2021 (8) TMI 769 - AT - Income Tax

Addition u/s 56(2)(viib) - consideration for issue of shares exceeds the fair market value of the shares - HELD THAT - In the instant case, the 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 u/s 56(2)(viib) purely on presumptions and surmises. Therefore, in our considered opinion, such action of the lower authorities being not in accordance with law is unsustainable. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee on this issue as per grounds of appeal no. 3 to 5 are accordingly allowed. Addition u/s 68 - assessee received share capital and share premium from various parties - HELD THAT - For explaining any cash credit as genuine, the onus is always on the assessee to substantiate with evidence to the satisfaction of the Assessing Officer regarding the identity and creditworthiness of the creditors/share applicants and the genuineness of the transactions. In the instant case, the assessee has failed to discharge the same in respect of the above two parties. Although some details were furnished before the Assessing Officer, they did not respond to the notice issued u/s 133(6) nor the assessee produced them before the Assessing Officer. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue relating to the share applicants in respect of M/s Best Buildmart Pvt. Ltd. and Shri Lekh Nath Pandey to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and creditworthiness of the above two share applicants and genuineness of the transaction. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee.Appeal filed by the assessee allowed for statistical purpose.

Issues Involved:
1. Addition under Section 68 of the Income Tax Act, 1961.
2. Addition under Section 56(2)(viib) of the Income Tax Act, 1961.
3. Validity of the assessment framed under Section 143(3) of the Income Tax Act, 1961.
4. Enhancement of income without issuing a valid show cause notice.
5. Consideration of documentary evidence and recording of incorrect facts.

Detailed Analysis:

1. Addition under Section 68 of the Income Tax Act, 1961:

The Assessing Officer (AO) added ?45,80,000 to the income of the assessee, suspecting the creditworthiness and genuineness of the share premium transactions. The AO noted that the financial statements of the investing companies indicated they were shell companies. The CIT(A) deleted ?22,90,000 of this addition, as this amount was received in the previous financial year and thus could not be added under Section 68 for the current assessment year. However, the CIT(A) sustained the addition of ?22,90,000 received during the assessment year 2015-16.

The Tribunal found that the assessee had provided sufficient details to prove the identity and creditworthiness of Palani Builders Pvt. Ltd., which had responded to the notice under Section 133(6). Therefore, the addition of ?6,00,000 related to Palani Builders Pvt. Ltd. was deleted. However, for Best Buildmart Pvt. Ltd. and Shri Lekh Nath Pandey, who did not respond to the notices, the Tribunal remanded the issue back to the AO for fresh consideration, allowing the assessee to provide further evidence.

2. Addition under Section 56(2)(viib) of the Income Tax Act, 1961:

The AO did not make a separate addition under Section 56(2)(viib) as he had already added the share premium amount under Section 68. However, the CIT(A) invoked Section 56(2)(viib) and enhanced the income by ?40,07,500, rejecting the valuation report furnished by the assessee under Rule 11UA(2). The CIT(A) held that the assessee had no business worth and the valuation report was without any basis.

The Tribunal agreed with the assessee's argument that the valuation of shares should be done in accordance with Rule 11UA, which provides a specific formula for determining the fair market value. The Tribunal noted that the AO and CIT(A) did not apply the formula provided in Rule 11UA and made the addition based on assumptions. Therefore, the Tribunal set aside the CIT(A)'s order and directed the AO to delete the addition of ?40,07,500 under Section 56(2)(viib).

3. Validity of the assessment framed under Section 143(3) of the Income Tax Act, 1961:

The assessee challenged the assessment framed under Section 143(3), but the Tribunal found no merit in this ground and dismissed it as general in nature.

4. Enhancement of income without issuing a valid show cause notice:

The assessee contended that the CIT(A) enhanced the income without issuing a valid show cause notice. The Tribunal did not find any specific discussion on this issue in the judgment, implying that it was not considered separately from the main issues of additions under Sections 68 and 56(2)(viib).

5. Consideration of documentary evidence and recording of incorrect facts:

The assessee argued that the CIT(A) confirmed and enhanced the addition without giving cogent reasons and by recording incorrect facts. The Tribunal's detailed analysis and decision to remand the issue back to the AO for certain parties indicate that the Tribunal found merit in the assessee's claim to some extent, especially regarding the documentary evidence provided for Palani Builders Pvt. Ltd.

Conclusion:

The Tribunal partly allowed the assessee's appeal for statistical purposes. It deleted the addition of ?40,07,500 under Section 56(2)(viib) and ?6,00,000 under Section 68 related to Palani Builders Pvt. Ltd. The Tribunal remanded the issue of ?16,90,000 under Section 68 related to Best Buildmart Pvt. Ltd. and Shri Lekh Nath Pandey back to the AO for fresh consideration. The general grounds were dismissed.

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