2023 (7) TMI 1079 - AT - Income Tax

Addition u/s 68 - unexplained share premium and share capital - onus to prove - HELD THAT - Assessee effectively discharged the burden cast upon them u/s 68 of proving identity of the investors the genuineness of the transactions and the creditworthiness of the parties with respect to the transactions that took place between the Assessee and the investors. Since the Assesses filed the bank statements of the parties conclusively proving that the impugned sums were received through normal banking channels from the bank accounts of the parties the burden of proving the genuineness of the transactions between the Assessee and the parties and the creditworthiness of the parties to invest in the share capital of the Assessee Companies stood discharged. Once the Assessee established the identity of the parties the genuineness of the transactions and the creditworthiness of the parties to invest in the share capital of or advance loans to the Assessee Companies the burden shifted to the Revenue to prove the contrary. The Ld. A.O has failed to discharge the secondary onus of demolishing/disproving the genuineness of the documentary evidences filed by the Assessee. Decided in favour of assessee. Enhancement of income made by CIT(A) u/s 251(1) - addition under the head from other sources by applying Section 56(2)(viib) on protective basis by rejecting the valuation report furnished under Rule 11UA (2) (b) of the Income Tax Rules i.e. Discounted Cash Flow Method (DCF Method) - HELD THAT - There is no dispute that legally the assessee had option to choose the valuation of the shares as per Rule 11UA of the IT Rules. When the statute provides for particular procedure authorities have to follow the same and cannot interpret or permitted to act in contravention of the statute. The said legal principal is based on the legal maxim Expression Unis Est Exclusion Alterius . Thus we hold that the CIT(A) have committed an error in rejected the valuation done by the assessee from prescribed expert as per the prescribed method which ultimately resulted in enhancement of income of the Assessee u/s 251(1) of the Act. Accordingly we allow of the Assessee and delete the enhancement made by the CIT(A).

Summary

Issues Involved:
1. Addition of Rs. 96,00,000 under Section 68 of the Income Tax Act, 1961.
2. Enhancement of income by Rs. 64,00,400 under Section 56(2)(viib) on a protective basis.
3. Validity of show cause notice under Section 250(2).
4. Scope of limited scrutiny for share premium verification.
5. Initiation of penalty proceedings under Section 271(1)(c).

Summary:

Issue 1: Addition of Rs. 96,00,000 under Section 68
The assessee contended that all documentary evidence was provided to establish the identity, creditworthiness, and genuineness of the investors. The Revenue Authorities failed to appreciate the material, and the AO added the entire share capital and premium as unexplained credits. The CIT(A) upheld the addition, stating that mere furnishing of names, addresses, and PAN particulars was insufficient. The Tribunal found that the assessee had discharged its onus by providing comprehensive documentation and that the Revenue had not conducted further investigations. Citing the Supreme Court's judgment in Principal Commissioner of Income Tax Vs. Rohtak Chain Co. (P) Ltd., the Tribunal ruled that once the assessee proves the identity, creditworthiness, and genuineness of the transactions, the burden shifts to the Revenue, which failed to refute the evidence. The addition was thus deleted.

Issue 2: Enhancement of Income by Rs. 64,00,400 under Section 56(2)(viib)
The CIT(A) enhanced the income by rejecting the valuation report under Rule 11UA(2)(b) of the Income Tax Rules, 1962, which used the Discounted Cash Flow (DCF) Method. The Tribunal found that the assessee had provided a valuation report from a Chartered Accountant, and the CIT(A) erred in not accepting it. The Tribunal cited the Gujarat High Court's judgment in IMC Limited and ors Vs. Union of India and ors, which held that when a statute provides a specific procedure, it must be followed. The Tribunal also referred to the Coordinate Bench's decision in Cinestan Entertainment (P). Ltd. Vs. ITO, emphasizing that the AO cannot substitute its own valuation for one provided by the assessee under a prescribed method. The enhancement was thus deleted.

Issue 3: Validity of Show Cause Notice under Section 250(2)
The Tribunal did not specifically address this issue, as the deletion of the additions rendered it academic.

Issue 4: Scope of Limited Scrutiny for Share Premium Verification
The Tribunal found that the scope of limited scrutiny was to verify whether the funds received as share premium were from disclosed sources and correctly offered to tax. The Tribunal ruled that the Revenue's actions exceeded this scope.

Issue 5: Initiation of Penalty Proceedings under Section 271(1)(c)
The Tribunal did not specifically address this issue, as the deletion of the additions rendered it academic.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions and enhancements made by the CIT(A) and ruling in favor of the assessee on the primary issues. The other grounds were deemed academic and required no adjudication.