TMI Blog2023 (6) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the genuineness of the documentary evidences filed by the Assessee. As held in the cases cited above, before fastening any liability upon the Assessee, the A.O is required to show by bringing on record tangible material that the amounts received as share capital/loans from the investors/lenders actually emanated from the coffers of the Assessee or represented the undisclosed income of the Assessee. Addition made u/s 68 as sustained by the CIT(A) his hereby deleted. Decided in favour of assessee. Enhancement of income by CIT(A) under the head from other sources by applying Section 56(2)(viib) - Addition 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h restrict the scope of assessing authorities to scrutinize only the source of share premium. 5. That the Ld. CIT(A) has erred in law as well as on facts in initiating the penalty proceedings u/s 271(1)(c) of the Act. The above grounds of appeals are independent of and without prejudice to each other. That the appellant craves leave to add, alter, amend or withdraw all or any grounds herein or add any further grounds as may be considered necessary either before or during the hearing of these grounds . 3. There is a delay of 19 days for filing the present Appeal, the assessee filed an application for condoning the delay filed an affidavit for condoning the delay since the Counsel of the Assessee was occupied with tax audit work therefore, the appeal could not be filed on time. Considering the days of delay involved in filing the appeal and for the reason assigned in the affidavit delay of 19 days of filing the present appeal is condoned. 4. Brief facts of the case are that, the return for A.Y. 2016-17 was filed by the assessee declaring an income of Rs. 1,17,080/-. Later on the case of the assessee was selected for limited scrutiny and statutory notices were is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he orders of the Lower Authorities prayed for dismissal of the Ground No. 1 of the assessee. 7. We have heard the parties and perused the material available on record. It is also found from the record that during the assessment proceedings, it is found from the record that after filing the return, the case was selected for scrutiny to verify whether the funds received in the form of share premium are from more disclosed sources and have been correctly offered for tax, accordingly notice has been issued to the assessee. On the basis of details filed by the assessee, it is found that the assessee company allotted 1,50,005/- equity shares of Rs. 10/- per share at a premium of 50% share to three entities. The details are as under:- 8. During the assessment proceedings, the A.O. issued notice u/s 136(6) of the Act to all the investors companies for providing requisite details. However, no investor company responded to the notice issued u/s 133(6) of the Act. In response to the show cause notice issued to the assessee, the assessee filed reply wherein the assessee furnished copy of ITR, balance sheet of investors including PAN, address, amount invested, number of shares issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditworthiness and genuineness of the investors, the onus will shift to Income Tax Authorities to disprove the documents furnished by the assessee. It is found from the record that the Ld. A.O. or the CIT(A) has not made any further investigation on the claim made by the assessee or the document produced by the assessee. Thus, the addition cannot be sustained merely based on the inferences without gathering tangible evidence. It is well settled law that once the assessee discharges its onus to prove the creditworthiness of the investor companies and the genuineness of the transaction, the onus will shift on the Department to refute the assertion made by the Assessee. 11. Further, the assessee had fulfilled the ingredients of Section 68 of the Act by proving the initial burden cast upon the Assessee, once the assessee proves/fulfils the ingredients of Section 68 of the Act, the burden shifts on the revenue. In the present case, the Lower Authorities have not brought anything on record to prove otherwise or to disprove the claim of the assessee and in such circumstances; the authorities are precluded from making any other addition on this count in the absence of contrary material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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. 13. further, in the case of CIT Vs. Kamdhenu Steel and Alloys Ltd. reported in 361 ITR 220 the Jurisdictional High Court held that no addition can be made in respect of share capital received from shareholders when the evidence has been placed on record, and the Ld. AO has not led any material to the contrary in following manners:- 14. The important question which arises at this stage is as to whether on the basis of these facts, could it be said that it is the assessee which has not been able to explain the source and receipt of money. According to the assessee, he had given the required information to explain the source and was not obligated to prove the source of the money. It is the submission of the assessee that even in case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditworthiness 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. As held in the cases cited above, before fastening any liability upon the Assessee, the A.O is required to show by bringing on record tangible material that the amounts received as share capital/loans from the investors/lenders actually emanated from the coffers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le as income from the sources. Further, clause (a)(i) of Explanation provides that fair market value of the shares shall be the value as may be determined in accordance with such method as may be prescribed. For the purpose of section 56(2)(viib) of the Act, the valuation of shares has to be done in accordance with the Rule 11UA of the Income Tax Rules. For the sake of convenience, relevant provisions of Rule 11UA are extracted hereunder: (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (I), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of subsection (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b) at the option of the assessee, namely (a) (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant (omitted by the IT (sixth amendment) Rules, 2018 w.ef 24.5.2018) as per Discounted Free Cash Flow Method. 19. Further, we placed reliance on the Judgment of Gujarat High Court in the case of IMC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee. 33. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly 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 actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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