TMI Blog2024 (4) TMI 836X X X X Extracts X X X X X X X X Extracts X X X X ..... tworthiness and genuineness of the transaction. The same cannot be denied in the absence of material contrary brought by the Assessing Officer. The present case, the assessee has substantially provided materials to prove the genuineness of the share holders apart from giving the Pan Card, name and ROC details. CIT(A) has erred in confirming the addition u/s 68 of the Act on account of unexplained share premium and share capital. The ratio laid down in the aforesaid decision of the Tribunal squarely applies to the facts of the present captioned appeals. Enhancement made by the Ld. CIT(A) u/s 251(1) r.w.s. 56(2) (viib) - AO substituted fair market value determined by the assessee through his own valuation - Assessees have submitted the Valuation Report duly signed by the auditor by following NAV/DCF Method as required under Rule 11UA(2) of the Rules - As per relevant provisions of Rule 11UA of the Rules, fair market value of unquoted equity shares for the purposes 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. The Assessees having the choice to opt for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. Decided in favour of assessee. - Dr. B.R.R. Kumar, Accountant Member And Shri Yogesh Kumar U.S., Judicial Member For the Appellant : Sh. Dishant Sethi, Adv. For the Respondent : Sh. Vivek Vardhan, Sr. DR ORDER PER YOGESH KUMAR U.S., JM: The above captioned appeals are filed by the different Assessees against the orders passed by the Learned Commissioner of Income Tax (Appeals), Faridabad [ Ld. CIT(A) , for short],dated 19/03/2020, 23/03/2020, 13/03/2020, 17/03/2020 and 23/03/2020 respectively pertaining to Assessment Year 2016-17. 2. The common grounds of Appeal taken by the Assessees in all the captioned appeals except variance of figures are as under:- CONCISE GROUNDS OF APPEAL 1. That the Ld. CIT (A) has erred in law as well as on facts in confirming addition of Rs. 67,20,000/- u/s 68 of the Act and enhancing the income by Rs. 28,80,000/- u/s 251(1) of the Acton account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction. 2. That the Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant u/s 25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investor Companies have confirmed the investment made in the Assessees Company. The A.O. made the addition of the entire share application received, to the income of the assessees by doubting the credibility and identity of the investors and genuineness of the transaction. Aggrieved by the assessment orders made against the assessee herein, assessees have preferred Appeals before the CIT(A). The Ld. CIT(A) upheld the additions made by the A.O. and also enhanced income of the assessees u/s 251(1) read with Section 56(2)(viib) of the Act on protective basis by rejecting the valuation report furnished by the assessee under Rule 11UA(2) of the Income Tax Rules ( Rules for shrot). Aggrieved by the impugned orders of the Ld. CIT(A), the Assessees have preferred the above captioned appeals on the common grounds mentioned above. 5. The Ld. Counsel for the assessees summarizing the issues involved in the above five appeals, filed a chart showing common issues involved in the captioned Appeals which reproduced as under:- S. No. Particulars ITA No. 84/Del/2021 M/s Shanta Blankets (P) Ltd. ITA No. 87/Del/202 1 M/s Zhilmil Electronic (P) Ltd. ITA No. 88/Del/20 21 M/s Vidhi cinemas (P) Ltd. ITA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (P) Ltd. (Rs. 36,00,000/on 05.03.2016) 05.03.2017) M/s Viratsons Multitrade (P) Ltd. (Rs. 12,00,000/-On 18.03.2016 8. Evidences furnished in the PB M/s Alpha he Developers (P) Ltd. (PB 67-91) M/s Herculese Builder (P) Ltd. (PB 92-116) M/s Mega Sonicpro Service (P) Ltd. (PB 117-147)/ M/s Ruchi Nu Barter (P) Ltd. 147A-181) M/s Texcity Constructions (P) Ltd. (PB 182-208). M/s Pearl Durobuild (P) Ltd. PB 95-119) M/s Radha Ballabh Builders (P) Ltd. (PB 120-143) / M/s Luck Good Industries Ltd. (PB 144-168) Rishi Credit Industries (P) Ltd. (PB 169-193). M/s Beta Nirman (P) Ltd. (PB 64-88) M/s Nu Ruchi Barter (P) Ltd. (PB 89-121) Rivet Health Club (P) Ltd. (PB 122-148). M/s Gangashiv Contractors (P) Ltd. (PB 111-138) / M/s RSM Constructions (P) Ltd. (PB 165-189) M/s Best Infracon (P) Ltd. (PB 200-224) M/s Pearl Homebuild (P) Ltd. (PB 225-250) M/s Herculese Builders (Coimbatore)( P) Ltd. (PB 139-164) M/s Triketa Multitrade (P) Ltd. (PBN 190-199) M/s Best Infracon (P) Ltd. (PB 200-224) M/s Om Shivam Contractors (PB 160-185) / M/s Rishi Credit and Industries Pvt. Ltd. (PB 186211)/ M/s Texcity Construction s Kovai (P) Ltd. (PB 225-248) M/s Cee Aar Decors (P) Ltd. (PB 134-1959) / M/s Sigma Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter of Pr. Commissioner of Income Tax-2 Vs. M/s Cinestan Entertainment Pvt. Ltd. in ITA No. 1007/Del/2019. Judgment of Hon'ble High Court of Delhi in the matter of Pr. Commissioner of Income Tax-2 Vs. Enrich Agro Food Products Pvt. Ltd. in reported [2023] 148 taxmann.com 26. Order of Tribunal in the matter of Abhirvey Projects Pvt. Ltd. Vs. ACIT in ITA No. 9400/Del/2019 for Assessment Year 2015-16. Copy of Judgment of Hon'ble Apex Court in the matter of Pr. Commissioner of Income Tax- Vs. Rohtak Chain Co. Pvt. Ltd. in reported [2019] 110 taxmann.com 59. Copy of Judgment of Hon'ble Apex Court in the matter of Pr. Commissioner of Income Tax- Vs. BharatSecurities . Pvt. Ltd. in reported [2020] 113 taxmann.com 32. Copy of Judgment of Hon'ble High Court of Madhya Pradesh in the matter of Pr. Commissioner of Income Tax- Vs.Chain House International Pvt. Ltd. In reported [2018] 98 taxmann.com 47. 