DCIT, CC-31, NEW DELHI vs. REALTIME MARKETING PVT. LTD., DELHI

“1. That on the facts and circumstances of the case and in law, the appellate order passed by CIT (Appeals) -30 New Delhi is contrary to the facts and bad in law. 2. That on the facts and circumstances of the case and in law, the CIT(Appeals) was not justified in upholding the addition of Rs.5,40,00,000/- made by the AO u/s 68 of the IT Act on account of share capital received by the appellant company by holding that these are accommodation entries. 2.1 That the CIT(Appeals) erred in holding that the was incorrect in holding that the retraction of its statement given u/s 132(4) of the IT Act made by Mr. Ashok Jain on 10.07.2017

3 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. i.e. after two and half months is afterthought and therefore has no evidentiary value. 2.2 That the CIT-A was erred in holding that Mr. Ashok Jain has admitted in his statement u/s 132(4) that investor companies are being managed by entry operator arranging accommodation entries. 2.3 The CIT-A erred in holding that share certificates of investor companies found from the premises of the NV Group are incriminating in nature which is contrary to the settled law. 2.4 That the CIT-A erred in holding that the appellant company had failed to produce the directors of the investor company without considering the fact that such notice for producing the directors was vague and given at the fag end of the proceedings i.e. on 24.12.2019 as an empty formality. 3. That the CIT-A was not justified in sustaining the addition of Rs.14,85,000/- made by the AO on account of commission @2.75% presumed to be paid on the alleged share capital by the appellant company.” ITA No. 1839/Del/2021 : Asstt. Year: 2015-16 M/s Realtime Marketing Pvt. Ltd. 4. A search & seizure action u/s 132 of the Income Tax Act, 1961 was conducted on 20.04.2017 at the business premises of the assessee. The return of income for the A.Y. 2015-16 has been filed by the assessee on 29.09.2015 declaring Nil income and the same was processed u/s 143(1) on 17.10.2015. Since, a notice u/s 143(2) has already been issued in this case, the case is to be treated as abated assessment for the purpose assessment u/s 153A.

4 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. page no. 30 of the Assessment Order, the Assessing Officer alleged that the total share capital including the premium received by the assessee during the F.Y. 2014-15 was in two tranches consisting of Rs.7 Cr. with a premium of Rs.165/- per share and Rs.8,61,89,000/- with premium of Rs.148/- per share totaling to Rs.15,61,89,000/-. At page no. 38 of the Order, the Assessing Officer mentions that the assessee has received share capital, premium, SAM of Rs.15,61,89,000/- during the F.Y. 2014-15. After issuing the show-cause and after receipt of the replies, the Assessing Officer finally held that the assessee has received Rs.51,57,000/- on account of share capital and Rs.8,00,32,000/- on account of share premium. 6. Having observed so, the Assessing Officer made addition of share capital received of Rs.51,57,000/- u/s 68 of the Income Tax Act, 1961 and Rs.8,00,32,000/- received on account of share premium u/s 56(2)(viib). 7. Aggrieved, the assessee filed appeal before the ld. CIT(A) who deleted the addition on the grounds that the case was covered by the judgment of Hon’ble Jurisdictional High Court in the case of CIT Vs. Kabul Chawla (61 Taxmann 412) holding that the assessment is unabated and hence, no addition can be made in the absence of any incriminating material found and seized during the course of search. 8. Aggrieved, the Revenue filed appeal before the Tribunal. 9. At the outset, we find that the case for the A.Y. 2015-16 is an abated assessment as the search was conducted on

5 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 20.04.2017 and the assessment proceedings were underway. Both the parties have not disputed this issue before us. Hence, the order of the ld. CIT(A) relying on the judgment in the case of CIT Vs. Kabul Chawla (supra) is misplaced. 10. Before us, referring to the contents of Assessment Order the ld. DR vehemently argued that the assessee has received share capital from various entities during the year and in the earlier years also and especially from one entity namely, “Om Energy Ltd.” (AAACM9436D). 11. The ld. DR argued that enquiries were conducted to examine the identity, creditworthiness of the investor company and genuineness of the transactions. It was argued that M/s Om Energy Ltd. has invested almost entire amount of its share capital and premium in the assessee group in the form of share capital and premium. From the financial profile of the company, it is clear that it does not have the creditworthiness to generate such a huge amount. Further, no such company exists at the mentioned address which is the address in all the records of the company, be it the records of the I.T. Department or of the Ministry of Corporate Affairs. The address of the company is a residential address and is occupied by one Mr. Ashok Shah, which has been living there for the past 18-20 years. The neighbors as well as the local Postman have also not heard of the company namely M/s Om Energy Ltd. The ld. DR argued that a commission was issued to the DDIT, Unit-3(4), Mumbai to conduct enquired in respect of M/s Om Energy Ltd. Sh. Shailesh Ghansham Parab, one of the directors in M/s Om Energy Lid.

