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TMI Blog2025 (2) TMI 1136X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- under section 68 of the Act in respect of share application money received. (iii) Alternative addition of Rs. 70,99,350/- under section 56(2)(viib) of the Act on account of excessive share premium. Facts of the Case: 3. The assessee-company was incorporated for providing website designing and software development services. However, as noted by the AO, no business activities were carried out during the relevant assessment year. The revenue sources disclosed were only interest income and miscellaneous receipts. The AO observed that the assessee had received Rs. 95,00,000/- as share application money from five subscribers, namely: Smt. Kokilaben Navnitlal Patel - Rs. 20,00,000/- Smt. Sheetal Thadani alias Sheetal Brijesh Patel - Rs. 20,00,000/- Smt. Vaishali Dhaval Patel - Rs. 20,00,000/- Shri Brijesh Navnitlal Patel - Rs. 15,00,000/- Shri Dhaval Navnitlal Patel - Rs. 20,00,000/- 4. The AO noted that these individuals had taken loans from M/s. Aerolam Insulations Pvt. Ltd., a company with substantial losses in the year under consideration. Further, the creditworthiness of these shareholders was not found satisfactory as they had meagre incomes in their Income Tax Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ors/ share applicants were furnished and thus primary onus under section 68 read with proviso was fully discharged by establishing sources of sources of even source. It be so held now and addition of Rs. 95,00,000/- be deleted now. 4. Both the lower authorities have completely misdirected them for making and sustaining addition u/s 68 of the Act r.w.s 115BBE on irrelevant and untenable ground regarding volume of income of the creditors ignoring their genuine sources of funds for making investment in the shares of appellant. It be so held now and addition be deleted. 5. The addition u/s 68 made half heatedly by Id AO on suspicion without proper inquiry on the documentary evidences furnished is against the sanction of law. The same ought to be deleted in toto by Id NFAC/ CIT(Appeals) in view of the settled legal position. The same be deleted now. 6. The Ld. National Faceless Appeal centre [NFAC] / CIT (APPEALS) further grievously erred both in law and on facts in confirming action of Id AO for making / proposing alterative addition of Rs. 70,99,350/- in respect of share premium u/s 56(2)(viib) ignoring the very purpose of said provisions and since the addition u/s 68 is wrongly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 258 ITR 278 (Guj.). - CIT vs. Bharat Engineering & Construction Co. [1972] 83 ITR 187 (SC). - CIT vs. Vrindavan Farms (P) Ltd. (Delhi HC) [ITA No: 71/2015, 72/2015 & 84/2015]. - Arjun Trading Co. Pvt. Ltd. vs. ITO [ITA No. 290/Agra/2016]. - DCIT vs. JWL Cold Store Pvt. Ltd. (Mumbai ITAT) ITA No: 3098/MUM/2023. - ITO vs. Surana Metcast (India) Pvt. Ltd. (Ahmedabad ITAT) ITA No: 2339/AHD/2018. - PCIT vs. I A Hydro Energy (P) Ltd. ( HC of Himachal Pradesh) ITA No. 4 of 2024. 8. The Departmental Representative (DR), on the other hand, relied on the order of CIT(A) and stated that the assessee failed in proving creditworthiness of the Shareholders. 9. We have carefully considered the rival submissions, perused the material available on record as well as the judicial precedents relied upon by the assessee and we find that the assessee submitted confirmations, bank statements, and ITRs of all share applicants, thereby discharging its initial burden of proof. As held by Hon'ble High Court of Delhi in the case of CIT vs. Vrindavan Farms (P) Ltd. (supra), once the assessee submits basic documentary evidence, the onus shifts to the AO to make further inquiries and bring contrar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alternative addition of Rs. 70,99,350/- under Section 56(2)(viib) of the Act is based on the Assessing Officer's (AO) rejection of the Discounted Cash Flow (DCF) method, which was adopted by the assessee as per Rule 11UA(2) of the Income Tax Rules, 1962. The AO replaced it with the Net Asset Value (NAV) method without providing a valid reason. This action is contrary to the legal principle that the choice of valuation method under Rule 11UA(2) lies with the assessee,. We have noted the judicial precedents relied on by the assessee which collectively held that the AO does not have the discretion to substitute the DCF method with the NAV method unless there is an apparent defect or non-compliance in the application of the chosen method and the AO had no jurisdiction to substitute the NAV method of assessing the valuation of shares, once the assessee had exercised option of a DCF method as per Rule 11UA(2) of the Rules. In the present case, the AO's action of ignoring the DCF method without any proper basis and replacing it with the NAV method is arbitrary, contrary to legal precedents, and unsustainable in law. Accordingly, the alternative addition under Section 56(2)(viib) of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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