TaxTMI 
TaxTMI 
2024 (4) TMI 836
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....n of Rs. 67,20,000/- u/s 68 of the Act and enhancing the income by Rs. 28,80,000/- u/s 251(1) of the Acton 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 u/s 251(1) by a sum of Rs. 60,54,400/-under the head income from other sources by applying section 56(2)(viib) of the Acton 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 grossly erred in law as well as on facts in sustaining addition u/s 68 of the Act and 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 for the reason that "Large share premium received during the year (verify applicability of sec 56(2)(viib)" which restrict the scope of assessing authorities to scrutinize the limited aspect. 4. That the Ld. CIT(A) has erred....
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....preferred the above captioned appeals on the common grounds mentioned above. 5. The Ld. Counsel for the assessees summarizing the issues involved in the above five appeals, filed a chart showing common issues involved in the captioned Appeals which reproduced as under:- S. No. Particulars ITA No. 84/Del/2021 M/s Shanta Blankets (P) Ltd. ITA No. 87/Del/202 1 M/s Zhilmil Electronic (P) Ltd. ITA No. 88/Del/20 21 M/s Vidhi cinemas (P) Ltd. ITA No. 98/Del/2021 M/s Gopesh Fabrics (P) Ltd. ITA No.99/Del/2021 M/s Pingash Marketing (P) Ltd. 1 Addition made by the Ld.AO u/s 68 of the Act. Rs. 67,20,000/- Rs. 70,00,000/- Rs. 51,00,000/- Rs. 93,00,000/- Rs. 96,00,000/- 2 CIT(A) u/s 68 of IT Act on account of share capital invested by investor companies. AO) + Rs. 28,80,000/-(enhanced by CIT(A) Total Rs. 96,00,000/- 3 Enhancement of income u/s 251(1) r.w.s 56(2)(viib) -income by CIT(A) on protective basis. Rs. 60,54,400/- Rs. 52,50,000/- Rs. 34,00,000/- Rs. 62,00,000/- Rs. 64,00,000/- 4 Investment made by the investor companies in preceding years. Rs. 45,00,000/- N/A N/A Rs. 45,00,000/- Rs. 24,00,000/- 5. Details of investors who....
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....Health Club (P) Ltd. (PB 122-148). M/s Gangashiv Contractors (P) Ltd. (PB 111-138) / M/s RSM Constructions (P) Ltd. (PB 165-189) M/s Best Infracon (P) Ltd. (PB 200-224) M/s Pearl Homebuild (P) Ltd. (PB 225-250) M/s Herculese Builders (Coimbatore)( P) Ltd. (PB 139-164) M/s Triketa Multitrade (P) Ltd. (PBN 190-199) M/s Best Infracon (P) Ltd. (PB 200-224) M/s Om Shivam Contractors (PB 160-185) / M/s Rishi Credit and Industries Pvt. Ltd. (PB 186211)/ M/s Texcity Construction s Kovai (P) Ltd. (PB 225-248) M/s Cee Aar Decors (P) Ltd. (PB 134-1959) / M/s Sigma Tech services (P) Ltd (PB 212-224) M M/s Viratsons Multitrade (P) Ltd. (PB 249-279) 9 Information sought by the Ld. AO u/s 133(6) or summon issued u/s 131 of the Act. f Yes-133(6) -Could not be complied Yes-133(6) Partly complied-Pg 3 of AO Yes-133(6) Complied by one investor company-Pg 3 of AO Yes-133(6) complied by all investors except one -Pg 3 of AO Yes-131 summon replied vide online reply dated 22.12.2018-Pg3 of AO 10 Value of shares as per Discounted Cash Flow Method (DCF) under Rule 11UA(2)(b) IT Rules, 1962. Rs. 30/-(PB 5153) Rs. 40 (PB 87-89). Rs. 30 (PB 23-25). Rs. 30/-PB 64-66) Rs. 30/-PB 55-57)....
