TaxTMI 
TaxTMI 
2024 (7) TMI 1823
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....cts in deleting the addition of Rs. 23,42,697/- made by the AO on account of commission expense incurred by the assessee. 3. That on the facts and in the circumstances of the case, the Ld. CIT(A) has erred in law and on facts in deleting the addition relying on the decision of Kabul Chawla, without appreciating the fact that the Hon'ble Supreme Court of India has admitted SLP vide Diary No. 37848/2015 in the case of APAR Industries Ltd. decided by Hon'ble Bombay High Court in ITA No. 1669 of 2013 dated 08.05.2015 which is a lead case tagged with more than 115 issues on the issue of restriction of additions only to incriminating materials found during search. The Hon'ble SC has dismissed the appeal on account of lower tax effect. Further on the same issue Hon'ble SC has admitted SLP vide diary no. 45823/2019 in the case of Pr. Commissioner of Income Tax Vs Gohai foods. 4. That the order of the CIT (A) is perverse, erroneous and is not tenable on facts and in law." 3. In ITA No. 1195/Del/2023, following grounds have been raised by the assessee: "1. That on the facts and circumstances of the case and in law, the appellate order passed by C....
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....f Rs.10.14 Cr. and share premium of Rs.89.09 Cr. At page no. 30 of the Assessment Order, the Assessing Officer alleged that the total share capital including the premium received by the assessee during the F.Y. 2014-15 was in two tranches consisting of Rs.7 Cr. with a premium of Rs.165/- per share and Rs.8,61,89,000/- with premium of Rs.148/- per share totaling to Rs.15,61,89,000/ -. At page no. 38 of the Order, the Assessing Officer mentions that the assessee has received share capital, premium, SAM of Rs.15,61,89,000/- during the F.Y. 2014-15. After issuing the show-cause and after receipt of the replies, the Assessing Officer finally held that the assessee has received Rs.51,57,000/- on account of share capital and Rs.8,00,32,000/- on account of share premium. 6. Having observed so, the Assessing Officer made addition of share capital received of Rs.51,57,000/- u/s 68 of the Income Tax Act, 1961 and Rs.8,00,32,000/- received on account of share premium u/s 56(2) (viib). 7. Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the addition on the grounds that the case was covered by the judgment of Hon'ble Jurisdictional High Court in the case of CIT Vs....
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....g the contact number of an employee of assessee group, that he has been signing the documents on the instructions of the matter, it leaves no scope of any contrary interpretation. Further, Share Certificates and share transfer forms belonging to M/s Om Energy were found and seized during the course of search at 40 Babar Road, Bengali Market, Delhi, showing that the control over the Share/investment lies with the assessee Group. It is thus crystal clear that the assessee group has used this bogus/paper concern with the sole intention of routing unaccounted money into its regular books. The ld. DR has also relied on the statement of Sh. Ashok Jain recorded on oath wherein he surrendered the amount during the search. Since, the Director of the company himself has admitted that the amounts received were bogus share capital routed through various entities, the order of the AO ought to have been upheld. It was also argued that the statement of Sh. Ashok Jain has admitted the unaccounted cash was generated out of unaccounted sale of waste and of by product like animal, cattle feeds, jute bags, scrap etc. and since the generation and application has been proved, the addition made by the AO....
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....n his sworn statement u/s 132(4) that commission was paid in cash to entry operators and it was part of his unaccounted income, which is an evidence by itself as held by Hon'ble Rajasthan High Court in the case of Pr. CIT vs. Roshan Lal Sancheti. The High Court held that admission in statement u/s 132(4) has a strong evidentiary value and they cannot be discarded summarily and in cryptic manner by simply observing that the assessee retracted from his statement. With regard to the explanation of the before the Ld. CIT(A) that the share certificates were found in possession of NV group for splitting the single share certificate into smaller denominations, the ld. DR argued that no communication was found during the search or submitted by the appellant in the post-search proceedings that it received the share certificates for the purpose of splitting of the shares. 14. The ld. DR, relying on various judicial proposition argued that the retraction of Sh. Ashok Jain cannot be considered and the statement on oath recorded u/s 132(4) takes primacy over the retraction, the share certificates found and seized during the search operation must be treated as incriminating material seize....
