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Facts
The assessee company, engaged in healthcare consultancy, received share capital amounting to Rs. 4,20,00,000/-. The Assessing Officer treated this as unexplained cash credit under Section 68 of the Income Tax Act, 1961, and also made an addition under Section 56(2)(viib) for alleged overvaluation. The CIT(A) upheld the additions.
Held
The Tribunal restored the issue of addition under Section 68 to the Assessing Officer for fresh adjudication, allowing the assessee an opportunity to provide further evidence. The Tribunal also restored the issue under Section 56(2)(viib) for deciding afresh along with the Section 68 issue. The appeal was allowed for statistical purposes.
Key Issues
Whether the share capital introduced by the assessee is genuine and properly explained, and whether the valuation of shares and subsequent additions under Sections 68 and 56(2)(viib) are justified.
Sections Cited
68, 143(3), 56(2)(viib), 133(6)
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Income Tax Appellate Tribunal, MUMBAI BENCH “F” MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI SANDEEP SINGH KARHAIL
This appeal by the assessee is directed against order dated 09.07.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld. CIT(A)’] for assessment year 2017-18, raising following grounds:
1. Section 68 of the Income Tax Act, 1961 a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, the learned Assessing Officer ("AO") erred in passing the order learned Assessing Officer ("AO") erred in passing the order learned Assessing Officer ("AO") erred in passing the order u/s. 143(3) of the Income Tax Act, 1961 ("ITA"), and the u/s. 143(3) of the Income Tax Act, 1961 ("ITA"), and the u/s. 143(3) of the Income Tax Act, 1961 ("ITA"), and the confirmation of the addition of 4,20,00,000/ confirmation of the addition of 4,20,00,000/- u/s. 68 of the ITA u/s. 68 of the ITA by the learned Commissioner of Income Tax (Appeals) ("CIT(A)") is by the learned Commissioner of Income Tax (Appeals) ("CIT(A)") is by the learned Commissioner of Income Tax (Appeals) ("CIT(A)") is erroneous and is liable to be quashed. us and is liable to be quashed. b) On the fact and in the circumstances of the case and in law, On the fact and in the circumstances of the case and in law, On the fact and in the circumstances of the case and in law, the learned AO failed to appreciate that the appellant had the learned AO failed to appreciate that the appellant had the learned AO failed to appreciate that the appellant had provided provided provided complete complete complete details details details regarding regarding regarding the the the identity, identity, identity, creditworthiness, and genuineness of the shareholde creditworthiness, and genuineness of the shareholde creditworthiness, and genuineness of the shareholder from whom the amounts were received. Copies of the relevant whom the amounts were received. Copies of the relevant whom the amounts were received. Copies of the relevant documents, including the profile, identity proof, Income Tax documents, including the profile, identity proof, Income Tax documents, including the profile, identity proof, Income Tax return and bank statements etc. were duly submitted and should return and bank statements etc. were duly submitted and should return and bank statements etc. were duly submitted and should have been taken into consideration. have been taken into consideration. c) On the fact and in the circumst c) On the fact and in the circumstances of the case and in law, ances of the case and in law, the learned AO and learned CIT(A) did not properly consider the the learned AO and learned CIT(A) did not properly consider the the learned AO and learned CIT(A) did not properly consider the documentary evidence and explanations provided by the documentary evidence and explanations provided by the documentary evidence and explanations provided by the appellant concerning the cash credits. The failure to acknowledge appellant concerning the cash credits. The failure to acknowledge appellant concerning the cash credits. The failure to acknowledge the details and documents provided, which the details and documents provided, which clearly show that the clearly show that the credits were genuine and properly explained, is a clear case of credits were genuine and properly explained, is a clear case of credits were genuine and properly explained, is a clear case of error in judgment. error in judgment. d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the AO's addition without the learned CIT(A) erred in upholding the AO's addition without the learned CIT(A) erred in upholding the AO's addition without giving due regard to th giving due regard to the appellant's submissions and the e appellant's submissions and the evidence provided during the appellate proceedings. The learned evidence provided during the appellate proceedings. The learned evidence provided during the appellate proceedings. The learned CIT(A) should have considered the documents and explanations CIT(A) should have considered the documents and explanations CIT(A) should have considered the documents and explanations provided at the time of the appeal. provided at the time of the appeal. e) On the fact and in the circumstances of the case and in la e) On the fact and in the circumstances of the case and in la e) On the fact and in the circumstances of the case and in law, the learned AO and learned CIT(A) have ignored the settled legal the learned AO and learned CIT(A) have ignored the settled legal the learned AO and learned CIT(A) have ignored the settled legal position regarding the burden of proof under Section 68 of the position regarding the burden of proof under Section 68 of the position regarding the burden of proof under Section 68 of the Act, which is only to establish the identity and creditworthiness Act, which is only to establish the identity and creditworthiness Act, which is only to establish the identity and creditworthiness of the shareholders and the genuineness of the transactions of the shareholders and the genuineness of the transactions of the shareholders and the genuineness of the transactions, all of which were duly demonstrated by the appellant during the of which were duly demonstrated by the appellant during the of which were duly demonstrated by the appellant during the course of proceedings course of proceedings WITHOUT PREJUDICE WITHOUT PREJUDICE 2. Section 56(2)(viib) of the Income Tax Act, 1961 2. Section 56(2)(viib) of the Income Tax Act, 1961 a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, the learned A grossly erred in confirming the alternative addition the learned A grossly erred in confirming the alternative addition the learned A grossly erred in confirming the alternative addition of Rs 4,09,70,600/ of Rs 4,09,70,600/- u/s. 56(2)(viib) of the ITA thereby rejecting u/s. 56(2)(viib) of the ITA thereby rejecting the valuation methodology adopted by the appellant for the the valuation methodology adopted by the appellant for the the valuation methodology adopted by the appellant for the issuance of share and the confirmation of the same by CIT(A) is issuance of share and the confirmation of the same by CIT(A) is issuance of share and the confirmation of the same by CIT(A) is erroneous and is liable to be quashed. erroneous and is liable to be quashed. b) On the fact and in the circumstances of the case and in law, b) On the fact and in the circumstances of the case and in law, b) On the fact and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the AO's rejection of the the learned CIT(A) erred in upholding the AO's rejection of the the learned CIT(A) erred in upholding the AO's rejection of the valuation method. In doin valuation method. In doing so, the learned AO erred by using g so, the learned AO erred by using hindsight to compare projections made at the time of share hindsight to compare projections made at the time of share hindsight to compare projections made at the time of share issuance with later events and results. This violates the principle issuance with later events and results. This violates the principle issuance with later events and results. This violates the principle that valuation should be based on information available at the that valuation should be based on information available at the that valuation should be based on information available at the time of issuance, not on subse time of issuance, not on subsequent events. c) On the fact and in the circumstances of the case and in law, c) On the fact and in the circumstances of the case and in law, c) On the fact and in the circumstances of the case and in law, the learned AO and learned CIT(A) erroneously disregarded the the learned AO and learned CIT(A) erroneously disregarded the the learned AO and learned CIT(A) erroneously disregarded the appellant's valuation based on assumptions and presumptions