TaxTMI 
TaxTMI 
2025 (1) TMI 94
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.... Financial Institutions disbursing Loans and selling Insurance in India. For Assessment Year 2016-17 the Appellant e-filed its return of income on 15- 10-2016 declaring total income at loss of Rs. 56,77,76,293. Thereafter, return of income was revised on 10-04-2017 declaring loss of Rs. 56,80,58,594. The case was selected for 'Complete Scrutiny' under CASS. The Appellant received notice u/s 142(1) of the Act dated 21.08.2018 received on 06.09.2018 through email calling for details under 43 items specified in the Annexure out of which only Item 2 and 19 related to issue of share capital during the period relevant to AY 2016-17. No detail or information was asked as respects Employees Stock Options. The Appellant furnished details by way of its reply dated 26.09.2018 submitted in hard copy to the Ld. AO. The Appellant furnished remaining details by way of its letter dated 03.10.2018 submitted in hard copy to the Ld. AO. Thereafter the Appellant received another Notice u/s 142(1) of the Act dated 17.10.2018. The Appellant made part compliance to this letter on 22.10.2018 online through ITBA portal. Thereafter learned Assessing Officer issued Show Cause Notice dated 10.12.2018 ....
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....ct. As the CIT(A) has directed AO to not consider assessee as 'venture capital undertaking' and accordingly deny benefit of exclusion from applicability of section 56(2)(viib) of the Act, the same is also challenged in this appeal. 4. We have heard and considered the rival submissions. The relevant facts for the issues before us are that the assessee had issued 23,362 shares for share capital worth Rs. 304,09,76,873/- at premium. The AO vide notice dated 21.08.2018 & 17.10.2018 asked the assessee to submit details on valuation of share as per provisions of section 56(2)(viib) and regarding identity, genuineness and creditworthiness as per provisions of section 68 of the Act. In reply, the assessee filed details of shares issued during the year vide annexure 2 of the reply dated 26/09/2018 which has been reproduced at page 2 & 3 of the assessment order. On perusal of details, it was found that as per valuation report, price per share was valued at Rs. 1,29,456/- but share capital was received @ Rs. 1,30,167/- per share. Hence, the assessee had offered differential value coming out to Rs. 90,87,899/- for tax in its return. However, the ld. AO was not satisfied with the identity of....
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.... projection given to him. Vide page no 14 & 15 of the valuation report, it was seen that valuer had merely relied on data & projections given by the management. 4.7 Further, on perusal of the projected data for FY 15 & FY 16, it was seen that the revenue was projected at Rs 40.61 Cr & 80.03 Cr respectively but actually received for FY15 was Rs 29.61 Cr & for FY was Rs 50.11 Cr respectively. Thus, there is huge divergence of financials projected & achieved. For rest of the years, no data was ever provided by the assessee, despite being categorically asked in the notice issued dt 17.10.2018. 4.8 As evident from above, there is a substantial deviation from the projected amount of Profit before tax. Instead, the company has incurred loss in financial year ending 31.03.2016 and 31.03.2017. In the present case, the report as submitted by the assessee is not acceptable and therefore rejected for the purpose of computing the Fair Market value of shares issued during the year. The assessee has not provided any evidence to prove the correctness of the result of Discounted cash flow method adopted by the assessee and no evidence to substantiate basis of projections ....
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....ns u/s 68 as made in the assessment order u/s 143(3) by Rs. 117,90,64,238/- (share premium) + Rs. 9,05,600/ (share capital) on account of sums received form Venture capital fund(s) namely PI Opportunities Fund-l and PI Opportunities Fund-II. Hence, the net additions u/s 68 which remains after order u/s 154 and which is required to be adjudicated vide this order comes to Rs. 48,22,71,120/- which are related to the following three resident investors and the further discussion regarding addition u/s 68 is restricted to the three resident investors only: Name of applicant Status No. of shares issued Face value per share Total face value Premium per share Total Premium Total amount received Renu Munjal Resident 310 100 31,000 1,30,067.66 4,03,20,975 4,03,51,975 Samvardhna Motherson International Resident 1000 100 1,00,000 1,30,067.66 13,00,67,860 13,01,67,660 Makesense Technologies Limited Resident 2395 100 2,39,500 1,30,067.66 31,15,12,046 31,17,51,546 6.3 On perusal of order u/s 154 dated 28/02/2019, it is found that the AO has not interfered with the alternate addition u/s 56(2)(v....
