TMI Blog2019 (8) TMI 400X X X X Extracts X X X X X X X X Extracts X X X X ..... in the shares of the assessee-company. Therefore, the addition made u/s 68 cannot stand in the eye of law. Judicial satisfaction means the Assessing Officer has to take into consideration the well established method of valuation of shares including the assets as explained in Explanation 2 to Section 56(2)(viib). It cannot be arbitrary. The AO has to take note of the judicial and established principles in arriving at his satisfaction. In this case, the AO has not found any specific fault in rejecting or not satisfying with the valuation made by the assessee. When the AO has not found any defect or error in the valuation of shares by the assessee-company, it may not be necessary to apply the method of valuation prescribed under Rule 11UA of the I.T.Rules. Therefore, this Tribunal is unable to uphold the valuation made by the AO under Rule 11UA of the Income-tax Rules, 1962. Orders of both the authorities below are set aside and the addition made both under Section 68 of the Act and under Section 56(2)(viib) of the Act is deleted. Disallowance u/s 40A(2)(b) - Assessee-company paid lease rent to its Managing Director - HELD THAT:- The assessee admittedly paid ₹ 15 Cror ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rders of the Commissioner of Income Tax (Appeals)-18, Chennai, dated 25.02.2019 and pertain to assessment years 2013-14, 2014-15 and 2015-16, Since common issues arise for consideration in all these appeals, we heard these appeals together and disposing the same by this common order. 2. Shri K. Mahendran, the Ld.counsel for the assessee, submitted that the assessee-company is engaged itself in manufacturing and trading of gold jewellery. During the assessment years under consideration, according to the Ld. counsel, the assessee received share application money / share premium from its Managing Director Shri M. Kiran Kumar and M/s Kothari Credit India Pvt. Ltd. According to the Ld. counsel, the Assessing Officer made contradictory observation on the ground that the valuation of the shares was not done properly. Moreover, the Assessing Officer also found that the share premium received by the assessee has to be assessed under Section 68 of the Income-tax Act, 1961 (in short 'the Act') as unexplained credit. According to the Ld. counsel, if the share premium was considered to be excess of fair market value of the shares, then the question of application of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the shares is nothing but the value determined as per Rule 11UA of the Incometax Rules, 1962 or the valuation provided by the company on the basis of its assets including goodwill, knowhow, patents, copyrights, trademarks, licences, franchises, etc. whichever is higher. According to the Ld. counsel, the Assessing Officer in this case found that share premium is much higher than the value estimated under Rule 11UA. The Assessing Officer failed to consider Explanation (a)(ii) to Section 56(2)(viib) of the Act. Therefore, according to the Ld. counsel, the value of the share premium determined by the assessee-company in allotment of shares to M/s Kothari Credit India Pvt. Ltd. at ₹ 1590 per share is not excessive. The face value of share is ₹ 10/-. Therefore, including the price of ₹ 1590/-, the shares were allotted at ₹ 1600/-to M/s Kothari Credit India Pvt. Ltd. Hence, according to the Ld. counsel, the share premium cannot be considered to exceed fair market value of the shares. 4. The Ld.counsel for the assessee further submitted that the Assessing Officer as well as the CIT(Appeals) on the basis of the sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the authorities below. According to the Ld. counsel, other than the statement of Shri Mahendra Sethia, no other material is available on record to suggest that the transaction is an accommodation entry or bogus. There is no material available on record to suggest that the assessee has received back the money paid by M/s Kothari Credit India Pvt. Ltd. According to the Ld. counsel, there is no evidence to show that Shri Mahendra Sethia signed the share transfer application and handed over to the assessee. It is nobody s case that the shares allotted to M/s Kothari Credit India Pvt. Ltd. were transferred to assessee-company at any point of time. In the absence of any material evidence, according to the Ld. counsel, the Assessing Officer is not justified in treating the transaction of investment in the equity shares of the assessee-company by M/s Kothari Credit India Pvt. Ltd. as accommodation entry. 5. Referring to the judgment of Madras High Court in the assessee's own case for assessment year 2007-08, the Ld.counsel for the assessee submitted that an identical share premium amount was received by the assessee. Initially the Assessing Officer disallowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , franchises, etc. held by the assessee, according to the Ld. counsel, the fair market value of the shares were estimated / determined, therefore, no addition is called for even under Section 56(2)(viib) of the Act. 7. On the contrary, Shri S. Bharath, the Ld. Departmental Representative, submitted that the assessee claimed before the Assessing Officer that it has received investments in the form of share capital from its Managing Director Shri M. Kiran Kumar and M/s Kothari Credit India Pvt. Ltd. According to the Ld. D.R., the Assessing Officer found that in the case of Shri M. Kiran Kumar, the Managing Director of the assessee-company, the shares were not valued properly as per Rule 11UA of the Income-tax Rules, 1962. Therefore, according to the Ld. D.R., the Assessing Officer made addition with regard to share premium which exceeded the fair market value of the shares. In the case of M/s Kothari Credit India Pvt. Ltd., according to the Ld. D.R., the Assessing Officer found that M/s Kothari Credit India Pvt. Ltd. provided accommodation entry to various companies and the assessee-company is also one of the companies which