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TMI Blog2021 (8) TMI 769X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of the creditors/share applicants and the genuineness of the transactions. In the instant case, the assessee has failed to discharge the same in respect of the above two parties. Although some details were furnished before the Assessing Officer, they did not respond to the notice issued u/s 133(6) nor the assessee produced them before the Assessing Officer. Considering the totality of the facts of the case and in the interest of justice we deem it proper to restore the issue relating to the share applicants in respect of M/s Best Buildmart Pvt. Ltd. and Shri Lekh Nath Pandey to the file of the Assessing Officer with a direction to give one more opportunity to the assessee to substantiate with evidence to his satisfaction regarding the identity and creditworthiness of the above two share applicants and genuineness of the transaction. The Assessing Officer shall decide the issue as per fact and law after giving due opportunity of being heard to the assessee.Appeal filed by the assessee allowed for statistical purpose. - ITA No. 6181/Del/2019 - - - Dated:- 17-8-2021 - SHRI R.K. PANDA, ACCOUNTANT MEMBER Appellant by : Sh. Rajiv Saxena , Advocate Respondent by : Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the above companies. From the various details furnished by these companies, the AO noted that those details are of typical paper companies having no real business but only credit and equal amount of debit entries. He, therefore, was of the view that the credit worthiness and genuineness of the transactions remain highly suspicious. He, therefore, confronted the same to the assessee and asked it to substantiate the ingredients of section 68 of the IT Act. Rejecting the various explanations given by the assessee and following the decisions of the Hon ble Supreme Court in the case of CIT vs. Durga Prasad More reported in 82 ITR 540, McDowell Co. Ltd. vs. CTO (1985) 154 ITR 148 and Sumati Dayal vs. CIT (1995) 214 ITR 802, the AO made addition of ₹ 45,80,000/- to the total income of the assessee u/s 68 of the IT Act being the whole of share capital and share premium. While doing so, the AO further observed that since the addition on account of share premium and share capital has already been made u/s 68 of the Act, no separate addition is being made u/s 56(2)(viib) of the Act. While holding so, he rejected the calculation made by the assessee in terms of section 11UA for ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncorporation. There are no fixed assets or any other intangible assets in possession of the appellant to justify such kind of cash flow in the subsequent years. In the absence of any business worth of the appellant, the reliance of the appellant on the valuation report for the premium charged of ₹ 3G/- on each share under Rule 11UA does not carry any force. Such valuation report has been found without any basis and thus is rejected. Reliance is hereby placed upon the decision of Hon'ble ITAT Delhi in the case of Agro Portfolio Pvt. Ltd. vs. ITO 2018, 171/ITD/74 (Del). In the circumstances the appellant was required to substantiate the same and was further required to explain why the share premium charged should also not be considered as income of the appellant u/s 56(2)(viib) of the Act and accordingly income enhanced u/s 251(1) of the Act. In this regard, the appellant has furnished its reply on 14.03.2018. vide written submission dated 13 23.2019, as placed on record. The same has been perused. However, there is no new fact in addition to what has been discussed as above. 12.11 Thus it is noted that the valuation report furnished by the appellant u/s Rule 11UA(2) u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... either before or during the hearing of these grounds. 7. The ld. Counsel for the assessee strongly challenged the order of the CIT(A) in upholding the addition of ₹ 40,07,500/- lakh u/s 56(2)(viib) of the Act. Referring to the above provision which was inserted by the Finance Act, 2012 and as existed during the relevant assessment year, the ld. Counsel submitted that as per the said provision where a company receives any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be taxable as income from other sources. Further, clause (a)(i) of Explanation provides that fair market value of the shares shall be the value as may be determined in accordance with such method as may be prescribed. He submitted that for the purpose of section 56(2)(viib) of the Act, the valuation of the shares has to be done in accordance with Rule 11UA of the Income Tax Rules. The ld. Counsel also referred to the provisions of Rule 11UA and submitted that as per the aforesaid Rules, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not having any worth of receiving any share premium. He submitted that the AO has adopted the FMV of shares at ₹ 10/- (at the face value) without appreciating the formula provided in Rule 11UA and has completely given a go by to the value of assets and liabilities shown in the balance sheet. He has not made any attempt to compute the value of shares of the assessee in accordance with Rule 11UA of IT Rules, 1962. He submitted that the adoption of the fair market value of shares @ ₹ 10 per share as against ₹ 82 per share as computed by the assessee without recourse to the formula as provided in Rule 11UA is unsustainable in law as for