong to hold that these are not having any creditworthiness. All the companies are registered companies filing their ITR regularly, with running income and business activities, thus the order of the CIT(A) is erroneous. 5. Per contra, the Ld. Departmental Representative argued that the assessee had failed established identity, creditworthiness of the investors and also failed to prove the genuineness of the transaction, further by relying on the orders of the Lower Authorities prayed for dismissal of the Ground No. 1 of the assessee. 6. We have heard the parties and perused the material available on record. It is also found from the record that during the assessment proceedings, it is found from the record that after filing the return, the case was selected for scrutiny to verify whether the funds received in the form of share premium are from more disclosed sources and have been correctly offered for tax, accordingly notice has been iss....
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....investors, creditworthiness of the transaction and genuineness of the transaction have not been satisfied and further observed that "mere furnishing names, address and PAN particulars or relying on the entries in ROC website is not enough to prove the creditworthiness of the investors and the genuineness' of the transaction. 10. It is found that to prove the identity, creditworthiness and genuineness of the transaction, the assessee has furnished the relevant documents before the Lower Authorities along with valuation certificate as per the Rule 11UA (2) (b) of the Rules. The assessee produced the documents in respect of all six investors before the Lower Authorities which have been reproduced before us in the paper book in following pages:- Sr. No. Name of the Person Pages 1. Good luck Industries Ltd. 112 to 135 2 M/s Pearl Propcon Ltd. 136 to 161 3 M/s Pearl Multicon Pvt. Ltd. 162 to 186 4. M/s Rishi Credit & industries (P) Ltd. 187 to 212 5. M/s Rupa Promoters Pvt. Ltd. 213 to 234 6. Texcity Construction Kovai Pvt. Ltd. 235 to 258 11. Considering the above facts that the assessee had provided all the details to discharge the onus to prove the identity, cre....
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....ess 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 Court and the Hon'ble Supreme Court and were of the opinion that the onus cast upon the assessee as provided under Section 68 of the Act has been duly discharged by the assessee the identity of the share subscriber, creditworthiness and genuineness of the transaction is not to be doubted. The learned ITAT considered the case of the each company in great detail in para 85 to 110 of the impugned order and recorded its finding. The aforesaid finding of fact recorded by the ITAT are based on the material available on record which is a finding based on appreciation of evidence on record. 52. Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share ....
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.....) Ltd. (Delhi HC) [2022] 441ITR 550 134 taxmann.com 256 (Delhi)/[2022] 441 ITR 550 (Delhi)[19-0L2022] * Principal of Income Tax v Manoj Kumar Vipin Kumar (Rajasthan HC )/[2022] 441 ITR 632 138 taxmann.com 103 (Rajasthan)/[2022] 441 ITR 632 (Rajasthan)[15-ll-2021] * [2022] 137 Deputy Commissioner of Income Tax v Gandhi Capital (P.) Ltd. 75 (Surat-Trib.)/[2022] 194 ITD 396. * 10 Principal Commissioner of Income Tax v Rohtak Chain Co. 59 (SC) [2019] 110 taxmann.com 59 (SC)/[2019]266 Taxman 459 /(SC)[05-08-2019] 16. Applying the above judicial principles to the cases at hand, since the Assessee herein filed detailed documentary evidences in the form of duly signed confirmation of investors/lenders (parties), details of PAN, copies of ITR, duly establishing the identity of the parties and genuineness of the transactions and the bank statements of the parties duly establishing the creditworthiness of the parties to invest in the share capital of or advance loans to the Assessee Companies. Thus, the Assessee effectively discharged the burden cast upon them u/s 68 of proving identity of the investors, the genuineness of the transactions and the creditworthiness of the parties with ....
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....Authorities have committed error in not accepting the valuation report and enhancing the addition. On the other hand, the Ld. Departmental Representative relying the orders of Ld. CIT(A) justified the rejection of the valuation report and also the enhancement of the income and submitted that no interference is called for by the Tribunal. 18. On hearing the parties and verifying the material on record, we find that the assessee has provided the valuation report of the Chartered Accountant as per Rule 11UA (2) (b) of the IT Rules and arrived the value of each share calculating the same as per Discount Cash Flow Method. Copy of the valuation report has been annexed at page No. 69 to 71 of the paper book. As per the valuation report the value per share had been computed at Rs. 30 per share i.e. premium of Rs. 20/- per share for a share of Rs. 10/-. Accordingly, new shares were issued and allotted to the investors during the year under consideration. 19. The Section 56(2)(viib) of the Act provides that where a company receives 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 marke....
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....e assessee either DCF Method or NAV Method, the commercial expediency has to be seen from the point view of businessman. Further held that 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. The relevant portion are hereunder:- "32. What is seen here is that, both the authorities have questioned the assessee's commercial wisdom for making the investment of funds raised in 0% compulsorily convertible debentures of group companies. They are trying to suggest that assessee should have made investment in some instrument which could have yielded return/ profit in the revenue projection made at the time of issuance of shares, without understanding that strategic investments and risks are undertaken for appreciation of capital and larger returns and not simply dividend and interest. Any businessman or entrepreneur, visualise the business based on certain future projection and undertakes all kind of risks. It is the risk factor alone which gives a higher return to a businessman and the income tax de....
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....projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the ld. Counsel, for instance: - i) Securities & Exchange Board of India &Ors [2015 ABR 291 - (Bombay HC)] "48.6 Thirdly, it is a well settled position of law with regard to the valuation. that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation....