STRYTON EXIM INDIA P.LTD,NEW DELHI vs. ITO, WARD-24(2), NEW DELHI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “Friday”: NEW DELHI BEFORE SHRI KULDIP SINGH, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER SA No. 665/Del/2018 (In ITA No. 5982/Del/2018) (Assessment Year: 2014-15) Stryton Exim India Pvt Ltd, Vs. ITO, C/o. R Khare & Associates, Ward-24(2), 7/6, Sarvapriya Vihar, New Delhi New Delhi PAN: AAICS0797B (Appellant) (Respondent)

ITA No. 5982/Del/2018 (Assessment Year: 2014-15) Stryton Exim India Pvt Ltd, Vs. ITO, C/o. R Khare & Associates, Ward-24(2), 7/6, Sarvapriya Vihar, New Delhi New Delhi PAN: AAICS0797B (Appellant) (Respondent)

Assessee by : Shri Rahul Khare, Adv Revenue by: Shri K Tewari, Sr. DR Date of Hearing 28/09/2018 Date of pronouncement 23/10/2018

O R D E R PER PRASHANT MAHARISHI, A. M. 1. This stay petition is filed by the assessee for Assessment Year 2014-15 requesting for stay of demand of Rs. 9,02,42,930/- in ITA NO. 5982/Del/2018 for Assessment Year 2014-15. 2. The brief facts of the case shows that the assessee is a private limited company, filed its return of income on 25.09.2014 declaring loss of Rs. 3,53,777/-. During the year, the assessee has raised share capital/premium of Rs. 20 crores from seven different companies, which was held by the ld AO as unexplained cash credit of the assessee, and addition was made. Consequently, income was assessed at Rs. 19,96,46,233/- and additions of ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

2 Rs. 19.90 crores was also made with respect to the addition of share premium on capital on protective basis u/s 56(2)(viib) of the Act. 3. Before us, claim of the assessee is that the first addition of Rs. 20 crores cannot be made as complete information was and assessee has discharged its onus u/s 68 of the act. The ld AR took us through various evidences filed to show that the assessee has completely discharged its onus. He also referred to several judicial precedents to show that merely non-production of director of Investor Company cannot result in addition u/s 68 of the act. He also hastened to add that assessee at anytime ready to produce the directors of the investor company for verification of them by the ld AO on the documents submitted by the assessee. 4. With respect to taxability u/s 56(2)(viib) of the Act, he submitted that same is based on the valuation report of Chartered Accountant for share issue price in accordance with law. Such valuation also does not exceed the Fair market value of such shares; therefore, there is no incidence of taxation. He submitted that valuation report is submitted which is Discounted cash flow method , one of the acceptable method u/IT Rules 1962. In view of this, he submitted that on both the counts the amount of tax demand could not be sustained. He further stated that the ld CIT(A) has disregarded the submission of the assessee. He further referred to para 5.1 of the order of the ld CIT(A) where the complete details are mentioned. He submitted that merely because only one page bank statement was provided with respect to the share valuation, ld CIT(A) did not admit the additional evidence filed by the assessee, doubted the discounted cash flow profitability merely on the basis of some disclaimer in the record. He further submitted that not admitting the additional evidences filed by the assessee by ld CIT (A) has resulted in grave injury to the process of natural justice. He therefore, submitted it is beyond the powers of ld CIT (A) to confirm the above addition. He therefore, submitted that balance of convenience lies in favour of the assessee. He therefore, submitted the full demand is outstanding in the hands of the assessee deserves to be stayed. 5. The ld DR vehemently objected to the stay application and submitted that there is no reason to grant the stay. He extensively referred to the orders of the lower authorities and submitted that assessee has failed to produce ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

3 the directors of the investor company and therefore whole addition has been made u/s 68 f the act. He submitted that directors of investor companies should have been examined by the ld AO to verify the genuineness of the transaction of subscription of share capital by all these companies of the assessee company. He submitted that the lower authorities have given detailed reasons which are not at all in dispute stay cannot be granted. 6. We have carefully considered the rival contention and perused the orders of the lower authorities. On the appreciation of the findings of the lower authorities, we are not inclined to grant stay of demand to the assessee. Further, at the request of both the parties we heard the main appeal, as both the parties are ready for the same. In view of this, stay application filed by the assessee is dismissed and appeal is taken up for hearing. 7. The appeal has been filed by the assessee against the order of the ld CIT(A) dated 06.08.2018, wherein, addition of Rs. 20 crores u/s 68 of the act has been made on account of allotment made of share by the assessee. The ld CIT(A) further confirmed the addition of Rs. 19.90 crores u/s 56(2)(viib) on protective basis. These are the only two issues in the appeal. 8. Brief facts of the case shows that the assessee is a company who filed its return of income as stated above and the case of the assessee was selected for scrutiny for verification of large share premium received during the year and low income in pursuance to high loans and advances and investment in shares. 9. During the course of hearing the ld AO noted that the assessee has issued share capital of Rs. 20 crores in the name of 7 companies. Therefore, the assessee was asked to furnish certain details about the identity and creditworthiness of the shareholders and the genuineness of the transactions. The ld AO discussed the issue vide his order as under:- “The assesses filed its return digitally on 25.09.2014 declaring a loss off 3,53,777/-. The case was selected for scrutiny for the verification of large share capital/premium raised by the assessee during the year, which is reproduced as under:- Large share premium received during the year. Low income in comparison to high loans/advances/investment in shares.

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4 2. Accordingly notice u/s 143(2) dated 28.08.2015 was issued and served upon the assessee company selecting the case of scrutiny. Thereafter, various notice were issued 10 the assessee from time to time and in compliance thereto AR of the assessee has filed details from time to time 3. In the course of verification of the reasons for selection of this case, it was noticed that the assessee company has raised share capital/premium of Rs. 20,00,00,000/- from the following companies:- s. Name Amount No. 1 M/s. Aspire Sales Pvt. Ltd. 2,50,00,000/- 2 M/s. Ankita Enterprises Pvt. Ltd. 6,40,00,000/- 3 M/s. Wens Industries Ltd. 3,60,00,000/- 4 M/s. Airson Mercantile Pvt Ltd 2,25,00O/- 5. M/s. Makamashi Enterprises Ltd. 2,25,00,30/- 6. M/s. Moral Sales Pvt. Ltd. 2,00,00,300/- 7. M/s. Dashing Industries Pvt. Ltd. 1,00,00,300/- Total 20,00,00,000/-

Vide notice 142 (1) dated 02.08.2016 and 07.11.2016 as well as 02.12.2016 the assessee was asked to furnish details to explain the source with justification of share capital/premium of Rs. 20,00,00,000/- received during the year. Incompliance of the above- mentioned notices and follow up hearing vide order sheet entries, the AR of tire assessee has filed some details of sake of compliance. The details filed by the AR and obtained from the so-called shareholder were examined and abstract thereof are depicted as under:- S. Name of the Returned Returned Assets party income for income for A.Y. claimed by No A.Y. 2013- 14 2014-15 the assessee (in Crores)

1 M/s. Dashing 2,84,838/- 1,20,024/- 2.58 industries Pvt. Ltd. 2 M/s. Wens 22,73,670/- 24,69,039/- 19.28 Industries Ltd. J M/s. Airson 9,12,420/- 2,88,957/- 10.03 Mercantile pvt. Ltd. ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

5 4 M/s. 4,46,710/- 3,85,480/- 5.68 Makamashi Enterprises Ltd. 5 M/s. Ankita 1,93,070/- 13,49,859/- 57.60 Enterprises Pvt. Ltd. 6 M/s. Moral 3,85,970/- 1,37,414/- 5.00 Sales Pvt. Ltd. 7 M/s. Aspire 1,55,125 2.5 Sales Pvt. Ltd.

After analysis of above abstract, keeping in view the measure to income of so called share holder companies in A Y. 2013-14 & 2014-15 as well as fictitious asset (claimed to be net worth), it can be easily concluded that the assessee company genuineness of investment as share capital is beyond their creditworthiness. In continuation of examination of creditworthiness of share holders company single page bank accounts statements were examined thoroughly and noticed that either exact or approximate amount is being deposited on same day of remittance in assessee’s account or one day before the remittance and the similar practices has been adopted in all seven bank accounts. In addition to the measure and negligible income of the assessee, the claimed net worth of these share subscribers companies was verified / reconciled with the nature of current and non-current assets/investment shown in relevant schedule of the financial statement/balance sheet of these companies and found that the net worth with evidence. Because whatever asset/investment reflected in the balance sheet of these share subscriber companies were investment in unlisted shares at huge premium in released/ group companies which are expediting the accommodation entry affairs as happened in the assessee’s case. These share subscriber companies are doing no business but to making investment & doing so-called- share trading business with private limited related companies. As such, net worth shown to the AR was found fictitious and meant for reporting purpose only. Relevant transaction/entries in the accounts of some shareholder companies are reproduced not for the sake of brevity but for the purpose to indicate siphoning of money of the assessee in the form of Share Capital/Premium in the books of assessee itself S.No. Name of the shareholder company Account No. Name of the Bank/Branch 1. M/s. Dashing Industries Pvt. Ltd. 4184002100026967 Punjab National Bank Transactio Txn ID Description Cr/D Amnu it Balance n on date r ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

SD1109696666 18.02.201 M6I2224 CASH CR 800903 807021 18.02 S92616935 RTGSSDI 1 DR 800«X)3 • 7021 4 2014 12721469 RT RESEARCH LTD 18.02.201 S92616935 Charges for RTGS DR 61 6960 4 Customer Payment SD1112721469 19.02.201 M3 3909 CASH CR 450003 456960 19.02.201 M275725 By 21-27009 Harun CR 449303 906260 4 4 T raders 19.02.201 M9475I959 RTGS DR 899703 6560 4 SD1112881965 RT 19.02.201 S94751959 Charges for RTGS DR 56 6504 RESEARCH LTD 4 Customer Payment i SDI112881965 24.02.201 S6168545 CASH HAND CHARGE DR 600 5904 4 2- 18.02.2014 24.02.201 S6170541 CASH HAND CHARGE DR 250 5654 4 2- 18.02,2014 ! 04.03.201 S24228418 CHEQUE BOOK DR 150 5504 4 CHARGES 13.03.201 S48284287 BY INST 746052 CR 500003 505504 4 CT01 l-l DAY LAT 13.03.201 S48284287 BY INST 746054 CR 200003 1 705504 4 CTOl 1-1 DAY LAT 14.03.201 S50774880 RTGS 00000001125 CR 10000)0 1705504 4 168863 WON DER P S 20.03.201 S62960884 RTGS 05860500000 CR 99481 30 1001720 ; 4 103 SURYA BOARD 4 20.03.201 S63090170 RTGS SDI DR 10000000 17204 4 118763248 STR YTON EX IN India 20.03.201 S63090170 Charges for RTGS DR 56 17148 Pvt. Ltd 4 customers payment S. No. Name of the share holder company Account No. Name SD1118763248 of the Bank/Branch M's. Dashing Industries Pvt Ltd. 4L84002I00026842 Punjab National Bank Txn ID Description Cr/Dr V mount Balance Transaction on date 24.03.2014 S70818293- RTGS CR 4000000 4017663 50140031000981 i ASPIRE SALE 24.03.2014 S70822830 RTGS CR 2500000 6517663 50141131000981 ASPIRE SALE 24.03.2014 S70824597 RTGS CR 3500000 10017663 S014I131000981 ASPIRE SALE 24.03.2014 S71082790 RTGS SD1119397209 DR 5000000 5017663 STR YTON EXIM INDIA PVT LTD 24.03.2014 S71082790 Charges for RTGS DR 51 5017602 Customers Payment SD 11193972009

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7 24.03.2014 S71088863 RTGS SD1119398027 DR 5000000 17602 STR YTON EXIM INDIA PVT LTD 24.03.2014 S71088863 Charges for RTGS DR 51 17541 Customers Payment SD 1119398027 31.03.2014 Ml 68550 KAMSON 150300 CR 500000 517541 It is pertinent to mention here that a single page of bank account statement has been given by the assessee as well as by the shareholder companies. However, scrutiny of entries established the paucity of funds in these share subscriber companies as detailed in instances above. Besides, the above all seven-share holder companies are maintaining accounts with the same bank i.e. Punjab National Bank and the very same branch also. The purpose of maintenance of account all the shareholders in the same bank/branch have found to be established after perusal of transaction’s date. The established fact is that all the accounts are maintained in the same bank/branch in order to expedite the affairs of siphoning the assessee money through banking channels in the name of so- called shareholders by single person or group of persons providing color of transactions of being Vide notice dated 07. 11.2016 & 02.12.2016 and order sheet entry dated 20/12/2016 the assessee was required to Furnish the Following - "In case of fresh share application money/share capital/share premium received during the year, please give their names and present postal addresses of the parties from whom the same have been received during the year. In order to prove their identity, their creditworthiness and genuineness of the transactions, please file (i) confirmations as on dale and their confirmations must contain their Bank account Numbers and name of bank branch from which they have given the said amount, (ii) their I.T. particulars/PAN and ward/circles where assessed to tax, (iii) copy of their audited balance -sheet and F & L account amount (iv) copy of their ITR and computation of income and (v) complete Bank statement from which the said amount has been given. Also state as to why provision of section 56(2)(viib)of the Ac" are not applicable with documentary evidences, ” After going through the details submitted by the assessee & the bank statements it was noted that the following Facts were common to all share applicants: a) None of the balance sheets, had details of investments b) None of the bank statements had enough funds to give to the assessee as share application money. The Funds were received either on the same day or a day before from some other concern c) In some cases the bank statements of sources of Share Applicants were also requisitioned and these bank statements reflected same state of affairs i.e. the bank statement us had enough funds to give to the assesse as share application money.

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8 The funds were received either on the same day or a day before from some other concern. d) Their ITRs & Profit Loss account did not reflect on their creditworthiness to support such investment e) The total combined income of all applicants is much less than the investment of any one of them f) The entities did not have assets to justify any business activity g) The assessee did not substantiate the source of money received in any of these share applicants nor did the financials of these applicants substantiate there creditworthiness. 4, The assessee is a Private Ltd Company so it cannot go for any Public issue of shares. Therefore, all the Share Applicants in the company must have had been persons known to the Directors/Principal Officer of the assessee company. In view of this, the AR vide note sheet dated 07.11.2016-. 21.111.2016 (order sheet) & 02.12.2016 was requested; a) to provide the details of source of money received in investing entities alongwith documentary evidence b) to produce the directors of the entities from whom it had received Snap; Application Money, along with their details as asked vide notice u/s 133(6) of the act. 5. Instead of producing such persons and the directors of assessee company- the assessee has tried to discharge its onus u/s 68 of the Act by submitting the acknowledgement of ITR, Balance Sheet & part bank statements of such persons. However, the replies received from them raised more questions than answers on account of the following: * a) The Balance Sheets were incomplete in that no schedules were found attached which showed the details of the non-current investments, which is mandatory as per ICAI guidelines. b) There are no significant transactions/revenue from business operations in the P/L accounts of such applicants. c) Their ITR show negligible income from their own operations. d) As described earlier, all of the deposits by cheques/transfers are immediately followed by debits/transfers/withdrawals of same amounts in favour of assessee, leaving a negligible balance at the end of each cycle. Therefore, there is no correspondence between the elements of the Balance Sheet and the credits/debits found routed through the bank account. e) The assessee did not do anything extraordinary with the money received, it just invested the same in coal mines at USA. This could have been done by the applicants themselves, why did they forego the inherent earning capacity of money by paying so huge premium for Rs. 1,990/-. 8. In view of the above facts, the onus totally lay on the assessee to prove the genuineness of the transactions & creditworthiness of the Share Applicant

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9 entities. The AR had been requested to produce the Share Applicants. But none of the directors were produced. 9. For the sake of discussion, even if it is presumed that the assessee did not have control over its Share holders, in that case also opportunity had been given to the assessee to produce the directors’ of the subscriber company so that they can be examined on oath because they would be having first hand knowledge and would be able to provide information on : a) How & when did they meet the assessee company, b) Why did the Share applicants agree to invest in assessee company c) Why did applicants agree to invest huge amount whereas assessee company is running in loss. d) Other acts & circumstances associated with the whole transaction.

The various opportunities provided to the assessee through AR to produce the directors’ of its company are as under: Vide Show Cause Notice dated 07.11.2016; In reply to notices issued u/s 153(G), all the seven share holder companies has filed their replies along with copy of ITR but could not file the copy of bank account statement to reevaluate the bank statement furnished by you earlier and as such the creditworthiness of all share holder companies remained unexplained as yet. Therefore, you are requested to expenditure the personal deposition of the directors of the aforesaid companies along with details requisitioned by the notice u/s 133(6) issued from this office earlier. The all 7 Directors may be produced on 22.11.2016 or on the date convenient for your as well as Directors which prior intimation to the undersigned. Vide order Sheet entry dated 20.11.2016. Vide Final Show Cause notice date! 02. 12.2016: Please refer to show cause notice dated 07,11.2016, vide which you are requested as follows: "In reply to notices issued u/s 133(6), all the seven share holder companies has filed their replies along with copy of ITR but could not filed the copy of bonk account statement to reevaluate the bank statement furnished by you earlier and as such the creditworthiness of all share holder companies remained unexplained as yet. Therefore, you are requested to expenditure the personal deposition of the directors of the aforesaid 1 companies along with details requisitioned by the notice u/s 133(6) issued from this office earlier. The all 7 Directors may be produced on 22.11.2016 or on the date convenient for your as well as Directors which prior intimation undersigned". On 22.11.2016, your AR appeared but failed to furnish any details/explanation as well as failed to produce all 7 Directors, as required by the above show cause. However, in the interest of natural justice, you are afforded another opportunity to furnish the above requisite details by 07.12.2016, failing which ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

10 it shall be presumed that you have nothing to submit in the matter and the case shall be completed on merits. Vide Show Cause notice Dated 20.12.2016: Please refer to show cause notice dated 07.11.2016 to produce directors of all seven share subscriber companies with relevant documents to prove genuineness of transaction and their creditworthiness. But you failed to produce them on 22.11.2016. On 22.11.2016, the AR of the company appeared and attended proceeding except producing the Directors. On the same day, your AR was again Dieted to produce all the Directors of share subscriber companies with similar details. Case fixed lot 25.11.2016. On 25.11.2016, none attended, then a show cause notice dated 02.122016 was issued for the same purpose fixing for 07.12.2016. The AR/ appeared, file some details, but did not produce the Directors of the share subscriber companies. Case adjourned vide order sheet entry dated 07.12.2016 for 09.12.2016 but none attended but appeared on 14.12.2116 and again filed some details but did not prove identity, genuineness of transaction and creditworthiness of share subscribers till date. As such, onus to prove genuineness of transaction as well as: creditworthiness of your company to issue share at such a high premium remains on company. Therefore, you are allowed a final opportunity to prove genuineness of transaction and worth of valuation of share of your company at such a huge price on date of valuation by producing the Directors of share subscribers company with following documents/details: 1. Copy of account for the year, 3 years prior & 2 years later, computation of income, Tax Audit Report, PAN Card. 2. Copy of relevant documents/Form in which intimation regarding the purchase of share is sent to the ROC. 3. Copy of resolution of the Board/AGM of the company authorizing the company to purchase shares of the assessee company. 4. Source of funds available to purchase the share of the company along with documentary evidence to substantiate the creditworthiness of the source. 5. The latest bank account of the company as well as the bank account from which payment made for purchase of shares. 6. Copy of contract note for purchase of shares of the company, Copy of share delivery note along with share purchase register. 7. Explanation in respect of purchase of shares at such a huge premium of the company whose asset is so little and no major project in its hand. 8. Also furnish notes on business wisdom of the Director to invest such a huge amount in premium out of such a meager income/ asset of share subscriber company. 9. Copy of share purchase register along with valuation report of these shares as on date.

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11 10. Produce books of account and other relevant details to justify tire valuation of share of your company at such a huge premium earning share on the date of valuation. Please note that in case of failure to produce the Directors of share subscriber companies and furnish requisite details/evidence to justify such a huge valuation of shares @ 2000 of premium shall made u/s 56(2)(viib) of h; Act and order shall be passed accordingly. Case adjourned to 26.12.2016 for this purpose. The AR of the assessee appeared on 26.12.2016 but he neither produced even a single Director of share subscriber company as requisitioned vide notice dated 10 12.2016 nor filed any substantial evidence to discharge the onus on the company to prove id entry, creditworthiness and genuineness of transaction in respect of credit in its books of accounts. 9. It has been judicially established that the primary onus is on the assessee to prove the identity, creditworthiness and genuineness of transactions in respect of credits in its books, of account. The law does not prescribe any quantitative test to find out whether the onus in a particular case has been discharged or not. It all depends on the facts and circumstances of each case. In some cases, the onus may be heavy whereas, in others, it may be, nominal. There is nothing rigid about it. In the above backdrop the assessee was required to produce the person along with their books of account to verify its claim of genuineness especially in view of the tact that the assessee is private limited company. The assessee failed to discharge its onus. In such scenario it would not be sufficient to bring PAN, bank statement, copy of return and confirmation etc from the said party. But the source and nature of transaction; need to be proved. The assessee has miserably failed to do so. The beneficiary assessee is enjoying the benefit of applicant’s money and such applicants do not have control over affairs of the assessee company in spite of having major share in the capital. The profit motive in the entire transactions is conspicuously absent. Any person who would invest his own money would certainly seek return in any form. The inherent capacity of money to earn is forgone without any consideration. These facts clearly show that the transaction is not genuine. question remains whose money is it which is routed through such accounts - obviously of the person which is getting benefits of such money without having any liability against it. 10. The assessee company is private limited company. In the case of such companies, there is close and proximate relationship between the promoters/directors and the shareholders. The closely held companies are permitted to accept the subscriptions of share capital or deposits only from the general friends or relatives of the promoters/directors and such companies are not allowed to accept subscriptions; or deposits from the general public. As such, there should have been ho difficulty on the part of the assessee to produce somebody from the said entity, had the whole apparatus not been merely a conduit to plough back the unaccounted money of the assessee- company in the garb of share application money. Even if the work setup is presumed to be correct, for the sake of argument, it is necessary to examine as to how the “investor” came to know of the requirements of funds by the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

12 assessee-company in the absence of a public issue or any advertisement by the assessee-company. For accepting the identity and the availability of funds in its hands of the entity in its own capacity, it is necessary to have at least some idea, if not complete details, of the actual business in which it is it is said to be engaged. 11. The assessee had been accorded enough opportunity to lead by positive evidence to prove the creditworthiness & genuineness of the transactions it is evident from the above; discussion that the assessee could not rebut the above discussed evidence & neither could it produce the principal officers of any of the entities, with the books of account, so that they could be examined for the genuineness & creditworthiness of the transaction. This is despite the fact that these persons are still alleged share holders of the assessee company. 12. Recently Hon’ble Delhi High Court in case of Sanraj Engineering P Ltd ITA 79/2016 has observed that onus of assessee u/s 68 is not discharged merely by submitting ITR, Balance Sheet & Bank Statements especially when the bank statements from which monies are received give rise to further questions regarding the creditworthiness of lenders. In such circumstances, apart from the ingredients to prove genuine cash credit, something more is required to be demonstrated to justify such receipts. As laid down by the courts that the apparent must be considered the real until it is shown that there are reasons to believe that the apparent is not the real and that the taxing authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. It is apt to note than a man may lie but the circumstances do not". No meters are available for examining the truth and correctness of statement made but the surrounding circumstances and the relevant fact will throw light on the genuineness or otherwise of any transaction. In such circumstances when the source of money landing in account, of the assessee has not been justified, the faculties of human rationalities infer that it is nothing but assessce's own money esp. when the assessee is utilizing it freely without having any liability to repay the same. At (he end, it is very clear that the person who owned the unaccounted money is reaping the benefit of the same after having utilized the services of the said entry operator who act in form of physically non-existent paper entities and help in laundering of the money. Section 68 has to be proved on facts, therefore demonstration by assessee in such rebuttal presupposes not relying upon various decisions or orders but demonstrate by way of facts of producing such persons. Production of such persons was a farfetched requirement, the assessee did not even give a justification for non-production of such entities. Thus it is a case of clear human ingenuinity with the clear and contumacious intention to defraud the revenue. Amendment has been made to Sec 68 by Finance Act 2012 w.e.f AY 2013-14 which under consideration. The provision now reads as: 68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

