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2023 (10) TMI 544 - AT - Income TaxAddition u/s 68 - unexplained share premium and share capital - assessee submitted that the assessee had furnished all documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction but the Revenue Authorities have failed to appreciate the material available on record - Share premium has been calculated on the basis of Section 56(2)(viib) r.w.r.11UA (2)(b) - 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 Assessees 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. A.O has failed to discharge the secondary onus of demolishing/disproving the genuineness of the documentary evidences filed by the Assessee. Thus before fastening any liability upon the Assessee, 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 - Decided in favour of assessee. Enhancement of income u/s 251(1) - Addition under the head from other sources by applying Section 56(2)(viib) on protective basis by rejecting the valuation report furnished u/R 11UA (2) (b) i.e. Discounted Cash Flow Method (DCF Method) - HELD THAT - For the purpose of section 56(2)(viib) of the Act, the valuation of shares has to be done in accordance with the Rule 11UA of the Income Tax Rules. As decided in the case of Cinestan Entertainment (P). Ltd. 2019 (6) TMI 1367 - ITAT DELHI wherein it is held that the AO cannot examined or substituted its own value in place of valuation arrived by the assessee either DCF Method or NAV Method, the commercial expediency has to be seen from the point view of businessman. Further held that if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the AO nor the assessee have been recognized as expert under the law. 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 . 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)
Issues Involved:
1. Condonation of delay in filing the appeal. 2. Addition of Rs. 85,00,000 under Section 68 of the IT Act. 3. Enhancement of income by Rs. 70,83,500 under Section 56(2)(viib) on a protective basis. 4. Validity of show cause notice under Section 250(2). 5. Scope of limited scrutiny. 6. Initiation of penalty proceedings under Section 271(1)(c). Summary: Condonation of Delay: The Tribunal condoned a 23-day delay in filing the appeal, accepting the assessee's reason that the delay was due to the counsel being occupied with tax audit work. Addition Under Section 68: The assessee contested the addition of Rs. 85,00,000 under Section 68 for unexplained share premium and share capital. The Tribunal found that the assessee had provided all necessary documentary evidence to establish the identity, creditworthiness of the investors, and genuineness of the transaction. The Tribunal noted that the Revenue Authorities failed to disprove the documents furnished by the assessee. Citing Supreme Court and High Court judgments, the Tribunal held that once the assessee discharges its burden, the onus shifts to the Revenue, which failed to provide contrary evidence. Consequently, the addition under Section 68 was deleted. Enhancement of Income Under Section 56(2)(viib): The Tribunal addressed the enhancement of income by Rs. 70,83,500 under Section 56(2)(viib) on a protective basis. The assessee argued that the CIT(A) erred in rejecting the valuation report prepared under the Discounted Cash Flow (DCF) Method as per Rule 11UA(2)(b) of the Income Tax Rules. The Tribunal agreed with the assessee, stating that the valuation report prepared by a Chartered Accountant should be accepted as per the prescribed method. The Tribunal emphasized that the Assessing Officer cannot substitute their own valuation in place of the one provided by the assessee. The enhancement made by CIT(A) was thus deleted. Validity of Show Cause Notice: The Tribunal did not find it necessary to adjudicate on the validity of the show cause notice under Section 250(2) since the main grounds were decided in favor of the assessee. Scope of Limited Scrutiny: The Tribunal noted that the case was selected for limited scrutiny to verify the source of share premium. The Tribunal found that the Revenue Authorities exceeded their jurisdiction by scrutinizing beyond the limited scope. Penalty Proceedings: The Tribunal did not address the initiation of penalty proceedings under Section 271(1)(c) as the main grounds were resolved in favor of the assessee. Conclusion: The appeal was partly allowed, with the Tribunal deleting the additions and enhancements made by the CIT(A). The Tribunal emphasized adherence to statutory procedures and the importance of documentary evidence in proving the genuineness of transactions.
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