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.... the tune of Rs.44,74,254/- to the returned income for A. Y. 2012-13 and hence, it cannot be said that the company was not existing at the premises and hence the identity, creditworthiness and genuineness has been lacking. It was also submitted that the assessment u/s 143(3) has been completed for A.Y. 2017-18 disallowing depreciation and for A. Y. 2018-19, the assessment u/s 143(3) has been completed by making addition of Rs.5,34,609/- by the Assessing Officer and addition of Rs.2,79,50,000/- by the CPC. ITA No. 1195/Del/2023 : Asstt. Year: 2016-17 M/s ENN VEE Holdings Pvt. Ltd. 18. In this case, the assessee has received share capital and share premium from the entities namely, Vinco Metals Pvt. Ltd., Ace trade Solutions Pvt. Ltd., Bon Lon Pvt. Ltd. and Harshit Finvest Pvt. Ltd. 19. With the allegations and arguments of the Revenue are the same as in Realtime Marketing Pvt. Ltd., the assessee submitted that the Ho'ble ITSC has examined issue of share capital received from Vinco Metals Pvt. Ltd., Bon Lon Pvt. Ltd. and Harshit Finvest Pvt. Ltd. and ordered that no addition can be made in the income declared before the Income Tax Settlement Commission on account of the ....
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....tion 158BB(1) does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words 'evidence found as a result of search' would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4). However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation [Para 20] ● A plain reading of section 132(4) indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of account, documents, money, bullion, jewellery or any other valuable article or thing. The Explanation to section 132(4), which was inserted b....
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....dhra Pradesh High Court in CIT vs. Shri Ramdas Motor Transport 102 Taxman 300, in which the Hon'ble High Court refused to give any evidentiary value to the statement made by the assessee u/s 132(4) as the Department could not find any unaccounted money, article or thing or incriminating document either at the premises of the company or at the residence of managing director or other directors. In such circumstances, the finding of the Tribunal that the statement of managing director recorded patently under s. 132(4) did not have any evidentiary value, was upheld. The above discussion makes it patent that the surrendered income must be correlated with some incriminating material found during the search so as to justify the addition. Similarly in the case of Pr. CIT Vs. Best Infrastructure (India) Pvt. Ltd. 84 taxmann.com 287 (Del), it was reiterated by the court that - "statements recorded under Section 132 (4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra)." 26. With regard to M/s Om Energy Ltd., the allegations of the Revenue cannot be upheld owing to the orders passed in the case of M/s Om En....
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.... Marketing Pvt. Ltd., the AO made addition u/s 56(2)(viib) and the ld. CIT(A) deleted the addition relying on in the case of CIT Vs. Kabul Chawla (supra). The issue has been examined as to whether the addition made by the AO u/s 56(2) (viib) is correct in eyes of law or not. The similar issue stands adjudicated by the Co-ordinate Bench of Tribunal in the case of M/s. Shanta Blankets Pvt. Ltd. Vs ITO in ITA No. 84/Del/2021 for A.Y. 2016- 17, order dated 18.04.2024, the relevant part of the said order is reproduced as under: "8. ............. ................. 9. On perusal of the documents produced by the assessee, it is found that the assessee 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 MOA and AOA, copy of auditor's report, balance sheet, trading and profit and loss account as on 31/03/2016 along with notes of financial statement, copy of acknowledgement of return of income for Assessment Year 2016-17 along with computation of income tax, copy of share application form, copy of confirmation of account, copy of bank account state....
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....use (a) or clause (b), at the option of the assessee. Rule 11UA (2)(b) of the Rules applicable to the relevant assessment year provided an option to the assessee to get fair market value of the shares determined by a merchant bank or an accountant. In the fact of the present case, admittedly, the assessee has got the fair market value of the shares determined through an accountant. Thus, the assessee has acted as per the mandate of section 56(2)(viib) read with Rule 11UA. Whereas the Assessing Officer has substituted fair market value determined by the assessee through his own valuation. 13. While dealing with an identical issue, the Coordinate Bench in case of M/s. Dayalu Iron & Steel Pvt. Ltd. (supra) has held as under: "12. The Ld. A.O while making an addition u/s 68 of the Act raised question over the ne of the transaction source of funds invested. Further held that, the investor companies do not have produced creditworthiness to fund the assessee company which has been confirmed by the CIT(A) and the CIT(A) has also rejected the valuation report. The assessee in response to notice u/s 142 has produced following documents which have been also in the paper book....
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.... 15. Further, the Ld. CIT (A) has rejected the valuation report of the assessee, wherein premium charge of Rs. 40 on each share under Rule 11UA has been found to be without basis and while doing so the CIT(A) has relied on decision of the Coordinate Bench of this Tribunal in the case of Agro Portfolio Pvt. Ltd. vs. ITO 2018, 171/ITD/74 DEL. The decision made in Agro Portfolio Pvt. Ltd. (supra) has been considered by the Coordinate bench of this Tribunal in the case of Cinestan Entertainment (P). Ltd. Vs. ITO for AY 2015-16 dated 27/05/2019, wherein it is held that the Assessing Officer cannot examined or substituted its own value in place of valuation arrived by the 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 :- "28. Now what we are required to examine whether under these facts and circumstances Assessing O....
