TMI Blog2022 (12) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... lowed. Addition u/s 56(2) (viib) on protective basis - valuation arrived by the assessee either DCF Method or NAV Method - assessee has received a premium on issue of shares to various parties - According to the Ld. A.O, the value of the shares issued to the parties are very high in comparison to fair market value of such shares - contention of the Ld. AR that the valuation of the shares has been done as per DCF Method which is prescribed under Rule 11 UA to Income Tax Rules (2)(b) which has been and also certified by the Assessee s qualified Charted Accountant - HELD THAT:- Valuation Method adopted by the assessee is one of the Methods accepted under law which cannot be disturbed by the Revenue authorities without bringing any contrary material on record to sow that the method adopted by the assessee is incorrect. CIT (A) has rejected the valuation report of the assessee, by relying on decision of Agro Portfolio Pvt. Ltd. [ 2018 (5) TMI 1088 - ITAT DELHI ] The decision made in Agro Portfolio Pvt. Ltd. (supra) has been considered in the case of Cinestan Entertainment (P). Ltd. [ 2019 (6) TMI 1367 - ITAT DELHI ], wherein it is held that the Assessing Officer cannot examine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... na , Advocate Shri Shyam Sunder , Advocate Department by : Shri Vivek Vardhan , JCIT ORDER PER YOGESH KUMAR U.S., JM The present appeal is filed by the assessee against the order dated 29/03/2019 of the ld. Commissioner of Income Tax (Appeals)- Faridabad [hereinafter referred to CIT (Appeals)] for Assessment Year 2015-16. 2. The grounds of appeal are as under:- 1. The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment framed by Ld. AO u/s 143(3) of the Income Tax Act 1961. 2. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition of Rs. 49,00,000/- u/s 68 of the Act on account of alleged unexplained share premium and share capital. 3. The Ld. CIT(A) has erred in law as well as on facts in confirming the income of appellant assessee of Rs. 25,14,500/- by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. 4. The Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant assessee by not issuing valid show cause notice as mandated. 5. The Ld. CIT(A) has erred in law as well as on facts in confirming and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share Premium Goodluck Industries Ltd 10715, Andha Mugal, Gali No. 11, Pratap Nagar Delhi-110052 22500 225000 675000 Metalcity Constructions Kovai Pvt Ltd 58, Times Partner, Perambur Barraks Road, Vepary, Chennai Tamilnadu-600007 52500 525000 1575000 Herculese Builders Coimbatore Pvt Ltd 58, Times Partner, Perambur Barraks Road, Vepary, Chennai Tamilnadu-600007 60000 600000 1800000 Cee Aar Decors Pvt Ltd H-54, 3rd Floor, Phase-1, Ashok Vihar, Delhi-110052 100000 1000000 3000000 Total 235000 2350000 7050000 6. The Ld. Assessing Officer observed that though the assessee has filed list of persons from whom share a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are premium @ Rs. 30 Per share Good luck Industries Ltd. 22500 525000 675000 Cee Aar Decors Pvt. Ltd. 100000 1000000 3000000 TOTAL 235000 2350000 7050000 In total the Ld. CIT(A) sustained addition of Rs. 49,00,000/-. The contention of the Ld. AR that the amount has been received by the banking channel for which the parties have confirmed the investment which are kept on record. In respect of both the parties, they are regularly filing the return of income and the copies of the same are also brought on record. The assessee has also furnished books of accounts details of the parties to prove the identities of the parties and the creditworthiness of the parties along with genuineness of the transaction as required u/s 68 of the Act. The assessee has filed the following documents before the Lower Authorities which are reproduced before us in the paper book which is as under:- 1. M/s Good luck Industries(P) Ltd. 2. M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing based on appreciation of evidence on record. 52. Issuing the share at a premium was a commercial decision. It is the prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of shareholder whether they want to subscribe the shares at such a premium or not. This was a mutual decision between both the companies. In day to day market, unless and until, the rates is fixed by any Govt. Authority or unless there is any restriction on the amount of share premium under any law, the price of the shares is decided on the mutual understanding of the parties concerned. 53. Once the genuineness, creditworthiness and identity are established, the revenue should not justifiably claim to put itself in the armchair of a businessman or in the position of the Board of Directors and assume the role of ascertaining how much is a reasonable premium having regard to the circumstances of the case. By respectfully following the ratio laid down in the case of PCIT Vs. Rohtak (Supra) and considering the facts and circumstances of the case, we find no merit in the argument of the Ld. DR to hold that the assessee has failed to establish the ingr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. The relevant portion are hereunder:- 28. Now what we are required to examine whether under these facts and circumstances Assessing Officer after invoking the deeming provision of Section 56(2)(vii) could have determined the fair market value of the premium on shares issued at Nil after rejecting the valuation report given by the Chartered Accountant on one of the prescribed methods under the rules adopted by the Valuer. Before us, learned counsel, Mr. Dinodia, first of all had harped upon the spirit and intention of the Legislature in introducing such a deeming provision and submitted that such a provision cannot be invoked on a normal business transaction of issuance of shares unless it has been demonstrated by the Revenue authorities that the entire motive for such issuance of shares on higher premium was for the tax abuse with the objective of tax evasion by laundering its own unaccounted money. His main contention was that, being a deeming fiction, it has to be strictly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely :- (i)....... (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf Explanation-For the purposes of this clause, - (a) the fair market value of the shares shall be the value - (i) as may be determined in accordance with such method as may be prescribed: or ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for appreciation of capital and larger returns and not simply dividend and interest. Any businessman or entrepreneur, visualise the business based on certain future projection and undertakes all kind of risks. It is the risk factor alone which gives a higher return to a businessman and the income tax department or revenue official cannot guide a businessman in which manner risk has to be undertaken. Such an approach of the revenue has been judicially frowned by the Hon'ble Apex Court on several occasions, for instance in the case of SA Builders, 288 ITR 1 (SC) and CIT vs. Panipat Woollen and General Mills Company Ltd., 103 ITR 66 (SC). The Courts have 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 pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - i) Securities Exchange Board of India Ors [2015 ABR 291 - (Bombay HC)] 48.6 Thirdly, it is a well settled position of law with regard to the valuation. that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is but its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information. ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018-TIOL1358- ITAT- Jaipur] 4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actual to expect the same figures as were projected. The valuer has to make for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he present case, admittedly no such notice issued to the assessee before enhancing the assessed income. Therefore, the action of the Ld.CIT(A) in enhancing the income of the assessee is found to be erroneous. Therefore, Ground No. 4 5 of the assessee requires to be allowed. 20. Ground No. 6 is regarding disallowance of business expenditure of Rs. 4,84,407/-. The Ld. Counsel for the assessee submitted that the assessee has been running its business since the date it came into existence i.e. on 21/09/2012. During the year under consideration, due to fall in business activities, the assessee could not carry out the business activities. The assessee has shown interest income of Rs. 6,73,890/- from income from other sources . The Ld. A.O as well as CIT(A) has only allowed expenses to an extent of Rs. 1,89,483/- and disallowed the expenses of Rs. 4,84,407/- on the reasons that assessee has not carried on business in the year under consideration. The contention of the Ld. AR that the assessee has already set up his business and the same was in operation, the expenditure claimed u/s 37 of the Act. Further submitted that, to claim the business expenditure, the assessee has to be set u ..... 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