TMI Blog2022 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... AO could not have made the addition u/s 68 of the Act. Accordingly, we are of the view that the Ld CIT(A) was justified in deleting the addition made u/s 68 of the Act. Addition made u/s 56(2)(viib) - The provisions of Rule 11UA(1)(c) do not prescribe any specific method for valuing preference shares. The valuation of preference shares under Discounted Free cash flow method is one of the recognized methods and there is nothing in the provisions that the said method should not be used. Hence we are of the view that the Ld CIT(A) was justified in deleting the addition made u/s 56(2)(viib) of the Act. Accordingly, we confirm the order passed by Ld CIT(A). - I.T.A. No. 3531/Mum/2019 - - - Dated:- 15-7-2022 - Shri B.R. Baskaran (AM) And Shri Rahul Chaudhary (JM) Assessee by Subodh Ratnaparkhi Department by Ms. Vranda U. Matkari ORDER Per B.R.Baskaran (AM) :- The Revenue has filed this appeal challenging the decision rendered by learned CIT(A) in deleting the addition of Rs. 8.71 crores made by the Assessing Officer under section 68 of the Act and also alternatively under section 56(2)(viib) of the Act. 2. Facts relating to the issue are stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. g) The date of allotment of preference shares is stated to be 19.3.2014 i.e. after expiry of nine months from the date of passing of resolution. h) Preference shares are redeemable after five years at a price of Rs. 441/- per share which includes issue price of Rs. 250/- plus accumulative dividend of five years. However share certificate does not indicate anything about the terms of issue of preference share. The Assessing Officer also expressed the view that it is the responsibility of the assessee to prove the nature and source and in this regard he placed reliance on the decision rendered by Hon'ble Supreme Court in the case of CIT Vs. Durga Prasad More (82 ITR 540) and also Sumati Dayal Vs. CIT. Accordingly the Assessing Officer assessed the amount of Rs. 8.71 crore as unexplained cash credit under section 68 of the Act. 3. The Assessing Officer, alternatively, assessed the above said amount under section 56(2)(viib) of the Act on the following reasoning:- (a) The Chartered Accountant, who issued valuation report, has followed Discounted free cash flow method (DCF) for valuing the value of shares. (b) However, provisions of rule 11UA do not prescribe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made u/s 56(2)(viib) of the Act, the Ld A.R submitted that the Rule 11UA(1)(c) does not prescribed any specific method for valuing preference shares. He submitted that the Discounted Free cash flow method is one of the recognized methods. 8. We heard rival contentions and perused the record. We notice that the Ld CIT(A) as analysed the facts of the present issue threadbare and accordingly deleted the addition. For the sake of convenience, we extract below the observations made and the decision taken by Ld CIT(A):- Decision I have carefully considered the facts of the case, AO's contentions, submissions of the appellant as well as the case laws relied upon by the appellant including the additional ground of appeal. The assessee in the year under appeal has received Rs.8,71,00,000/- towards allotment of Rs.3,48,400/-12% redeemable preference shares to M/s Magi Fin Stock Pvt. Ltd. (MFPL) at Rs.10/- per share (face value) with the share premium of Rs.240/- per share. The details of allotment of preference shares to the said company are tabulated as under : Sr. No. Name of the applicant Preference share holder No. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uly highlighting receipt of money towards share allotment. 10 Bank statement of MFPL with Corporation Bank highlighting payments to assessee. 11 ITR-V Acknowledgement for filing of IT return by MFPL for A.Y. 2014-15 alongwith audited financial statements. 12 Copy of share certificate issued to MFPL. The AO has in the asst. order tabulated his objections to be acceptability of the said transaction at para 8/pg nos. 6 to 8 of the asst. order. The assessee has addressed these objections with the following explanations. Doubts raised by learned AO Explanation of the assessee (i)(a) Appellant is situated in Mumbai investor company in Mandsaur, Madhaya Pradesh with a small population of 141667. This is hardly relevant to doubt the investment in the appellant company. Investor company is a Private Ltd Company holding a valid IT PAN/company law CIN No. with its books of accounts being audited by a Chartered Accountant. (i)(b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has issued 12% redeemable preference shares to MFPL. The preference shares have been allotted with fixed coupon rate of 12% (cumulative) with tenure of 5 years. The assessee by way of issue of 12% redeemable preference shares has in fact borrowed Rs.8,71,00,000/- comprising of preference shares issued at face value of Rs. 10/- per share and share premium of Rs. 240/- per share. At the end of the 5 year tenure the redemption amount would be Rs.15,36,44,400/-. The discounted value of this amount with discounting factor of 12% is Rs.8,71,81,959/-. The assessee has issued the preference shares to a private limited company after compliance with all the procedural formalities as laid down by the Companies Act. Relevant documents were filed with the AO and have also been perused by me. The transaction is through banking channels. The valuation of preference shares is supported by a valuation report dt. 23.02.2014 from Khusboo Jain Associates, CAs who have determined the fair value of the redeemable preference shares on the valuation date. The AO in the course of asst. proceedings (para 5.1/pg no. 3 4 of the asst order) has issued notice u/s 133(6) to the investor company seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of CIT-vs-Gagandeep Infrastructure Pvt. Ltd., 80 taxmann.com 272 (Bom (2017). Considering the evidences filed by the assessee as well as the investor com with regards to the issue or preference shares, it cannot be said that the onus placed by Section 68 has not been discharged. In such circumstances, the transaction cannot be disputed on the basis of surmises and presumptions. In the present case, there are no concrete evidences disputing the claim made by the assessee/investor company. I accordingly hold that the assessee has adequately discharged the onus placed by section 68 of the Act. Accordingly, addition of Rs. 8,71,00,000/- made u/s 68 of the Act, on account of amount received on allotment of preference shares is deleted. Ground nos. 1 to 4 of the original grounds of appeal stand allowed. In respect of the additional ground of appeal, the AO has taken an alternate plea that the entire share premium of Rs. 8,36,16,000/- (348400 * 240/- per share) is required to be considered as deemed income under the provisions of sec. 56(2)(viib) of the Act. The AO has argued that the assessee has received share premium exceeding the fair market value of such shares on the date of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter a fixed tenure with a fixed coupon rate would be the discounted value of redemption amount as on date. This is what is done by the assessee who has supported the valuation by a report from the accountant. I find that the valuation of preference shares issued by the assessee to MFPL on the basis of discounted value of redemption amount is appropriate as per the provisions of Rule 11UA(1)(c). The deeming provisions of section u/s 56(2)(viib) of the Act would not get attracted in such circumstances. The additional ground raised by the assessee is accordingly allowed. 9. We notice that the AO has made detailed enquiries with MFPL, being the subscriber of the preference shares and it has duly replied to all the queries posed by the AO. Further, it has also furnished various evidences available with it. We notice that the AO did not disprove the submissions and evidences so furnished by MFPL. It is well established proposition of law that the initial onus to prove the cash credit is placed upon the assessee, i.e., the assessee has to prove three main ingredients, viz., the identity of the creditor, credit worthiness of the creditor and the genuineness of the creditor. We notice ..... 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