appellant's valuation based on assumptions and presumptions appellant's valuation based on assumptions and presumptions which was in accordance with rule 11UA(2)(b) of the Inco which was in accordance with rule 11UA(2)(b) of the Inco which was in accordance with rule 11UA(2)(b) of the Income Tax Rules, 1962. d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, the learned AO failed to appreciate that appellant had provided the learned AO failed to appreciate that appellant had provided the learned AO failed to appreciate that appellant had provided all necessary documents, including the valuation report, details all necessary documents, including the valuation report, details all necessary documents, including the valuation report, details of transactions, and supporting evidence, t of transactions, and supporting evidence, to justify the FMV of o justify the FMV of shares. The learned AO and learned CIT(A) failed to adequately shares. The learned AO and learned CIT(A) failed to adequately shares. The learned AO and learned CIT(A) failed to adequately consider these documents and the appellant's legitimate claims. consider these documents and the appellant's legitimate claims. consider these documents and the appellant's legitimate claims. e) On the fact and in the circumstances of the case and in law, e) On the fact and in the circumstances of the case and in law, e) On the fact and in the circumstances of the case and in law, the learned CIT(A) has completely ignored th the learned CIT(A) has completely ignored the decision of the e decision of the Hon'ble Bombay High Court (Jurisdictional High Court) in the Hon'ble Bombay High Court (Jurisdictional High Court) in the Hon'ble Bombay High Court (Jurisdictional High Court) in the case of M/s. Vodafone M case of M/s. Vodafone M-Pesa Ltd vs. Pr. CIT [2018] 92 Pesa Ltd vs. Pr. CIT [2018] 92 taxmann.com 73 (Bombay). taxmann.com 73 (Bombay). f) On the fact and in the circumstances of the case and in law, f) On the fact and in the circumstances of the case and in law, f) On the fact and in the circumstances of the case and in law, the learned CIT(A)'s has affirmed the learned CIT(A)'s has affirmed the decision of Agro Portfolio (P.) the decision of Agro Portfolio (P.) LTD v. ITO [2018] 171 ITD 74 (Delhi LTD v. ITO [2018] 171 ITD 74 (Delhi -Trib.) which has been Trib.) which has been explicitly overturned by the Hon. Delhi High Court in favour of the explicitly overturned by the Hon. Delhi High Court in favour of the explicitly overturned by the Hon. Delhi High Court in favour of the appellant. The appellant had duly highlighted the updated legal appellant. The appellant had duly highlighted the updated legal appellant. The appellant had duly highlighted the updated legal position in the submissions, position in the submissions, which the learned CIT(A) has failed which the learned CIT(A) has failed to acknowledge. to acknowledge. g) On the fact and in the circumstances of the case and in law, g) On the fact and in the circumstances of the case and in law, g) On the fact and in the circumstances of the case and in law, the learned CIT(A)'s has failed to apply the correct legal principles the learned CIT(A)'s has failed to apply the correct legal principles the learned CIT(A)'s has failed to apply the correct legal principles as established by the Hon. jurisdictional High Court and the Hon. as established by the Hon. jurisdictional High Court and the Hon. as established by the Hon. jurisdictional High Court and the Hon. Delhi High Court thereby resulted in an unjust addition to the hi High Court thereby resulted in an unjust addition to the hi High Court thereby resulted in an unjust addition to the appellant's income, ignoring the binding precedents that are in appellant's income, ignoring the binding precedents that are in appellant's income, ignoring the binding precedents that are in favour of the appellant. favour of the appellant.
3. Principal of Natural Justice 3. Principal of Natural Justice a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, a) On the fact and in the circumstances of the case and in law, the learned CIT(A) has completely disregarded and ignored the CIT(A) has completely disregarded and ignored the CIT(A) has completely disregarded and ignored the submissions and evidence provided by the appellant during the submissions and evidence provided by the appellant during the submissions and evidence provided by the appellant during the appellate proceedings. appellate proceedings. b) On the fact and in the circumstances of the case and in law, b) On the fact and in the circumstances of the case and in law, b) On the fact and in the circumstances of the case and in law, the learned CIT(A) failed to consider the detailed submi the learned CIT(A) failed to consider the detailed submi the learned CIT(A) failed to consider the detailed submissions and documentation provided by the appellant in support of its and documentation provided by the appellant in support of its and documentation provided by the appellant in support of its case. The appellant had submitted comprehensive evidence and case. The appellant had submitted comprehensive evidence and case. The appellant had submitted comprehensive evidence and legal arguments addressing all issues raised in the assessment legal arguments addressing all issues raised in the assessment legal arguments addressing all issues raised in the assessment order, which were crucial to the determination of the case. order, which were crucial to the determination of the case. order, which were crucial to the determination of the case. c) On the fact and in the circumstances of the case and in law, On the fact and in the circumstances of the case and in law, On the fact and in the circumstances of the case and in law, the learned CIT(A) did not adequately address or even the learned CIT(A) did not adequately address or even the learned CIT(A) did not adequately address or even acknowledge the peculiar points raised in the appellant's acknowledge the peculiar points raised in the appellant's acknowledge the peculiar points raised in the appellant's submissions. d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, d) On the fact and in the circumstances of the case and in law, the learned CIT(A)'s decision is contrary to the principles of equity arned CIT(A)'s decision is contrary to the principles of equity arned CIT(A)'s decision is contrary to the principles of equity and due process, as it disregards the appellant's legitimate and due process, as it disregards the appellant's legitimate and due process, as it disregards the appellant's legitimate claims and evidentiary support. The failure to consider these claims and evidentiary support. The failure to consider these claims and evidentiary support. The failure to consider these submissions has resulted in an incorrect and unjust addition to submissions has resulted in an incorrect and unjust addition to submissions has resulted in an incorrect and unjust addition to the appellant's income. ppellant's income. e) On the fact and in the circumstances of the case and in law, e) On the fact and in the circumstances of the case and in law, e) On the fact and in the circumstances of the case and in law, the order of the learned CIT(A) has been rendered in violation of the order of the learned CIT(A) has been rendered in violation of the order of the learned CIT(A) has been rendered in violation of the basic procedural requirements of adjudication, which requires the basic procedural requirements of adjudication, which requires the basic procedural requirements of adjudication, which requires a fair and thorough examination of all ma a fair and thorough examination of all material and arguments terial and arguments presented by the appellant. presented by the appellant. f) On the fact and in the circumstances of the case and in law, f) On the fact and in the circumstances of the case and in law, f) On the fact and in the circumstances of the case and in law, the learned AO erred in making an alternative addition u/s. the learned AO erred in making an alternative addition u/s. the learned AO erred in making an alternative addition u/s. 56(2)(viib) of the ITA which is inconsistent with established legal 56(2)(viib) of the ITA which is inconsistent with established legal 56(2)(viib) of the ITA which is inconsistent with established legal principles. The principles. The principle of making additions under a specific principle of making additions under a specific section, rather than multiple or alternative sections, is well section, rather than multiple or alternative sections, is well section, rather than multiple or alternative sections, is well established. Therefore, the alternative addition made u/s. established. Therefore, the alternative addition made u/s. established. Therefore, the alternative addition made u/s. 56(2)(viib) of the ITA is against the law. 56(2)(viib) of the ITA is against the law.