6 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. admitted in his statement on oath that he had no knowledge of being a director in M/s Om Energy Ltd. and that he used to merely sign on the papers sent by one Sh. Manoj Gupta. It is worthwhile to mention that this Sh. Manoj Gupta, is one of the key employees of the assessee group. 12. The ld. DR argued that when the director of M/s Om Energy Ltd. Sh. Shailesh Ghansham Parab has clearly admitted, citing the contact number of an employee of assessee group, that he has been signing the documents on the instructions of the matter, it leaves no scope of any contrary interpretation. Further, Share Certificates and share transfer forms belonging to M/s Om Energy were found and seized during the course of search at 40 Babar Road, Bengali Market, Delhi, showing that the control over the Share/investment lies with the assessee Group. It is thus crystal clear that the assessee group has used this bogus/paper concern with the sole intention of routing unaccounted money into its regular books. The ld. DR has also relied on the statement of Sh. Ashok Jain recorded on oath wherein he surrendered the amount during the search. Since, the Director of the company himself has admitted that the amounts received were bogus share capital routed through various entities, the order of the AO ought to have been upheld. It was also argued that the statement of Sh. Ashok Jain has admitted the unaccounted cash was generated out of unaccounted sale of waste and of by product like animal, cattle feeds, jute bags, scrap etc. and since the generation and application has been proved, the addition made by the AO correctly needs to be approved.

7 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 13. The ld. DR argued at length relying on the judgment of Hon’ble Supreme Court in the case of Pullangode Rubber Produce Co. Ltd. state of Kerala (91 ITR 18). It was argued that the Hon’ble Apex court held that an admission is an extremely important piece of evidence. Hence, the ld. DR argued that the statement of Sh. Ashok Jain has to be considered and the retraction made thereafter must not be considered. The ld. DR has also relied on the judgment of Hon’ble High Court of Kerala in CIT Vs. Abdul Razak (20 taxmann 48) and argued that the retraction of Sh. Ashok Jain was self serving without anything more to dispel the statement made under oath u/s 132(4) of the Income Tax Act, 1961. It was argued that the statement made under oath deemed and permitted to be used as evidence by express statutory provision and has to be taken as true unless there is contra evidence to dispel such assumption. With regard to seizure of incriminating material, the ld. DR relying on the judgment of jurisdictional High Court in the case of Dayawanti Vs. CIT (390 ITR 496) argued that when the principle officer of the assessee company had surrendered income on the basis of documents found and seized at the time of search, the same cannot be ignored. The ld. DR argued that statement of Sh. Ashok Jain stood corroborated by the statements of various other office bearers of the assessee group namely, Shri Aman Jain and Shri Sameer Goyal and Shri Shailesh Ghanshyam Parab, Director of Om Energy Limited and hence the share application money received from the companies involved in all these appeals are bogus and hence the AO has rightly treated the amount as

8 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. undisclosed income. The ld. DR argued that the statement of Sh. Ashok Jain also stood corroborated by the share certificates, blank signed share transfer form and other documents necessary for transfer of shares found and seized during the search operation clearly indicates that the assessee kept such form signed by the investor company to keep control over them. The ld. DR has argued that, coupled with the statement of Sh. Ashok Jain, Sh. Manoj Gupta and Sh. Parab along with seized documents constitute incriminating material especially in view of the disclosure made by the group before the Hon’ble Income Tax Settlement Commission. The ld. DR argued that that Shri Ashok Jain admitted in his sworn statement u/s 132(4) that commission was paid in cash to entry operators and it was part of his unaccounted income, which is an evidence by itself as held by Hon’ble Rajasthan High Court in the case of Pr. CIT vs. Roshan Lal Sancheti. The High Court held that admission in statement u/s 132(4) has a strong evidentiary value and they cannot be discarded summarily and in cryptic manner by simply observing that the assessee retracted from his statement. With regard to the explanation of the before the Ld. CIT(A) that the share certificates were found in possession of NV group for splitting the single share certificate into smaller denominations, the ld. DR argued that no communication was found during the search or submitted by the appellant in the post-search proceedings that it received the share certificates for the purpose of splitting of the shares.

