TMI Blog2023 (7) TMI 1079X X X X Extracts X X X X X X X X Extracts X X X X ..... ishing/disproving the genuineness of the documentary evidences filed by the Assessee. Decided in favour of assessee. Enhancement of income made by CIT(A) u/s 251(1) - addition under the head from other sources by applying Section 56(2)(viib) 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 CIT(A) have committed an error in rejected the valuation done by the assessee from prescribed expert as per the prescribed method, which ultimately resulted in enhancement of income of the Assessee u/s 251(1) of the Act. Accordingly, we allow of the Assessee and delete the enhancement made by the CIT(A). - I.T.A. No. 82/DEL/2021 - - - Dated:- 16-6-2023 - Dr. B. R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 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. Brief facts of the case are that, the return for A.Y. 2016-17 was filed by the assessee declaring an income of Rs.1,15,960/-. Later on the case of the assessee was selected under scrutiny and statutory notices were issued. The assessment u/s 143(3) of the Income Tax Act, 1961 ( Act for short) was completed on 26.12.2018 at an income of Rs.97, 16,560/- after making addition of Rs.96,00,000/-. Aggrieved by the assessment order dated 26/12/2018, the assessee preferred an appeal before the CIT(A), the ld. CIT(A) dismissed the Appeal filed by the assessee on 19/03/2020 and also enhanced the income of the assessee u/s 251(1) of the Act by Rs. 64,00,400/- under the head income from other sources by applying Section 56 (2)(viib) of the Act on protective basis and rejected the valuation report as per Rule 11UA(2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 200/- shares. The details are as under:- 7. The Ld. A.O. issued notice u/s 136(6) of the Act to 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 issued, confirmation of accounts, bank statement, valuation report under Rule 11UA(2b) of the Rules. The assessee has also placed the copy of the reply along with the documents produced before the Lower Authorities in the paper book. The details produced by the assessee for all the six investor Companies in the paper book are as under:- 8. It is the specific case of the assessee that before the A.O. that the assessee had discharged its onus cast upon it under the Act by establishing the identity, creditworthiness and genuineness of the transaction, therefore, the onus shifted on the Department. Further, the share premium has been calculated on the basis of Section 56 (2) (viib) read with Rule 11UA (2)(b) of the Income T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. Texcity Construction Kovai Pvt. Ltd. 235 to 258 11. 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 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. 12. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bscribe 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. 14. 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st 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 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year under consideration. 19. 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 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 place of the value d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 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 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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