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.... justify the correctness of the valuation report. 6.8 So far reasons for making additions u/s 68 are concerned, the AO has stated that the assessee had furnished financials of only non-resident investors, but no details on resident investors had been filed by the assessee establishing the identity of resident share applicants, the genuineness of the transactions and creditworthiness of the parties. The AO has placed reliance on several decisions. 6.9 On perusal of all the hearing notices issued by the AO, it is found that the AO vide first notice u/s 142(1) dated 21/08/2018 had specifically asked the assessee to justify identity and creditworthiness of the investors along with genuineness of transactions as per section 68. The AO vide the same notice at item no 19 has asked specifically to the assessee to file details regarding mode of payment, amount, date of payment alongwith sources of the same. 6.10 Further, the AO clearly asked the assessee vide the second notice u/s 142(1) dated 17/10/2018 to submit audited financials and extract of bank statement showing the fund transfer to prove creditworthiness of share applicants. 6.11. The aforesaid q....
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.... 6.15 On perusal of profit and loss account of Samvardhan Motherson International Limited for FY 2015-16, it is found that there was a loss of Rs. 1034 million during the year and huge funds has come through the route of long-term borrowings, short-term borrowings/loan from a finance company, issuance of commercial papers, redeemable non-convertible debentures. The return of income filed by Samvardhan Motherson International Limited for AY 2016-17 reveals loss of Rs. 42,08,47,292/-. 6.16 Financials or copy of ITR of Renu Munjal has not been filed/enclosed by the appellant in the paper book, therefore nothing is known about the source of fund in case of Renu Munjal or her creditworthiness. 6.17 The provisions relating to tax treatment of cash credits are given in section 68. As per section 68, any sum found credited in the books of a taxpayer, for which he offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year. The first proviso of section 68 provides that in case of a taxpayer be....
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.... made u/s 68 r.w.s.115BBE in the order u/s 143(3) in case of share capital and share premium received from of resident investors Renu Munjal, Samvardhna Motherson International Ltd. and Makesense Technologies Ltd. is hereby confirmed. The relevant grounds of appeal are dismissed. 6. In regard to the enhancement made u/s 56(2)(viib), the ld.CIT(A) observed as follows:- "6.37 In view of above discussions, it is held that that the AO was justified in rejecting the DCF method of valuation which was prepared by the merchant banker totally relying on the hypothetical and highly inflated data given by the assessee without any basis or reasonable assumptions. However, it is found that the AO was not justified in taking the face value of the share as fair market value of the share and making additions u/s 56(2)(vilb). If the AO has rejected the DCF valuation of the assessee, the AO was required to value the share as per NAV method and then to make addition. In view of above, the AO is hereby directed to verify the correctness of value of shares arrived by the assessee at Rs. 12643.20 as per NAV method reproduced in the preceding paragraph and then to add the amount received in a....
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....ssee in respect of allotment of shares to various investors; - Copy of shareholder subscription agreement entered by assessee with various investors; - Copy of audited financial statements of PI Opportunities Fund - I for the relevant assessment year; - Copy of the audited financial statements of PI Opportunities Fund - II for the relevant assessment year; - Copy of the acknowledgement of tax return of Samvardhana Motherson International Limited for the relevant assessment year; - Copy of audited financial statements of Samvardhana Motherson International Limited for relevant assessment year (evidencing presence of own funds of more than INR 900 crores at the end of the relevant assessment year); - Copy of email correspondence dated 24.12.2018 of Manish Jain (representative of Mrs. Renu Munjal) with the assessing officer submitting various documents justifying creditworthiness of Mrs. Renu Munjal's investments in assessee company; - Copy of email correspondence between Makesense Technologies Limited and assessing officer submitting documents to establish identity, genuineness and creditworthiness; - Copy of....
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....res, we find that the valuation has been done by Resurgent India Ltd., a category-1 SEBI registered merchant banker and there was no effort of the Revenue authorities to cite any deficiency or discrepancy except for questioning the same on the basis of the fact that the report was prepared on the information provided by the assessee company. In this context, the law is now almost settled that the assessee's choice of method of valuation of shares and the valuation report prepared by merchant banker cannot be disturbed merely on suspicion or by pointing out lack of data. A coordinate bench in ITA No.- 1868/Del/2021 M/s Weldon Polymers Pvt. Ltd. vide order dated 10.06.2024 has considered this issue and has held as follows:- "11. We are of the considered view that valuation of shares is a technical and complex issue for which the AO has limited authority to tinker the valuation of methodology applied. As we observed at beginning, it being statutory evidence is required to be given presumption of correctness under law as prepared by an expert. It cannot be assailed unless it is shown that valuation was made on the fundamentally erroneous basis or apparent mistake is pointed ou....