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TMI Blog2022 (12) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made u/s 68 of the Act. Accordingly, the Ground No. 2 of the Assessee is allowed. Addition u/s 56(2) (viib) on protective basis - valuation arrived by the assessee either DCF Method or NAV Method - assessee has received a premium on issue of shares to various parties - According to the Ld. A.O, the value of the shares issued to the parties are very high in comparison to fair market value of such shares - contention of the Ld. AR that the valuation of the shares has been done as per DCF Method which is prescribed under Rule 11 UA to Income Tax Rules (2)(b) which has been and also certified by the Assessee s qualified Charted Accountant - HELD THAT:- Valuation Method adopted by the assessee is one of the Methods accepted under law which cannot be disturbed by the Revenue authorities without bringing any contrary material on record to sow that the method adopted by the assessee is incorrect. CIT (A) has rejected the valuation report of the assessee, by relying on decision of Agro Portfolio Pvt. Ltd. [ 2018 (5) TMI 1088 - ITAT DELHI ] The decision made in Agro Portfolio Pvt. Ltd. (supra) has been considered in the case of Cinestan Entertainment (P). Ltd. [ 2019 (6) TMI 136 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajiv Saxena , Advocate Shri Shyam Sunder , Advocate Department by : Shri Vivek Vardhan , JCIT ORDER PER YOGESH KUMAR U.S., JM The present appeal is filed by the assessee against the order dated 29/03/2019 of the ld. Commissioner of Income Tax (Appeals)- Faridabad [hereinafter referred to CIT (Appeals)] for Assessment Year 2015-16. 2. The grounds of appeal are as under:- 1. "The Ld. CIT(A) has erred in law as well as on facts in confirming the assessment framed by Ld. AO u/s 143(3) of the Income Tax Act' 1961. 2. The Ld. CIT(A) has erred in law as well as on facts in confirming the addition of Rs. 49,00,000/- 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 confirming the income of appellant assessee of Rs. 25,14,500/- 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 addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kovai Pvt Ltd 58, Times Partner, Perambur Barraks Road, Vepary, Chennai Tamilnadu-600007 52500 525000 1575000 Herculese Builders Coimbatore Pvt Ltd 58, Times Partner, Perambur Barraks Road, Vepary, Chennai Tamilnadu-600007 60000 600000 1800000 Cee Aar Decors Pvt Ltd H-54, 3rd Floor, Phase-1, Ashok Vihar, Delhi-110052 100000 1000000 3000000 Total 235000 2350000 7050000 6. The Ld. Assessing Officer observed that though the assessee has filed list of persons from whom share application money and share premium has been received during the year under consideration, but all the parties are situated outside Faridabad. Further found that the parties have limited funds to invest so much money in the shares. The identity and creditworthiness of the investors are suspicious and needs detailed enquiries. The Ld. Assessing Officer was of the opinion that the submissions made by the assessee are not acceptable in regard with the identity, creditworthiness and genuineness, therefore held that the investors are bogus and not genuine and their creditworthiness and identity are also fake beyond doubt. Accordingly, share capital and share premium amount collected/received by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has filed the following documents before the Lower Authorities which are reproduced before us in the paper book which is as under:- 1. M/s Good luck Industries(P) Ltd. 2. M/s Cee Aar Decors (P) Ltd. 11. The above details clearly establishes that the assessee has fulfilled the ingredients of Section 68 of the Act by proving the initial burden cast upon him. Once the assessee proves/fulfils the ingredients of Section 68 of the Act, the burden shifts on the revenue. In the present case, the Lower Authorities have not brought anything on record to prove otherwise and in such circumstances, the authorities are precluded from making any other addition on this count in the absence of contrary materials. 12. Further, we placed reliance on the judgment of the Supreme Court in the case of PCIT Vs. Rohtak Chain Co. (P) Ltd. 59 (SC) [2019] 110 taxmann.com wherein the Apex Court held that once the genuineness, creditworthiness and identity of investors are established, no addition could be made as cash credit on the ground that the shares are issued at excess price. The relevant portion is as under:- "51. The learned ITAT after due examination of the order of CIT (Appeals) and the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considering the facts and circumstances of the case, we find no merit in the argument of the Ld. DR to hold that the assessee has failed to establish the ingredients of Section 68 of the Act. 13. 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. Therefore, we delete the addition of Rs. 49,00,000/- made u/s 68 of the Act. Accordingly, the Ground No. 2 of the Assessee is allowed. 14. Ground No. 3 is regarding confirming the income of the assessee of Rs. 25,14,500/- by invoking Section 56(2) (viib) of the Act on protective basis on the reasons that the assessee has received a premium of Rs. 25,14,5000/- on issue of shares to various parties. According to the Ld. A.O, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the objective of tax evasion by laundering its own unaccounted money. His main contention was that, being a deeming fiction, it has to be strictly interpreted and there is no mandate to the Assessing Officer to arbitrarily reject the valuation done by the assessee on his own surmises and whims. We are in tandem with such a reasoning of the ld. 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... faction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;" Further, as per clause (i) of the Explanation as reproduced above, the FMV is to be determined in accordance with such method as may be prescribed. Clause (ii) admittedly is not applicable on the facts of the Assessee's case. The method to determine the FMV 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 und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he armchair of businessman to decide what is profitable and how the business should be carried out. Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA (2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revenue that valuer may fairly make on the basis of such information." ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018-TIOL1358- ITAT- Jaipur] "4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actual to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure 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 income-tax Act also recognized and encouraging the start-ups." iii) DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015) "10.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sources". The Ld. A.O as well as CIT(A) has only allowed expenses to an extent of Rs. 1,89,483/- and disallowed the expenses of Rs. 4,84,407/- on the reasons that assessee has not carried on business in the year under consideration. The contention of the Ld. AR that the assessee has already set up his business and the same was in operation, the expenditure claimed u/s 37 of the Act. Further submitted that, to claim the business expenditure, the assessee has to be set up the business and it is not mandatory that there should be actual income generated from the business. In our opinion, once the business of the assessee is set up and the expenditure incurred thereafter deserves to be allowed as business expenditure u/s 30 to 38 of the Act. There is no requirement of generation of income from such business activities. The business activity is a continuous process and it cannot be said that as soon as setting up of the business, the income will be generated and should yield income in all years. Being so, we find merit in the argument of the Ld. AR. Therefore, we inclined to allow the Ground No. 6 of the assessee. 21. In the result, the appeal of the assessee is allowed. Order pron ..... X X X X Extracts X X X X X X X X Extracts X X X X
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