7. Per contra, the Ld. Departmental Representative submitted that the assessees have not produced the original confirmation, confirmations have not been produced in some of the cases and in some of the cases there is no documentary evidence such as confirmation, ITR, Balance shee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ega Sonicpro Service (P) Ltd. (PB 117-147) M/s Nu Ruchi Barter (P) Ltd. (PB 147A-181) M/s Texcity Constructions (P) Ltd. (PB 182-208). 2. M/s Zhilmil Electronics (P) Ltd. ITA No. 87/Del/2021 A.Y 2016-17 S. No. Particulars M/s Vidhi Cinemas (P) Ltd 1 Name of the investor company and amount of share capital and share premium invested for which the addition was made. 1. M/s Beta Nirman (P) Ltd. (Rs. 6,00,000/-). 2. M/s Nu Ruchi Barter (P) Ltd. (Rs. 24,00,000/-). 3. M/s Rivet Health Club (P) Ltd. (Rs. 21,00,000/-) 2 Evidences furnished in the PB 1. M/s Beta Nirman (P) Ltd. (PB. 64-88) M/s Nu Ruchi barter (P) Ltd.. (PB 89-121) 4. M/s Gopesh Fabrics (P) Ltd. ITA No. 98/Del/2021 A.Y 2016-17 Sr. No. Particulars M/s Gopesh Fabrics (P) Ltd. 1 Name of the investor company and amount of share capital and share premium invested for which the addition was made 1. M/s Gangashiv Contractors (P) Ltd. (Rs. 18,00,0000/- on 8.8.2014) 2. M/s Herculese Builders (Coimbatore) (P) Ltd. (Rs. 21,00,000/-) 3. M/s RSM Constructions (P) Ltd. (Rs. 21,00,000 on 23. 12.2014, 18.12.2014, 22.07.2014) 4. M/s Triketa Multitrade (P) Ltd. (Rs. 27,00,000/-) 5. M/s Best Infracon (P) Ltd. (Rs. 3,00,000/- on 22.7.2014) 6. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry well be verified by the Department. It is the case of the Assessees regarding the creditworthiness of the shares applicants, those companies are having sufficient capital and reserves to make the investment in the assessee company, which can be corroborated from the audited financial statements, the monies have been directly paid to the assessee company by account payee checks out of the bank balances available in their respective bank accounts, thus genuineness of the transactions cannot be doubted. 11. It is the case of the Department that some of the documents were not filed by the assessee in relation to aforesaid investors however, Ld. CIT(A) appreciated the documents, but did not agree with the Assessee despite there was nothing brought on record contrary to the documents brought to the record by the Assessee. The Assessees Representative contended that AY 2016-17 was the first year of assessment under faceless scheme and due to technical glitches sometimes despite uploading the documents it could not reach. The IT department also found faults and so upgraded their website later. The assessee can only submit the documents and it is the duty of the Ld. AO to make necessary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant company 85 Valuation Report under Rule 11UA(2)(b) of the Income Tax Rules, 1962 from ! the Chartered Account as per Discounted Cash Flow Method. 86-89 13. On going through the order of A.O and Ld.CIT(A) it is found that the authorities have just brush aside the documents produced by the assessee and without making any enquiry about authenticity of the documents furnished and without bringing any material or making enquiry came to conclusion that the assessee company is not worth enough to fetch the share premium of Rs. 76,00,000/-. The authorities below without verifying the veracity of the documents from the publically available data on the web site of MCA IT Department. Once the assessee provided the names, addresses and Pan, particulars and ROC details of the investors. The Ld. A.O ought to have made further enquiry. Once the assessee furnishes the documents to prove the identity, creditworthiness and genuineness of the transaction. The same cannot be denied in the absence of material contrary brought by the Assessing Officer. 14. The Hon'ble Supreme Court in the case of CIT Vs. Lovely Export Pvt. Ltd. reported in 319 ITR 5 (ST) observed that even if the share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orities 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 interpreted and there is no mandate to the Assessing Officer to arbitrarily reject the valuation done by the assessee on his own surmises and whims. We are in tandem with such a reasoning of the ld. Counsel, because the deeming fiction not only has to be applied strictly but also have to be seen in the context in which such deeming provisions are triggered. It is a trite law well settled by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar Sons (supra) that in the matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d: 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, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher; Further, as per clause (i) of the Explanation as reproduced above, the FMV is to be determined in accordance with such method as may be prescribed. Clause (ii) admittedly is not applicable on the facts of the assessee s case. The method to determine the FMV is further provided in Rule 11UA(2). The relevant extract of the applicable rules is reproduced below: 11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,- (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date. of such unquoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the aluation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions cannot be compared with the actual 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 of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income tax Act also recognized and encouraging the start-ups. iii) DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) 10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actual after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed . The aforesaid ratios clearly endorsed our view as above. 