2023 (8) TMI 871 - AT - Income Tax

Addition u/s 68 - unexplained share premium and share capital - whether documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction proved? - HELD THAT - Assessee had provided all the details to discharge the onus to prove the identity, creditworthiness and genuineness of the investors, the onus will shift to Income Tax Authorities to disprove the documents furnished by the assessee. It is found from the record that the A.O. or the CIT(A) has not made any further investigation on the claim made by the assessee or the document produced by the assessee. Thus, the addition cannot be sustained merely based on the inferences without gathering tangible evidence. It is well settled law that once the assessee discharges its onus to prove the creditworthiness of the investor companies and the genuineness of the transaction, the onus will shift on the Department to refute the assertion made by the Assessee. Assessee had fulfilled the ingredients of Section 68 of the Act by proving the initial burden cast upon the Assessee, once the assessee proves/fulfils the ingredients of Section 68 the burden shifts on the revenue. In the present case, the Lower Authorities have not brought anything on record to prove otherwise or to disprove the claim of the assessee and in such circumstances; the authorities are precluded from making any other addition on this count in the absence of contrary materials. As 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. Therefore we find merit in the Ground No. 1 is of the Assessee. Enhancement of income u/s 251 - Addition under the head from other sources by applying Section 56(2)(viib) 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) - assessee submitted that the CIT(A) has committed an error in not accepting the valuation report of Chartered Accountant who valued the shares as per Clause B of Rule 11UA (2) of the IT Rules - 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. 94,50,000 under Section 68 of the IT Act.
2. Enhancement of income by Rs. 70,87,500 under Section 56(2)(viib) of the IT Act.
3. Validity of show cause notice under Section 250(2) of the IT Act.
4. Scope of limited scrutiny.
5. Initiation of penalty proceedings under Section 271(1)(c) of the IT Act.

Summary:

1. Addition of Rs. 94,50,000 under Section 68 of the IT Act:
The assessee challenged the addition of Rs. 94,50,000 on account of unexplained share premium and share capital. The assessee contended that they had provided all necessary documentary evidence to establish the identity, creditworthiness of the investors, and the genuineness of the transaction. However, the Revenue Authorities failed to appreciate the material on record. The Tribunal found that the assessee had indeed discharged its onus under the Act by providing requisite details such as ITRs, balance sheets, bank statements, and confirmations from the investors. The Tribunal held that once the assessee discharges its onus, the burden shifts to the Revenue to disprove the documents furnished by the assessee. The Tribunal relied on the Supreme Court judgment in Principal Commissioner of Income Tax Vs. Rohtak Chain Co. (P) Ltd., which held that once genuineness, creditworthiness, and identity of investors are established, no addition could be made as cash credit. Consequently, the addition of Rs. 94,50,000 under Section 68 was deleted.

2. Enhancement of income by Rs. 70,87,500 under Section 56(2)(viib) of the IT Act:
The assessee contested the enhancement of income by Rs. 70,87,500 under the head "income from other sources" by rejecting the valuation report furnished under Rule 11UA(2)(b) of the Income Tax Rules, 1962 (DCF Method). The Tribunal observed that the valuation report was prepared by a Chartered Accountant as per the prescribed rules and arrived at a value of Rs. 40 per share. The Tribunal noted that as per Section 56(2)(viib) and Rule 11UA, the assessee has the option to choose the valuation method, and the authorities must follow the prescribed procedure. The Tribunal placed reliance on the Gujarat High Court judgment in IMC Limited and ors Vs. Union of India and ors, which emphasized that when the statute provides a particular procedure, authorities must follow it. The Tribunal concluded that the CIT(A) erred in rejecting the valuation report, resulting in the enhancement of income. Therefore, the enhancement of Rs. 70,87,500 was deleted.

3. Validity of show cause notice under Section 250(2) of the IT Act:
The assessee argued that the CIT(A) enhanced the income without issuing a valid show cause notice as mandated under Section 250(2). The Tribunal did not specifically address this issue in detail as the primary grounds were resolved in favor of the assessee.

4. Scope of limited scrutiny:
The assessee contended that the CIT(A) exceeded the scope of limited scrutiny, which was restricted to verifying whether the funds received as share premium were from disclosed sources and correctly offered to tax. The Tribunal did not specifically address this issue in detail as the primary grounds were resolved in favor of the assessee.

5. Initiation of penalty proceedings under Section 271(1)(c) of the IT Act:
The Tribunal did not specifically address the issue of initiation of penalty proceedings under Section 271(1)(c) as the primary grounds were resolved in favor of the assessee.

Conclusion:
The Tribunal allowed the appeal of the assessee, deleting the additions and enhancements made by the CIT(A). The Tribunal emphasized the importance of following the prescribed procedures and the burden of proof shifting to the Revenue once the assessee discharges its initial onus. The appeal was partly allowed, and the order was pronounced on 20/06/2023.

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