received accommodation en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the statement of Shri Mahendra Sethia, no other material evidence is referred either in the assessment order or in the appellate order by the CIT(Appeals). Therefore, it is obvious that only material available on record is the statement said to be recorded from Shri Mahendra Sethia under Section 131 of the Act. The question arises for consideration is whether the statement recorded under Section 131 of the Act can be a basis for making any addition under the Income-tax Act? This Tribunal is of the considered opinion that under Section 131 of the Act, the authorities are not empowered to administer oath to the deponent. Therefore, such a statement recorded under Section 131 of the Act has no evidentiary value. Therefore, the so called statement said to be recorded from Shri Mahendra Sethia needs to be excluded from consideration. If we exclude the statement recorded under Section 131 of the Act, there is no material available on record for making any addition either under Section 68 or Section 56(2)(viib) of the Act. Therefore, the addition made by the Assessing Officer cannot be sustained. 10. We have carefully gone through the statement said to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er this event? Ans.: This amount of ₹ 38 Crores of bank balance was brought into the company by several layers of purchases and sales. But the original amount would be cash receipts by any one of the layers of the group. But the trace of this cash receipts are not left in the books of any of the company. 12. It is obvious from this answer to question No.21 that by way of various layers of purchases and sales, the money was brought into the books of M/s Kothari Credit India Pvt. Ltd. He also presumed that the money might have been originally received by cash by any one of the layers. But, no concrete statement was made that money was received from the assessee-company at any stage. Moreover, no material is available on record to suggest that either the assessee-company paid money to M/s Kothari Credit India Pvt. Ltd. or to Shri Mahendra Sethia, which was invested in the form of share premium in the assessee-company. In the absence of any material evidence, this Tribunal is of the considered opinion that there cannot be any addition on presumption and assumption under Section 68 of the Act. Moreover, as rightly submitted by the Ld.counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. In view of the above observation of the Madras High Court in the assessee's own case for assessment year 2007-08, this Tribunal is of the considered opinion that the Assessing Officer as well as the CIT(Appeals) cannot ignore the finding of the High Court for assessment year 2007-08. The similar / identical findings recorded by the Assessing Officer as well as the CIT(Appeals) for the assessment year under consideration in this case was also recorded by this Tribunal for assessment year 2007-08. However, the High Court found such a finding was perverse. The High Court further found that the assessee cannot call upon its investors to disclose all such business transactions they carried on in the immediate past and how much they made from their respective business enterprises. In view of the above finding of the Madras High Court, this Tribunal is unable to uphold the orders of both the authorities below. 15. Now coming to valuation of shares, as rightly submitted by the Ld.counsel for the assessee, there are two limbs in Section 56(2)(viib) of the Act. As per explanation to Section 56(2)(viib) of the Act, the first limb is valuation to be ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The area of property was 4023 sq.ft. The assessee paid the lease rent at the rate of ₹ 418/-per sq.ft. According to the Ld. counsel, the property is situated in a prime commercial location in the heart of Chennai city, therefore, the lease rent at the rate of ₹ 418/-is very reasonable. Hence, according to the Ld. counsel, it does not call for disallowance under Section 40A(2)(b) of the Act. 19. On the contrary, Shri S. Bharath, the Ld. D.R. submitted that the Assessing Officer made enquiry through Inspector. According to the Ld. D.R., no doubt, the property was situated in a prime commercial location in the heart of Chennai, but, the average lease rent paid in that area is only ₹ 100/-per sq.ft. Therefore, according to the Ld. D.R., the Assessing Officer found that the assessee was paying ₹ 318/-per sq.ft. in excess of fair market value. Hence, according to the Ld. D.R., the disallowance of ₹ 12,79,314/-was rightly made. 20. We have considered the rival submissions on either side and perused the relevant material available on record. The Assessing Officer found that the lease rent paid by the assessee- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest proportionately to the extent of diverted borrowed amount. 24. We have considered the rival submissions on either side and perused the relevant material available on record. The assessee admittedly paid ₹ 15 Crores to its Managing Director Shri M. Kiran Kumar for taking the property on lease at 124, Usman Road, T. Nagar, Chennai. The monthly lease rent was ₹ 15,00,000/-. The assessee admittedly paid lease advance of ₹ 15 Crores. As per Tamil Nadu Buildings (Lease and Rent Control) Act, 1960, the rental premium shall be equivalent to 3 months monthly rent. Moreover, Section 30 of the said Act exempts certain type of buildings as enumerated therein. Therefore, the Assessing Officer shall reconsider the matter in the light of the provisions of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960. Accordingly, the orders of both the authorities below are set aside and the matter is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the matter and thereafter decide the issue afresh in accordance with law, after giving a reasonable opportunity to the assessee. 25. Sim ..... X X X X Extracts X X X X X X X X Extracts X X X X
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