9 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 14. The ld. DR, relying on various judicial proposition argued that the retraction of Sh. Ashok Jain cannot be considered and the statement on oath recorded u/s 132(4) takes primacy over the retraction, the share certificates found and seized during the search operation must be treated as incriminating material seized during the search and hence, the decision of the ld. CIT(A) holding that there was no incriminating material found and seized during the search and accepting the retraction made by Sh. Ashok Jain who declared that the share capital received was bogus initially be reversed and that the order of the Assessing Officer be upheld. 15. Rebutting the arguments of the ld. DR, the Counsel for the assessee submitted that at the outset the statement given by the assessee has been retracted within 15 days of the recording of the statement and as per the established jurisprudence, no addition can be made solely on the basis of the statement recorded in the absence of any corroborative material found and seized during the course of search. It was argued that the share application forms or the share certificates, the details of which are in public domain cannot be treated as undisclosed or incriminating document. It was argued that the assessee has duly submitted all the documents to prove the identity, creditworthiness and genuineness of the transactions and argued that the revenue has simply brushed aside the evidences which are duly available on record. 16. Further, it was argued that the addition made by the AO is not sustainable for the simple reason that the AO has grossly

10 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. erred in treating the share capital u/s 68 as undisclosed income and the share premium u/s 56(2)(viib). It was argued that the addition u/s 56(2)(viib) itself shows that the money was duly accounted and the next question would be whether the shares were valued at correct price/value or the assessee has received accounted/disclosed amounts over and above the value of the shares. The ld. AR argued that the valuation report prepared as per the provisions of Rule 11UA are never disputed by the Assessing Officer but went ahead with making addition u/s 56(2)(viib). Further, the assessee has submitted that they have filed copy of confirmations of M/s Om Energy Ltd., confirmation of a/c, Ack. Of return, bank statement of M/s Om Energy Ltd., auditor report, balance sheet, statement of profit & loss a/c, fixed asset chart, notes to accounts, ledger account in the assessee’s books and assessee’s bank account. 17. The ld. AR has also argued that the assessment u/s 143(3) has been conducted by the ITO, Ward-5(2), Mumbai wherein the assessment has been completed making disallowances u/s 14 to the tune of Rs.44,74,254/- to the returned income for A.Y. 2012-13 and hence, it cannot be said that the company was not existing at the premises and hence the identity, creditworthiness and genuineness has been lacking. It was also submitted that the assessment u/s 143(3) has been completed for A.Y. 2017-18 disallowing depreciation and for A.Y. 2018-19, the assessment u/s 143(3) has been completed by making addition of Rs.5,34,609/- by the Assessing Officer and addition of Rs.2,79,50,000/- by the CPC.

11 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. ITA No. 1195/Del/2023 : Asstt. Year: 2016-17 M/s ENN VEE Holdings Pvt. Ltd.

12 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 22. With regard to the statement of Sh. Ashok Jain recorded on 22.04.2017 which is also one of the basis for making the addition, we have considered the order of the Tribunal in the case of the assessee group in ITA No. 1837 & 1838/Del/2021 for A.Y. 2012-13 and A.Y. 2014-15 incorporating the reasoning of the ld. CIT(A).

13 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. incriminating material. The Hon’ble Delhi High Court in the case of CIT vs. Harjeev Aggarwal 70 taxmann.com 95 has examined the above proposition and held in Para 20 & 21 of its order as under:

 A plain reading of section 158BB(1) does not contemplate computing of undisclosed income solely on the basis of a statement recorded during the search. The words ‘evidence found as a result of search’ would not take within its sweep statements recorded during search and seizure operations. However, the statements recorded would certainly constitute information and if such information is relatable to the evidence or material found during search, the same could certainly be used in evidence in any proceedings under the Act as expressly mandated by virtue of the Explanation to section 132(4). However, such statements on a standalone basis without reference to any other material discovered during search and seizure operations would not empower the Assessing Officer to make a block assessment merely because any admission was made by the assessee during search operation [Para 20]  A plain reading of section 132(4) indicates that the authorized officer is empowered to examine on oath any person who is found in possession or control of any books of account, documents, money, bullion, jewellery or any other valuable article or thing. The Explanation to section 132(4), which was inserted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1.4.1989, further clarifies that a person may be examined not only in respect of the books of account or other documents found as a result of search but also in respect of all matters relevant for the purposes of any investigation connected with any proceedings under the Act. However, as stated earlier, a statement on oath can only be recorded of a person who is found in possession of books of

14 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. account, documents, assets etc. Plainly, the intention of the Parliament is to permit such examination only where the books of account, documents and assets possessed by a person are relevant for the purposes of the investigation being undertaken. Now, if the provisions of section 132(4) are read in the context of section 158BB(1), read with section 158B(b), it is at once clear that a statement recorded under section 132(4) can be used in evidence for making a block assessment only if the said statement is made in the context of other evidence or material discovered during the search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger a block assessment. The undisclosed income of an assessee has to be computed on the basis of evidence and material found during search. The statement recorded under section 132(4) may also be used for making the assessment, but only to the extent it is relatable to the incriminating evidence/material unearthed or found during search. In other words, there must be a nexus between the statement recorded and the evidence/material found during search in order to for an assessment to be based on the statement recorded. [Para 21]

15 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 25. Similar view has been taken by the Hon’ble Delhi High Court in an earlier judgment in the case of CIT v. Sunil Aaaarwal (237 Taxman 512). To the similar effect is an earlier decision of the Hon’ble Andhra Pradesh High Court in CIT vs. Shri Ramdas Motor Transport 102 Taxman 300, in which the Hon’ble High Court refused to give any evidentiary value to the statement made by the assessee u/s 132(4) as the Department could not find any unaccounted money, article or thing or incriminating document either at the premises of the company or at the residence of managing director or other directors. In such circumstances, the finding of the Tribunal that the statement of managing director recorded patently under s. 132(4) did not have any evidentiary value, was upheld. The above discussion makes it patent that the surrendered income must be correlated with some incriminating material found during the search so as to justify the addition. Similarly in the case of Pr. CIT Vs. Best Infrastructure (India) Pvt. Ltd. 84 taxmann.com 287 (Del), it was reiterated by the court that - “statements recorded under Section 132 (4) of the Act do not by themselves constitute incriminating material as has been explained by this Court in Harjeev Aggarwal (supra).”

16 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. contributed by this company to the assessee company has been disputed by the Revenue. Such flip-flop by the Revenue cannot be affirmed.

“245-I. Every order of settlement passed under sub-section (4) of Section 245D shall be conclusive as to the matters stated therein and no matter covered by such order shall, save as otherwise provided in this Chapter, be reopened in any

17 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. proceeding under this Act or under any other law for the time being in force.”

“8. …………………… …………………….. 9. On perusal of the documents produced by the assessee, it is found that the assessee in order to prove the genuineness, of the transaction, identity and creditworthiness of the investors, produced the copy of the certificate of incorporation along with MOA and AOA, copy of auditor’s report, balance sheet, trading

18 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. and profit and loss account as on 31/03/2016 along with notes of financial statement, copy of acknowledgement of return of income for Assessment Year 2016-17 along with computation of income tax, copy of share application form, copy of confirmation of account, copy of bank account statement and copy of valuation report as per Rule 11UA(2) of the Rules.

19 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. enquiry if required, but cannot sit idle by not accepting the documents submitted by the assessee and infer against the Assessee without any contrary documents on record. The Ld. CIT(A) merely on doubts ignored the documents, but could not bring any material contrary during the appellate proceedings.