the purpose of section 56(2)(viib) of the Act, the fair market value of the shares has to be computed only in accordance with Rule 11UA. Further, the ld. CIT(A) without considering the statutory provision and without computing the fair market value of shares as per Rule 11UA, arbitrarily upheld the finding of the AO. 10. Referring to the order of the CIT(A) as well as the assessment order, the ld. Counsel submitted that none of the authorities below has found any fault in the computation of fair market value produced in the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd creditworthiness of the share applicants genuineness of the transaction. The share applicants have directly responded to the Assessing Officer in their response to notice u/s 133(6) of the Act. The addition was made basically on presumption surmises and therefore, the same is liable to be deleted. 13. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). Referring to para 12.2 of the order of the CIT(A), the ld. DR drew the attention to the same which reads as under:- 12.2 The valuation report for the shares as furnished by the appellant under Rule 11UA(2) has been perused. It is noted that the appellant in the said report has considered share premium of ₹ 1,28,28,924/- as on 31.03.2014. From the above facts it has been noted that the appellant has no business worth. There is no tangible business activity being carried out by the appellant since incorporation. There are no fixed assets or any other intangible assets in possession of the appellant to justify such kind of cash flow in the prior years. In the absence of any business worth of the appellant, the reliance of the appellant on the valuation report for the premium charged of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elying on the decision of the Hon ble Delhi High Court in the case of Agro Portfolio Pvt. Ltd. vs. ITO, 171 ITD 74, the ld.CIT(A) held that the valuation report for the premium charged of ₹ 70/- on each share under Rule 11UA does not carry any force. 16. It is the submission of the ld. Counsel for the assessee that for the purpose of section 56(2)(viib) of the Act the valuation of the shares has to be done in accordance with the Rule 11UA of IT Rules, 1962. As per the said Rule, the fair market value of unquoted equity shares for the purpose of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be determined under clause (a) or clause (b), at the option of the assessee. It is his submission that the assessee in the instant case has issued the share capital @ ₹ 80 per share (face value of ₹ 10 per share + premium at ₹ 70 per share) as on 31.03.2015 and the valuation of each share was in accordance with Rule 11UA of the Act. It is also his submission that when the statute provides for a particular procedure, the authority has to follow the same and cannot be permitted to act in contravention of the same. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cable to the facts of the present case. In that case, the shares were valued on the basis of discounted cash flow method and it was found by the Tribunal that the assessee did not produce any evidence to substantiate the basis of projections in cash flow but relied on the valuer s report contending that such a report cannot be disturbed by the AO and at no point of time the assessee tried to explain where did the AO went wrong in his comments in the figures reflected in the valuation report. However, in the instant case, the assessee has issued the shares at fair market value computed in accordance with Rule 11UA(a) of the IT Rules 1962 and no fault has been found in the method applied by the assessee and the lower authorities have made the addition u/s 56(2)(viib) purely on presumptions and surmises. Therefore, in my considered opinion, such action of the lower authorities being not in accordance with law is unsustainable. I, therefore, set aside the order of the CIT(A) and direct the AO to delete the addition. The grounds raised by the assessee on this issue as per grounds of appeal no. 3 to 5 are accordingly allowed. 20. So far as ground of appeal no.2 is concerned, the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the transactions. Merely because the equivalent amount have been received before transferring the cheques in favour of the assessee leaving very petty balance in my opinion cannot be a reason for addition u/s 68 of the Act especially when the assessee has filed requisite details to prove the identity and creditworthiness of the said party and genuineness of the transaction and the said party had directly responded to notice issued u/s 133(6) of the Act by the Assessing Officer. Entire addition made by the Assessing Officer and sustained by the learned CIT(A) in this case is merely based on presumption and surmises. The various details furnished before the Assessing Officer were neither proved to be false or untrue. I therefore direct the Assessing Officer to delete the addition of ₹ 6,00,000/- in respect of M/s Palani Builders Pvt. Ltd. 23. So far as the share capital and share premium from Mr. Lekh Nath Pandey (₹ 6,90,000/-) is concerned, neither the said party responded to the notice u/s 133(6) of the Act nor the assessee filed any supportive documents and failed to explain to the satisfaction of the lower authorities. Similarly, in the case of M/s Best Buildmart ..... X X X X Extracts X X X X X X X X Extracts X X X X
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