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TMI Blog2024 (12) TMI 1481X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived and presumption u/s 68 of the Act for the purpose of addition of amount at the hands of the assessee. But, it has to be conclusively established that the company is non-existence. Enhancing of income u/s 56(2)(viib) - protective addition for share premium charged by rejecting the valuation report furnished under Rule 11UA(2)(b) i.e. Discounted Cash Flow Method - The assessee has calculated and estimated the projected figures at the lowest and even then, the value arrived at Rs. 7.25 lacs. After reducing from the present value factor at the rate of 14% year wise because of diminishing value of the money, the value of the enterprise value arrived at Rs. 7.25 lacs and value per share arrived at Rs. 80 per share. This clearly justified the value of premium received by the assessee from the investors of Rs. 70 per share. The ld. Tax authorities have discredited the valuation report without any independent exercise of their own. We are of considered view that in case of fresh issue of shares made by unquoted company, the AO is not authorized to pick and choose method of valuation of shares since that option is given to the Assessee. Where the Assessee exercises its option to valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned appeal ITA 6179/Del/2019 is filed by appellant no. 2, against the order of CIT(A) u/s 250(6) of IT Act, 1961 dated 30.03.2019. The appeal is directed against the order involving the issues relating to: A. Whether the Ld.CIT(A) was correct in confirming the addition of Rs. 35,00,000/- confirmed u/s 68 of the Act on account of share capital? B. Whether the Ld.CIT(A) was correct in enhancing of income by Rs. 42,43,750/- u/s 56(2)(viib) of the Act on protective basis for share premium charged by rejecting the valuation report furnished under Rule 11UA(2)(b) i.e. Discounted Cash Flow Method? 4. The case of appellants is that after the formation of the company, the assessee desirous of reviving the business activities, arranged funds/capital to be invested in the business. 5. In this regard, appellant no. 1, during the FY 2012-13, the appellant company invited others for making investment and after receiving the share application money shares were allotted to them during the year. In this concern, the company has allotted 2,36,250 equity shares of Rs. 10/- per share at a premium of Rs. 30/- per share to six entities. The detail of number of shares allotted along with the allottee co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts have also been filed in this appeal before us. 8. The case of assessee appellant no. 1, is that the assessee further furnished the valuation report as per Rule 11UA(2)(b) i.e DCF method certified by the Chartered Accountant as also mentioned in reply dated 29.12.2017. Thus, it is submitted that the assessee as well as investor companies has furnished all the relevant documents in order to prove identity, creditworthiness and genuineness of the transaction i.e., the ingredients of section 68 of the Act. Ld. AR has submitted now before us that the assessee discharged its onus cast upon it under the Act by establishing the identity, creditworthiness and genuineness of the transaction and the onus shifted to the department. 9. Aggrieved by the order of Ld.AO, the assessee filed an appeal before Ld.CIT(A). The Ld.CIT(A) partly allowed the appeal of assessee and sustained the addition of Rs. 48,00,000/- u/s 68 of the Act for the share premium received by the assessee company from the investors M/s Cee Aar D cor Pvt. Ltd., M/s Amar Shree Pvt. Ltd. and M/s Goodluck Industries Ltd. during the relevant assessment year. Further the total addition to the tune of Rs. 46,50,000/- was deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Tax authorities below, the assessee has also placed before us following relevant evidences of the investor companies. 1. M/s Cee Aar D cors Pvt. Ltd. Company is a corporate entity, incorporated on 10.07.1996 with an objective of carrying on the business to undertake jobs of interior/exterior decorators, furnishers, cleaners, repairs and render services in all other ancillary fields etc. This company has invested Rs. 20,000. Subsequently, the assessee company has allotted 20,000 shares @ Rs. 40/- during the year in concern. A list of documents have been annexed to the Paper Book in order to prove the identity creditworthiness of the investors and the genuineness of the transaction. S.No Particulars Page no. of the Paper Book 1. Copy of Certificate of Incorporation, along with MOA AOA Attached with this synopsis. 2. Copy Auditor s report, Balance Sheet and trading and profit loss account as on 31.3.2015 along with notes to financial statement. 87-97 3. Copy of acknowledgement of return of income for AY 2015-16 along with computation of income tax. 98-99 5. Copy of share application form. 100 6. Copy of Share Certificate of Investor Company issued by the Assessee Company 101 7. Copy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern. A list of documents have been annexed to the Paper Book in order to prove the identity creditworthiness of the investors and the genuineness of the transaction. S.No Particulars Page no. of the Paper Book 1. Copy of Certificate of Incorporation, along with MOA AOA Attached with this synopsis. 