"12. The Ld. A.O while making an addition u/s 68 of the Act raised question over the ne of the transaction source of funds invested. Further held that, the investor companies do not have produced creditworthiness to fund the assessee company which has been confirmed by the CIT(A) and the CIT(A) has also rejected the valuation report. The assessee in response to

20 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. notice u/s 142 has produced following documents which have been also in the paper book before us:-

Particulars Page no of paper book Certificate of Incorporation and MOA & AOA 1-34 Independent Auditors Report, Balance 35-47 Sheet as at 31.03.2015, Profit and Loss Account for the year ended March 31, 2015 along with notes to financial statement for the year ended March 31, 2015 Copy of acknowledgement of Income Tax Return along with ITR 6 and Computation 48-82 of Income Bank book and Bank statement for the 83-84 period from 1.4.2014 to 31.3.2015 Ledger account of the bank book in the 85 books of the appellant company Valuation Report under Rule 11UA92)(b) of 86-89 the Income Tax Rules, 1962 from the Chartered Accountant as per Discounted Cash Flow Method.

21 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. to have made further enquiry. Once the assessee furnishes the documents to prove the identity, creditworthiness and genuineness of the transaction. The same cannot be denied in the absence of material contrary brought by the Assessing Officer.

22 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. The relevant portion are hereunder:-

"28. Now what we are required to examine whether under these facts and circumstances Assessing Officer after invoking the deeming provision of Section 56(2)(vii) could have determined the fair market value of the premium on shares issued at Nil after rejecting the valuation report given by the Chartered Accountant on one of the prescribed methods under the rules adopted by the Valuer. Before us, learned counsel, Mr. Dinodia, first of all had harped upon the spirit and intention of the Legislature in introducing such a deeming provision and submitted that such a provision cannot be invoked on a normal business transaction of issuance of shares unless it has been demonstrated by the Revenue authorities that the entire motive for such issuance of shares on higher premium was for the tax abuse with the objective of tax evasion by laundering its own unaccounted money. His main contention was that, being a deeming fiction, it has to be strictly interpreted and there is no mandate to the Assessing Officer to arbitrarily reject the valuation done by the assessee on his own surmises and whims. We are in tandem with such a reasoning of the ld. Counsel, because the deeming fiction not only has to be applied strictly but also have to be seen in the context in which such deeming provisions are triggered. It is a trite law well settled by the Constitutional Bench of Supreme Court, in the case of Dilip Kumar & Sons (supra) that in the matter of charging section of a taxing statute, strict rule of interpretation is mandatory, and if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of

23 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of investors as it is their tax paid money invested, duly disclosed and confirmed by them; and nothing has been brought on record that it is unaccounted money of assessee company routed through circuitous channel or any other dubious manner through these accredited investors. If such a strict view is adopted on such investment as have been done by the Assessing Officer and by ld. CIT(A), then no investor in the country will invest in a 'start-up company', because investment can only be lured with the future prospects and projection of these companies.

24 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 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, knowhow, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;" Further, as per clause (i) of the Explanation as reproduced above, the FMV is to be determined in accordance with such method as may be prescribed. Clause (ii) admittedly is not applicable on the facts of the assessee's case. The method to determine the FMV is further provided in Rule 11UA(2).

The relevant extract of the applicable rules is reproduced below: "11UA. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely,-- (2) Notwithstanding anything contained in sub- clause (b) of clause (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:-- (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."

25 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 30. Ergo, the assessee has an option to do the valuation and determine the fair market value either on DCF Method or NAV Method. The assessee being a 'start-up company' having lot of projects in hand had adopted DCF method to value its shares. Under the DCF Method, the fair market value of the share is required to be determined either by the Merchant Banker or by the Chartered Accountant. The valuation of shares based on DCF is basically to see the future year's revenue and profits projected and then discount the same to arrive at the present value of the business ……………………………………………………

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26 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. armchair of businessman to decide what is profitable and how the business should be carried out. Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA (2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee.

27 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the ld. Counsel, for instance: - i) Securities & Exchange Board of India &Ors [2015 ABR 291 - (Bombay HC)] "48.6 Thirdly, it is a well settled position of law with regard to the valuation. that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is but its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018- TIOL1358-ITAT- Jaipur]

"4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the

28 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. projections (estimates) only and hence these projections cannot be compared with the actual to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups." iii) DQ (International) Ltd. vs. ACIT (ITA 151/Hyd/2015)

"10...... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actual after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed". The aforesaid ratios clearly endorsed our view as above.

29 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. in rejected the valuation done by the assessee from prescribed expert as per the prescribed method.