Briefly stated, facts of the case are th Briefly stated, facts of the case are that, the assessee company at, the assessee company was engaged in the healthcare consultancy services, trading in was engaged in the healthcare consultancy services was engaged in the healthcare consultancy services medical equipment and hospital management services etc. For the medical equipment and hospital management services etc. For the medical equipment and hospital management services etc. For the year under consideration, the assessee filed return of income year under consideration, the assessee filed return of income year under consideration, the assessee filed return of income electronically electronically on on 30.11.2017 30.11.2017 declaring declaring tot total al income income at at Rs.62,82,408/-. The return of income filed by the assessee was . The return of income filed by the assessee was . The return of income filed by the assessee was selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the selected for scrutiny assessment and statutory notices under the Income-tax act, 1961 (in short ‘the Act’) were issued and complied tax act, 1961 (in short ‘the Act’) were issued and complied tax act, 1961 (in short ‘the Act’) were issued and complied with. During scrutiny proceedings, the Assessing with. During scrutiny proceedings, the Assessing Officer noticed share capital aggregating to Rs.4,20,00,000/ share capital aggregating to Rs.4,20,00,000/- comprising of equity comprising of equity capital as well as preference share capital capital as well as preference share capital, both issued at a both issued at a premium. The equity and preference share capital had been issued premium. The equity and preference share capital had been issued premium. The equity and preference share capital had been issued in two tranches in November, 2016 (equity cap ranches in November, 2016 (equity capital share) and ital share) and August, 2016 (preference share capital). The Assessing Officer August, 2016 (preference share capital). The Assessing Officer August, 2016 (preference share capital). The Assessing Officer noticed valuation report noticed valuation reports submitted by the assessee for the value of submitted by the assessee for the value of the equity shares and the equity shares and preference shares determining share price at preference shares determining share price at Rs.799.90 and Rs.202.19 per share Rs.799.90 and Rs.202.19 per share respectively from two different respectively from two different valuers applying discount applying discounting cash flow (DCF) method. In view of the method. In view of the vast difference in the valuation of the equity and preference share vast difference in the valuation of the equity and preference share vast difference in the valuation of the equity and preference share as within a short span, the Assessing Officer rejected the DCF as within a short span, the Assessing Officer rejected the DCF as within a short span, the Assessing Officer rejected the DCF method employed by the as method employed by the assessee and himself valued the share on sessee and himself valued the share on the basis of net asset value the basis of net asset value (NAV) method at Rs.13.44 per share. method at Rs.13.44 per share. Accordingly, held the held the balance excess amount of the share premium balance excess amount of the share premium received as taxable u/s 56(2)(viib) of the Act amounting to as taxable u/s 56(2)(viib) of the Act amounting to as taxable u/s 56(2)(viib) of the Act amounting to Rs.4,09,70,600/-. Alternati . Alternatively, the Ld. Assessing Officer also vely, the Ld. Assessing Officer also examined the genuineness of the entire share capital invoking examined the genuineness of the entire share capital invoking examined the genuineness of the entire share capital invoking section 68 of the Act. The Assessing Officer after analysing the section 68 of the Act. The Assessing Officer after section 68 of the Act. The Assessing Officer after documents filed by the assessee for discharging onus u/s 68 of the documents filed by the assessee for discharging onus u/s 68 of the documents filed by the assessee for discharging onus u/s 68 of the Act, held the entire shar share capital including share premium e capital including share premium amount of Rs.4,20,00,000/- as unexplained cash credit u/s 68 of the Act. credit u/s 68 of the Act.
In the computation to the assessment order, the Assessing Officer In the computation to the assessment order, the Assessing Officer In the computation to the assessment order, the Assessing Officer made addition for unexplained cash credit u/s 68 of the Act made addition for unexplained cash credit u/s 68 of the Act made addition for unexplained cash credit u/s 68 of the Act amounting to Rs.4,20,00 amounting to Rs.4,20,00,000/- probably for the reason that probably for the reason that addition for share premium u/s 56(2)(viib) of the Act subsumed in addition for share premium u/s 56(2)(viib) of the Act subsumed in addition for share premium u/s 56(2)(viib) of the Act subsumed in addition for share capital u/s 68 of the Act addition for share capital u/s 68 of the Act.
On further appeal, the Ld. CIT(A) rejected the grounds of the On further appeal, the Ld. CIT(A) rejected the grounds of the On further appeal, the Ld. CIT(A) rejected the grounds of the assessee challenging the addition made u/s assessee challenging the addition made u/s 56(2)(viib) of the Act as 56(2)(viib) of the Act as well as addition made by the AO invoking section 68 of the Act. The well as addition made by the AO invoking section 68 of the Act. The well as addition made by the AO invoking section 68 of the Act. The relevant finding of the Ld. CIT(A) in relation to the addition of relevant finding of the Ld. CIT(A) in relation to the addition of relevant finding of the Ld. CIT(A) in relation to the addition of Rs.4,09,70,600/- u/s 56(2)(viib) of the Act is reproduced as under: u/s 56(2)(viib) of the Act is reproduced as under: u/s 56(2)(viib) of the Act is reproduced as under:
“3. Discussions, Reason & De Discussions, Reason & Decision: 3.1. The assessee's Return was assessed u/s. 143(3) on 3.1. The assessee's Return was assessed u/s. 143(3) on 3.1. The assessee's Return was assessed u/s. 143(3) on 29.12.2019. In the assessment order, the AO found that the 29.12.2019. In the assessment order, the AO found that the 29.12.2019. In the assessment order, the AO found that the assessee had raised preference shares, worth Rs. 65,00,000/ assessee had raised preference shares, worth Rs. 65,00,000/ assessee had raised preference shares, worth Rs. 65,00,000/- , by issue of 32,500 preference shares @ Rs. 200/ , by issue of 32,500 preference shares @ Rs. 200/- per share. per share. This issue was made in August, 2016. However, in the same was made in August, 2016. However, in the same was made in August, 2016. However, in the same Financial Year, in November, 2016 again, capital was raised , Financial Year, in November, 2016 again, capital was raised , Financial Year, in November, 2016 again, capital was raised , by issue of 44,375 nos. of shares, raising by issue of 44,375 nos. of shares, raising capital of Rs. capital of Rs. 3,55,00,000/ 3,55,00,000/-. The value of shares issued, were @ Rs. 800/ . The value of shares issued, were @ Rs. 800/- per share. During the assess During the assessment stage, the AO asked for ment stage, the AO asked for basis of the value of each share, issued as preference share basis of the value of each share, issued as preference share basis of the value of each share, issued as preference share and as regular share. The assessee during assessment stage and as regular share. The assessee during assessment stage and as regular share. The assessee during assessment stage submitted that the preference shares were issued, as per the submitted that the preference shares were issued, as per the submitted that the preference shares were issued, as per the valuation of a Chartered Accountant firm named valuation of a Chartered Accountant firm named, M/s. HP Jain , M/s. HP Jain & & Associates, Associates, where, as per valuation valuation report report dated dated 30.11.2015, applying the