34. In any case, if law provides the assessee to get the val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see and he analyzed the factual performance of the assessee subsequent to issue o: shares. The valuation of shares are for that matter any valuation is itself is a projection of future events oi activities and no doubt it has to be done with some accuracy, however no person in the world at the time o: projecting events or result to project with 100% of accuracy and actual events are highly volatile ant highly dependent on so many factors. Assessee has projected based on the fact that software of wallet and association of ICICI bank will increase the market share and accordingly, they have projected the figure; and further the valuer has adopted the projection figures provided by the assessee and it is left to the wisdom of valuer to accept or reject or to carry out independent investigation raised with the valuer am legislature in more than one place depends on the skills of the professionals like merchant banker only t value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factual witl projections and assessee has achieved 40% of the actual results is too harsh to the assessee and thi valuation is done in order to carry out certain activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wala 19,207 2602 4,99,80 ,793/- 3 Sh. Radhakishan Damini 19,207 2602 90,95,4 6,200/- Total 4,53,799 26. The assessee before issuing the shares had got the share valued by Chartered Accountant, i.e., 'Accountant' as provided under Rule 11UA(2) by using the 'DCF Method' which is one of the prescribed method in Rule HUA(2)(b) r.w.s. 56(2)(viib). Based on the said valuation report dated 15.12.2014, the assessee company had issued the shares to the aforesaid equity partners on premium. The Ld. Assessing Officer has discarded the valuation report of the CA mainly on the ground that valuation of the equity shares carried out by the assessee was based on projection of revenue which did not match with the actual revenues of the subsequent years. He further held that no efforts have been made by the assessee to substantiate the figures of projected revenue in the valuation report and has also failed to submit any basis for projection. Instead, AO held that assessee should have invested the share premium amount to earn some income, whereas assessee has made investment in debentures of its associate company and hence the basic substance of receiving the high premium was not jus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer to arbitrarily reject the valuation done by the assessee on his own surmises and whims. We are in tandem with such a reasoning of the Id. Counsel, because the deeming fiction not only has to be applied strictly but also have to be seen in the context in which such deeming provisions are triggered. It is a trite law well settled by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar Sons {supra) that in the matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 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 bu 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 (P.) Ltd. v. ITO [2018-TIOL-1358- ITAT- Jaipur] 4.5.2 Before examining the fairness or reasonableness of valuati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by following NAV/DCF Method as required under Rule 11UA(2) of the Rules. The Valuation Reports are produced before us along with the paper book. Both the lower authorities have failed to follow the Rule 11UA of IT Rules, 1962 as per which the option to choose the valuation of the shares lies with the assessee and the same is binding on the Income Tax Authorities. For the sake of convenience, relevant provisions of Rule 11UA of the Rules are extracted hereunder: (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (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) The fair market value of unquoted equity shares (AL( PV) (PE) A book value of the assets in the balance-sheet as reduced by any am of paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the become-tax Act and shown in the bal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the shares issued by the appellants were at Fair Market Value (FMV) which was computed in accordance with Rule 11UA(2) of the Income Tax Rules, 1962. But the AO has not given any reasoning for rejecting the valuation of shares nor have they furnished any material to the contrary which justified the rejection of the valuation of shares. 17. 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 hitherto an uncontroverted legal position that where a statute requires to do a certain thing in a certain way, the thing must be done in that way only. Other methods or modes of performance are impliedly and necessarily forbidden. The aforesaid settled legal proposition is based on legal maxim Expressio unis est exclusio alterius , meaning thereby that if a statute provides for a thing to be done in particular manner, then it has to be done in that manner and in no other and following other course is not permissible. For the said proposition reliance is placed in the case of IMC Limited and Ors. vs. Union of India and Ors. (10.05.2019 - GUJHC): MANU/GJ/0860/2019. 19. The Hon ble Juri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact dronen on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Reveme is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process. 18. Considering the fact that the Assessees have issued the shares at fair market value computed in accordance with Rule 11UA of the Rules and no fault has been found in the method applied by the assessees and thus the enhancement of the income by Ld.CIT(A) u/s 56(2)(viib) of the Act on protective basis is purely based on conjectures which has no basis in law and is liable to be deleted. Further, as the assessee has provided document to prove the identity, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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