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Facts
The assessee, engaged in Portfolio Management Services, filed a return declaring a loss. The AO completed the assessment at a higher income, making additions for share premium exceeding fair market value and for share capital received from Mr. Abdul Gafoor K, citing failure to prove genuineness. The CIT(A) confirmed the AO's order.
Held
The Tribunal held that the AO cannot reject a Chartered Accountant's certificate valuing equity shares using the discounted cash flow method without valid basis. Similarly, the AO confirmed the addition for share capital without rebutting the assessee's detailed explanation regarding identity, creditworthiness, and genuineness.
Key Issues
Whether the AO erred in rejecting the discounted cash flow method for share valuation and in confirming additions for share capital without adequate rebuttal of proving lack of genuineness?
Sections Cited
143(3), Rule 11UA
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Income Tax Appellate Tribunal, COCHIN BENCH
Before: SHRI INTURI RAMA RAO, AM & SHRI PRAKASH CHAND YADAV, JM
O R D E R Per: Inturi Rama Rao, AM This appeal filed by the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-1, Visakhapatnam [CIT(A)] dated 13.06.2025 for Assessment Year (AY) 2016-17.
Brief facts of the case are that appellant is a company incorporated under the Companies Act, 1956. It is engaged in the business of providing Portfolio Management Services. The return of Moat Financial services Pvt. Ltd. income for the A.Y. 2016-17 was filed on 17/10/2016 declaring loss of Rs. 31,12,206/-. Against the said return of income, the assessment was completed by the ACIT, Corporate Circile-1(2), Kochi (for short, 'AO') vide order dated 12/12/2018 passed u/s. 143(3) of the Income Tax Act, 1961 (for short, 'the Act') at a total income of Rs. 5,67,790/-. While doing so, the AO made addition of Rs. 6,80,000/- by holding that the appellant had received share premium in excess of the fair market value of shares and rejected the method adopted by the appellant i.e. discounted cash flow method. The AO also made addition of Rs. 30,00,000/- being share capital received from one Mr. Abdul Gafoor K for failure of the assessee to discharge the onus of proving the genuineness of the cash credits.
Being aggrieved by the assessment order, an appeal was filed before the CIT(A), who vide the impugned order confirmed the action of the AO.
Being aggrieved, the appellant is in appeal before this Tribunal in the present appeal.
it is contended that the AO ought not have disregarded the discounted cash flow method adopted by the appellant without valid reasons. Similarly, it is contended that learned CIT(A) ought not have held that appellant has failed to prove the identity, creditworthiness and genuineness of the credits received from Mr. Abdul Gafoor K of Rs. 30,00,000/-.
Moat Financial services Pvt. Ltd. 6. On the other hand, ld. Sr. DR placing reliance on the orders of the learned lower authorities submits that the order passed by the learned CIT(A) is a reasoned one and requires no interference.
We have heard rival submissions and perused the orders passed by the AO as well as learned CIT(A). It is undisputed fact that the appellant had filed certificate from Chartered Accountant (CA) valuing the equity shares adopting discounted cash flow method, is one of the prescribed methods under Rule 11UA of the Income Tax Rules, 1962. The AO cannot reject certificate issued by the CA without valid basis. Similarly, with regard to addition of Rs. 30,00,000/-, the appellant has filed a detailed explanation in an attempt to establish identity, creditworthiness and genuineness of the receipt of Rs. 30,00,000/-. The AO without rebutting the evidence filed by the assessee simply confirmed the addition. Under these circumstances, we are of the considered opinion, in the interest of justice, that the matter requires remand to the file of AO for fresh adjudication in accordance with law after affording reasonable opportunity of hearing to the assessee. Thus, the appeal filed by the assessee stands partly allowed for statistical purposes.
Since we disposed of the appeal, assessee’s stay application has become infructuous and the same is dismissed accordingly.
Order pronounced in the open court on 11th August, 2025.