13 offered by him is not, in the opinion of the (Assessing] Officer, satisfactory, the sum so credited ray; be charged to income- tax as the income of the assessee of that previous year: “Provided that where the assessee is a company (not being a company in which the public are substantially interested), and 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 assessee-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 aforesaid has been found to be satisfactory: Provided further that nothing contained in the first proviso shall apply if the person, in whose name the sum referred to therein is recorded, is a venture capital fund or a venture capital company as referred to in clause (23FB) of section 10.] The crux of amendment is that the closely held company receiving share application money/share capital/share premium/any such amount has to prove the source of funds in the hands of shareholder/person giving the share application money/share capital/share premium/any such amount. The Finance Act, 2012 has placed more onerous onus of proof o« tie closely held company receiving the share application money/share capital/ share premium Any such amount has to prove that such money which is invested in the company belongs to the person who has given the money to the company. Otherwise, the money so received shall be taxable in hands of company as unexplained cash credit under section 68. 13. In view of the above, the assessee has failed to discharge its onus of the creditworthiness of concerned party, and genuineness of transactions in terms of provisions of Sec 68 of the Act. The amount of Rs. 20,00,00,000/- received from the share applicants whose creditworthiness is not proved is covered within the mischief of Section 68 of the IT Act. Therefore, the same is held to be the income of the assessee u/s 68 of the Act. Therefore, the same is held to be the income of the assessee u/s 68 of the Income Tax Act, 1961. Considering the facts discussed above. It is evident that assessee has failed to disclose true particulars of its income therefore penalty u/s 27(1)(c) reads with Expln 1 of the provision is being initiated separately.

14 and Rs.19,90,00,000/- as per provisions of section 56(2)(viib) on protective basis in case addition u/s 68 is not upheld by appellate authorities. Consequently, the income of assessee was determined at Rs. 19,96,46,220/- against the loss of Rs. 3,53,777/- as disclosed in the return of income. 4. Aggrieved with' the aforesaid assessment by AO, assessee is in present appeal. The grounds of appeal taken by him are as under:- “1. The Ld. AO has erred in law and on facts in making an addition of Rs. 20 crore on account of share application money on illegal and untenable grounds. Hence, the addition, as such, must be deleted. 2. The Ld. AO has erred in law and on facts in making of an assessment u/s 143(3) without serving mandatory notice u/s 143(2) on the assessee; hence the assessment is bad and may be quashed. 3. The Ld. AO has erred in law and on facts in making of warranted deemed addition of Rs. 19,90,00,000/- on account of share premium based on untenable and illegal ground; hence the addition as such may be deleted. 4. The Ld. AO has erred in law and on facts in assessing the case as a completed scrutiny as against limited scrutiny prescribed, hence the whole assessment as such is bad and may be quashed. 5. The appellant craves leave to add, substitute or modify any grounds of appeal on or before date of hearing." 5. The First Ground taken by appellant pertains to the addition of Rs. 20,00,00,000/- u/s 68 of IT Act on account of share application/premium money received by assessee during the year. 5.1 In support of aforesaid ground, appellant has submitted as under:- “Appellant Contention The appellant submits as follows: 1. The company was incorporated as on 19.03.2004. The return was filed on 25.09.2014 declaring an income of Rs.nil. 2 During the year under consideration, there was investment by certain companies in the appellant whose name is give above, in whose respect; further detail is given as below. Further, the following evidences in support of investment in the company were filed by the appellant:-  Copy Of board resolution of investor company ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

15  Copy Of ITR with complete audited finance statement for the relevant A.Y.  PAN NO. '  Relevant part of bank statement of Investor Company,  Copy of confirmation from the investor company  Company details downloaded from website of MCA showing them as active company  Copy of share certificate evidencing the allotment of share  Copy of allotment letter confirming the allotment-FORM 2 OF ROC  Copy of allotment return-PAS 3 of ROC  Source of source was also filed during assessment proceeding as confirmed in the assessment order. In spite of providing all the above information and documentation, the Ld AO has made an addition of Rs. 20 crores under section 68 on certain grounds as stated above, reply of which is as below. Either exact or appropriate same amount is being deposited on the same day of remittance in assesses's account or one day before remittance There is no where provided in the Income Tax Act that there' need to be a good balance every time in account before issuing any cheque or that there should always be a good balance in current account. In the case of a running business, there is generally cheque keep on coming and going out leaving small businesses and there is no economic return on the balance lying in the current account of the company. This issue was also put up before the Honorable BHC in the case of CIT vs Orchid Industries Ltd, INCOME TAX APPEAL NO. 1433 OF 2014 but the court in view of voluminous records produced in support of case upheld deletion of addition of share application money under section 68 of the Income Tax Investment by share subscriber company in unlisted share at huge premium in related/group company which are expediting accommodation entry affairs as happened in assesses case First of all, there is no reason as alleged to be an accommodation entry by the LD AO, this is out of general perception that he has jumped to this conclusion without there being any record available with him. Even this is not a case of any information from investigation unit or any other source. With regard to huge premium, this is submitted that this is an idea or good. business opportunity that fetch premium in the market. Here, the investment in USA which is considered as the best economy in the world d that too in the business of coal

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16 mines is sufficient to fetch good or huge premium fro i n the market. Further, again this is a purely business decision of the investor company that whether he wants to invest at premiums or not in the appellant company. All 7 share, holder company are having account in the same bank with same branch only if all the shareholders coincidently have accounts in the same bank then it does not prove that this could not lead to any inference otherwise. In fact, similar kind of objection in the case of Winstral Petrochemicals (P.) Ltd. [2011] 330 ITR 603 / 10 taxmann.com 137 (Delhi) that all ihe shareholders are having the same address. In that case, honorable DHC has held that the common address of shareholders was not a valid basis to disregard the claim of the assessee. ITR and profit and loss account do not reflect their creditworthiness or No significant revenue from business operation or ITR shows negligible income ITR and Balance Sheet reflect the status of a year whether there is a profit or loss in that year and how much it is. It does not reflect the creditworthiness of the company. This is balance sheet of the company which reflects the creditworthiness of the company.. In the case under consideration, your honor will appreciate that the creditworthiness 0f the company is quite sound and is proved. Further with regard to nil income or insignificant income, we will submit mat LD AC Lac rot seen the return of Investor Company properly. /Is your honor wili observe from the table annexed that there is a profit declared from 1.20 lacs to 24 lacs and tax paid is from 37 thousand to 7.62 lacs. Here, similar facts were there in the judgment of honorable DHC in the case of Virndavan Farms Pvt Ltd as under:- CIT vs. Vrindavan Farms (P) Ltd (Delhi High Court), ITA 71/2015 The Revenue has not doubted the identity of the share applicants. The sole basis for the Revenue to doubt their creditworthiness was the low income as reflected in their Income Tax Returns. The entire- details of the share applicants were made available to the AO by the Assessee. This included their PAN numbers, confirmations, their bank statements, their balance sheets and profit and loss accounts and the certificates of incorporation etc. It was observed by the ITAT that the AO had not undertaken any investigation of ihe veracity of the above documents submitted to him. It has been rightly commented by the ITAT that without doubting the documents, the AO completed the assessment only on the presumption that low return of

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17 income was sufficient to doubt the credit worthiness of the share holders. Hence, the claim of the AO that there is meager or no income is incorrect and not tenable. Total combined income of all applicants is much less than the investment of any one of them There is no law that income should be equivalent to investment. There is a difference between capital and income and capital is sum total of money invested by sftartnn'der, loan and profit earned over period of time. Investment - pf any concern is generally out of investor fund and profit earned over a period of time, loan and some times out of rotation of business. Hence, this issue is not relevant. The assesses didn't substantiate source of money received in any of their share applicant nor the financial of these applicant substantiate their creditworthiness. This is a general comment being made by the Ld AO without reference to any specific material which lead to such belief. The assessee in order to substantiate his claim has submitted whole lots of documents as stated above during the course of assessment proceedings. Even the hank statement of subscriber of the capital in investor company were filed, before the LD AO. which is confirmed by the LD AO in the assessment order:(Emphasis Supplied) Hence, this point is not relevant. Details of non current investment are not attached as mandatory as per ICAI Guidelines After the companies Act, 2013, the balance sheets are prepared as per the company Act, and hence it is prepared accordingly. The investment has been done as per the AS-13. Investment in USA company can be done directly and not required to be made through assessee there are various person who invest in mutual fund and Mutual fund entity in turn investment in shares. Now the question is why they do not invest in shares directly; why they shares their profit with mutual fund. The subject matter of business conducting in USA or investment in USA, both business scenario could not be taken at par. This is submitted that every person cannot open company in USA and enter into agreement over there for investment in coal mines. This is some people who conceive such idea and implement them,.

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18 This issue is at all not relevant. Share holders were not produced In this regard, it is submitted that all the investment were made by cheque and audited financial statement of the company were produced before the LD AO. Further, all the notices issued under section 133(6) of the Income tax act were responded back. Hence, the identity, genuineness and creditworthiness should not be doubted. With regard to production of shareholders, the honorable SC in the case of CIT vs. Orissa Corporation (P) Ltd (1986)159 ITR 78(SC) SC held that once the that the assessee gave the names and addresses of the creditors. It was in the knowledge of the revenue that the said creditors were income tax assessee. Their index numbers were in the file of the revenue. The revenue, apart from issuing notices under section 131 of the Act at the instances of the assessee, did not pursue the matter further The revenue did not examine the source of the income of the said alleged creditors to find out whether they were creditworthy or whether they could advance the alleged loans. There was no effort made to pursue the so called alleged creditors.. In those circumstances, the assessee could not do anything further. In the circumstances, the Tribunal came to the conclusion that the assessee had discharged the burden that lay on him. The court upheld the tribunal verdict holding that its conclusion was not unreasonable or perverse or based on no evidence, Since the conclusion is based on some evidence on which a conclusion could be drawn, it was held that no addition is warranted in this case. Further, we may submit as follows: 1 There is no information or report with the Ld AO from any source that there is any accommodation entry to the assessee. 2 Further, there is no evidence with the revenue that this is assesses's money which has been rounded up in the form of share application money UK assesses company. 3 There was no material to conclude that investor companies were paper companies they have been regularly assessed to tax & paid good amount of tax. 4 The assesses had discharged primarily onus to prove the identity genuineness & creditworthiness of said shareholders. ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

