9911796707
Advanced Search 
TMI Blog2023 (6) TMI 967X X X X Extracts X X X X X X X X Extracts X X X X ..... s 133(6) of the Act. 2. That the Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant as 251(1) of the Act by Rs. 75,00,250/- under the head income from other sources by applying section 56(2)(viib) of the Act on protective basis and rejecting the valuation report furnished under Rule 11UA(2)(b) of Income Tax Rules, 1962 i.e., Discounted Cash Flow Method. 3. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant by not issuing valid show cause notice as mandated w/s 250(2) of the Act. 4. That the Ld. CIT(A) has grossly erred in law as well as on facts in sustaining addition u/s 68 of the Act and enhancing the income of appellant on protective basis u/s 56(2)(viib) r.w.r 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny to verify "whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax which 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature and source of credit in the books of the form of receipt of share capital and share premium from the applicants. The nature of receipt towards share capital is well established from the entries passed in the respective balance sheet of the investor companies as share capital and investments. Hence, the nature of receipt is proved by the appellant beyond doubt. The investors have furnished the bank statements through which money towards subscription of the share capital in the Assessee Company and Ld.AO is wrong to hold that these are not having any creditworthiness. All the companies are registered companies filing their ITR regularly, with running income and business activities, thus the order of the CIT(A) is erroneous. 6. Per contra, the Ld. Departmental Representative argued that the assessee had failed established identity, creditworthiness of the investors and also failed to prove the genuineness of the transaction, further by relying on the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ately held back their relevant bank account statements through which the share application moneys were paid, and as to how these accounts were shown in the final financial statements. An in-depth analysis of the bank account statements of these investors would have gone to establish or demolish the creditworthiness of these investors as well as the genuineness of the transactions. As brought out above, in the absence of the relevant bank account statements, neither the creditworthiness factor is established nor the genuineness of transaction been fully proved. Also, the fourth limb [over and above the identity, creditworthiness and genuineness factors] of reasonableness/business prudence in such transactions is glaringly conspicuous by its absence, on the face of the surrounding attendant facts of the case." 10. Considering the above facts that the assessee had provided all the details to discharge the onus to prove the identity, creditworthiness 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e as provided under Section 68 of the Act has been duly discharged by the assessee the identity of the share subscriber, creditworthiness and genuineness of the transaction is not to be doubted. The learned ITAT considered the case of the each company in great detail in para 85 to 110 of the impugned order and recorded its finding. The aforesaid finding of fact recorded by the ITAT are based on the material available on record which is a finding 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 arm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... han)[15-ll-2021] * [2022] 137 Deputy Commissioner of Income Tax v Gandhi Capital (P.) Ltd. 75 (Surat-Trib.)/[2022] 194 ITD 396. * 10 Principal Commissioner of Income Tax v Rohtak Chain Co. 59 (SC) [2019] 110 taxmann.com 59 (SC)/[2019]266 Taxman 459 /(SC)[05-08-2019] 15. Applying the above judicial principles to the cases at hand, since the Assessee herein filed detailed documentary evidences in the form of duly signed confirmation of investors/lenders (parties), details of PAN, copies of ITR, duly establishing the identity of the parties and genuineness of the transactions and the bank statements of the parties duly establishing the creditworthiness of the parties to invest in the share capital of or advance loans to the Assessee Companies. Thus, the Assessee effectively discharged the burden cast upon them u/s 68 of proving identity of the investors, the genuineness of the transactions and the creditworthiness 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 ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the enhancement of the income and submitted that no interference is called for by the Tribunal. 17. On hearing the parties and verifying the material on record, we find that the assessee has provided the valuation report of the Chartered Accountant as per Rule 11UA (2) (b) of the IT Rules and arrived the value of each share calculating the same as per Discount Cash Flow Method. As per the valuation report the value per share had been computed at Rs. 60/- per share i.e. premium of Rs. 50/- per share for a share of Rs. 10/-. Accordingly, new shares were issued and allotted to the investors during the year under consideration. 18. The Section 56(2)(viib) of the Act provides that where a company receives 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 shall be taxable 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are hereunder:- "32. What is seen here is that, both the authorities have questioned the Assessee's commercial wisdom for making the investment of funds raised in 0% compulsorily convertible debentures of group companies. They are trying to suggest that assessee should have made investment in some instrument which could have yielded return/ profit in the revenue projection made at the time of issuance of shares, without understanding that strategic investments and risks are undertaken 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the ld. Counsel, for instance: - 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 by 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