Discounted Cash Flow Method 30.11.2015, applying the Discounted Cash Flow Method 30.11.2015, applying the Discounted Cash Flow Method (DCF), the value of each share was determined for Rs. 202.19 (DCF), the value of each share was determined for Rs. 202.19 (DCF), the value of each share was determined for Rs. 202.19 paise, per share. paise, per share. Such valuation was adopted while issue of Such valuation was adopted while issue of the preference s the preference shares. Again, before the issue of regular equity hares. Again, before the issue of regular equity shares, the shares of the Company were valued to know the shares, the shares of the Company were valued to know the shares, the shares of the Company were valued to know the Fair Market Value, per share, through another Chartered Fair Market Value, per share, through another Chartered Fair Market Value, per share, through another Chartered Accountant Firm, M/s. NP Lahoti & Co., who again, adopting Accountant Firm, M/s. NP Lahoti & Co., who again, adopting Accountant Firm, M/s. NP Lahoti & Co., who again, adopting the DCF Method, determined the Fai the DCF Method, determined the Fair Market Value of the r Market Value of the shares at Rs. 799.90, each. 191 shares at Rs. 799.90, each. 191 3.2. In the assessment order, the AO analyzed the valuations 3.2. In the assessment order, the AO analyzed the valuations 3.2. In the assessment order, the AO analyzed the valuations made by two different valuers, on different dates, where the made by two different valuers, on different dates, where the made by two different valuers, on different dates, where the valuations differed by a great length. valuations differed by a great length. Thereafter, the AO was Thereafter, the AO was of the view that of the view that the Method adopted by the valuers on both the Method adopted by the valuers on both occasions were flawed, especially, with regard to the projected occasions were flawed, especially, with regard to the projected occasions were flawed, especially, with regard to the projected cash flow, that was adopted for the valuations. He found that cash flow, that was adopted for the valuations. He found that cash flow, that was adopted for the valuations. He found that the variations of the actual cash flow and the projections made the variations of the actual cash flow and the projections made the variations of the actual cash flow and the projections made were far apart. Therefor were far apart. Therefore, the concluded that both the e, the concluded that both the valuation reports, based on which new shares were issued by valuation reports, based on which new shares were issued by valuation reports, based on which new shares were issued by the assessee, were flawed. the assessee, were flawed. Thereafter, he himself, calculated Thereafter, he himself, calculated the value of the shares by adopting Net Asset Value Method the value of the shares by adopting Net Asset Value Method the value of the shares by adopting Net Asset Value Method (NAV) by analyzing the assets and liabilitie (NAV) by analyzing the assets and liabilities of the Company, s of the Company, as on 31/03/2016. By such Method, he came to the as on 31/03/2016. By such Method, he came to the as on 31/03/2016. By such Method, he came to the conclusion that the valuation of the shares should not exceed conclusion that the valuation of the shares should not exceed conclusion that the valuation of the shares should not exceed Rs. 13.44, per share. And therefore, he concluded that, out of Rs. 13.44, per share. And therefore, he concluded that, out of Rs. 13.44, per share. And therefore, he concluded that, out of the total raised capital of Rs. 4,20,00,000/ the total raised capital of Rs. 4,20,00,000/-, there was an , there was an overvaluation by Rs. 4,09,70,600/ valuation by Rs. 4,09,70,600/- and made an addition of and made an addition of such excess valuation, by adopting Sec. such excess valuation, by adopting Sec. 56(2)(viib) of the Act. 56(2)(viib) of the Act. 3.3. Aggrieved with the order, the assessee instituted the 3.3. Aggrieved with the order, the assessee instituted the 3.3. Aggrieved with the order, the assessee instituted the present appeal. The assessee during the appeal proceedings, present appeal. The assessee during the appeal proceedings, present appeal. The assessee during the appeal proceedings, submitted that the submitted that the AO did not have the right to discard the to discard the Valuation Method, adopted by them as, Rule 11UA of the Valuation Method, adopted by them as, Rule 11UA of the Valuation Method, adopted by them as, Rule 11UA of the Income Tax Rules clearly states that there is an option Income Tax Rules clearly states that there is an option Income Tax Rules clearly states that there is an option available with the assessee to adopt, either the DC Method or available with the assessee to adopt, either the DC Method or available with the assessee to adopt, either the DC Method or the NAV Method, for valuation of Market V the NAV Method, for valuation of Market Value of shares, at alue of shares, at their own choice. Moreover, it said that there had been a their own choice. Moreover, it said that there had been a their own choice. Moreover, it said that there had been a considerable time gap between the two valuation reports. The considerable time gap between the two valuation reports. The considerable time gap between the two valuation reports. The 1st of which was, on the date of November, 2015 and the 2nd 1st of which was, on the date of November, 2015 and the 2nd 1st of which was, on the date of November, 2015 and the 2nd one was of September, 2016. During the said period, the one was of September, 2016. During the said period, the one was of September, 2016. During the said period, the projections were in favour of the assessee. Thus, there was a ojections were in favour of the assessee. Thus, there was a ojections were in favour of the assessee. Thus, there was a considerable increase in the valuation of the shares. The basis considerable increase in the valuation of the shares. The basis considerable increase in the valuation of the shares. The basis of such increase in valuation was also due to the new of such increase in valuation was also due to the new of such increase in valuation was also due to the new business plan of the assessee Company, to have branches in business plan of the assessee Company, to have branches in business plan of the assessee Company, to have branches in various countries o various countries of Africa. 3.4. The logic submitted by the assessee was also submitted 3.4. The logic submitted by the assessee was also submitted 3.4. The logic submitted by the assessee was also submitted before the AO. before the AO. However, the AO refuted such claim and stated However, the AO refuted such claim and stated that the actuals of FY 2016 that the actuals of FY 2016-17 to FY 2019-20 does not have 20 does not have any bearing with the projections made. Therefore, the AO any bearing with the projections made. Therefore, the AO any bearing with the projections made. Therefore, the AO claimed that the valuation reports were not reliable at all and hat the valuation reports were not reliable at all and hat the valuation reports were not reliable at all and the variants had been adopted by the assessee only to match the variants had been adopted by the assessee only to match the variants had been adopted by the assessee only to match with the investments taken through private placements by a with the investments taken through private placements by a with the investments taken through private placements by a backward calculation, so that the end results are sought to be backward calculation, so that the end results are sought to be backward calculation, so that the end results are sought to be achieved. It is als achieved. It is also not clear whether the valuers have o not clear whether the valuers have independently verified the claims made by the Management, independently verified the claims made by the Management, independently verified the claims made by the Management, regarding the future cash flow prospects. regarding the future cash flow prospects.