19 5 All the notices sent under section 133(6) to the investor company served and reply received as stated in the assessment order also. As the addition is under section 68, so it is necessary to understand and analysis the section in respect of share application money Law concern Section 68 of the Act Delhi High Court in the case of Five Vision Promoters Pvt Ltd analyzed this and held that Before proceeding to discuss the above submissions, a brief recapitulation of the legal position as regards Section 68 of the Act is necessary. Under Section 68 of the Act, the AO has jurisdiction to undertake enquiries with regard to the amount credited in the books of the accounts of an Assessee. This could be any sum whether in the form of sale proceeds or receipt of share capital money. First, the AO is to enquire whether the alleged shareholders in fact exist or not. The truthfulness of the assertion by the Assessee regarding the nature and the source of the credit in its books of accounts can be examined by the AO. Where the identity of the shareholders stands established and it is shown that they had in fact invested money in the purchase of the Assessee's shares, then - the amount received would be regarded as capital. Where the Assessee offers no explanation at all or the explanation offered is unsatisfactory, the provision of Section 68 may be invoked. That the assessee under consideration by producing lots of evidence as stated above has proved the identity, creditworthiness and genuineness of the transaction.(Emphasis Supplied) Legal Precedence That the appellant further, in support of his contention, places reliance on the following judgments:- CIT vs. Value Capital Services Ltd. (2008) 307 ITR 334 (Del.) - H'on'ble Delhi High Court has held as under:- 5: While setting aside the order of the Commissioner of Income- tax (Appeals); the Tribunal relied upon two decisions of this court, namely CIT v. Stellar Investment Ltd. [1991] 192 ITR 287 and a Full Bench decision in CIT v. Sophia Finance Ltd [1994] 205 ITR 98. Several other decisions have been rendered by this Court following the above two decisions^ The principle that has been laid down by the various decisions rendered by this Court from time to time is that if the existence of the applicant is proved, normally no further inquiry is necessary. 6. Learned counsel for the Revenue submits that the creditworthiness of the applicants can nevertheless be examined by the Assessing Officer. It is quite obvious that is very difficult for the assessee to show the creditworthiness of strangers. If the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

20 Revenue has any doubt with regard to their ability to make w-e investment. Their returns may be reopened by the Department: • 7. In any case what is clinching is the additional burden on the Revenue. It must show that even if the applicant does not have the means to make the investment, the investment made by the applicant actually emanated from the coffers of the assessee so as to enable it to be treated as the undisclosed income of the assessee. This has not been done in so far as the present case is concerned and that has been noted by the Tribunal also. 8. Under the circumstances, we are of the view that the Tribunal has not committed any error in deleting .the addition. 9. No substantial question of law arises " Bhav Shakti Steel Mines (P) Ltd. v. CIT (2009) 179 Taxman 25. wherein the Honble Delhi High Court has observed as under:- .. "In any event we also are also note that the Supreme Court in the case of CIT v. Lovely Export (P) Ltd. [2008] 216 CTR Page 195 considered the question as to whether the share application money can be regarded as undisclosed income under Section 68 of the Income Tax Act, 1961. The Supreme Court dismissing the SLP observed that if the share money is received by the assessee company from alleged bogus shareholders whose names are given to the Assessing Officer, then the Department is free to proceed to assess them individually in accordance with law. The Supreme Court did not find any infirmity with the impugned judgment of the High Court which was a common order along with the decision in CIT v, Divine Leasing & Finance Ltd. [2008) 299 ITR 268 (Delhi). Since the Commissioner of Income-tax (A) has not only found that the identity of each of the shareholders .stood established, but has also examined the fact that each of them’ were income-lax assessees and had disclosed the shape application money in their accounts which were duly reflected in their Income-tax return as well as in their balance sheets. In these circumstances we see merit in what the learned counsel for the appellant has submitted and we feel that the Tribunal was unjustified incoming to the conclusion that the CIT(A) had not considered the matter in the right perspective. Consequently, we decide the question in favor of the assessee and set aside the order passed by the Tribunal." PCIT vs LAXMAN INDUSTRIAL RESOURCES LTD, ITA 169/2017, C.M. APPL. 7385/2017, DHC This Court notices that the assessee had provided several documents that could have showed light into whether truly the transactions were genuine. It was not a case where the share applicants are merely provided confirmation letters. They had provided their particulars, PAN ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

21 details, assessment particulars, mode of payment for share application money, i.e. through banks, bank statements, cheque numbers in question, copies of minutes of resolutions authorizing the applications, copies of balance sheets, profit and loss accounts for the year under consideration and even bank statements showing the source of payments made by the companies to the assessee as well as their master debt with ROC particulars. In the present case the assessee can be said to have discharged its onus under section 68 of the Act. The appellant has given all the necessary details in order to establish the identity of the share applicants. After considering the entire material placed on record, it is fair to conclude that the share-applicants were existing parties and the payments were made through banking channels, It is also observed that the Assessing Officer could not point out any discrepancy in the evidences relied upon by the assessee, He has neither brought out any direct or inferential evidence to contradict the contention of the assessee. Though, the share-applicants could not be examined by the AO, since they were existing on the file of the Income Tax Department and their income- tax details were made available to the AO, it was equally the duty of the AO to have taken steps to verify their assessment records and if necessary to-also, have them examined by the respective AOs having jurisdiction over them (share-applicants), which has not been done by him. Under the facts and circumstances of the case stated above, it is held that the addition of Rs. 70,00,000/- cannot be sustained and accordingly, the same is directed to be deleted CIT vs OASIS HOSPITALITIES (PVT.) LTD., 333 ITR 119 DHC In a batch of cases, the Court had to consider whether the addition made by the AO u/s 68 on account of unexplained share application money was justified. After a comprehensive review of all the important cases on s. 68, the following principles were laid down: (i) S. 68 provides that if the assessee is not able to give satisfactory explanation as to the "nature and source" of a sum found credited in his books, the sum may be treated as the "undisclosed income" of the assessee. The initial burden is on the assessee to explain the "nature and source" of the credit and to do so, the assessee is. required to prove (a) Identity of the shareholder; (b) Genuineness of transaction; and (c) credit worthiness of shareholders; (a) The identity of the shareholder can be proved by before the AO or by way of documents, registered address, PAN etc;

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22 (b) The genuineness of the transaction can be shown from the fact that the money has: been received from the shareholder. If the money is received by cheque and is transmitted through banking or other indisputable channels, the genuineness of transaction would be proved. Other documents showing the genuineness of transaction could be the espies of the shareholders register, share application forms, share transfer register, etc. (c) The creditworthiness or financial strength of the creditor/ subscriber can be proved by producing the bank statement of the creditors/subscribers showing that it had sufficient balance in its accounts to enable/ it to subscribe to the share capital. Once these documents are produced, the assessee would have satisfactorily discharge the onus cast upon him. The AO can discredit the documents produced by the assessee with cogent reasons and materials but not on the realm of suspicion; (ii) If the assessee has produced documents like PAN Card, bank account details or details from the bankers the onus shifts upon the AO and it is for him to reach the shareholders and the AO cannot burden the assessee merely on the around that summons issued to the investors were returned back which the endorsement "not traceable"; (iii) The initial burden on an assessee which is a pvt ltd company is somewhat heavy because the shareholders are family friends/close acquaintances etc and the assessee cannot feign ignorance about the status of these parties; (v) There is an additional burden on the Department to show that even if share applicants did not have the means to make investment, the investment made by them actually emanated from the coffers pf the assessee so as to enable it to be treated as the undisclosed income of the assessee. In the absence of such finding, addition cannot be made u/s 68 in the hands the assessee. (vi) The Department is free to reopen the individual assessment in case of alleged bogus shareholders in accordance with law and, thus, not remedy- less. CIT vs FIVE VISION PROMOTERS PVT.LTD, DHC, 380 ITR 289 (Delhi) Coming to the core issue concerning the identity, creditworthiness and genuineness of the investor companies, it is seen that as far as the Table I investors were concerned, only 9 were searched and in their cases, the ITAT on a very detailed examination was satisfied that they not only existed, but that the Assessee had discharged the primary onus of proving their ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

23 creditworthiness and genuineness. They had responded to the summons issued to them. The mere fact that some of the investors have a common address is not a valid-basis to doubt their identity or genuineness. Also, the fact that the shares of the Assessee were subsequently sold at a reduced price indeed not germane to the question of the genuineness of the investment in the share capital of the Assessee. The question of avoidance of tax thereby may have to be examined in the hands of the person purchasing the shares. Reliance is further placed on the following judgments:- 1 the Supreme Court in CIT v. Lovely Exports (P) Ltd. [2008] 216 CTR 195, 2 CIT v. Divine Leasing & Finance Ltd. (decision dated 21st January 2008 of the Supreme Court in Special Leave to Appeal (Civil) (CC) 375 of 2008) 3 decisions dated 17th September 2012 of the Supreme Court m CIT v. Kamuhenu Steel & Alloys Ltd. [SLP (Civil) CC 15640 of 2012)]. In all the above -three decisions the Supreme Court had affirmed the corresponding decisions of this Court including 4 CIT v. Divine Leasing & Finance Ltd. [2008] 299 ITR 268/[2007] 158 Taxman 440. 5 CIT v. Sophia Finance Ltd. [1994] 205 ITR .98/[1993] 70 Taxman 69 (FB). Prayer In view of the above facts, law and legal precedents, it is prayed to delete the addition under section 68 of the Income Tax Act, 1961." 5.2 I have considered the facts of the case, basis of addition made by AO and submissions of the Appellant. As it is clear from the assessment order that assessment proceedings were undertaken by AO on the ground or selecting the case for scrutiny for verification of large share capital or premium received during the year and in comparison to that, low/nominal income disclosed in the return. It was also clear from the state of affairs of appellant that disproportionately high premium i.e. Rs. 19,90,00,00,000/- against the face value of Rs. 10,00,000/- of one lakh shares, was shown as received on the basis of performance of appellant company declaring loss of Rs 3,53,777/- during the year. Thus, it was evident and justifiable on the part of AO to examine the genuineness and creditworthiness of companies who had invested in the shares of appellant company at the cost of such a high premium. The efforts were made by AO to examine the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

24 existence of the share applicant companies by asking the appellant to produce their directors and also to submit the relevant details and evidence as asked by him vide notices issued u/s 133(6) of the IT Act. However, despite of giving several opportunities and show cause notices by AO, appellant failed to produce any of the directors of the aforesaid companies and thus there was nobody to represent the share applicant companies to establish their identity, creditworthiness and genuineness of transactions. It has to mention here that the appellant company, which has taken the entries of share application money/premium of the aforesaid amounts from share applicants, is a private limited company different from the public limited companies wherein public are substantially interested and where the share application money comes out with an initial public offers and wherein shares are listed on stock exchange and are widely traded. In such cases, it is very difficult for the company to know of them closely and have no control/mechanism to verify the creditworthiness and the burden of proof in such case is difficult. But there is another class of companies which are closely held and in which public are not substantially interested and which are mostly family controlled closely held companies, and they raise their share capital and loans from their family members, relatives and friends and in these companies since share capital and loans are received from the close knit circles who are mostly known to the companies/promoters, the onus required u/s 68 of the Act is very heavy to prove the capacity of the share holders and lenders and genuineness of the transactions to satisfy cumulatively the ingredients of section 68 of the Act to the satisfaction of the AO, otherwise he shall be free to proceed against the assessee company and make addition u/s 68 of the Act as unexplained cash credit. 5.3 Now, in the light of above, it has to be seen, as discussed above, to what extent, appellant has been able to satisfy all three conditions, i.e., identity of creditor, creditworthiness and genuineness of transactions in its case. So far as the word 'identity' is concerned, Hon’ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd., [2014] 2 ITR-OL 68, has defined that 'the identification of the person would include the place of work, the staff, the fact that it was actually carrying on business and recognition of the said company in the eyes of public. Merely producing PAN or assessment particulars did not establish the identity of the person. The actual and the true identity or the person a company was the business undertaken by them.' In the case of appellant, appellant has failed to establish the identity of share applicant companies as despite of several opportunities given by AO, the appellant could not file any such evidence in respect of share applicant companies that they actually exist. The AO had specifically asked the appellant on 07.11.2016, 22.11.2016, & 02.12.2016 to produce the doctors of the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

