TMI Blog2022 (4) TMI 1607X X X X Extracts X X X X X X X X Extracts X X X X ..... d, the AO rejected the same holding that the assessee is not having any worth of receiving any share premium. He has ignored the various assets shown by the assessee in the balance sheet such as cash and cash equivalent, - short-term loans and advances and other current assets - AO did not apply the formula provided in Rule 11UA and did not make any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962 which has been upheld by the ld.CIT(A). Thus when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. It has been held by Hon ble Supreme Court in the case of A.K. Roy vs. State of Punjab [ 1986 (9) TMI 412 - SUPREME COURT ] that where a statute requires to do a certain thing in a certain way, the thing must be done in that way or not at all. Other methods or mode of performance are impliedly and necessarily forbidden. Assessee has issued the shares at fair market value computed in accordance with Rule 11UA(a) of the IT Rules 1962 and no fault has been found in the method applied by the assessee and the lower authorities have made the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re from disclosed sources and have been correctly offered for tax. Accordingly, notice under section 143(2) and 142(1) of the I.T. Act, 1961 were issued to the assessee calling for various details. In response to the same, the assessee filed the requisite details from time to time. 3.1. During the course of assessment proceedings, the A.O. noted that assessee company has received Rs.42 lakhs as share premium on 60000 shares which have been allotted to the following companies/persons. Name of Person PAN Address No. of Shares Share Capital Share Premium Goodluck Industries Ltd. AABCG1474C H.No-10715, GROUND FLOOR, GALI No. 11, MUGAL PRATAP N AGAR-110007 6250 6,25,00/- 4,37500/- Kuber Buildmart H-69, GROUND FLOOR, DDA FLATS, ASHOK VIHAR, PHASE-1, NEW DELHI 110052 10000 1,00,000/- 7,00,000/- Rishikesh Buildcon Pvt. Ltd H-69, GROUND FLOOR, DDA FLATS, PHASE-1, ASHOK VIHAR-110052 31250 3,12500/- 21,87,500/- Texcity Construction Pvt. Ltd. Vrb Agencies House, 891-c, 1st Floor, Vardhman Complex, Raja Street Coimbatore - 641001 12500 1,25,000/- 8,75,000/- Total 60000 6,00,000/- 42,00,000/- 3.2. In order to verify the identity and creditworthiness of the of the investors and genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in confirming the addition under section 68 of the act in respect of share capital without appreciating the fact that the case was selected for limited scrutiny to investigate whether the funds received in the form of share premium are from disclosed source which restrict the scope of assessing authorities to scrutinize only the source of share premium. Hence, investigating the other facts under limited scrutiny is overreaching the jurisdiction assume under the Provision of act/ rules/ instruction issued by the Board which is not permissible either to LD Assessing officer or LD CIT (A). Hence, addition on account of share capital as confirmed by LD CIT(A) is wrong and bad in law, liable to deleted as such. Grounds with regard to enhancement of income on protective basis: 5. On the facts in the circumstances of the case as well as in law the learned Commissioner of Income Tax (Appeals) grossly erred in enhancing the addition, on protective basis, of Rs.42,00,000/- under section 56(2)(viib) of the act r.w.r. 11UA of the IT rules based on account of excessive val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived from Kuber Buildmart was not justified. 5.1. So far as Texcity Construction Pvt. Ltd., is concerned, the Learned Counsel for the Assessee submitted that the money was received from Texcity Construction Pvt. Ltd., was on 30.12.2013 which pertains to A.Y. 2014-15. Only the shares were allotted during this year, therefore, the addition of Rs.9,95,950/- in the case of Texcity Construction Pvt. Ltd., is also not justified. 5.2. He submitted that the assessee during the course of assessment proceedings has filed the copy of income tax return along with computation of income, P L A/c, Auditor s Report, Balance Sheet with Audited Financial Statements, Memorandum of Association and Articles of Association and Certificate of Incorporation of the Investor Companies. The assessee has also filed the bank statement, details of share premium receipt along with name, PAN, address etc., and valuation report under Rule 11UA(2)(a) of the I.T. Act, 1961. The assessee company had filed the relevant documents from the parties of allottee of shares during the year. Despite all these details filed by the assessee, the lower authorities have brushed aside all these things and the A.O. made the additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ Rs.80 per share (face value of Rs.10 per share + premium at Rs.70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 7.1. I find an identical issue had come-up before the Tribunal in assessee s own case for the immediately preceding assessment year. I find the Tribunal in ITA.No.6170/Del./2019 order dated 12.02.2021 has allowed the appeal filed by the assessee and set aside the order of the Ld. CIT(A) by observing as under : 13. I have considered the rival arguments made by both the sides and perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. I have also considered the various decisions cited before me. I find, the AO, in the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 15. I find merit in the above argument of the ld. Counsel. The provisions of section 56(2)(viib) of the Act reads as under:- (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker as per the Discounted Free Cash Flow method. 16. A combined reading of section 56(2)(viib) read with Rule 11UA states that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with Rule 11UA and the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. We find, in the instant case the assessee has valued its shares at Rs.82.07 as per the valuation certificate issued by the chartered accountant. Although the said valuation report was submitted before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee are accordingly allowed. 18. In the result, the appeal filed by the assessees is allowed. 7.2. I find the assessee has filed certificate of Auditor valuing the book value of the shares at Rs.80/- the details of which are as under : 7.3. Respectfully following the order of the Tribunal in assessee s own case for the immediately preceding assessment year (supra), I hold that the Ld. CIT(A) was not justified in making the addition of Rs.42 lakhs on protective basis by invoking the provisions of Section 56(2)(vii)(b) of the I.T. Act, 1961. 7.4. So far as the addition under section 68 of the I.T. Act, 1961 is concerned, I find the assessee has filed the details such as P L A/c, balance-sheet, bank statements, confirmation letters, PAN, copy of acknowledgment of return, Memorandum and Articles of Association of Companies etc. Further out of the 04 Investor Companies, it is seen that in case of Kuber Buildmart and Texcity Construction Pvt. Ltd., although the shares were issued during the impugned assessment year, however, the amounts were received in the preceding years which is verifiable from the bank statements filed by the assessee. In the case of Goodluck Industries Ltd., a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... genuineness of the transaction. The Assessing Officer has not brought any material to show that the funds to ACL were provided by the Assessee. Under the circumstances, it cannot be said that the cash credit in question has remained unexplained. There is absolutely no material to link the Assessee with the sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL. 9. In view of the concurrent findings of the fact given by the two authorities that there is no material to link the Assessee with a sum of Rs.22,97,000/- deposited in cash in the bank account of M/s. FBSL, as such, no case is made out for making addition under Section 68 of the Act, since there was no material with the Assessing Officer to come to the conclusion regarding any genuineness or fictitious identity of the entries or non-capacity of the lender. 10. Under these circumstances, we do not find any infirmity or perversity in the order passed by the Tribunal and in our opinion no substantial question of law arises in this case. With the result, the present appeal is not maintainable and the same is hereby dismissed. [Emphasis Supplied] 7.7. I find the Coordinate Bench of the Tribunal in the case of M ..... X X X X Extracts X X X X X X X X Extracts X X X X
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