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2022 (7) TMI 625 - AT - Income TaxAddition u/s 68 - unexplained share premium and share capital - CIT enhancing the income of the assessee u/s 56 (2)(viib) - CIT (A) has rejected the valuation report of the assessee, wherein premium charge of Rs. 40 on each share under Rule 11UA has been found to be without basis - HELD THAT - 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. 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. In our considered opinion, the Ld.CIT(A) has erred in confirming the addition u/s 68 of the Act on account of unexplained share premium and share capital. Valuation of shares - HELD THAT - The decision made in Agro Portfolio Pvt. Ltd. 2018 (5) TMI 1088 - ITAT DELHI has been considered Case of Cinestan Entertainment (P). Ltd. 2019 (6) TMI 1367 - ITAT DELHI wherein it is held that the Assessing Officer 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 Assessing Officer nor the assessee have been recognized as expert under the law. We are inclined to follow the ratio laid down in the case of Cinestan Entertainment P. Ltd. Supra and hold that the Ld. A.O and CIT(A) have committed an error in rejected the valuation done by the assessee from prescribed expert as per the prescribed method. Ld.CIT(A) while enhancing the income of the assessee u/s 56 (2)(viib) had observed that, such share premium received by the appellant for Rs. 76,00,000/- during the Financial Year 2014-15 relevant to Assessment Year 2015-16 is considered income of the appellant. The Ld. CIT(A) has not provided mandatory opportunity of hearing to the assessee u/s 251 (1) of the Act which ultimately resulted in enhancement of assessed income. The assessee has produced the valuation report before the CIT (A) but the same has not been considered by the CIT(A). The assessee has prepared valuation of the shares in accordance with Rule 11US of the Act for the purpose of Section 56(2) (viib) of the Act, adopting discounted cash flow method. The Ld. CIT(A) failed to understand the valuation of the shares made as per DCF Method and not considered the valuation provided by the assessee. In our opinion, the CIT(A) has committed an error on this count. We are inclined to delete the addition made u/s 68 of the Act and also set aside the order of the CIT(A) in enhancing the income of the appellant u/s 251(1) of the Act by invoking Section 56(2) (viib) of the Act. Accordingly, we allow the Assessee s Grounds of Appeal No. 2 to 5.
Issues Involved:
1. Confirmation of assessment framed under Section 143(3) of the Income Tax Act, 1961. 2. Addition under Section 68 of the Act for unexplained share premium and share capital. 3. Enhancement of income under Section 251(1) by invoking Section 56(2)(viib) of the Act. 4. Issuance of valid show cause notice for enhancement of income. 5. Consideration of documentary evidence and valuation method. Detailed Analysis: 1. Confirmation of Assessment Framed Under Section 143(3): The appellant contended that the CIT(A) erred in confirming the assessment framed by the AO under Section 143(3) of the Income Tax Act, 1961. The assessment was initially processed under Section 143(1) and later selected for scrutiny to verify large share premium received during the year. The AO made an addition of Rs. 95,00,000/- under Section 68 for share premium, which was later reduced by the CIT(A) to Rs. 12,00,000/-. 2. Addition Under Section 68 for Unexplained Share Premium and Share Capital: The assessee argued that they provided sufficient documentary evidence to prove the identity, creditworthiness, and genuineness of the transactions related to share premium and share capital. Documents included certificates of incorporation, MOA, AOA, independent auditor's report, balance sheets, profit and loss accounts, income tax returns, bank statements, and a valuation report under Rule 11UA(2)(b) from a Chartered Accountant. The Tribunal found that the authorities had dismissed these documents without proper inquiry or contrary evidence, thereby erred in confirming the addition of Rs. 12,00,000/- under Section 68. 3. Enhancement of Income Under Section 251(1) by Invoking Section 56(2)(viib): The CIT(A) enhanced the income of the assessee by rejecting the valuation report provided under Rule 11UA(2)(b) and applying Section 56(2)(viib). The Tribunal referred to the case of Cinestan Entertainment (P) Ltd. Vs. ITO, which held that the AO cannot substitute its own valuation in place of the valuation arrived by the assessee under the DCF method or NAV method. The Tribunal concluded that the CIT(A) erred in rejecting the valuation report and enhancing the income without proper basis. 4. Issuance of Valid Show Cause Notice: The assessee contended that the CIT(A) enhanced the income without issuing a valid show cause notice, which is a mandatory requirement under Section 251(1). The Tribunal agreed that the enhancement was done without providing an opportunity for hearing, thereby violating procedural requirements. 5. Consideration of Documentary Evidence and Valuation Method: The Tribunal emphasized that the authorities failed to verify the authenticity of the documents provided by the assessee and did not conduct any further inquiry. It was held that once the assessee furnishes documents to prove identity, creditworthiness, and genuineness, the burden shifts to the AO to bring contrary evidence. The Tribunal also noted that the valuation method adopted by the assessee under Rule 11UA(2)(b) should not have been dismissed without proper grounds. Conclusion: The Tribunal allowed the appeals, deleting the additions made under Section 68 and setting aside the enhancement of income under Section 251(1) by invoking Section 56(2)(viib). The Tribunal emphasized the need for proper inquiry and consideration of documentary evidence and valuation methods as prescribed by law. Order Pronounced: The appeals in ITA No. 6173/DEL/2019, ITA No. 6174/DEL/2019, and ITA No. 6184/DEL/2019 were allowed, and the order was pronounced in the Open Court on July 12, 2022.
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