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....ted on such investment as have been done by the Assessing Officer and by ld. CIT(A), then no investor in the country will invest in a 'start-up company', because investment can only be lured with the future prospects and projection of these companies. 29. Now, whether under the deeming provision such an investment received by the assessee company be brought to tax. The relevant provision of Section 56 for the sake of ready reference is reproduced hereunder: 2018 "Income from other sources. 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely : -- (i) ....... (viib) "where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of sh....
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....e its shares. Under the DCF Method, the fair market value of the share is required to be determined either by the Merchant Banker or by the Chartered Accountant. The valuation of shares based on DCF is basically to see the future year's revenue and profits projected and then discount the same to arrive at the present value of the business.......................................... .......................................... 31.......................................... 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 r....
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....e 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 & Ex chang e 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 ....
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....nsidered the decision of the Coordinate bench in Agro Portfolio Pvt. Ltd. Vs. ITO which has been relied by the CIT(A). Therefore, we are inclined to follow the ratio laid down in the case of Cinestan Entertainment P. Ltd. Supra and hold that the Ld. A. O and CIT(A) have committed an error in rejected the valuation done by the assessee from prescribed expert as per the prescribed method. 17. Further, the Ld.CIT(A) while enhancing the income of the assessee u/s 56 (2)(viib) had observed that, such share premium received by the appellant for Rs. 76,00,000/- during the Financial Year 2014-15 relevant to Assessment Year 201516 is considered income of the appellant. The Ld. CIT(A) has not provided mandatory opportunity of hearing to the assessee u/s 251 (1) of the Act which ultimately resulted in enhancement of assessed income. The assessee has produced the valuation report before the CIT(A) but the same has not been considered by the CIT(A). The assessee has prepared valuation of the shares in accordance with Rule 11US of the Act for the purpose of Section 56(2) (viib) of the Act, adopting discounted cash flow method. The Ld. CIT(A) failed to understand the valuation of the sha....
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.... adoption of projection and valuation. Accordingly, we are not in a position to accept the method adopted by Ld. CIT(A). In the similar facts, the Coordinate Bench of ITAT has held as under: "25. We have heard the rival contentions, perused the relevant findings given in the impugned order as well as material referred to before us at the time of hearing. In various grounds of appeal, the sol issue raised by the appellant assessee relates to the addition of Rs.90,95,46,200/- made by the AO, b; invoking the deeming provisions of sections 6 (2)(viib) by adopting fair market value of the shar premium received by the Assessee Company from the investors at NIL What has been sought to be taxed is mainly the share premium issued on equity shares which according to the AO far exceed the FMV of the shares. Though facts have been discussed in detail in the foregoing paragraphs however in the succinct manner, the relevant facts and background are reiterated in order to appreciate the controversy and the issue for adjudication. The assessee company was incorporated on 19th September, 2013, i.e., in the Assessment Year 2014-15, with the objective of carrying of business production and d....
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....t Nil and face value of Rs. 10/- per share. 27. From the perusal of the records and the impugned orders, it transpires that Assessing Officer had also issued notices u/s. 133(6) to all the 3 investors to seek confirmation, information and documents pertaining to transaction of issuance of shares. In response to the said notices, Assessing Officer has received all the details and replies directly from these investors confirming the transaction. The venture agreement between the assessee and the investors were also filed before the Assessing Officer and in this regard, our attention was also drawn by the Id. counsel that the investment was to be made by these investors in various phases and transactions and it was only after they have gone by the projection and satisfied with the potentials and credentials of future growth, they were willing to make such huge investment in the 'start-up company' like assessee. Thus, neither the identity nor the creditworthiness of the investors nor the genuineness of the transaction can be doubted and in fact the same stands fully established to which Assessing Officer has also not raised any doubt or disputed this fact. Thu....
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....nfirmed by them; and nothing has been brought on record that it is unaccounted money of assessee company routed through circuitous channel or any other dubious manner through these accredited investors. If such a strict view is adopted on such investment as have been done by the Assessing Officer and by Id. CIT(A), then no investor in the country will invest in a 'start-up company', because investment can only be lured with the future prospects and projection of these companies. 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 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 valuation....
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.... 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 actuals 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. v. ACIT (ITA 15 l/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 ....
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....yment 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 value of any asset, L=book value of liabilities shown in the balance-sheet, but not including the following amounts, namely: (i) the paid-up capital in respect of equity shares: (ii) the amount set apart for payment of dividends on preference shares and equity shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation. (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act. to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto, (v) any amount representing provisions mad....
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....d 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) 433 ITR 82 (Delhi) held that No addition can be made for share issued at Premium based on prescribed methodology in following manners :- "13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent- Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respond....