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TMI Blog2025 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... rgest two-wheeler manufacturer of India, Samvardhana Motherson International Ltd. is an multinational manufacturer of automotive components with the market capitalization of over Rs. 1 crore. Makesense Technologies Ltd. is a company incorporated in 2010 which has professionals on board who include promoters of prominent recruitment portal, Naukri.com. Thus to doubt their investments in assessee company to be not genuine required, more than suspicion. Valuation of the shares - Valuation has been done by Resurgent India Ltd., a category-1 SEBI registered merchant banker and there was no effort of the Revenue authorities to cite any deficiency or discrepancy except for questioning the same on the basis of the fact that the report was prepared on the information provided by the assessee company. The law is now almost settled that the assessee s choice of method of valuation of shares and the valuation report prepared by merchant banker cannot be disturbed merely on suspicion or by pointing out lack of data. Directions of the ld.CIT(A) for making additions in regard to premium received from PI Opportunities Fund-I and PI Opportunities Fund-II on the basis that the assessee company is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the period relevant to AY 2016-17. No detail or information was asked as respects Employees Stock Options. The Appellant furnished details by way of its reply dated 26.09.2018 submitted in hard copy to the Ld. AO. The Appellant furnished remaining details by way of its letter dated 03.10.2018 submitted in hard copy to the Ld. AO. Thereafter the Appellant received another Notice u/s 142(1) of the Act dated 17.10.2018. The Appellant made part compliance to this letter on 22.10.2018 online through ITBA portal. Thereafter learned Assessing Officer issued Show Cause Notice dated 10.12.2018 requiring the appellant to show cause as to why the share premium should not be disallowed and why the ESOP expenses be not disallowed being of capital nature? There is no mention in this Show Cause Notice as respects Valuation of Share Premium. Thereupon, the Appellant filed its letter dated 10.12.2018 regarding Share premium in hard copy to the Ld. AO, Email dated 16.12.2018 to the Ld. AO making submission of ESOP and letter dated 19.12.2018 through Online ITBA portal containing ESOP submission also. In addition to documents and evidences submitted by Appellant on various dates to prove Identity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and creditworthiness as per provisions of section 68 of the Act. In reply, the assessee filed details of shares issued during the year vide annexure 2 of the reply dated 26/09/2018 which has been reproduced at page 2 3 of the assessment order. On perusal of details, it was found that as per valuation report, price per share was valued at Rs. 1,29,456/- but share capital was received @ Rs. 1,30,167/- per share. Hence, the assessee had offered differential value coming out to Rs. 90,87,899/- for tax in its return. However, the ld. AO was not satisfied with the identity of the shareholders, genuineness of transactions and credit worthiness of shareholders. 5. As with regard to basis of valuation of share and calculation thereof, the assessee has submitted the valuation report wherein it is seen that DCF method has been followed to arrive at the Fair Market Value of the share. However, the the ld. Tax authorities below were not satisfied with the valuation report and the ld. CIT(A) has observed for the same as follows; On perusal of 2nd page of valuation report, it was noted that the report dt 3.08.3015 was only meant for investors namely Ribbit Capital, Tiger Global, Premji Invest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the projected amount of Profit before tax. Instead, the company has incurred loss in financial year ending 31.03.2016 and 31.03.2017. In the present case, the report as submitted by the assessee is not acceptable and therefore rejected for the purpose of computing the Fair Market value of shares issued during the year. The assessee has not provided any evidence to prove the correctness of the result of Discounted cash flow method adopted by the assessee and no evidence to substantiate basis of projections in cash flow was provided by assessee. Accordingly, in absence of any material available on record to compute the valuation, the fair market value of shares issued by assessee is considered as face value i.e. Rs. 10 per share and amount received by assessee in addition to face value is considered as income of the assessee in accordance with section 56(2)(viib) of the I.T. Act, 1961. The said amount in present case is Rs. 166,09,64,918/-. Since, assessee has itself made addition of Rs. 90,87,899/- in the computation of income, the balance amount of Rs. 165, 18,77,019 was added to the income of the assessee. However, as above addition is already included in the addition made u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,30,067.66 4,03,20,975 4,03,51,975 Samvardhna Motherson International Resident 1000 100 1,00,000 1,30,067.66 13,00,67,860 13,01,67,660 Makesense Technologies Limited Resident 2395 100 2,39,500 1,30,067.66 31,15,12,046 31,17,51,546 6.3 On perusal of order u/s 154 dated 28/02/2019, it is found that the AO has not interfered with the alternate addition u/s 56(2)(viib) and hence the entire addition of Rs. 165, 18,77,019/- is the subject matter of this appeal. 6.7 On the other hand, contention of the appellant in brief is that the assessee has submitted Name, Address, PAN of Investors, party wise details of share capital received including share premium, mode of receipt (online through banking channel). copy of share certificate, copy of ledger accounts of investors in appellate books, copy of share valuation report of the appellant on 26/09/2018. Copy of PAN cards of investors, copy of incorporation certificates of Samvardhana Motherson International Ltd. and Makesence Technologies Ltd. was submitted to the AO on 03/10/2018. On 10/12/2018, assessee submitted to the AO the following details of investors in a chart along with documents like Name, address, PAN, copies of PAN cards of Inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payment, amount, date of payment alongwith sources of the same. 6.10 Further, the AO clearly asked the assessee vide the second notice u/s 142(1) dated 17/10/2018 to submit audited financials and extract of bank statement showing the fund transfer to prove creditworthiness of share applicants. 