3.5. In the Vodafone M. Pesa Ltd. 3.5. In the Vodafone M. Pesa Ltd. - Vs. - PCIT case, in a PCIT case, in a decision dated decision dated 01.03.2020, as reported in 92 taxmann.com 01.03.2020, as reported in 92 taxmann.com 73, the Ld. Bombay High Court held that, as per the Rule the Ld. Bombay High Court held that, as per the Rule the Ld. Bombay High Court held that, as per the Rule 11UA, the assessee has the option to choose either of the two 11UA, the assessee has the option to choose either of the two 11UA, the assessee has the option to choose either of the two methods of valuation of DCF Method or NAV Method, for methods of valuation of DCF Method or NAV Method, for methods of valuation of DCF Method or NAV Method, for valuation of Market Value of the shares and the Department valuation of Market Value of the shares and the Department valuation of Market Value of the shares and the Department should not interfere in the should not interfere in the Method of Valuation, taken by the Method of Valuation, taken by the assessee. In this case, the assessee chose the Valuation under assessee. In this case, the assessee chose the Valuation under assessee. In this case, the assessee chose the Valuation under the DCF Method and prima facie, the Department cannot not the DCF Method and prima facie, the Department cannot not the DCF Method and prima facie, the Department cannot not change the valuation from DCF to NAV Method, only for the change the valuation from DCF to NAV Method, only for the change the valuation from DCF to NAV Method, only for the fact that apparently the valuation of the s fact that apparently the valuation of the shares, as per DCF hares, as per DCF Method is resulting at a higher value. Method is resulting at a higher value. 3.6. However, in the case of TUV Rheinland NIFE v. ITO [IT 3.6. However, in the case of TUV Rheinland NIFE v. ITO [IT 3.6. However, in the case of TUV Rheinland NIFE v. ITO [IT Appeal No. 3160 (Bang.) of 2018 dated 27 3160 (Bang.) of 2018 dated 27-2-2019] while 2019] while dealing with this issue, the Hon'ble Bangalore Income dealing with this issue, the Hon'ble Bangalore Income dealing with this issue, the Hon'ble Bangalore Income-tax Appellate Tribunal (ITAT) u Appellate Tribunal (ITAT) upheld the order of the Id. AO, who pheld the order of the Id. AO, who had rejected the DCF method of valuation adopted by the had rejected the DCF method of valuation adopted by the had rejected the DCF method of valuation adopted by the taxpayer-company and made addition under section 56(2) company and made addition under section 56(2) company and made addition under section 56(2) (viib) of the IT Act, based on the NAV method. In the facts of (viib) of the IT Act, based on the NAV method. In the facts of (viib) of the IT Act, based on the NAV method. In the facts of this case, the taxpayer this case, the taxpayer-company had issued shares to its es to its parent Company at a premium and it had relied on the DC parent Company at a premium and it had relied on the DC parent Company at a premium and it had relied on the DC method to determine FMV for justifying the premium. The Id. method to determine FMV for justifying the premium. The Id. method to determine FMV for justifying the premium. The Id. AO, upon examining the valuation report concluded that the AO, upon examining the valuation report concluded that the AO, upon examining the valuation report concluded that the valuation report had solely relied on the values provided by valuation report had solely relied on the values provided by valuation report had solely relied on the values provided by the Management of the taxpayer ment of the taxpayer-company, which were company, which were adopted to arrive at the FMV to justify the high premium. The adopted to arrive at the FMV to justify the high premium. The adopted to arrive at the FMV to justify the high premium. The Id. AO recomputed the FMV of the shares of the taxpayer Id. AO recomputed the FMV of the shares of the taxpayer Id. AO recomputed the FMV of the shares of the taxpayer- company using the NAV method and made relevant additions, using the NAV method and made relevant additions, using the NAV method and made relevant additions, which were upheld by the Id. which were upheld by the Id. Commissioner of Income er of Income-tax (Appeals) (CIT(A)). The Hon'ble ITAT paid heed to the argument (Appeals) (CIT(A)). The Hon'ble ITAT paid heed to the argument (Appeals) (CIT(A)). The Hon'ble ITAT paid heed to the argument of the taxpayer of the taxpayer-company that it has the statutory right to company that it has the statutory right to select either one of the two methods prescribed for the select either one of the two methods prescribed for the select either one of the two methods prescribed for the purposes of section 56(2) (viib), one of them being the DCF purposes of section 56(2) (viib), one of them being the DCF purposes of section 56(2) (viib), one of them being the DCF method. In addressing this argument as well as the contention ethod. In addressing this argument as well as the contention ethod. In addressing this argument as well as the contention that the right of a Id. AO was limited to verifying the that the right of a Id. AO was limited to verifying the that the right of a Id. AO was limited to verifying the arithmetical accuracy of the method selected by the taxpayer arithmetical accuracy of the method selected by the taxpayer arithmetical accuracy of the method selected by the taxpayer- company, the Hon'ble ITAT clarified that the Id. AO had not company, the Hon'ble ITAT clarified that the Id. AO had not company, the Hon'ble ITAT clarified that the Id. AO had not questioned the rig questioned the right of the taxpayer-company to choose the company to choose the method of valuation, but after examining the projections,, he method of valuation, but after examining the projections,, he method of valuation, but after examining the projections,, he had questioned the numbers had questioned the numbers - its basis, veracity, accuracy. its basis, veracity, accuracy. The Hon'ble ITAT noted that the estimates and projections The Hon'ble ITAT noted that the estimates and projections The Hon'ble ITAT noted that the estimates and projections used by the taxpayer used by the taxpayer-company were 'a long distance from a long distance from reality' and the taxpayer reality' and the taxpayer- company, despite repeated requests, company, despite repeated requests, had failed to produce and substantiate the basis for such had failed to produce and substantiate the basis for such had failed to produce and substantiate the basis for such estimates and projections. Thus, in absence of any valid and estimates and projections. Thus, in absence of any valid and estimates and projections. Thus, in absence of any valid and meaningful justification for the projections consider meaningful justification for the projections consider meaningful justification for the projections considered and adopted in determining FMV under the DCF method, the adopted in determining FMV under the DCF method, the adopted in determining FMV under the DCF method, the Hon'ble ITAT agreed with the decision of the Id. AO to deploy Hon'ble ITAT agreed with the decision of the Id. AO to deploy Hon'ble ITAT agreed with the decision of the Id. AO to deploy NAV method. In doing so, the Hon'ble ITAT thus upheld the NAV method. In doing so, the Hon'ble ITAT thus upheld the NAV method. In doing so, the Hon'ble ITAT thus upheld the authority of the Id. AO to override the choice of valuation authority of the Id. AO to override the choice of valuation authority of the Id. AO to override the choice of valuation method adopted u method adopted under certain circumstances, 3.7. Again, Hon'ble Delhi ITAT in case of Agro Portfolio (P.) Ltd. 3.7. Again, Hon'ble Delhi ITAT in case of Agro Portfolio (P.) Ltd. 3.7. Again, Hon'ble Delhi ITAT in case of Agro Portfolio (P.) Ltd. v. ITO [2018] 94 taxmann.com 112/171 ITD 74, held that in [2018] 94 taxmann.com 112/171 ITD 74, held that in [2018] 94 taxmann.com 112/171 ITD 74, held that in the facts of this case in the event the Id. AO had any inhibition the facts of this case in the event the Id. AO had any inhibition the facts of this case in the event the Id. AO had any inhibition or doubt about the valuation adopted or doubt about the valuation adopted by the taxpayer, he