TaxTMI 
TaxTMI 
2014 (11) TMI 1300
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....condone the delay in filing the appeals. Ground is sufficient. The applications for condoning the delay are allowed and the delay is condoned. The appeals are admitted for hearing on merits. 3. The assessee has raised the following grounds of appeal :- CONCISE GROUNDS OF APPEAL 1. That the Ld. CIT (A) has erred in law as well as on facts in confirming addition of Rs. 95,00,000/- u/s 68 of the Income Tax 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 u/s 251(1) by a sum of Rs. 71,25,000/-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 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....
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.... N/A M/s Goodluck Industries Ltd. (Rs. 5,00,000/- on 23.12.2013) M/s AVT Homes (P) Ltd. (Rs. 1,00,000/- on 29.11.2014) M/s Best Propmart (P) Ltd. (Rs. 8,50,000/- on 8.10.2013) M/s Pearl Contractors (P) Ltd. (Rs. 14,00,000/- on 21.01.2013 6. Investment made by the investor companies during the year in concern. Rs. 95,00,000/- Rs. 90,00,000/- Rs. 71,50,000/- 7. Details of the investors who made the investment during the year M/s Amar Shree Industries Ltd.(Rs. 25,00,000/- on 1.7.2015) M/s Goodluck Industries Ltd. (Rs. 25,00,000/- on 1.7.2015) M/s Rishi Credit & Industries Ltd. (Rs. 45,00,000/- on 27.10.2015) M/s Pearl Multicon (P) Ltd. 6,00,000/- on (8.5.2015) M/s Nu Ruchi Barter (P) Ltd.(Rs. 30,00,000/- on 24.2.2016) M/s Sigma Tech Services (P) Ltd. (Rs. 45,00,000/- on 19.3.2016) M/s Texcity Constructions Kovai (P) Ltd. (Rs. 9,00,000/- on 14.10.2015) M/s Balgopal Builders (P) Ltd. (Rs. 15,00,000/- on 20.8.2015) M/s Pearl Propcon (P) Ltd. 6,50,000/- on 8.5.2015) M/s Goodluck Industries Ltd (Rs. 20,00,000/- on 26.10.2015) ....
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....parsh Beauty Care Pvt. Ltd. Vs. ITO in ITA No. 170 and 246/Del/2022 for Assessment Year 2015-16. • Judgment of Hon'ble High Court of Delhi in the matter of Pr. Commissioner of Income Tax-2 Vs. M/s Cinestan Entertainment Pvt. Ltd. in ITA No. 1007/Del/2019. • Judgment of Hon'ble High Court of Delhi in the matter of Pr. Commissioner of Income Tax-2 Vs. Enrich Agro Food Products Pvt. Ltd. in reported [2023] 148 taxmann.com 26. • Order of Tribunal in the matter of Abhirvey Projects Pvt. Ltd. Vs. ACIT in ITA No. 9400/Del/2019 for Assessment Year 2015-16. • Copy of Judgment of Hon'ble Apex Court in the matter of Pr. Commissioner of Income Tax- Vs. Rohtak Chain Co. Pvt. Ltd. in reported [2019] 110 taxmann.com 59. • Copy 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." 8. The Ld.DR has submitted that ass....
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....14-10-2015 2 Evidence furnished in the PB M/s Pearl Multicon (P) Ltd (PB103-126) M/s Nu Ruchi Bater (P) Ltd (PB127-164) M/s Sigma Teach services (P) Ltd (PB165-173) M/s Texcity constructions Kovai (P) Ltd (PB174-197) 3-M/s Rivet health Club Pvt. Ltd. ITANo 103/Del/2021 A.Y 2016-17 Sl no particulars 1 Details of the investors who made the investment during the year M/S Balgopal Builders (P) Ltd Rs 15,00,000/- on 20-08-2015 M/S Pearl Propeon (P) Ltd Rs 650000/- on 08-05-2015 M/s Good luck Industries (P) Ltd Rs 2000000/-on 26-10- 2015 M/s Rishi Credit &Industries (P) ltd Rs 3000000/-on 26-10-2015 2 Evidence furnished in PB M/s Balgopal Builders (P) PB149-172 M/S Pearl Propcon (P) Ltd (PB-220-245) M/S Good luck Industries (P) Ltd (PB-244-267) M/s Rishi Credit &Industries (P) ltd (PB-268-292) 11. On the perusal of the documents produced by the assessee, it is found that the assessees in order to prove the genuineness of the transaction identity and creditworthiness of the investors produced the copy of the certificate of incorporation along with MAO and AOA,copy of auditor's report,balance sheet, trading a....
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.... ITR 6 and Computation of Income 48-82 Bank book and Bank statement for the period from 1.4.2014 to 31.3.2015 83-84 Ledger account of the bank book in the books of the appellant company 85 Valuation Reprot under Rule 11UA92)(b) of the Income Tax Rules, 1962 from the Chartered Accountant as per Discounted Cash Flow Method. 86-89 13. On going through the order of A.O and Ld. CIT(A) it is found that the authorities have just brush aside the documents produced by the assessee and without making any enquiry about authenticity of the documents furnished and without bringing any material or making enquiry came to conclusion 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....