30 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. subsequent to issue o: shares. The valuation of shares are for that matter any valuation is itself is a projection of future events oi activities and no doubt it has to be done with some accuracy, however no person in the world at the time o: projecting events or result to project with 100% of accuracy and actual events are highly volatile ant highly dependent on so many factors. Assessee has projected based on the fact that software of wallet and association of ICICI bank will increase the market share and accordingly, they have projected the figure; and further the valuer has adopted the projection figures provided by the assessee and it is left to the wisdom of valuer to accept or reject or to carry out independent investigation raised with the valuer am legislature in more than one place depends on the skills of the professionals like merchant banker only value the valuation of shares or other volatile securities. Since, Ld. CIT(A) has compared the factual witl projections and assessee has achieved 40% of the actual results is too harsh to the assessee and this valuation is done in order to carry out certain activities by the management. In this case, the valuation ws used to issue of rights shares. The AO or Ld. CIT(A) is trying to evaluate the accuracy of the valuation a the time of assessment, this is not proper and also the factuals are based on so many factors subsequent t< adoption of projection and valuation. Accordingly, we are not in a position to accept the method adoptei by Ld. CIT(A). In the similar facts, the Coordinate Bench of ITAT has held as under:

"25. We have heard the rival contentions, perused the relevant findings given in the impugned order as well as material referred to before us at the time of hearing. In various grounds of appeal, the sol issue raised by the appellant assessee relates to the addition of Rs.90,95,46,200/- made by the AO, b; invoking the deeming provisions of sections 6 (2)(viib) by adopting fair market value of the shar premium received by the

31 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. Assessee Company from the investors at NIL What has been sought to b taxed is mainly the share premium issued on equity shares which according to the AO far exceede the FMV of the shares. Though facts have been discussed in detail in the foregoing paragraphs however in the succinct manner, the relevant facts and background are reiterated in order to appreciat the controversy and the issue for adjudication. The assessee company was incorporated on 19t September, 2013, I.e., in the Assessment Year 2014-15, with the objective of carrying of business production and distribution of feature film, tele films, video films, documentary films etc. During th year under consideration assessee company was in the initial phase of the setting up of the business therefore, there was no business of film production as such. The assessee company to start its ventur of its film production approached accredited ace investors of India to join in as equity partner; namely, Shri Rakesh Jhunjhunwala, Shri Anand Gopal Mahindra & Shri Radhakishan Damani. Th funds were raised by way of issue of equity shares to the aforesaid equity partners and by raisin premium on such shares over and above the face value of Rs.l0/-per share. The details and quantum of premium received from each of the equity partners are as under:

Sl. No. Name of equity Date of issue Name of Premium Amount of partner shares (Rs.) Per premium shear (Rs.) 1. Sh. Anand 06.01.2015 4,15,385 1949 80,95,85,365 Mahindra 23.02.2015 2. Sh. Rakesh 19,027 260 4,99,80,793 Jhunjhu Nwala 3. Sh. Radhaki 19,027 2602 90,95,46,200 shan Damini Total 4,53,799

32 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. under Rule 11UA(2) by using the 'DCF Method' which is one of the prescribed method in Rule HUA(2)(b) r.w.s. 56(2)(viib). Based on the said valuation report dated 15.12.2014, the assessee company had issued the shares to the aforesaid equity partners on premium. The Ld. Assessing Officer has discarded the valuation report of the CA mainly on the ground that valuation of the equity shares carried out by the assessee was based on projection of revenue which did not match with the actual revenues of the subsequent years. He further held that no efforts have been made by the assessee to substantiate the figures of projected revenue in the valuation report and has also failed to submit any basis for projection. Instead, AO held that assessee should have invested the share premium amount to earn some income, whereas assessee has made investment in debentures of its associate company and hence the basic substance of receiving the high premium was not justified. After invoking the provision of section 56(2)(viib), AO took fair market value of premium at Nil and face value of Rs. 10/- per share.

33 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. assessee. Thus, neither the identity nor the creditworthiness of the investors nor the genuineness of the transaction can be doubted and in fact the same stands fully established to which Assessing Officer has also not raised any doubt or disputed this fact.

Thus, under the deeming provisions of section 68, the test of proving the nature and source of the credit received stood accepted.