2. Copy Auditor s report, Balance Sheet and trading and profit loss account as on 31.3.2015 along with notes to financial statement. 177-186 3. Copy of acknowledgement of return of income for AY 2015-16 along with computation of income tax. 187-188 5. Copy of share application form. 189 6. Copy of Share Certificate of Investor Company issued by the Assessee Company 190 7. Copy of confirmation of accounts dated 01.04.2015 from the period of 01.04.2014-31.3.2015 from the assessee company showing the net amount of Rs. 15,00,000/- received from the investor company by the assessee company. 191 8. Copy of investor company s bank account statement showing the debit entry of Rs. 15,00,000on 08.01.2015. 192-193 13. Giving thoughtful consideration to the matter before us and the submissions, we find that the Ld. CIT(A) stated mere furnishing names, address and PAN particulars or relying on ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clusively established that the company is non-existence. 15. Now coming to the question of enhancement made by the CIT(A) to the tune of Rs. 70,87,500/- u/s 56(2)(viib) of the Act. We are of the considered view that Ld.CIT(A) has erred in not accepting the valuation report by a Chartered Accountant who valued shares as per clause (b) of Rule 11UA(2) of IT Rules, 1962, when the legislature provided the option to be exercised by the assessee/appellant to reach the value of each share and the same has been provided by the assessee calculating as per clause (b), through Discounted Cash Flow Method (DCF). It is no more res integra that the Rule 11UA(2)(b), gives assessee company a choice to opt for one of the methods enumerated in the above provision and the appellant has chosen to opt for clause (b) i.e Discounted Cash Flow Method for valuation of unquoted equity shares based and following the same, the value per share had been computed at Rs. 40/- per share i.e premium of Rs. 30/- per share for a share of Rs. 10/-. The ld AO or CIT(A), has not given any reasoning for rejecting the valuation report nor they have furnished any material to the contrary which justified the rejection of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,000/- 10,00,000/- on 03.03.2014 Gharonda NirmanPvt. Ltd. 4,375 10/- 70/- 43,750/- 3,06,250/- 3,50,000/- on 16.05.2013 Goodluck Industries Ltd. 43,750 10/- 70/- 4,37,500/- 30,62,500/- 5,00,000/- on 13.12.2014, 20,00,000/- on 04.02.2015 and 10,00,000/- on 05.03.2015 Total 60,625 - - 6,06,250/- 42,43,750/- 48,50,000/- 18. During the course of the assessment, the return of income was taken up for scrutiny and the Ld.AO assessed the income of the appellant at Rs. 51,20,220/- as against the returned income of Rs. 2,70,220/-. While computing the aforesaid income, Ld.AO framed the assessment order u/s 143(3) while making an addition of Rs. 48,50,000/- u/s 68 of the Act for shares allotted to shareholders on premium during the year. The Ld.AO in the assessment order raised the question of identification of the shareholders, creditworthiness and genuineness of the transaction. 19. In this connection, the Ld.AO issued notices u/s 133(6) of the Act to the investor companies for providing requisite details. In response to which investor companies submitted various documents including ITR, Computation of Income, Audit report, Balance Sheet and P/L, and Share Certificates etc. Further, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 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. 24. Giving thoughtful consideration to the matter before us we find that as before the ld. Tax authorities below, the assessee has also placed before us following relevant evidences of the investor companies. 1. M/s Goodluck Industries Ltd. This company has invested Rs. 35,00,000. Subsequently, the assessee company has allotted 43,750 shares @ Rs. 80/- during the year in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed at Rs. 80 per share. This clearly justified the value of premium received by the assessee from the investors of Rs. 70 per share. The ld. Tax authorities have discredited the valuation report without any independent exercise of their own. We are of considered view that in case of fresh issue of shares made by unquoted company, the AO is not authorized to pick and choose method of valuation of shares since that option is given to the Assessee. Where the Assessee exercises its option to value its shares as per DCF method, the AO cannot completely disregard such method and replace it his method even if specific discrepancies are found by the AO in Appellant's working of DCF based FMV. Reliance for this proposition can be placed on the decision of Hon'ble Delhi High Court in case of Pr. CIT vs. Cinestaan Entertainment (P) Ltd. vs. ITO 433 ITR 82, wherein it was held as under: The methodology adopted was a recognized method of valuation and the Department was unable to show that the assessee adopted a demonstrably wrong approach or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which went to the root of the valuation process. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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