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2023 (6) TMI 967 - AT - Income TaxAddition u/s 68 - unexplained share premium and share capital - HELD THAT - 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, before fastening any liability upon the Assessee, the A.O is required to show by bringing on record tangible material that the amounts received as share capital/loans from the investors/lenders actually emanated from the coffers of the Assessee or represented the undisclosed income of the Assessee. Addition made u/s 68 as sustained by the CIT(A) his hereby deleted. Decided in favour of assessee. Enhancement of income by CIT(A) under the head from other sources by applying Section 56(2)(viib) - Addition 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 Ground Nos. 2 of the Assessee and delete the enhancement made by the CIT(A).
Issues Involved:
1. Addition of Rs. 90,00,300/- under Section 68 of the Income Tax Act, 1961. 2. Enhancement of income by Rs. 75,00,250/- under Section 56(2)(viib) of the Income Tax Act on a protective basis. 3. Validity of the show cause notice under Section 250(2) of the Income Tax Act. 4. Scope of limited scrutiny. 5. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act. Summary of Judgment: Issue 1: Addition of Rs. 90,00,300/- under Section 68 of the Income Tax Act The assessee contended that all documentary evidence was provided to establish the identity, creditworthiness of the investors, and genuineness of the transaction. The Revenue argued that the assessee failed to establish these elements. The Tribunal found that the assessee had discharged its onus by providing substantial evidence, including bank statements and financial records. The Tribunal held that the Lower Authorities did not conduct further investigations to refute the evidence provided by the assessee. Citing the Supreme Court judgment in Principal Commissioner of Income Tax Vs. Rohtak Chain Co. (P) Ltd., the Tribunal concluded that once the initial burden is discharged by the assessee, the onus shifts to the Revenue. Therefore, the addition under Section 68 was deleted. Issue 2: Enhancement of Income by Rs. 75,00,250/- under Section 56(2)(viib) The assessee argued that the valuation report prepared by a Chartered Accountant using the Discounted Cash Flow (DCF) Method should be accepted. The Tribunal noted that the valuation was done as per Rule 11UA(2)(b) of the Income Tax Rules. The Tribunal placed reliance on the Gujarat High Court judgment in IMC Limited and ors Vs. Union of India and ors, which held that authorities must follow the prescribed procedures for valuation. The Tribunal also referred to the decision in Cinestan Entertainment (P). Ltd. Vs. ITO, which emphasized that the Assessing Officer cannot substitute his own valuation for that provided by an expert. Consequently, the Tribunal found that the CIT(A) erred in rejecting the valuation report and deleted the enhancement of income. Issue 3: Validity of Show Cause Notice under Section 250(2) The Tribunal did not specifically address this issue, as the primary grounds of appeal were resolved in favor of the assessee. Issue 4: Scope of Limited Scrutiny The Tribunal observed that the case was selected for limited scrutiny to verify the source of share premium. The Tribunal noted that the authorities exceeded their mandate by scrutinizing beyond the specified scope without adequate justification. Issue 5: Initiation of Penalty Proceedings under Section 271(1)(c) Given that the primary additions and enhancements were deleted, the Tribunal found no basis for the initiation of penalty proceedings under Section 271(1)(c). Conclusion The Tribunal allowed the appeal of the assessee, deleting the addition under Section 68 and the enhancement under Section 56(2)(viib). The other grounds were deemed academic and required no further adjudication. The appeal was partly allowed.
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