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2022 (11) TMI 1465 - AT - Income TaxAddition u/s 56(2)(viib) representing share premium received on sale of shares - Substitution of value of shares - rejection of the valuation done by the assessee from prescribed expert as per the prescribed method - whether the premium charged by the assessee on the face value of share is in excess of the fair market value of share as on the date of sale, so as to, come within the mischief of section 56(2)(viib) of the Act.? - HELD THAT:- 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 the methodology provided under rule 11UA. A reading of rule 11UA(2)(b) would make it clear that the fair market value of equity shares has to be determined by applying the methodology as provided under clause (a) or clause (b), at the option of the assessee. Rule 11UA (2)(b) 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. As decided in M/s. Dayalu Iron & Steel Pvt. Ltd [2022 (7) TMI 625 - ITAT DELHI] as 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. 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. Revenue authorities have committed an error in rejected the valuation done by the assessee from prescribed expert as per the prescribed method. Thus addition made is unsustainable. Decided in favour of assessee. Disallowance of expenses - business was not fully functional - as assessee has not carried out any business during the year and the interest income is assessable under the head ‘income from other sources’, AO disallowed the expenses - HELD THAT:- As observed that the assessee is in the process of setting up of its business of beauty parlor. However, the business was not fully functional. Irrespective of that, the assessee had to incur certain expenditure to maintain its corporate status. From the details of expenses furnished before me, it is observed that the expenses incurred by the assessee relate to salaries, staff welfare, bank expenses, accounting charges, office expense, rent, audit fee, convenience expenses, electricity expenses, telephone expenses, ROC fees, preliminary expenses etc. While disallowing expenses, AO has not gone into the details to identify the items of expenditure which is ought to be incurred by the assessee for maintaining the corporate status. The nature of interest income has to be verified to come to a definite conclusion, whether it has any proximate nexus with assessee’s business. Since, these aspects have not been properly examined by the departmental authorities, remit the issue back to the Assessing Officer for fresh adjudication. This ground is allowed for statistical purposes. Addition u/s 68 by way of enhancement of income made by learned Commissioner - HELD THAT:- As it is a fact on record, all the entities investing in shares of the assessee are companies registered with ROC having active status. Documentary evidences, including, audit report, balance-sheet, confirmation, bank statement, Income Tax return copies etc. of the investors were submitted before the AO. Even, after thorough inquiry, AO did not find anything adverse or deficient in the documentary evidences furnished by the assessee, hence, accepted the investments to be genuine. As could be seen, without making any further inquiry independently, simply based on the documents available on record, Commissioner (A) has held that the investments made are not genuine, as, the creditworthiness and genuineness is not established. When the assessee has discharged the initial onus by furnishing all documentary evidences to establish the identity and creditworthiness of the investors and also furnished all documentary evidences to establish the genuineness of the transaction done through banking channel, merely on presumption and surmises the investments made cannot be treated as unexplained cash credit. Decided in favour of assessee. Penalty u/s 271(1)(c) - HELD THAT:- While deciding the quantum appeal of the assessee in the earlier part of the order, couple of additions have been deleted and the addition relating to disallowance of expenses has been restored back to the Assessing Officer. Thus, presently there is no surviving addition which formed the basis for imposition of penalty u/s 271(1)(c) of the Act. Decided in favour of assessee.
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