25 aforesaid companies to examine their identity, creditworthiness and genuineness of transactions but every time, appellant failed to produce any of the directors. It also failed to submit the relevant details such as copy of accounts for preceding/subsequent years, their tax audit report, resolution of the board meetings, complete bank statements, details related to investment in shares, etc. In such situation only, Hon'ble jurisdictional High Court in the case CIT vs. Youth Construction Pvt. Ltd., 357 ITR 197 and CIT vs. Nipun Builders and Developers Pvt. Ltd., 350 ITR 407, has held that onus is on assessee to prove the identity of share applicants, failing which it has to be concluded that the assessee company has introduced its own money through non-existing companies using the banking channels in the shape of ®hare application money. In view of this, it is clear that the appellant failed to establish the identity of share applicants in its case. Thus, the first condition as stipulated in section 68 of the Act is not satisfied. 5.4 As regards the other conditions, i.e., creditworthiness and genuineness, Hon'ble jurisdictional High Court in the case N.R. Portfolio Pvt. Ltd. (supra) has held that the bank accounts do not reflect the creditworthiness or even genuineness of the transaction. The beneficiaries, including the respondent- assessee, did not give any share dividend or interest to the said entry, operators/subscribers. The profit motive is normal in case of investment, which should reflect from accounts. In the present case, no profit or dividend was declared on the shares during the year, rather, loss of Rs. 3,53,777/- has been declared. It is on record that though the appellant company was incorporated on 19.03.2004 but no business activity were carried out by it till the raising of share premium in the year under consideration. Even in the subsequent three years also, no profit or dividend was declared by appellant. Any person, who would invest money or give loan would certainly seek return or income as consideration. These facts are not adverted to and as noticed below are true and correct. They are undoubtedly relevant and material facts for ascertaining the creditworthiness and the genuineness of the transactions. It is further held by Hon'ble Court in the above case that 'mere production of incorporation details, PANs or £he fact that third persons or company had filed income tax details in case of a private limited company may not be sufficient when surrounding and attending facts predicate a cover up. These facts indicate and reflect proper paper work or documentation but genuineness, creditworthiness, are deeper and obtrusive. Companies no doubt are artificial or juristic person but they are soulless and are dependent upon the individuals behind them to run them and manage them. It is the persons behind the company who take the decision, control and manage them.' In the case of appellant company also, though the soulless juristic entity is existent on paper but the individuals, running and managing, them are found non-existing as the appellant company could not ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

26 give a single detail about the existence or location of the share applicant companies. Since the creditors are non-existing, their creditworthiness is also not established. During the assessment proceedings also, appellant could not prove with the documentary evidence that the creditor companies are having sufficient balance for investing in share application of the appellant company. Thus, the creditworthiness of the aforesaid share applicant companies has not been proved herein in the case of the appellant. Similarly, the genuineness of transactions in the case of creditors has also not been proved as the AO has clearly mentioned that the appellant could furnish one page bank statements only and that those statement also show that the money invested as share/premium has been deposited on the same day or one day prior in the accounts of share applicant companies which could not be justified by appellant. Thus, the onus cast upon by the provisions of the 68 of the Act has not been discharged by appellant to treat the share application/premium as genuine. 5.5 Thus, the appellant company failed to discharge the initial burden of establishment the identity, creditworthiness and genuineness of transaction in the case on its share applicants/ creditors. In view of above discussion, it can be seen that none of the conditions as per section 68 of the Act are satisfied, therefore, the addition on account of unexplained share application money was liable to be made in the hands of the appellant company. 5.6 In addition, as mentioned by AO, the case of appellant is covered by the 1st proviso of section 68 also. As per this proviso, in the case of a company, if the sums so credited consist of share application money, share capital, share premium or any such amount by whatever name called, the explanation ordered by such company shall be deemed to be not satisfactory, unless (a) the person, Japing 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 sums so credited; and (b) such explanation in the opinion of Assessing Officer has been found to be satisfactory. In the case of appellant, it has failed to explain the nature and source of sums credited to its books of account in the names of share applicant companies, therefore, has been held that the said sums are unexplained, as per the main provisions of section 68 of the Act. The appellant could not prove the identity, creditworthiness and genuineness of transactions in the case of its own creditors, leave alone proving the nature and source of the funds received by its creditor companies as per the 1st proviso of section 68 of the Act. Not a single details, document or evidence could be produced/filed by appellant or the said creditor companies explaining the nature and source of the funds by establishing the identity and creditworthiness of the said creditor companies during the assessment proceedings. Onus, was on the said creditor ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

27 companies to explain the nature and source of their funds by representing themselves before the AO with the supporting documentary evidence to prove their identity and creditworthiness and also the genuineness of transactions. But the same has not been done either by appellant or the said creditor companies. During the appellate proceedings, some details related to these share applicant companies have been filed to establish their genuineness but that is by the appellant, not by the creditor companies whereas the proviso clearly mandates that the explanation or details or evidence has to be offered by such creditor company. Thus neither during assessment proceedings nor appellate proceedings, these share applicant companies could satisfy the conditions as per proviso to section 68 of IT Act. 5.7 In such situation, the appellant has failed to discharge the onus cast upon it by the substantive provisions of section 68 of the Act or its proviso. Thus the appellant has failed on both the counts. In view of this, I hold that the AO was justified in treating the aforesaid sum of Rs.20,00,00,000/- as unexplained cash credits u/s 68 of the Act in the hands of appellant. I, therefore, confirm the additions made by him and dismiss the ground taken by appellant.” 11. The ld AR submitted that the assessee has submitted copy of the board resolution, ITR, audited financial statement, PAN, bank statement, confirmation, company master data, allotment letter and allotment return of share capital. He further stated that source of source was also filed during the assessment proceedings. He submitted that based on this information the assessee has discharged initial onus cast upon him. Merely because the returns of income of the company are less, it cannot be said that the creditworthiness of those investor is not proved. He further submitted that entirety of those companies shows and details of bank statement were produced. He further stated that merely because the assessee failed to produce the directors of the companies the additions cannot be made. 12. Though he argued vehemently that when the complete details are available of investors before ld AO, it is not necessary to produce the share holders directors and stated that Even otherwise mere non production of those shareholder cannot result in addition u/s 68 of the act when complete details were filed. He further submitted and promised that the assessee is ready to produce the directors of the company. He further argued that the ld AO should have issued summons u/s 131 of the Act to ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

28 the directors of the investor companies in case if he wishes to make such a huge addition for only that reason. He further submitted that no independent enquiry has been made by the ld AO. He further stated that in reply notice u/s 133(6) of the 7 shareholders have filed their replies with the return of income. He further submitted that the ld AO has wrongly followed the decision of Hon'ble Delhi High Court in Sanraj Engineering Pvt. Ltd ITA 69/ 2016 wherein, the other decisions cited were not considered. He further referred to the provision of section 68 of the Act and proviso there to and stated that the assessee has furnished proper explanation about the nature and source of such credit, however, the ld AO has rejected all the evidences submitted by assessee for the sole reason that assessee has not produced the directors of the investor companies. He further reiterated his statement that the assessee is ready to produce the directors of the investing companies before the ld AO for his examination. He submitted that before the ld AO assessee has failed for the reason that assessee was under the belief that when the adequate documents are produced the ld Ao will accept them. The final notices issued by the ld AO was very late and therefore there was no occasion to produce them. 13. The ld DR vehemently supported the orders of the ld AO and the ld CIT(A) has stated that the assessee has failed to discharge initial onus cast upon it and therefore, the addition has rightly been made. He further submitted that as assessee has merely produced the documents but not the investors’ directors, therefore not all these papers had any credential. He submitted that company’s only act through the directors, unless they are examined with respect to those papers and explain sources of their funds invested in Assessee Company, the addition has been made correctly. 14. The ld AR vehemently submitted that though it is not necessary to produce the directors of the assessee company and ld AO could have issued summons to them when the complete details are furnished, but in any case assessee is ready to produce the directors of the investors company. He submitted that show cause notice was issued on 20/12/2016 mentioned at page no 7 of assessment order giving the date of hearing on 26/12/2016 and assessment order was passed on 30-12-2016. Therefore, adequate opportunity was also not provided. He submitted that even the ld CIT (A) did ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

29 not remand the matter to the ld AO to examine the directors of the investor companies. He reiterated his offer to produce the directors of the investor company. 15. We have carefully considered the rival contention and perused the orders of the lower authorities. Briefly stated the issue is that assessee has issued share capital to seven companies amounting to Rs 20 crores of face value of Rs 10 lakhs and share premium of Rs 19.90 crores. Assessee on questioned submitted all the requisite details in the form of balance sheets, Income Tax Returns, PAN, bank statement of the investor companies etc. It also submitted the share applications forms and return of allotment of shares. The ld AO issued inquiry letter to companies u/s 133 (6) of the act which were also replied to. The ld AO based n the bank statements found that the returned income of the companies is not commensuration with the amount of investments made in the assessee company and also the bank statements furnished by the assessee I only a one pager statement which shows that prior to transfer of moneys as share capital with the assessee, RTGS ( Real Time Gross Settlements) funds received from other accounts. Therefore according to ld AO source of sources of funds are not proved. Ld AO was also of the view that when the bank accounts of all the investors are in same branch of the bank, there is some doubt. So the ld AO asked assessee to produce the directors of the company. Assessee requested ld AO to issue summons u/s 131 of the act. The final show cause notice was issued by the dl AO on 20/12/2016 and assessee was asked to produce the directors by 26/12/2016. Naturally, assessee reiterated the same documentary evidence furnished by the assessee but did not produce the directors of the investors companies. The Ld AO made the addition u/s 68 of the act. The ld CIT (A) also confirmed the addition holding that the companies act through their directors and paper documents does not have much relevance unless the directors of the investor companies were produced before AO. CIT (A) further held that in such an event even the identity, creditworthiness and genuineness of the transaction is not proved. Therefore, assessee is in appeal before us. On careful analysis of the orders of the lower authorities, it is apparent that assessee has submitted relevant documents before the ld AO but grievance of the ld AO and the ld ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

30 CIT (A) is that assessee has failed to produce the directors of the investor companies. It is also facts that when the share capital is issued by the assessee company to the other companies at a premium, to verify the creditworthiness and genuineness of the transaction, if the directors are produced who can be examined on the documents submitted by the assessee, it will test whether the assessee has discharged its initial onus or not. Further, as assessee is a private limited company, it is proper for ld AO to presume that assessee has the close nexus with the shareholders, therefore they can be produced before the ld AO. So far as the issue of the opportunity to the assessee is concerned the ld AO issued show cause notice on 20/12/2016 asking assessee to produce the directors on 26/12/2016 and passed the assessment order on 30/12/2016. Therefore it is also apparent that assessee did not get proper opportunity of producing the directors of the investors company before the assessing officer. The learned authorised representative repeatedly stated that assessee did not get proper opportunities of producing the directors before the Ld. assessing officer and therefore now case of the assessing officer is that non production of the directors of the investor companies have made all the evidence produced by the assessee redundant, he repeatedly offered to produce the directors of the investor companies. Learned departmental representative also stated that if the assessee produces the directors before the assessing officer and if those persons are examined with respect to the evidence submitted by the assessee, the issue may be set aside to the file of the Lord assessing officer. We also are of the opinion that assessee has submitted enough evidences to prove their identity, creditworthiness and genuineness of the transactions. Further if assessee produces the directors of the investor companies before the Lord assessing officer and they are examined by Ld. assessing officer, it will conclusively decide the whole issue. Accordingly, on the request of both the parties, we set aside the first issue covering ground number one of the appeal back to the file of the Learned AO with a direction to the assessee to produce the directors of the investor companies for examination before the assessing officer. The AO is also directed to examine them on the basis of documents submitted by the