may by the taxpayer, he may make a reference to the Valuation Officer of the Department to make a reference to the Valuation Officer of the Department to make a reference to the Valuation Officer of the Department to verify the veracity of such valuation. However, in a situation verify the veracity of such valuation. However, in a situation verify the veracity of such valuation. However, in a situation where the taxpayer where the taxpayer-company fails to substantiate the company fails to substantiate the projections adopted to determine the FMV as per DCF m projections adopted to determine the FMV as per DCF m projections adopted to determine the FMV as per DCF method, it may not be possible even for the Departmental valuation it may not be possible even for the Departmental valuation it may not be possible even for the Departmental valuation officer to verify the correctness of such valuation adopted. officer to verify the correctness of such valuation adopted. officer to verify the correctness of such valuation adopted. Accordingly, the Hon'ble ITAT added that in such cases, the Id. Accordingly, the Hon'ble ITAT added that in such cases, the Id. Accordingly, the Hon'ble ITAT added that in such cases, the Id. AO may be forced to reject the DCF method, since the same AO may be forced to reject the DCF method, since the same AO may be forced to reject the DCF method, since the same cannot be verified and instead, could adopt the NAV method to be verified and instead, could adopt the NAV method to be verified and instead, could adopt the NAV method to determine the liability of the taxpayer under section 56(2)(viib) determine the liability of the taxpayer under section 56(2)(viib) determine the liability of the taxpayer under section 56(2)(viib) of the IT Act. 3.8. Respectfully following the above quoted decisions, I find 3.8. Respectfully following the above quoted decisions, I find 3.8. Respectfully following the above quoted decisions, I find the action of the AO to be completely justified by adopti the action of the AO to be completely justified by adopti the action of the AO to be completely justified by adopting valuation of the shares through NAV Method and making the valuation of the shares through NAV Method and making the valuation of the shares through NAV Method and making the addition of Rs. 4,09,70,600/ addition of Rs. 4,09,70,600/-, u/s. 56(2)(viib). Therefore, the , u/s. 56(2)(viib). Therefore, the addition made by the AO is upheld and the Ground of Appeal addition made by the AO is upheld and the Ground of Appeal addition made by the AO is upheld and the Ground of Appeal of the assessee is rejected. of the assessee is rejected.” 3.1 Regarding the addition u/s 68 of the A Regarding the addition u/s 68 of the Act amounting to ct amounting to Rs.4,20,00,000/- in relation to en in relation to entire share capital, t tire share capital, the finding of the Ld. CIT(A) is reproduced as under: reproduced as under:
4.1. As an alternative action, the AO found that even 4.1. As an alternative action, the AO found that even 4.1. As an alternative action, the AO found that even otherwise, the creditworthiness of the so otherwise, the creditworthiness of the so-called investors in called investors in the shares of t the shares of the Company is not well-established. Therefore, established. Therefore, he proposed that the amount of share capital raised by the he proposed that the amount of share capital raised by the he proposed that the amount of share capital raised by the assessee, through such individual shareholders were not assessee, through such individual shareholders were not assessee, through such individual shareholders were not explained properly and therefore, as an alternative action, he explained properly and therefore, as an alternative action, he explained properly and therefore, as an alternative action, he proposed to treat the amount of proposed to treat the amount of Rs. 4,20,00,000/ 4,20,00,000/- as Unexplained Cash Credit, u/s. 68 of the Act. Unexplained Cash Credit, u/s. 68 of the Act. 4.2. The assessee submitted that all the shareholders were 4.2. The assessee submitted that all the shareholders were 4.2. The assessee submitted that all the shareholders were genuine tax payers and during the assessment stage, the genuine tax payers and during the assessment stage, the genuine tax payers and during the assessment stage, the assessee discharged its onus by filing complete details of the assessee discharged its onus by filing complete details of the assessee discharged its onus by filing complete details of the investors. Therefore, it should not be penalized by treating Therefore, it should not be penalized by treating Therefore, it should not be penalized by treating such investment as bogus. such investment as bogus. 4.3. The explanation of the assessee is not completely 4.3. The explanation of the assessee is not completely 4.3. The explanation of the assessee is not completely acceptable. It is true that the assessee had submitted details acceptable. It is true that the assessee had submitted details acceptable. It is true that the assessee had submitted details of the investors. However, it was also found by the AO, by of the investors. However, it was also found by the AO, by of the investors. However, it was also found by the AO, by independently making enquiry with such investors, that their ependently making enquiry with such investors, that their ependently making enquiry with such investors, that their creditworthiness was at serious doubt. It is also to be creditworthiness was at serious doubt. It is also to be creditworthiness was at serious doubt. It is also to be mentioned that, out of 10 investors, at least 3 of them did not mentioned that, out of 10 investors, at least 3 of them did not mentioned that, out of 10 investors, at least 3 of them did not respond to the notices of the AO, to explain the source of their respond to the notices of the AO, to explain the source of their respond to the notices of the AO, to explain the source of their investment, m investment, made in the Company's shares. Regarding, the ade in the Company's shares. Regarding, the other 7 shareholders, other 7 shareholders, it was found by the AO that, in certain it was found by the AO that, in certain cases, the investors received cases, the investors received funds from entities, which were funds from entities, which were channelized as investment in shares of the assessee channelized as investment in shares of the assessee channelized as investment in shares of the assessee Company, whereas, those third Company, whereas, those third-party entities actually received entities actually received the sum lent to the investors by assessee itself. the sum lent to the investors by assessee itself. 4.4. Considering the facts of the case, I do not want to 4.4. Considering the facts of the case, I do not want to 4.4. Considering the facts of the case, I do not want to interfere in the findings of the AO and hold that the alternative interfere in the findings of the AO and hold that the alternative interfere in the findings of the AO and hold that the alternative proposal of the AO, also holds good. However, as propose proposal of the AO, also holds good. However, as propose proposal of the AO, also holds good. However, as proposed by the AO in the assessment order, I hold the substantive the AO in the assessment order, I hold the substantive the AO in the assessment order, I hold the substantive addition of Rs. 4,09,70,600/ addition of Rs. 4,09,70,600/- to be more logical and backed by to be more logical and backed by proper judicial reference. proper judicial reference. Therefore, the addition of Rs. Therefore, the addition of Rs. 4,09,70,600/ 4,09,70,600/- is held to be the addition, to be made in this is held to be the addition, to be made in this case. However, case. However, the addition of Rs. 4,20,00,000/- is held to be is held to be a proper addition, for statistical purpose and the Ground of a proper addition, for statistical purpose and the Ground of a proper addition, for statistical purpose and the Ground of Appeal of the assessee is dismissed. Appeal of the assessee is dismissed.
4. Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper Before us, the Ld. counsel for the assessee has filed a Paper Book containing pages 1 to 1297. Book containing pages 1 to 1297.