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....y of Judgment of Hon'ble Apex Court in the matter of Pr. Commissioner of Income Tax- Vs. BharatSecurities . Pvt. Ltd. in reported [2020] 113 taxmann.com 32. * Copy of Judgment of Hon'ble High Court of Madhya Pradesh in the matter of Pr. Commissioner of Income Tax- Vs.Chain House International Pvt. Ltd. In reported [2018] 98 taxmann.com 47." 7. Per contra, the Ld. Departmental Representative submitted that the assessees have not produced the original confirmation, confirmations have not been produced in some of the cases and in some of the cases there is no documentary evidence such as confirmation, ITR, Balance sheet, Bank Account etc. The assessees have not provided requisite documents to satisfy the ingredients of Section 68 of the Act, thus, the assessees have not discharged the burden to prove the identity, creditworthiness of the share applicant and the genuineness of the transaction. Thus submitted that, the orders of the ld. CIT(A) requires no interference at the hands of the Tribunal. 8. We have heard both the parties and perused the material available on record. In the case of the assessees the return of income was processed u/s 143(1) of the Act and the cases ....
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....s furnished in the PB 1. M/s Beta Nirman (P) Ltd. (PB. 64-88) M/s Nu Ruchi barter (P) Ltd.. (PB 89-121) 4.M/s Gopesh Fabrics (P) Ltd. ITA No. 98/Del/2021 A.Y 2016-17 Sr. No. Particulars M/s Gopesh Fabrics (P) Ltd. 1 Name of the investor company and amount of share capital and share premium invested for which the addition was made 1. M/s Gangashiv Contractors (P) Ltd. (Rs. 18,00,0000/- on 8.8.2014) 2. M/s Herculese Builders (Coimbatore) (P) Ltd. (Rs. 21,00,000/-) 3. M/s RSM Constructions (P) Ltd. (Rs. 21,00,000 on 23. 12.2014, 18.12.2014, 22.07.2014) 4. M/s Triketa Multitrade (P) Ltd. (Rs. 27,00,000/-) 5. M/s Best Infracon (P) Ltd. (Rs. 3,00,000/- on 22.7.2014) 6. M/s Pearl Homebuild (P) Ltd. (Rs. 3,00,000/- on 13.12.2014 2 Evidences furnished in the PB M/s Gangashiv Contractors (P) Ltd. (PB 111-138) M/s RSM Constructions (P) Ltd. (PB 165-189) M/s Best Infracon (P) Ltd. (PB 200-224) M/s Pearl Homebuild (P) Ltd. (PB 225- 250) M/s Herculese Builders (Coimbatore) (P) Ltd. (PB 139- 164) M/s Triketa Multitrade (P) Ltd. (PB 190-199) 5. M/s Pingash Marketing(P) Ltd. ITA No. 99/Del/2021 A.Y 2016-17 S. No. Particulars M/s Pingash Marketing(P) Ltd. 1 Name of t....
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....ansactions cannot be doubted. 11. It is the case of the Department that some of the documents were not filed by the assessee in relation to aforesaid investors however, Ld. CIT(A) appreciated the documents, but did not agree with the Assessee despite there was nothing brought on record contrary to the documents brought to the record by the Assessee. The Assessees Representative contended that AY 2016-17 was the first year of assessment under faceless scheme and due to technical glitches sometimes despite uploading the documents it could not reach. The IT department also found faults and so upgraded their website later. The assessee can only submit the documents and it is the duty of the Ld. AO to make necessary efforts and enquiry if required, but cannot sit idle by not accepting the documents submitted by the assessee and infer against the Assessee without any contrary documents on record. The Ld. CIT(A) merely on doubts ignored the documents, but could not bring any material contrary during the appellate proceedings. 12. Further, on a reading of Section 56(2)(viib) of the Act, it becomes clear that fair market value of share as on date of sale has to be determined by applying t....
