2023 (6) TMI 1274 - AT - Income Tax

Addition of share application money u/s 68 - Valuation of shares u/s 56(2)(viib) - Addition made based on the bank statements and lack of creditworthiness of the applicant parties - CIT(A) held that the assessee has received Part in the earlier years and held that no addition u/s 68 called for in the current year and part amount be treated u/s 56(2)(viib) - HELD THAT - CIT(A) has not brought out any defect in the methodology and summarily rejected the valuation made under the prescribed rules. Hence, we cannot support the decision of the ld. CIT(A) on this issue. The appeal of the assessee on this ground is allowed. Additions u/s 68 - Low profit ratio - HELD THAT - With regard to Rs. 9,00,000/- received on 04.09.2014 by the assessee during the year which has been confirmed by the ld. CIT(A) u/s 68, we find that the assessee has discharged his onus before the revenue authorities. AO and the ld. CIT(A) rejected the explanation of the assessee solely based on the limited issue of low profit - There were no enquiries made nor any evidence to reject the documents/evidences filed by the assessee. Hence, we hold that no addition u/s 68 is called for in this case.

Summary

Issues involved:
The judgment involves the addition of Rs. 9,00,000/- under section 68 of the Income Tax Act, 1961 and the enhancement of income by Rs. 70,50,000/- under section 56(2)(viib).

Addition under Section 68:
The AO added the entire share application money of Rs. 94,00,000/- under section 68 based on bank statements and lack of creditworthiness. The ld. CIT(A) found that Rs. 85,00,000/- was received in earlier years, hence no addition under section 68 was warranted. However, Rs. 70,50,000/- was to be treated under section 56(2)(viib).

Arguments on Section 56(2)(viib):
The assessee defended the valuation of shares based on a report, arguing that the valuation was justified and no errors were found. The revenue argued that the cash flow was not substantiated, considering the lack of business activity and assets. The Tribunal held that the AO cannot reject the DCF method chosen by the assessee without valid reasons, as per Rule 11UA(2) of the IT Rules.

Decision on Section 56(2)(viib):
The Tribunal found that the AO erred in rejecting the DCF method without proper justification. The method chosen by the assessee must be respected. The ld. CIT(A) failed to identify any flaws in the methodology and summarily dismissed the valuation, leading to the appeal being allowed.

Separate Judgment:
In a separate case, the ld. CIT(A) enhanced the income under section 56(2)(viib) at Rs. 69,60,000/-, similar to the previous issue discussed. The Tribunal applied the same reasoning, resulting in the appeal being allowed.

Conclusion:
Both appeals by the assessees were allowed, emphasizing the importance of respecting the chosen valuation method and providing proper justifications for any rejections made under the Income Tax Act.