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TMI Blog2022 (7) TMI 625X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12,00,000/- u/s 68 of the Act on account of alleged unexplained share premium and share capital. 3. The Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant assessee by sum of Rs. 76,00,000/- u/s 251(1) of the Act by invoking section 56(2)(viib) of the Act wherein rejecting the valuation method taken by appellant assessee. 4. The Ld. CIT (A) has erred in law as well as on facts in enhancing the income of appellant assessee by not issuing valid show cause notice as mandated. 5. The Ld. CIT(A) has erred in law as well as on facts in confirming and enhancing the addition without giving cogent reasons and by recording incorrect facts and by disregarding the all the documentary evidences furnished by assessee. 6. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds. It is prayed that it be held that additions/disallowance are not in accordance with law and therefore, the addition so made may kindly be deleted and appeal of the appellant may kindly be allowed. I. T. A. No. 6174/DEL/2019 ( A. Y 2015 - 16 ) "1. The Ld. CIT(A) has erred in law as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law as well as on facts in enhancing the income of appellant assessee by not issuing valid show cause notice as mandated. 5. The Ld. CIT(A) has erred in law as well as on facts in confirming and enhancing the addition without giving cogent reasons and by recording incorrect facts and by disregarding the all the documentary evidences furnished by assessee. 6. That, the appellant craves leave to add, alter, amend or withdraw all or any ground either before or during the hearing of these grounds. It is prayed that it be held that additions/disallowance are not in accordance with law and therefore, the addition so made may kindly be deleted and appeal of the appellant may kindly be allowed. 3. In all the above three appeals, the assessee is aggrieved by the order passed by CIT(A) in confirming the addition on account of share capital receipt from share holders to the tune of Rs. 12,00,000/-, 12,00,000/- and Rs. 38,00,000/- respectively. Further, the Ld.CIT(A) has enhanced the income of the assessee by sum of Rs. 73,12,500/-, 73,12,500/- and 66,00,000/- u/s 251(1) of the Act by invoking Section 56(2) (viib) of the Act vide order dated 29/03/2019. 4. Aggrieved by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction and source of the funds, the assessee has provided details of the investors in responses to notice u/s 142(1) of the act. The assessee has provided certificate of incorporation and Memorandum of Association and Article of Association independent auditors report, balancesheet, profit and loss account along with notes to financial statements. The assessee has also provided details of ITR and computation of income, bank book and statement, ledger account of the bank book in the books of the assessee company and also provided valuation report under Rule 11UA (2)(b) of Income Tax Rules from the chartered accountant as per discount cash flow method. Further submitted that, the Ld. A.O and the CIT(A) have failed to consider the documents produced by the assessee, once the initial burden of the assessee of providing the documents to prove identity, creditworthiness and genuineness of the transaction same cannot be denied in the absence of any material contrary brought by the authorities. Further submitted that, the Ld.CIT(A) committed grave error in applying Section 56 (2)(viib) of the Act by enhancing the income without providing an opportunity u/s 251(1) of the Act. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. 14. The Hon'ble Supreme Court in the case of CIT Vs. Lovely Export Pvt. Ltd. reported in 319 ITR 5 (ST) observed that even if the share capital money is received by the assessee from alleged bogus share holders, whose names are given to the A.O. The Department is free to proceed to reopen their individual assessment in accordance with law. But cannot regarded undisclosed income of the assessee Company. 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 of Rs. 12,00,000/- u/s 68 of the Act on account of unexplained share premium and share capital. 15. Further, the Ld. CIT (A) has rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar & Sons (supra) that in the matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of investors as it is their tax paid money invested, duly disclosed and confirmed by them; and nothing has been brought on record that it is unaccounted money of assessee company routed through circuitous channel or any other dubious manner through these accredited investors. If such a strict view is adopted on such investment as have been done by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... V is further provided in Rule 11UA(2). The relevant extract of the applicable rules is reproduced below: "11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,- (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date. of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method." 30. Ergo, the assessee has an option to do the valuation and determine the fair market value either on DCF Method or NAV Method. The assessee being a 'start-up company' having lot of projects in hand had adopted DCF method to value its shares. Under the DCF Method, the fair market value of the share is required to be determined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee. 33. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the aluation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the incometax Act also recognized and encouraging the start-ups." iii) DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) "10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actual after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed". The aforesaid ratios clearly endorsed our view as above. 34. In any case, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jection of future events oi activities and no doubt it has to be done with some accuracy, however no person in the world at the time o: projecting events or result to project with 100% of accuracy and actual events are highly volatile ant highly dependent on so many factors. Assessee has projected based on the fact that software of wallet and association of ICICI bank will increase the market share and accordingly, they have projected the figure; and further the valuer has adopted the projection figures provided by the assessee and it is left to the wisdom of valuer to accept or reject or to carry out independent investigation raised with the valuer am legislature in more than one place depends on the skills of the professionals like merchant banker only t< value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factual witl projections and assessee has achieved 40% of the actual results is too harsh to the assessee and thi valuation is done in order to carry out certain activities by the management. In this case, the valuation wa used to issue of rights shares. The AO or Ld. CIT(A) is trying to evaluate the accuracy of the valuation a the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee before issuing the shares had got the share valued by Chartered Accountant, i.e., 'Accountant' as provided under Rule 11UA(2) by using the 'DCF Method' which is one of the prescribed method in Rule HUA(2)(b) r.w.s. 56(2)(viib). Based on the said valuation report dated 15.12.2014, the assessee company had issued the shares to the aforesaid equity partners on premium. The Ld. Assessing Officer has discarded the valuation report of the CA mainly on the ground that valuation of the equity shares carried out by the assessee was based on projection of revenue which did not match with the actual revenues of the subsequent years. He further held that no efforts have been made by the assessee to substantiate the figures of projected revenue in the valuation report and has also failed to submit any basis for projection. Instead, AO held that assessee should have invested the share premium amount to earn some income, whereas assessee has made investment in debentures of its associate company and hence the basic substance of receiving the high premium was not justified. After invoking the provision of section 56(2)(viib), AO took fair market value of premium at Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whims. We are in tandem with such a reasoning of the Id. Counsel, because the deeming fiction not only has to be applied strictly but also have to be seen in the context in which such deeming provisions are triggered. It is a trite law well settled by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar & Sons {supra) that in the matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of investors as it is their tax paid money invested, duly disclosed and confirmed by them; and nothin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the Ld. Counsel, for instance: - (I) Securities & Exchange Board of India &Ors [2015 ABR 291 - (Bombay HC)] 48.6 Thirdly, it is a well settled position of law with regard to the valuation, that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is bu its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information Is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." (ii) Rameshwaram Strong Glass (P.) Ltd. v. ITO [2018-TI0L-1358- ITAT- Jaipur] "4.5.2 Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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