9911796707
TMI Blog2022 (9) TMI 96X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The assessee furnished various documents in support of receipt of above said amount. The assessee also furnished a valuation report dated 23.2.2014 given by M/s. Khusboo Jain & Associates, Chartered Accountants determining value of proposed redeemable preference shares at Rs. 250/- per share. The Assessing Officer, thereafter, issued notice under section 133(6) of the Act to the subscriber MFPL in order to examine the nature and source of Rs. 8.71 crore received by the assessee. The above said MFPL duly replied to various queries posed by the Assessing Officer along with supporting documentary evidences including audited accounts for the year ending 31.3.2012 to 31.3.2014. However, the Assessing Officer took the view that the assessee has failed to offer satisfactory explanations with regard to nature and source of amounts received by the assessee. The main reasoning given by the Assessing Officer for rejecting explanations given by the assessee as well as by the subscriber of preference shares are summarized below :- a) Assessee and subscriber are engaged in different business. b) Assessee operates in Mumbai whereas the subscriber is small time trader carrying on business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by Hon'ble Supreme Court in the case of NRA Iron Steel Pvt Ltd (Civil No. 29855 of 2010) and submitted that the practice of conversion of unaccounted money through the clock of share capital/premium must be subjected to careful scrutiny. She submitted that the assessee has failed to prove the receipt of preference share capital/premium to the satisfaction of the AO. Accordingly, the Ld D.R submitted that the AO has rightly assessed the amount received by the assessee u/s 68 of the Act. She further submitted that the assessee has valued the Preference shares under Discounted Free Cash flow method, which can be applied only to unquoted equity shares. 6. On the contrary, the Ld A.R strongly supported the order passed by Ld CIT(A). He submitted that the Ld CIT(A), after examination of the evidences submitted by MFPL in response to notice u/s 133(6) including answers given to the 17 specific questions put to the said MFPL as well as on examination of available evidences with regard to the issue of preference shares, has held that the assessee has adequately discharged the burden placed u/s 68 and hence the addition is not justified. He further submitted that the facts prevail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee in response to the enquiry by the AO submitted the under mentioned evidences with regards to issue of 12% redeemable preference shares to MFPL S.No. Nature of documents 1 Letter submitted by assessee in the course of asst. proceedings dt. 03.11.2016, 21.11.2016 & 21.12.2016 2 Form No. 5 filed with Registrar of Companies for reclassification of unissued Authorized Share Capital 3 Notice of meeting dated 05.03.2014 alongwith Board resolution dt. 19.03.2014 for approval of the terms of issue and allotment of 12% Redeemable Preference Shares. 4 Terms of issue of the 12% redeemable preference shares. 5 Form no. PAS-3 filed with Registrar of Companies for allotment Preference Shares on 31.07.2014. 6 Copy of resolution passed at EGM of members of assessee company on 04.01.2014. 7 Valuation report dt 23.02.2014 issued by Khusboo Jain & Associates, Chartered Accountants for determining fair value of Redeemable Preference Shares. 8 Copy of Ledger account of MFPL in the books of the appellant. 9 Bank statement of the appellant with Axis Bank duly highlighting receipt of money towards share allotment. 10 Bank statement of MFPL with Corporation Bank highlighting payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material to dispute the investment by MEPL. (ii)(e) The quantum of dividend is not indicated or issue of unpaid dividend discussed by Id. AO. Clause no. 3 of Terms of issue (enclosed pg no. 62 & 63) records that coupon rate of dividend to be 12%. The issue of unpaid dividend is irrelevant and non-material to the issue under consideration. Examination of the evidences furnished by the assessee as well as the said MFPL in the course of asst. proceedings brings out the fact that the assessee 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 Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 dt. 5th July 2017 (Bom), has held that where the assessee H produced sufficient evidences to support the allotment of shares, addition u/s 68 of Act was not justified. The Hon. Bombay high court in the case of CIT-vs-Green Is Ltd., 98 CCH 42 (Bom) (2017), has held that the share premium has to be judged on touch tone of section 68 with regards to genuineness of transaction, capacity of subscriber and identity. Similar view has been taken by the Hon. Bombay High Court the case 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 prefer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. Rule 11UA(1)(c) prescribes that the value of such shares shall be the estimated price it would fetch if sold in the open market as on valuation date. The Rule further suggests that the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation. The preference shares issued by the assessee are redeemable after a fixed tenure of 5 years, with a fixed coupon rate of 12%. Naturally, the fair market value of such shares redeemable after 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 quer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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