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.... intention of the Legislature in introducing such a deeming provision and submitted that such a provision cannot be invoked on a normal business transaction of issuance of shares unless it has been demonstrated by the Revenue authorities that the entire motive for such issuance of shares on higher premium was for the tax abuse with the objective of tax evasion by laundering its own unaccounted money. His main contention was that, being a deeming fiction, it has to be strictly interpreted and 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 ado....
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.... or classes of persons as may be notified by the Central Government in this behalf Explanation--For the purposes of this clause, -- (a) the fair market value of the shares shall be the value - (i) as may be determined in accordance with such method as may be prescribed: or ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, 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 anyth....
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....instance in the case of SA Builders, 288 ITR 1 (SC) and CIT vs. Panipat Woollen and General Mills Company Ltd., 103 ITR 66 (SC). The Courts have held that Income Tax Department cannot sit in the armchair of businessman to decide what is profitable and how the business should be carried out. Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection 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 metho....
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....uation 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 Pvt. Ltd. v. ITO [2018- TIOL1358-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 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 shar....
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....DCIT (2020) 114 Taxman.com 323 (Mumbai Trib.) wherein it is held as under:- 19. "Since Ld. CIT(A) has already addressed the issue of method of valuation which has to be adopted therefore we do not intend to go into which method has to be adopted and accordingly, we notice that the department is in appeal against Ld. CIT(A) and in our considered view, Ld. CIT(A) has properly rejectee the method adopted by the AO and proceeded to accept the DCF method adopted by the assessee Therefore, we are inclined to dismiss the ground raised by the department. 20. Coming to the findings of Ld. CIT(A), we notice that Ld. CIT(A) has accepted the DCF methoc adopted by the assessee and he analyzed the factual performance of the assessee subsequent to issue o: shares. The valuation of shares are for that matter any valuation is itself is a projection of future events oi activities and no doubt it has to be done with some 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 a....
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....h. The assessee company to start its ventur of its film production approached accredited ace investors of India to join in as equity partner; namely, Shri Rakesh Jhunjhunwala, Shri Anand Gopal Mahindra & Shri Radhakishan Damani. Th funds were raised by way of issue of equity shares to the aforesaid equity partners and by raisin premium on such shares over and above the face value of Rs. 10/-per share. The details and quantum of premium received from each of the equity partners are as under: Sl No. Name of equity partner Date of issue Name of shares Premium (Rs.) Per shear Amount of premium (Rs.) 1 Sh. Anand Mahindra 06.01.2015 23.02.2015 4,15,385 1949 80,95,85,365 2 Sh.Rakesh Jhun jhun wala 19,027 2602 4,99,80,793 3 Sh.Radha kishan Damini 19,027 2602 90,95,46,200/- total 4,53,799 26. The assessee before issuing the shares had got the share valued 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). Base....
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....provision of section 56(2)(vii) could have determined the fair market value of the premium on shares issued at Nil after rejecting the valuation report given by the Chartered Accountant on one of the prescribed methods under the rules adopted by the Valuer. Before us, learned counsel, Mr. Dinodia, first of all had harped upon the spirit and intention of the Legislature in introducing such a deeming provision and submitted that such a provision cannot be invoked on a normal business transaction of issuance of shares unless it has been demonstrated by the Revenue authorities that the entire motive for such issuance of shares on higher premium was for the tax abuse with the objective of tax evasion by laundering its own unaccounted money. His main contention was that, being a deeming fiction, it has to be strictly interpreted and 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 Id. 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....
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....dologies, 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 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 Ind....
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....ult, the appeal filed by the assessee is allowed and appeal filed by the revenue stands dismissed." 18. In view of the above judicial pronouncements and for the reasons discussed above we are inclined to delete the addition made u/s 68 of the Act and also set aside the order of the CIT(A) in enhancing the income of the appellant u/s 251(1) of the Act by invoking Section 56(2) (viib) of the Act. Accordingly, we allow the Assessee's Grounds of Appeal No. 2 to 5. 19. In the result, I.T.A. No. 6173/DEL/2019 is allowed." 15. In the ITAT Appeal no 80, 81 and 86/Del/2021 the coordinate Bench has also adopted the same view. 16. The ratio laid down in the aforesaid decision of the Tribunal squarely applies to the facts of the present captioned appeals. 17. In so far as enhancement made by the Ld. CIT(A) u/s 251(1) r.w.s. 56(2) (viib) of the Act, the Ld. CIT(A) has not accepted the Valuation Report submitted by the Assessee as per Rule 11UA of the Rules. During the assessment proceedings the assessees have submitted the Valuation Report duly signed by the auditor by following NAV/DCF Method as required under Rule 11UA(2) of the Rules. The Valuation Reports are ....
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....mulative preference shares. PE total amount of paid-up equity share capital as shown in the balance sheet PV= the paid-up value of such equity shares, or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant formatted by the IT (sixth amendment) Rules, 2018 we .24.3.2018) as per Discounted Free Cash Flow Method'. 18. As per the aforesaid Rule, 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 determined under clause (a) or clause (b), at the option of the assessee. The Assessees having the choice to opt for one of the methods enumerated in the above provision and the appellant has chosen to opt for clause (b) in most of the abovementioned cases for valuation of unquoted equity shares and based on the same, the value of the share had been computed. Accordingly, the new shares were issued and allotted to the investors during the captioned assessment year. During the assessment proceedings, computation of Fair Market Value of shares as per Rule 11UA(2) was submitted before the Ld.AO to ....
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.... irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Axesser is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this val....