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31 assessee. Accordingly, ground number one of the appeal of assessee is allowed with above direction. 16. Ground No. 2 is with respect to the addition u/s 56(2)(viib) of the Act on protective basis by the ld AO. As the assessee has received share capital of Rs. 20 crores of the face value of Rs. 10 each at a premium of Rs. 1990 per share therefore, the ld AO held that the provision of section 56(2)(viib) of the Act are attracted. He further made the addition of Rs. 19.90 crores of share premium u/s 56(2)(viib) of the Act holding vide para No. 2 of his order as under:- “2. Addition of share capital section 56('2)(viib) of the Act In the course examination of genuineness of share capital and premium of ^20,00,00,000/- in terms of section 68 of the Act as discussed in preceding pages in details, it has been established that the assessee company has been able to siphone its own money through banks accounts of seven so-called share subscribers at 199 time above face value of its share and the assessee company is a private limited where public are not substantially interested receives in any previous year from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of share as exceeds the fair market value of share shall be chargeable to income tax under the head income from other sources. Accordingly, the genuineness of transaction of Rs. 19,90,00,000/- needs to be examined on the parameters of new amendment to section 56(2) i.e. 56(2)(viib) applicable from the A.Y. 2014-15. As per audited balance sheet these share were issued to following share holders with details mentioned against their name. S. Name No. of Face Amount of Face Value Total an of Share value premium per No. premium s of share received 01. M/s. Apire 12500 Sha 10 1990 2500000 125000 Sales Pvt. re 02. M/s. Ankita 32000 10 1990 64000000 320000 Ltd. Enterprises 03. M/s. Wens 1800 10 1990 36001000 180000 Pvt. Ltd. Industries 0 04. M/s. Airson 1125 10 1990 2250100 112500 Ltd. Mercantile 0 0 Pvt. Ltd. 05. M/s. 1125 10 1990 2250100 112500 Makamashi 0 0 Enterprises 06. M/s. Moral 1000 10 1990 2000100 100000 Ltd. Sales Pvt. 0 0 07. M/s. Dashing 5000 10 1990 10000000 50000 Ltd. Industries Pvt. Ltd. ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

32 TOTAL 19,90,00,00,00 20,03,0O,0 10„00,000 0 00

The AR of the assessee asked vide notice u/s 142(1) dated 02.08.2016 and other notices to submit details of the share holders with name, PAN, Address and date of receipts. Justify this in view of section of 68 of the Act. Submit detail in as per below: fatal Name and Face No. of Value Amount address of (he value Premium on PAN shares w Receive share holder of each each share allotted allotte d I share d 1 2 3 4 5 6 7

Also furnish (i) Bank statement of the company which shares capital and premium were received, (ii) In the case where shareholders are companies provide detail of directors of all such companies with their name, PAN, Address; (iii) The proof of identity and creditworthiness the shareholders as well as the proof of genuineness of transaction in respect of fresh credit of the share capital/premium account; (iv) The working and quantum of Book Value of Shares and justification for the quantum of premium; (v) Valuation report' of the share price. ” Vide reply dated 02.09.20l6, the assessee has submitted the detail of share capital issued and detail of share premium charged. In its reply dated 07.12.2016 the assessee has submitted working of cash flow etc. Further during the course of the assessment proceedings the assessee was asked to submit the valuation report for share price determination and basis of issuance of the share. Vide reply dated 07.12.2016 the assessee has submitted few pages of the valuation report. The report which was submitted by the assessee without any annexure, exhibits as referred in the report. Vide note sheet entry dated 07.12.2016 the assessee was asked the followings:- "The assessee has received share premium of Rs. 19,90,00,000/- and share capital of Rs. 10,00,000/. The assessee had submitted the detail with name, PAN, Address and date of receipts". ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

33 "Vide Show Cause notice dated 20.12.2016 'the. assessee was asked to file the detail including the working and quantum of Book Value of Shares and justification for the quantum of premium and valuation report of the share price ". Vide reply dated 26.12.2016 the assessee filed nothing material in support of valuation report. Annexure and exhibit were part of the report but not submitted by the assessee. Section 56(2)(viib) which is applicable from this year had specified that the valuation of the unaccounted shares has to be done as per 11 U/11UA of income tax rules notified where in share price method has been given. The assessee failed to establish the how such requirement of the section and rules were satisfied. The assessee has reported loss of Rs 3,53,377/- during the year. Discounted cash flow is always depended on current cash flow w of revenue which is Loss as per P&L account. In this connection the assessee is required to show cause as to why share premium of Rs. 19,90,00,000/- shout a not he added back to the income of the assessee u/s 56(2) (viib) of the act read with rule 11UA (2)(b) of the income tax rules:- Vide reply dated 07.12.2016 the assessee has submitted that share premium was received by the assessee based on the cash flow done by the assessee. The report front' C.A. was taken by the assessee. The assessee has submitted its very summarized working of the valuation report. However, it is worthwhile to note that the report filed by the assessee also does not contained date of valuation where as the issue of the shares were at different dates during the financial year. Date of investment/allotment has been reproduced under the head date wise and party wise data at preceding page. The report which was submitted by the assessee without any annexures, exhibits as referred in the report. Before discussing the submissions of the assessee and my observations on it, it is required to understand the relevant provision in respect of section 56(2)(viib) of the act Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head “Income from other sources”. It was inserted a new clause in section 56(2). The new clause is applicable where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources. Further, it is also important to provide the company an ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

34 opportunity to substantiate its claim regarding the fair market value. This amendment has taken place effect from 1st April, 2013 and will, accordingly, apply in relation to the assessment year 2013- 14 and subsequent assessment years. Section 56 (2)(viib) relevant to Assessment Year (AY) 2013-14] is given below: "(viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of Such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf Explanation.—For the purposes of this clause:- (a) the fair market value of the shares shall be the value (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company In the, satisfaction of the Assessing Officer, based on the value, on the date of issue of shares of its assets including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature whichever is higher. (b) "venture capital company’’. “venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause, (b) and clause (c) of Explanation 1 to clause (23FB) of section 10; Vide Notification No. 52/2012 [F.N<?.I42/19/20I2-SO(TPL)/SO 2805/1, Dated 29 November 2012 (herein also called “New Notification”), Rule 11 U / 11 UA have been amended. The amendments are primarily to provide for a method of valuation in respect of premium taxation under section 56(2)(viib), The New Notification is made applicable from the date of publication of the Rule in official Gazette. The Notification was also gazette on 29 November 2012. The valuation rule 11 UA of income tax rule is described as under:- ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

35 For the purposes of the above section. FMV is determined as per thy provisions of Rule 11 UA. The aforesaid Rule, inter alia provides that the FMV of unquqteu) equity shares determined on the valuation date shall be; (A-L) x (pV) (PE) Where: A Book value of the assets in Balance Sheet (as on the date of transfer receipt) as reduced by i. any amount of tax paid as deduction at source (TDS) or ii. any amount of tax paid as collection at source (TCS) or iii. as advance tax payment iv. any amount shown in the balance-sheet as an asset including the unamortized amount of deferred expenditure which does not represent the value of any asset L. Book value of liabilities shown in the Balance Sheet (as on the date of transfer/ receipt) but not including the following amounts i. the paid-up capital in respect of equity shares; ii. the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; iii. reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; iv. any amount representing provision for taxation, other that amount of TDS or TCS or as advance tax payment. The quantum of TDS or TCS or advance tax needs to be reduced by the amount of tax claimed as refund under the IT A; v. any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

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36 vi. any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference share; PE Total amount of paid up equity share capital as shown in Balance Sheet (as on the date of transfer/ receipt) PV The paid up value of such equity shares " The reply of the assessee was considered but not found acceptable for the reason that the assessee had suffered loss during the year and failed to meet projected cash flow in subsequent years also which is apparent from its ITR and relevant financial statements. The assessee has not given any base of cash flow of the assessee which were used by the assessee. Upon further perusal of the financial statement of the assessee for next two year it was noted that the assessee don’t have any actual cash flow against projected one. The assessee has not given complete report as per 11UA of the Income tax rules. By nature, the valuation needs to be as of the date of receipt of gift or as of the date of receipt of consideration for issuance of shares for premium taxation. The assessee has issued shares on various dates. Since the assessee has issued shares on premium in such case as per provision of the section 56(2)(viib) read with rule 1IUA the assessee should have provided valuation report at various dates from any accountant as per section 285 of the Act or from any merchant banker as per definition given in Security Exchange Board of India . As per 11UA the valuation should have been done on valuation date. The valuation date should have be considered on date of issuance of shares i.e. date of allotment. For the purpose of section 56 (2)(viib), shares will need to be valued on the date of issue of shares. Unlike section 56(2)(viia), there is no specific reference to the date of valuation which occurs in section 56(2)(viib). However, Explanation (aXii) makes it clear valuation needs to be done as of the date of issue of shares. This would make it imperative for the company to make available valuation, which is based on financial parameters and other factors of relevance as subsisting as of the date of valuation. It may not be proper for the company to rely on the last published Balance Sheet. To that extent, principles that govern obligation of the shareholders to support valuation of the company would stand on a footing different as compared to the obligation of the company under section 56(2)(viib).The report was not complete and does not contained any material information through which the valuation priced should have been supported. The assessee has willfully hide to submit the complete report as there was no justification of share premium received.

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37 It is important to note that Clause (ii) needs to be restricted asset based valuation methodology by putting forth the argument that the language of Clause (ii) is very clear and it requires the value to be substantiated with reference to the value of assets. The section does not permit- any other alternative format of methodology. It is also noted that, for the purposes of objective determination and for simplicity, the legislature may normally describe method, which is based on net asset value. To illustrate, in respect of provisions of S.56(2)(viia), the valuation of shares is based on breakup value as per books. Likewise, Rule ID provides for breakup method for the purposes of wealth tax. It is likely that similar / same method may get prescribed for Clause (i) of S.56 (2) (viib). In such a case, the officer may suggest that legislative in to determine value which is linked to asset base - under Clause (i) the same is calculated with reference to book value while under clause (ii) the same is calculated with reference to fair market value irrespective of whether the asset is not reflected on the balance sheet. Income based valuation is prone to subjectivity and as it necessarily involves future projections. Many opportunity was provided to the assessee to substantiate the fair market value but the assessee has willfully refrain to submit complete facts in support of the share premium. The assessee is required to-substantiate the value of the company to the satisfaction of the tax officer having regard to assets of the company. In view of the facts discussed above prove that the credits of Rs. 19,90,00,000/- are directly hit by section 56(2) (viib) of the I.T. Act. The onus is on the assessee to prove the value of the share. The assessee has failed to discharge its onus on genuineness of transactions. It is important to note that valuation should be based on facts - an expert opinion without data in support of the same is required to be ignored, since his opinion is valued not so much because of his experience and qualification, but because of its justification on facts, which he is able to prove for his opinion. Value of expert evidence, it was held, is directly proportionate to the accuracy of the facts and the cogency of reasons capable of objective verification. It is important to note that valuation should be based on facts - an expert opinion without data in support of the same is required to be ignored, since his opinion is valued not so much because of his experience and qualification, but because of its justification on facts, which he is able to prove for his opinion. Value of expert evidence, it was held, is directly proportionate to the accuracy of the facts and the cogency of reasons capable of objective verification. Merely filing some papers in supports of its transactions cannot be termed as genuine transactions. In the light of above discussion Rs. 19,90,00,000/- is added to the income of the assessee as income from other sources in the books of assessee.

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38 It is evidence from the above discussion that the assessee failed to justify the receipt of premium of Rs. 1,990/- per share. Since the share application money from these applicants already been added back u/s 68 of the Act and the same cannot be added back again. However, without prejudice to the above, the excess premium of Rs. 19,90,00,000/- applicants whose creditworthiness has not been proved, is also deemed to be income from other sources u/s 56(2)(viib) r.w.s. 2(24)(xvi) of the Act. Accordingly, warranted deemed addition of Rs. 19,90,00,000/- is made in the hands of the assessee company u/s 56(2)(viib) of the Act. However, this addition will become substantive'& operative if the addition u/s 68 is not upheld by Appellate Authorities.”