6.11. The aforesaid query made vide notices u/s142(1) dated 21.08.2018 and notices u/s 142(1) dated 17/10/2018 clearly suggests that the bank statement of the shareholders/investors were required to be filed by the assessee along with their audited financials so that their creditworthiness can be verified. Such requirement cannot be fulfilled by the assessee by filing its own bank statement only as the AO clearly wanted the assessee to prove creditworthiness of the investors which can be established by filing the financials, bank statement and ITR of the share applicants/investors. 6.12 On analysis of details/responses filed by the assessee during the assessment proceedings, it is found that the assessee did not make any effort to obtain bank statements of the investors. Even the mail requiring financials, ITR and tax identification number to be filed before the AO directly was sent by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source thereof or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, may be charged to income-tax as the income of the taxpayer of that year. The first proviso of section 68 provides that in case of a taxpayer being a closely held company (i.e., not being a company in which the public are substantially interested), if the sum so credited consists of share application money, share capital, share premium or any such amount by whatever name called, any explanation offered by such company shall be deemed to be not satisfactory, unless: (a) the person, being a resident in whose name such credit is recorded in the books of such company, also offers an explanation about the nature and source of such sum so credited; and (b) such explanation in the opinion of the Assessing Officer has been found to be satisfactory. 6.18 The assessee company in the present case is a closely held company and huge funds have come to the accounts of the assessee company through share capital and share premium. Therefore, as per first proviso of section 68, the resident investors are also required to offer an explanation about the nature and source of such sum so cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO is hereby directed to verify the correctness of value of shares arrived by the assessee at Rs. 12643.20 as per NAV method reproduced in the preceding paragraph and then to add the amount received in addition to the value of share of Rs. 12643.20 as per NAV method. In case, the AO arrives at different value as per NAV method, he should make addition on the basis of value as per NAV method calculated by him. The relevant grounds of appeal are partly allowed. 6.38 Further, as per first proviso to section 56(2) (viib), this clause shall not apply where the consideration for issue of share is received by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund. The assessee company is not a venture capital undertaking. As per aforesaid proviso to section 56(2)(viib), the exemption is available only when the recipient company is also a venture capital undertaking. Therefore, it is held that the additions as per section 56(2)(viib) is also required to be made in respect of consideration received from Pl Opportunities Fund-l and Pl Opportunities Fund-II by considering value of share as per NAV method. The AO is directed accordingly. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n form of Makesense Technologies Limited for the relevant assessment year; and - Copy of audited financial statements of Makesense Technologies Limited for the relevant assessment year (evidencing presence of own funds of more than INR 133 crores at the end of the relevant assessment year). 8. The ld. tax authorities have not pointed out any element of suspicion in these evidences to show that the same are procured and fabricated in any form. Merely on the basis of absence of bank statement of investors to which the assessee has no access of his own, doubting the transaction is not justified. Having access to the PAN Card of investors and other documents of their identity, the ld. AO was quite empowered under the provisions of the Act to summon the bank statements if they were so crucial. Merely by pointing out non-filing of the bank statements of the investors, the other evidences of the assessee cannot be discarded so as to allege the assessee has failed to discharge its onus. 9. We are of the considered view in case of issues like investments through preferential shares, the initial onus is on the AO to allege that the transaction is somehow suspicious and for that, some indepen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proof on the assessee, apart from tendering the valuation report to substantiate the report also, cannot be sustained. As for this proposition of law, we rely upon following decisions as relied by assessee also:- i. Miheer H. Mafatlal v. Mafatlal Industries Ltd. ( AIR 1997 SC 506) ii. Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018- TIOL1358- ITAT-Jaipur] iii. G. L. Sultania and Anr. Vs. SEBI (AIR 2007 SC 2172) iv. ITO v. SBS Properties Finvest Pvt. Ltd. (ITA 278 and 2164/Del/2008) v. Duncans Industries Ltd. v. State of U.P. and Ors. 2000 ECR 19 (SC) vi. Securities Exchange Board of India Ors. [2015 ABR 291- (Bombay HC)] vii. DQ (International ) Ltd. vs. ACIT (ITA 151/Hyd/ 2015) viii. RenukaDatla (Mrs. ) v. Solvay Pharmaceuticals B.V. and ors. [2004] 265 ITR 435 (SC) Page 11 of 13ITA No.- 1868/Del/2021 M/s Weldon Polymers Pvt. Ltd. ix. CIT Vs VVA Hotels Private Limited (Madras High Court) T.C.A. No. 670 of 2019 x. Bharat Hari Singhania Others vs. Commissioner of Wealth Tax Others 207 ITR 1 (SC) xi. Cinestann Entertainment P. Ltd. vs. ITO (2019) (177 ITD 809) (Delhi) xii. DCIT vs. Pali Fabrics P. Ltd. (2019) (no taxmann.com 310)(mum) xiii. ACIT vs. Subhodh Menon (2019) (175 ITD 449 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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