4.1 The ground Nos s. 1(a) to 1(e) are in relation to section 68 of the . 1(a) to 1(e) are in relation to section 68 of the Act. In the grounds raised, the assessee is aggrieved with the grounds raised, the assessee is aggrieved with the grounds raised, the assessee is aggrieved with the sustaining of the disallowance of Rs.4,20,00,000/- in respect of sustaining of the disallowance of Rs.4,20,00,000/ sustaining of the disallowance of Rs.4,20,00,000/ entire equity and preference share capital received by the assessee entire equity and preference share capital received by the assesse entire equity and preference share capital received by the assesse during the year under consideration during the year under consideration, which has been held as which has been held as unexplained cash credit by the lower authorities. It is the unexplained cash credit by the lower authorities. It is the unexplained cash credit by the lower authorities. It is the contention of the Ld. counsel for the assessee that the assessee has contention of the Ld. counsel for the assessee that the assessee has contention of the Ld. counsel for the assessee that the assessee has filed all the documents regarding the identity, creditworthiness and filed all the documents regarding the identity, creditworthiness filed all the documents regarding the identity, creditworthiness genuineness of the transaction in respect of share capital received. genuineness of the transaction in respect of share capital received. genuineness of the transaction in respect of share capital received. The Ld. counsel submitted that the assessee had submitted that the assessee had submitted that the assessee had already filed profile, identity proof, income profile, identity proof, income-tax return and tax return and bank account statement of all the share applicants all the share applicants but the Ld. Assessing O the Ld. Assessing Officer has not discharged his onus. has not discharged his onus. He submitted that as the assessee has s the assessee has already discharged his burden of proof u/s 68 already discharged his burden of proof u/s 68 of the Act by way of of the Act by way of submitting the required documents, the lower authorities are not the required documents, the lower authorities are not the required documents, the lower authorities are not justified in sustaining the addition of the entire justified in sustaining the addition of the entire share capital as share capital as unexplained cash credit. On the other hand, the Ld. Departmental unexplained cash credit. On the other hand, the Ld. Departmental unexplained cash credit. On the other hand, the Ld. Departmental Representative (DR) relied on the order of the lower authorities. Representative (DR) relied on the order of the lower authorities. Representative (DR) relied on the order of the lower authorities.
4.2 We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused We have heard rival submissions of the parties and perused the relevant materials on record the relevant materials on record. The brief facts qua the issue in facts qua the issue in dispute are that the assessee received share capital dispute are that the assessee received share capital by way of equity by way of equity and preference shares and preference shares from few subscribers. The Assessing Officer from few subscribers. The Assessing Officer issued notice u/s 133(6) of the Act to d notice u/s 133(6) of the Act to the subscribers calling for the subscribers calling for information from them regardi information from them regarding source of the funds ng source of the funds, but only explanation was received explanation was received from the part of the subscribers. T from the part of the subscribers. The information received information received was also not found to be sufficient by the also not found to be sufficient by the Assessing Officer. The Assessing Officer has reproduced a chart of Assessing Officer. The Assessing Officer has reproduced a chart of Assessing Officer. The Assessing Officer has reproduced a chart of the information filed and def the information filed and deficiency noticed. For ready reference the iciency noticed. For ready reference the relevant chart is reproduced as under: relevant chart is reproduced as under:
Name Bank account details Bank account details Observations Ms. Mayuri Akshay ICICI Bank A/c No. ICICI Bank A/c No. The amount of Rs. 55,00,000/ The amount of Rs. 55,00,000/- invested has Parmar 026101512739 026101512739 been provided by bank transfers been provided by bank transfers from one M/s Matushree Marketing (Rs. 23,00,000), M/s Matushree Marketing (Rs. 23,00,000), M/s Unity Engineering (Rs. 3,00,000)(which M/s Unity Engineering (Rs. is a family promoted company of Mr. is a family promoted company of Mr.
Akshay Parmar) and Mr. Akshay Parmar) and Mr. Akshay Parmar (Rs. 26,30,000). Besides the Akshay Parmar (Rs. 26,30,000). Besides the transfers from these accounts, the account transfers from these accounts, the account balance does not appear to be creditworthy ppear to be creditworthy of an investment of the considered sum. of an investment of the considered sum. Ms. Nikita Punamiya Union Bank, A/c No. Union Bank, A/c No. The amount of Rs. 50,00,000/ The amount of Rs. 50,00,000/- invested on 381402010003544 381402010003544 02.11.2016 has been entirely provided by 02.11.2016 has been entirely provided by jointly held with Mr. V jointly held with Mr. V one M/s Ratanchand Dalichand (which is a and Dalichand (which is a C Gandhi) C Gandhi) Pune based jeweller firm) on 01.11.2016 i.e. Pune based jeweller firm) on 01.11.2016 i.e. just one day before the investment. Besides just one day before the investment. Besides this receipt of money, the account does not this receipt of money, the account does not suggest i creditworthiness of an suggest i creditworthiness of an investment of the considered sum. The investment of the considered sum. The capital account has not be capital account has not been submitted in support. Mr. Rahul Union Bank, A/c no. Union Bank, A/c no. Out of the amount of Rs. 55,00,000/ Out of the amount of Rs. 55,00,000/- Vimalchand Gandhi 381402010905537 381402010905537 381402010905537 invested on 28.10.2016, 381402010905537 invested on 28.10.2016, an amount of Rs. 5,00,000/ an amount of Rs. 5,00,000/- has been received on the same day from M/s G Data received on the same day from M/s G Data Process. Bank statement for the earlier Bank statement for the earlier period has not been provided by the period has not been provided by the assessee to verify the source of funds for the assessee to verify the source of funds for the remaining amount. The capital account has remaining amount. The capital account has not been submitted in support. not been submitted in support. Mr. Santosh Mehta Union Bank, A/c No. Union Bank, A/c No. The amount of Rs. 1,00,00,000/ The amount of Rs. 1,00,00,000/-invested on 318005040034242 in 318005040034242 in 28.11.2016 by Mr. Santosh Mehta has been 28.11.2016 by Mr. Santosh Mehta has been the the name name of of M/s received back from the assessee company received back from the assessee company Mehta Mehta Emporium Emporium by M/s Mehta Emporium Jewelers on by M/s Mehta Emporium Jewelers on Jewellers Jewellers 01.12.2016 01.12.2016 and and has has been been further further transferred to Mr. Santosh Mehta on 02.12.2016. The capital 02.12.2016. The capital account has not been submitted in support. account has not been submitted in support. Ms. Swati Gandhi Union Bank, A/c no. Union Bank, A/c no. An amount of Rs. 10,00,000/ An amount of Rs. 10,00,000/- is received 381402010905538 381402010905538 from M/s Dariyav Himmatlal Enterprises on from M/s Dariyav Himmatlal Enterprises on 24.08.2016, and one day 24.08.2016, and one day later transferred to the assessee company on 25.08.2016. sessee company on 25.08.2016. Besides this amount, the account does not Besides this amount, the account does not suggest creditworthiness of the size of the suggest creditworthiness of the size of the considered investment. The capital account considered investment. The capital account has not been submitted in support. has not been submitted in support. Ms. Vasanti Union Bank, A/c No. Union Bank, A/c No. On the same day that the amount is On the same day that the amount is Vimalchand Gandhi 381402010905551 381402010905551 invested in the assessee company, i.e. invested in the assessee company, i.e. 15.11.2016, of Rs. 10,00,000/ 15.11.2016, of Rs. 10,00,000/- there is a cash deposit of Rs. 2,00,000 and a transfer cash deposit of Rs. 2,00,000 and a transfer from another account of an amount of Rs. from another account of an amount of Rs. 10,00,000/-. Further, earlier on 28.10. . Further, earlier on 28.10.2016, an investment of Rs. 20,00,000/ an investment of Rs. 20,00,000/- is made in the assessee company, which had come the assessee company, which had come from Mr. Vimalchand Gandhi on the same from Mr. Vimalchand Gandhi on the same day. Besides the above sources, the account day. Besides the above sources, the account does not show any creditworthiness. The does not show any creditworthiness. The capital account has not been submitted in