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39 3. Company raised Rs. 20,00,00,000.00 by issuing equity through private negotiation and on the strength of coal mine opportunities in US from the following investors. a. Aspire Sale's Private Limited 2.50 Crores b. Akita enterprises Private Limited 6.40 Crores c. Wens Industries Private Limited 3.60 Crores d. Airson Mercantile Private Limited 2.25 Crores e. Mahamashi Enterprises Private Limited 2.25 Crores f. Moral Sales Private Limited 2.00 Crores g. Dashing Industries Private Limited 1.00 Crores TOTAL 20.00 Crores 4. The company t thereafter entered into an agreement/MOU with the promoters of coal mine project in US to subscribe the 60% equity ($.20 Units) for value of USD 30,50,000.00 in SPV company to be incorporated in US to undertake coal mining, [copy of MOU/agreement is enclosed in annexure]. 5. Company thereafter applied for permission from RBI through HDFC for making overseas direct investment (ODI) (Copy of ODI approved attached. 6. RBI permission for USD 30,50,000.00 was received and UIN NDJAZ20140175 was allotted. 7. SPV in the name of M/s Stryton Minerals & Resources, LLC was incorporate in US (Copy of certificate is attached). The following remittances were made to subscribe units (shares) in M/s Stryton Minerals & Resources, LLC through HDFC bank. S. No. Date Amount ,1 02-Jut-14 5,03,36,753.00 2 03-Nov-14 30,68,877.45 3 05-Feb-14 1,01,40,834.67 4 18-Jul-14 30,49,050.25 5 09-Nov-14 30,48,902.28 6 14 - Qct-14 47,82,173.86 7 14-N0V-14 37,55,798.99 8 15-Dec-14 19,02,815.43 9 31-Dec-14 9,54,498.50 10 15-Apr-15 46,50,261.59 11. 26-May-15 1,61,76,876.79 12 24-Nov-15 4,49,64,448.90 ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

40 Total 14,68,63,291.71 Copy of HDFC bank Statement reflecting the above remittances enclosed. The LD AO raised the issue of issuing the shares at such a high premium and proposed CIT(A) to add the amount under section 56(2)(vii)(b) if the addition under section 68 fails. In this regard, the law relating to it is being produced below:- Law Section 56(2)(viib) Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of sect. shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received— (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation. —For the purposes of this clause, — (a) the fair market value of the shares shall be the value— (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, whichever is higher; (b) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of 94[Explanation] to clause (23FB) of section 10;] Rule 11UA(2) of Income Tax Rules 1962, contains the prescribed method which is being produced as follows: Determination of fair market value. 11UA. 7-[l)] ***** 11 UA(2) Notwithstanding anything contained in sub-clause (b) of clause

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41 (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date,' of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely: e. * * * * * b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method.] Rule 11UA(2), of Income Tax Rules 1962, contains the prescribed method and permits the assessee to opt for either a) Book value method subject to the prescribed adjustments or b) Fair value determined by a Chartered Accountant or a Merchant Banker using discounted free cash flow method. It is pertinent to note that method pertaining to discounted free cash flow method was brought into rule w.e.f 29.11.2012. Therefore fair market values has to h$ determined for shares pertaining to which consideration received'before 29.11.2012 and those shares on or after 29.11.20IS1 For consideration received prior to 29.11.2012 fair market value shall be the higher of a) Book value on the date of consideration or if balance sheet not drawn up to that date than book value as per last audited balance sheet. b) Value on the date of share allotment. For consideration received on or after 29.11.2012 fair market value shall be the higher of a, Book value on the date of consideration or if balance sheet not drawn up to that date liar: book value as per last audited balance sheet. b) Value on the date of share allotment. c) Fair value determined by a Chartered Accountant or a Merchant Banker using discounted free cash flow method. From the perusal of above, it is clear that the legislator has given option to assessee to either opt for book value method or discounted cash flow method. This is a total discretion of the assessee to opt for either and no discretion is given to AO to interfere into it. Why DCFM in the case Further, DCFM is used to estimate the attractiveness of an investment opportune cash flow analysis uses future free cash flow projections-' ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

42 add discounts them to arrive at a present value, which is used to evaluate the potential for investment. If we look at the definition of DCFM and compared it in our case then there is a whole lot of reason to apply DCFM as the assessee is investing in a USA COMPANY which will deal in coal mines hence the future of this business is quite bright and highly potential and under such circumstances, the only method applicable is DCFM method. AO's Contention That the Ld AO has not accepted this valuation on the following grounds:- 1. Date of valuation is missing 2 The future cash -flow is not matching the projection 3 Valuation should be on different date of issue of shares. 4 Annexure and exhibits are not there. The detailed replies are as follows: 1 The date of valuation is missing In this regard, it is submitted that it is not missing; It is very well stated on the covering letter, refer page no 360 of paper book. 2 The future cash flow is not matching the projection. As, far as not matching of cash flow with actual projection is concerned, it is submitted that the amount invested by assessee in USA Company was much less and there was a need to invest more over there; hence the project is delayed. Furthermore, it is not necessary that whatever is planned is actually materialized. As far as basis of DCF method is concerned; and, such high future cash flow is concerned; it is submitted that there was a very sound basis of such high cash flow; first it was an investment in USA and second irf coal mines; these two words are sufficient to attract high premium in the company. In facts, what sells in the market is idea and If idea is correct arc seems viable one can obtain a high degree of premium on that. (Emphasis,- Supplied) The appellant, in support of his projection; places the following documents before your honor:- - Proposal to invest in coal mines in USA as received - Due diligence report of the proposal with annexure I to XVII - Formation of company as Strytone Minerals and Resources LLC

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43 - Share Certificate in Strytone Minerals and Resources LLC -Coal Lease Agreement dated 21.01.2014 - Definite coal Lease Agreement dated 21.01.2014 - Agreement for transfer of lease rights dated 21.01.2014 - Engineering service agreement 21.01.2014 - OD Approval Letter dated 26.02.2014 - Employment Agreement dated 24.09.2014 - Consulting Agreement dated 24.09.2014 - Operating agreement for Strytone Minerals and Resource, LLC - Approval letter from environment industry - Financial statement of Strytone Minerals and Resource, LLC C.Y.2016 - Financial statement of Strytone Minerals and Resource, LLC C.Y.2015 - Financial statement of Strytone Minerals and Resource, LLC C.Y.2014 - Proof of submission of APR to RBI for C.Y.2014,2015,2016. - Proof of remitting fund to USA - Valuation report 3 Valuation are not on different date of issue of share application money The decision to invite share application money was taken in one board meeting and the rate was fixed in that meeting and immediately after that search for investor was initiated in this case. As far as the Sate of valuation on each date of investment is concerned, it is applicable in the case of book value method where the valuation is done on today net worth basis and not in the case of DCFM, where the investment is made on future cash flow method. 4 Annexure and exhibits are not missing There is no annexure and exhibits which is missing and hence this is a vague finding by the Ld AO. Here it is important to mention that where the Act prescribes a rule, it has to be strictly and mandatorily followed and further if the statute has conferred a power to do an act and has laid down the method in which that povYends- ctr'fte exercised, it necessarily prohibits the doing of the act in any other manner than that has been prescribed.

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44 In support of this contention, the assessee has relied upon various decisions as follows: 1. Bharat Hari Singhania 207 ITR 1, SC: In this case, the Hon'ble Supreme Court of India was dealing with the validity of rule ID of Wealth Tax Rules which prescribed break up method for valuation of unquoted equity shares for the purposes of valuing the net wealth of the assets of the assessee therein and the Hon'ble Supreme Court laid down the following principles which are relevant to the case before us: (a) Rule 11UA described for the valuation of unquoted equity shares has necessarily be followed and WTO has no option either to follow or not to follow the same and the question whether the rule is mandatory or directory does not arise. (b) Valuation officer is as much bound by rules of valuation made under the Act as anybody else is. Since Rule ID uses the word 'shall', it prima facie indicates its mandatory character. 2. Mrs. Prem Shamsher Singh 210 ITR 233: In this case, the Hon'ble Delhi High court followed the judgment of the Hon'ble Supreme Court in the above cited case of Bharat Hari Singhania and others. 3. Chandra Kishore Jha 8SCC 266 : In this case, the Hon'ble Supreme Court was dealing with an election petition filed after the prescribed period of 45 days' from the election and while examining the rules made for the said purpose and the appellants' compliance thereto, it was held that 'it is a settled salutary principle that if a stature provides-for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner.' 4. Singhara Singh AIR 1963 358 (SC): In this case the Hon'ble Supreme Court was dealing with the validity of a confession not recorded Jn accordance with the procedure prescribed u/sl64 of the Criminal Procedure Code land held that 'if a statute has conferred a power to do an act and had laid down the method in which that power has to be exercised, it necessarily prohibits the doing of the act in any other manner than that which has been prescribed. 5. Danish Aarthi C.R.P. (NPD) (MD) Nos. 475 & 476 of 2004, dated 28-1- 2009]: In this case hon'ble Madras High Court was dealing with an eviction petition and observing the petitioner therein has not followed the procedure prescribed under section 8 of Tamil Nadu Buildings (Lease and Rent Control) Act, 1960 and held that 'when the statute prescribes to do a particular thing in a particular manner, the same shall not be done in any other ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

45 manner than prescribed under the law. For coming tp this conclusion, the court relied on the judgments of the Hon'ble Supreme Court cited above. Though the facts and circumstances under which the above rulings have been given are distinguishable, your honor will find that the legal principles laid don in the above judgments are clearly applicable to the facts of the case. Further, this is mentioned that the intention of the statute behind this section is to curb black money being converted to white without paying tax but it does not want to discourage genuine business deals that is why it has permitted assessee to issue shares at demonstrable fair value of assets on the day of the share allotment. In view of facts, law and legal precedents, it is prayed that the addition as ugh may be deleted." “6.1 I have considered the facts of the issue, basis of addition made by AO and submissions of the appellant. As it is dear from the facts that total one lakh shares of Rs. 10/- each were issued by appellant company during the year and against it, the premium of Rs, 1,990/- per share was charged which was disproportionately high looking, to the performance of appellant. The appellant company was incorporated on 19.03.2004 but till the year under consideration, no business activity was carried out by it. Even in the subsequent three years also, no business receipts/profit could be shown by appellant. In' such .situation*, what was the basis that the shares of appellant company were valued so high that it could fetch the premium of Rs. 1,990/- on the share of Rs. 10/- each. It has been explained by appellant that it came across an opportunity to invest in a MET COAL MINE in USA in the month of October, 2013 and therefore, entered into the agreement/MOU with the promoters of COAL MINE and: for this purpose, a new company in the name of M/s. Stryton Minerals and Resources, LLC was incorporated in USA as SPV company, and since the mining of coal in USA is a high profitable business activity and huge profit was expected to be received by M/s. Stryton Mineral & Resources, LLC, incorporated by appellant company, the shares were valued -at such high rate that it fetched the premium of such high amounts. In view of this background, appellant opted to determine the fair market value of shares as per Rule 11UA on the basis of Discounted Free Cash Flow method as prescribed under Rule11 lUA(2)(b) of IT Rules. For this purpose, appellant got the valuation of the shares done by Chartered Accountant, who vide his report dated 31.01.2014, valued per share at Rs. 2035.53 as on 15.l.2014. the copy of valuation report is submitted during the appellate proceedings. However, while making valuation of the shares, the Valuer, vide para 2.2, has mentioned that his opinion about the value of shares is based solely on the information provided by the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