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....n that the assessee company is not worth enough to fetch the share premium of Rs. 76,00,000/-. The authorities below without verifying the veracity of the documents from the publically available data on the web site of MCA IT Department. Once the assessee provided the names, addresses and Pan, particulars and ROC details of the investors. The Ld. A.O ought to have made further enquiry. Once the assessee furnishes the documents to prove the identity, creditworthiness and genuineness of the transaction. The same cannot be denied in the absence of material contrary brought by the Assessing Officer. 14. The Hon'ble Supreme Court in the case of CIT Vs. Lovely Export Pvt. Ltd. reported in 319 ITR 5 (ST) observed that even if the share capital money is received by the assessee from alleged bogus share holders, whose names are given to the A.O. The Department is free to proceed to reopen their individual assessment in accordance with law. But cannot regarded undisclosed income of the assessee Company. The present case, the assessee has substantially provided materials to prove the genuineness of the share holders apart from giving the Pan Card, name and ROC details. In our considered....
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.... 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 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 ass....
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.... 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 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 's....
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...., 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 aluation 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 fi....
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....termination 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 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 lyin....
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....e accuracy, however no person in the world at the time o: projecting events or result to project with 100% of accuracy and actual events are highly volatile ant highly dependent on so many factors. Assessee has projected based on the fact that software of wallet and association of ICICI bank will increase the market share and accordingly, they have projected the figure; and further the valuer has adopted the projection figures provided by the assessee and it is left to the wisdom of valuer to accept or reject or to carry out independent investigation raised with the valuer am legislature in more than one place depends on the skills of the professionals like merchant banker only t< value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factual witl projections and assessee has achieved 40% of the actual results is too harsh to the assessee and thi valuation is done in order to carry out certain activities by the management. In this case, the valuation wa used to issue of rights shares. The AO or Ld. CIT(A) is trying to evaluate the accuracy of the valuation a the time of assessment, this is not proper and also the factuals are based on so many....
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....lued by Chartered Accountant, i.e., 'Accountant' as provided under Rule 11UA(2) by using the 'DCF Method' which is one of the prescribed method in Rule HUA(2)(b) r.w.s. 56(2)(viib). Based on the said valuation report dated 15.12.2014, the assessee company had issued the shares to the aforesaid equity partners on premium. The Ld. Assessing Officer has discarded the valuation report of the CA mainly on the ground that valuation of the equity shares carried out by the assessee was based on projection of revenue which did not match with the actual revenues of the subsequent years. He further held that no efforts have been made by the assessee to substantiate the figures of projected revenue in the valuation report and has also failed to submit any basis for projection. Instead, AO held that assessee should have invested the share premium amount to earn some income, whereas assessee has made investment in debentures of its associate company and hence the basic substance of receiving the high premium was not justified. After invoking the provision of section 56(2)(viib), AO took fair market value of premium at Nil and face value of Rs. 10/- per share. 27. From the perus....
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.... 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 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....
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....ave 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 which is bu its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information Is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." (ii) Rameshwaram Strong Glass (P.) Ltd. v. ITO [2018-TIOL-1358- ITAT- Jaipur] "4.5.2 Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and....
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.... along with the paper book. Both the lower authorities have failed to follow the Rule 11UA of IT Rules, 1962 as per which the option to choose the valuation of the shares lies with the assessee and the same is binding on the Income Tax Authorities. For the sake of convenience, relevant provisions of Rule 11UA of the Rules are extracted hereunder: '(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:- (a) The fair market value of unquoted equity shares (AL( PV) (PE) A book value of the assets in the balance-sheet as reduced by any am of paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the become-tax Act and shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the valu....
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....n accordance with Rule 11UA(2) of the Income Tax Rules, 1962. But the AO has not given any reasoning for rejecting the valuation of shares nor have they furnished any material to the contrary which justified the rejection of the valuation of shares. 17. 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. It has been hitherto an uncontroverted legal position that where a statute requires to do a certain thing in a certain way, the thing must be done in that way only. Other methods or modes of performance are impliedly and necessarily forbidden. The aforesaid settled legal proposition is based on legal maxim "Expressio unis est exclusio alterius", meaning thereby that if a statute provides for a thing to be done in particular manner, then it has to be done in that manner and in no other and following other course is not permissible. For the said proposition reliance is placed in the case of IMC Limited and Ors. vs. Union of India and Ors. (10.05.2019 - GUJHC): MANU/GJ/0860/2019. 19. The Hon'ble Jurisdictional High Court in the case of PCIT Vs Cinestaan Entertainment Pvt Ltd (2021) 4....