capital account has not been submitted in support. Rajendra Kothari Bank statement not Bank statement not In the absence of the bank statement, the In the absence of the bank statement, the (NRI) submitted submitted nature and source of the investments made nature and source of the investments made in in the the assessee assessee company company remains remains unexplained. The capital account has not unexplained. The capital account has not been submitted in support. been submitted in support. Vimalchand Gandi Punjab National Bank, Punjab National Bank, The bank statement submitted does not The bank statement submitted does not 0387000100063059 0387000100063059 explain the source of the funds invested nor explain the source of the funds invested nor has the assessee explained the same in the has the assessee explained the same in the reply to the notices issued u/s 133(6) of the reply to the notices issued u/s 133(6) of the Act. Naitik Chinubhai Nothing submitted by Nothing su No reply received to the notice issued to u/s No reply received to the notice issued to u/s Shah the the assessee assessee to to 133(6) of the Act. explain the nature and explain the nature and source source of of the the investments investments Manthan Chinubhai Nothing submitted the Nothing submitted the u/s 133(6) of the Act assessee assessee to to explain explain the nature and source the nature and source of the investments of the investments 4.1 We find that the Assessing Officer has mainly noted that the We find that the Assessing Officer has mainly noted that the We find that the Assessing Officer has mainly noted that the assessee had only filed bank statement but did not file evidence in assessee had only filed bank statement but did not file evidence in assessee had only filed bank statement but did not file evidence in support of creditworthiness including the copy of the capital support of creditworthiness including the copy of the capital support of creditworthiness including the copy of the capital account in case of three parties namely Shri account in case of three parties namely Shri Vimalchand Vimalchand Gandhi, Naitik Chinubhai Shah, Manthan Chinubhai Shah. Further, no Naitik Chinubhai Shah, Manthan Chinubhai Shah Naitik Chinubhai Shah, Manthan Chinubhai Shah reply of the notice u/s 133(6) of the Act was received in three cases reply of the notice u/s 133(6) of the Act was received reply of the notice u/s 133(6) of the Act was received and also no efforts no efforts were made by the assessee to remove those de by the assessee to remove those deficiencies before the Ld. CIT(A). before the Ld. CIT(A). The AO also noted that funds o noted that funds were received in the hands of subscribers were received in the hands of subscribers from their family from their family concerns just one or two days before investment. one or two days before investment. one or two days before investment. Before us, the assessee has filed a copy of the documents filed before the lower assessee has filed a copy of the documents filed before the lower assessee has filed a copy of the documents filed before the lower authorities. We find that the assessee had filed balance sheet and We find that the assessee had filed balance sheet and We find that the assessee had filed balance sheet and other financial statement in the case of Mrs Mayuri Akhsya Parmar other financial statement in the case of Mrs Mayuri Akhsya Parmar other financial statement in the case of Mrs Mayuri Akhsya Parmar , a copy of which is available on page 997 , a copy of which is available on page 997-998 of paper book. 998 of paper book.
Similarly, balance sheet alongwith capital account in the case of Similarly, balance sheet alongwith capital account in the case of Similarly, balance sheet alongwith capital account in the case of subscriber Nikita Dinesh Punmiya is available on page 1001N to er Nikita Dinesh Punmiya is available on page 1001N to er Nikita Dinesh Punmiya is available on page 1001N to 1001O of the paper book. Balance sheet along with capital account 1001O of the paper book. Balance sheet along with capital account 1001O of the paper book. Balance sheet along with capital account in the case of smt. Santosh V Mehta is available on page 1008 to in the case of smt. Santosh V Mehta is available on page 1008 to in the case of smt. Santosh V Mehta is available on page 1008 to 1009 of paper book. Similarly balance sheet and capital account in 1009 of paper book. Similarly balance sheet and capital account in 1009 of paper book. Similarly balance sheet and capital account in case of other subscribers are available in paper book filed before us. e of other subscribers are available in paper book filed before us. e of other subscribers are available in paper book filed before us. Evidently, the Assessing officer has Assessing officer has not verified the the documents filed properly for verification of properly for verification of creditworthiness of the parties. parties. Thus the question arises whether question arises whether is it possible to remove those deficiencies e those deficiencies pointed out by the Assessing pointed out by the Assessing Officer? In our opinion In our opinion, when the subscribers are filing their regular return of income, balance sheets subscribers are filing their regular return of income, balance sheets subscribers are filing their regular return of income, balance sheets etc, and all such details have been filed before us, , and all such details have been filed before us, , and all such details have been filed before us, then it may not be difficult to ascertain their c be difficult to ascertain their creditworthiness. In view of the facts In view of the facts and circumstances of the case and and circumstances of the case and in the interest of in the interest of substantial of justice, we are of the opinion that assessee we are of the opinion that assessee should be should be provided one more opportunity to discharge his onus u/s 68 of the Act justifying more opportunity to discharge his onus u/s 68 of the Act justifying more opportunity to discharge his onus u/s 68 of the Act justifying identity, creditworthiness and genuineness of the transaction. If ditworthiness and genuineness of the transaction. If ditworthiness and genuineness of the transaction. If required so, the Assessing Officer may also carry out inquiry as the Assessing Officer may also carry out inquiry as the Assessing Officer may also carry out inquiry as deemed fit in the facts and circumstances of the case including fit in the facts and circumstances of the case including fit in the facts and circumstances of the case including examining the share subscriber examining the share subscribers. Accordingly, we restore the issue . Accordingly, we restore the issue in dispute of addition u/s 68 of the Act to the file of the Assessing addition u/s 68 of the Act to the file of the Assessing addition u/s 68 of the Act to the file of the Assessing Officer for deciding afresh for deciding afresh. It is needless to mention that assessee . It is needless to mention that assessee shall be provided adequate opportunity of shall be provided adequate opportunity of being heard being heard. The ground no. 1 of appeal is accordingly allowed for statistical purposes. Since of appeal is accordingly allowed for statistical purposes. Since of appeal is accordingly allowed for statistical purposes. Since the issue of addition u/s 68 of the Act the issue of addition u/s 68 of the Act is restored back to the file of back to the file of the Ld. Assessing Officer, we are not adjudicating upon the the Ld. Assessing Officer, we are not adjudicating upon the the Ld. Assessing Officer, we are not adjudicating upon the alternative ground raised by the assessee for addition u/s 56(2)(viib) alternative ground raised by the assessee for addition u/s alternative ground raised by the assessee for addition u/s of the Act at this stage as first the assessee has to cross the barrier t at this stage as first the assessee has to cross the barrier t at this stage as first the assessee has to cross the barrier of section 68 of the Act and if the assessee succeeds then only need of section 68 of the Act and if the assessee succeeds then only of section 68 of the Act and if the assessee succeeds then only for examining liability of for examining liability of section 56(2)(viib) of the Act would arise of the Act would arise. The ground No. 2 is accordingly The ground No. 2 is accordingly also restored back to the file of the also restored back to the file of the Assessing Officer for deciding along with the grounds related to Assessing Officer for deciding along with the grounds related to Assessing Officer for deciding along with the grounds related to addition u/s 68 of the Act. addition u/s 68 of the Act. In view of the matter already restored In view of the matter already restored back to the file of the Assessing Officer, t back to the file of the Assessing Officer, the ground No. 3 is also he ground No. 3 is also rendered infructuous, tuous,.
In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for In the result, the appeal of the assessee is allowed for statistical purposes.