46 management of company and it has been informed by the management that the only source of income is investment in subsidiary company in USA namely Stryton Minerals and Resources, LLC. It has been further mentioned that they have considered the projected income of next three years to evaluate the fair value of shares. However, aftfr giving the basis of valuation of shares and discussing the relevant facts and aspects of generation of income, the Valuer has expressed many reservations on the method of valuation of shares and qualified the report on many aspects, which are reproduced as under:- "7. Caveat 7.1 The provision of valuation, recommendation and considerations of the issues described in this report are areas of our regular corporate advisory practice. The services do not represent accounting, assurance, consulting, transfer pricing, domestic or international tax related services 7.2 We have relied on explanations and information provided by the management of the company and accepted the information provided to us as accurate-and complete in all respects. Although, we have reviewed such data for the consistency and reasonableness, we have not investigated or otherwise verified the data provided. 7.3 Nothing has come to our attention to indicate that the information provided had material mis-statements or would not afford reasonable grounds upon which the report is based. 7.4 Our report is based on the financial projections provided to us by management of the company and thus the responsibility for the forecast and assumptions of which they are based is solely that of the management of the company and we do not provide any confirmation or assurance on achievability or these projections. We have relied on data from external sources also and these sources are considered to be reliable. We, therefore, assume no liability of the accuracy of future data. 7.5 The valuation analysis contain in this repot represents the valuation only on the data that is specifically stated in this report. 8. Opinion on the valuation of the business: - Based on the analysis of the business of the company, in our opinion the fair value for issue of shares will be at Rs. 2035.53 or Rs. 2036100 per share. 9. Disclaimer:-

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47 Our report completely based on the information, documents and explanations provided by the management of Stryton Exim India Pvt. Ltd. While conducting the valuation reliance has been placed upon the information provided by the company and information obtained from the other sources. The report is strictly confidential in nature which is not to be used by any other person or entity except by Stryton Exim India Pvt. Ltd. The photocopies of the documents provided by the company are believed to be true copy of the original documents. Our report should not be used, reproduced or circulated to any other person or for any purpose other than as mentioned in this report, in whole or in part, without our prior written consent." 6.2 From the above it can be seen that method of valuation of shares of appellant company to fetch such a high premium, is full of defects and based on the data of self-serving documents. The Valuer clearly mentioned in his report that he has not made any independent analysis for the valuation of shares, rather, it is based on the reports and documents provided by appellant only. However, for valuation of shares, the projection of income by appellant for subsequent three years is made at Rs. 1,05,00,000/-, Rs.4,20,0,000/- and Rs. 4,20,00,000/- for A.Ys. 2015-16, 2016-17 and 2017- 18 and against it, the expenses of Rs. 80,43,000/-, Rs. 3,21,72,000/- and Rs. 3,03,72,000/- respectively. The basis of these projections has been claimed the due diligence report received by appellant from its subsidiary company at USA. However, nothing has been given to support the aforesaid income or expenditure projected by appellant in the future years. Contrary to this, the actual figure of income and expenditure is Rs. Nil/- for the preceding years or subsequent three years against which the appellant has projected aforesaid income expenses. From the details submitted by appellant, it clearly reflects that till the end of F.Y. 2016-17, not a single rupee was received by appellant from its subsidiary company out of the projected business of mining in USA. Thus, it is clear that to justify the premium received, the figures of projected income and expenditure have been manufactured by appellant ^whereas, in reality, there is neither such income nor expenditure in actual, terms. Moreover, the basis of valuing the shares on such a high premium, as given by appellant is also not justified and practical for the reasons that as explained, it was on the basis of dividend ought to receive by share applicants from appellant company which, in turn, based on dividend from its subsidiary company at USA which would start its business of mining somewhere in future and earn the profit and give dividend to appellant. Thus, the basis given by appellant is full of uncertainty and based on external factors which has become true also when the subsidiary company in USA could not start its business or earn income in next three year . of the year under consideration which is subject matter of valuation report. In-.such'- situation, the valuation made by appellant of shares for receiving the premium at such a high rate is nothing but manufacture and manipulation of accounts to justify the said valuation. In view of this, ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

48 the conclusion drawn by AO that the fair market value of shares determined by appellant is not genuine and correct and therefore, the premium of Rs. 19.90.0. 000/- is directly hit by section 56(2)(viib) of IT Act and taxable as per the said provision, is valid and justified. Since the AO has made this addition alternatively on the ground that in case substantive addition of Rs. 20, 00.000/- u/s-.section 68 of IT Act is not upheld by appellate authority, the provisions of section . 56(2)(viib) would become operative and the addition of Rs. 19,90,00,000/- would be liable to be made to its income. In view of this, the alternate addition of Rs. 19,90,00,000/- made by AO, is also confirmed and ground taken by appellant is dismissed.” 18. The ld AR submitted that the addition has been made by the ld AO on protective basis as the substantive addition has been made u/s 68 of the Act. He further stated that the assessee has supported the valuation of the shares based on the discounted cash flow (DCF) method as provided under rule 11UA of the IT Rules 1962. He submitted that assessee has a proposal to investors in coal mines in USA and therefore, due diligence report was obtained and the company was confirmed therein. He further referred to the coal lease agreement dated 21.01.2014 and various contracts to show that based on this the valuation of the profit shown by the assessee for the purpose of the valuation for few years is justified. He therefore, stated when the assessee has determined the premium which is accepted by the Reserve Bank of India in the ODI forms there is no reason that the ld AO rejects the same. He further submitted that disclaimer shown in the valuation report is the regular disclosure and therefore, merely based on the same it cannot be excluded. He further stated that the provision of section 56(2)(viib) of the Act are not applicable in the case of the assessee. He further stated that the learned commissioner appeals was provided with all the details with respect to the valuation aspect of the shares of the company, which has been reproduced by him in paragraph number six of his order however he did not consider any of these evidences. He further stated that all the issues raised by the learned AO were also clarified before him, but same were not at all considered. He further stated that assessee has given a valuation report which is supported by enough evidences but same has been rejected by the lower authorities. He submitted that it may be possible that at the time of repression of the discounted cash flow valuation of the shares certain exemptions have been made but same have not been fulfilled in those years ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

49 but subsequently they have been fulfilled, but that does not make the valuation report unsustainable. He further stated that in case of an opinion of the chartered accountant valuing the shares of the company certain disclosures and disclaimers are made by all the various but that does not make the valuation report incorrect. He further stated that when the basis of the report itself has not been examined by the lower authorities say was wrongly rejected on the basis of superficial arguments. He therefore stated that if the arguments of the revenue authorities are accepted then the slightest variation between the discounted cash flow method of valuation of shares with the actual performance of the company, will result in addition under section 68 of the income tax act in case of a company. He therefore submitted that that is not the intention of the law. He further extensively referred to the various documents submitted before the commissioner appeals to substantiate the valuation report. 19. The ld DR vehemently supported the orders of the lower authorities and submitted that according to provisions of section 56(2)(viib) of the act applicable from 01.04.2013 applies to the assessee. He further stated that the investment also does not available into the exception. He further submitted that the fair market value stated by the assessee was devoid of any merit and just camouflage to siphon of money from India. He therefore, submitted the addition is rightly made by the ld AO. 20. We have carefully considered the rival contention and the orders of the lower authorities. The assessee has issued shares of ₹ 20 crores having face value of ₹ 10 lakhs and share premium of Rs 19.90 crores. Though learned assessing officer has made the addition of the about some under section 68 of the income tax at holding that appellant company has failed to prove the identity, creditworthiness of the companies and genuineness of the transaction. Therefore the substantive addition is made under section 68 of the income tax Act. However out of abundant caution the learned AO further invoked the provisions of section 56(2)(viib) of the act which applies to a company in which public are not substantially interested, when it receives share premium which exceeds the fair market value as determined in accordance with the prescribed rules is an income of the recipient company. Therefore apparently assessee is a private limited company hence ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

50 it is hit by the provisions of section 56 (2)(viib) of the act. Therefore appellant is required to justify its what is the fair market value of the share premium received by it of ₹ 19.90 crores. Assessee company submitted a valuation report according to which the valuation per share was determined at Rs.₹ 2 035.53 per share whereas it has received the share premium of Rs. ₹ 1 990 per share. In the valuation report submitted by the assessee the valuation of ₹ 2 035.53 per share was received by adopting discounted cash flow method in accordance with rule 11 UA of the income tax rules 1962. The rational disclosed by the assessee for such a valuation was that assessee company got an opportunity to invest in a coal mine in the USA. For this it entered into an agreement with the promoters of the coal mine and a new company was formed by the name and style of M/s Stryton Minerals & Resources LLC in USA as a special purpose vehicle. Therefore according to the assessee huge profit was expected to be received in that company and therefore on the projected cash flow method the valuation of share was made. The assessee also stated that that investment of the assessee itself is 3050000 US dollars in the special purpose vehicle company or undertaking the business of coal mines. The assessee also substantiated the same with the copy of memorandum of understanding with the promoters of the coal mine. The assessee further submitted the permission obtained by it from reserve Bank of India for making an overseas direct investment in a foreign LLC. Therefore it is claimed by the assessee that the premium has been justified based on the profitability of the coal mine as well as based on the overseas direct investment made by the assessee which has been approved by the reserve Bank of India. Therefore the claim of the assessee is that the valuation is justified firstly based on the report of the chartered accountant and secondly on the basis of the permission of the reserve Bank of India. The learned assessing officer as well as the learned commissioner appeals rejected the valuation report submitted by the assessee for the sole reason that projections shown by the assessee in the project report of the cash flow did not materialize in subsequent years. It was also the reason for rejection of these reports as the chartered accountant who valued the shares of the company has given a proper disclaimer while certifying the valuation. On careful consideration of ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

51 the reasons given by the learned assessing officer the assessee has clearly stated that the valuation report is properly dated and further it may happen that the projected cash flow shown by the assessee at the time of the valuation did not materialize in subsequent year due to different business reasons such as delay in the project. The assessee has shown that there is a delay in the project and subsequently the LLC company has started earning the sum. If that be the case that if there is a variation in the discounted cash flow shown by the assessee with actual result in subsequent years, then the basic fallacy will arise that discounted future cash flow should be equal to the actual cash flow of the assessee. According to us it will result in absurdity. However it can also not be subscribed to the view that if there are wide variations in subsequent years with actual results compared with the projected cash flow submitted by the assessee, then in such situation if the projected cash floor is accepted then provisions of section 56(2)(viib) will become redundant. Therefore an objective evaluation of the valuation report submitted by the assessee deserves to be carried out. Further, the valuation report is prepared by the professionals such as chartered accountant, or merchant bankers for which their respective professional bodies have laid down specific disclosure requirements. Those disclosure requirements are binding on them. Therefore merely because they have given certain caveats and disclaimers, those factors should not sway the mind of the learned assessing officers or commissioner appeals. Further in the present case before us the assessee has claimed that its investment in coal mines in USA is based on certain proposals, due diligence report, coal lease agreement , agreement for transfer of lease rights, engineering service agreement, consulting agreement, approval from environment Ministry and approval of reserve Bank of India for making an overseas investment. Therefore the valuation report submitted by the assessee is required to be objectively evaluated based on these evidences. It is apparent that lower authorities have not given any credence to these details. It is further not possible to ascertain what happened in subsequent years to the business of the coal mine. It is neither found from the assessment orders or appellate orders or submission of the assessee about the cash flow generated by the coal mine business of the LLC. In any case unless the ground no 1 of the appeal of the ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018

52 assessee is decided, ground no 2 cannot be adjudicated as outcome of ground no 1 will decide whether the ground no 2 of the appeal is required to be adjudicated or not. In view of this, we set aside the whole issue of tax ability under section 56 (2)(viib) of the act back to the file of the assessee for the reason that that original addition made by the learned assessing officer under section 68 of the act is also set aside to the file of the learned assessing officer and further the lower authorities have failed to objectively evaluate the valuation report submitted by the assessee of a chartered accountant based on discounted cash flow method. The assessee is directed to show the details of the valuation made by the assessee on the basis of discounted cash flow methods along with the supporting evidences to substantiate the estimate of the cash flow for respective years. Based on the submission of the assessee, the learned assessing officer is directed to examine the same and decide the issue of tax ability under section 56(2)(viib) of the act after affording proper opportunity of hearing to the assessee. According to this, ground number two of the appeal of the assessee is allowed accordingly. 21. In the result appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the open court on 23/10/2018. -Sd/- -Sd/- (KULDIP SINGH) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated:23/10/2018 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi

ITA No 5982 Del 2018 AY 2014 15 Strton Exim P Ltd Alongwith stay 665 Del 2018