34 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. if there are two views possible in the matter of interpretation, then the construction most beneficial to the assessee should be adopted. Viewed from such principle, here is a case where the shares have been subscribed by unrelated independent parties, who are one of the leading industrialists and businessman of the country, after considering the valuation report and future prospect of the company, have chosen to make investment as an equity partners in a 'start-up company' like assessee, then can it be said that there is any kind of tax abuse tactics or laundering of any unaccounted money. It cannot be the unaccounted or black money of investors as it is their tax paid money invested, duly disclosed and confirmed by them; and nothing has been brought on record that it is unaccounted money of assessee company routed through circuitous channel or any other dubious manner through these accredited investors. If such a strict view is adopted on such investment as have been done by the Assessing Officer and by Id. CIT(A), then no investor in the country will invest in a 'start-up company', because investment can only be lured with the future prospects and projection of these companies.

35 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Whereas in a DCF method, the value is based on estimated future projection. These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the Ld. Counsel, for instance: -

(I) Securities & Exchange Board of India &Ors [2015 ABR 291 - (Bombay HC)] 48.6 Thirdly, it is a well settled position of law with regard to the valuation, that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is but its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations.

Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on

36 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. the basis of whatever information Is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information."

(ii) Rameshwaram Strong Glass (P.) Ltd. v. ITO [2018-TI0L- 1358-ITAT- Jaipur] "4.5.2 Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups."

(iii) DQ (International) Ltd. v. ACIT (ITA 15 l/Hyd/2015) "10... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actual after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed".

The aforesaid ratios clearly endorsed our view as above."

Therefore, respectfully following the decision of Coordinate Bench of ITAT, we allow the grounds raised by the assessee;

37 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 21. In the net result, the appeal filed by the assessee is allowed and appeal filed by the revenue stands dismissed."

14 The ratio laid down in the aforesaid decision of the Tribunal squarely applies to the facts of the present captioned appeals.

‘(2) Notwithstanding anything contained in sub-clause (b) of clause (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

38 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. manner under clause (a) or clause (b) at the option of the assessee, namely:-

(a) The fair market value of unquoted equity shares (AL(PV) (PE)

A book value of the assets in the balance-sheet as reduced by any am of paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the become-tax Act and shown in the balance- sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset,

L=book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:

(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 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 than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act. to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto,

(v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

39 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares.

PE total amount of paid-up equity share capital as shown in the balance sheet PV= the paid-up value of such equity shares, or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant formatted by the IT (sixth amendment) Rules, 2018 w.e.f. 24.3.2018) as per Discounted Free Cash Flow Method’.

40 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. in contravention of the same. It has been hitherto an uncontroverted legal position that where a statute requires to do a certain thing in a certain way, the thing must be done in that way only. Other methods or modes of performance are impliedly and necessarily forbidden. The aforesaid settled legal proposition is based on legal maxim "Expressio unis est exclusio alterius", meaning thereby that if a statute provides for a thing to be done in particular manner, then it has to be done in that manner and in no other and following other course is not permissible. For the said proposition reliance is placed in the case of IMC Limited and Ors. vs. Union of India and Ors. (10.05.2019 - GUJHC): MANU/GJ/0860/2019.

"13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent- Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent- Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is

41 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Axesser is not correct. The AO has simply rejected the valuation of the Respondent Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact dronen on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Reveme is unable to show that the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process."

42 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 18. Considering the fact that the Assessees have issued the shares at fair market value computed in accordance with Rule 11UA of the Rules and no fault has been found in the method applied by the assessees and thus the enhancement of the income by Ld.CIT(A) u/s 56(2)(viib) of the Act on protective basis is purely based on conjectures which has no basis in law and is liable to be deleted. Further, as the assessee has provided document to prove the identity, creditworthiness and the genuineness of the transaction of each shareholder, which has not been controverted by the Department and in the absence of any contrary material on record to disprove the same in our considered opinion, the addition of income made under section 68 of the Act as well as the enhancement of income u/s 56(2)(viib) of the Act is bad in law accordingly, the additions/enhancement made by the A.O/CIT(A) are hereby deleted.”

43 ITA No. 1839/Del/2021 ITA No. 1195/Del/2023 Realtime Marketing & ENN VEE Holdings Pvt. Ltd. 32. In the result, the appeal of the Revenue is dismissed and the appeal of the assessee is partly allowed. Order Pronounced in the Open Court on 05/07/2024.

Sd/- Sd/- (Yogesh Kumar US) (Dr. B. R. R. Kumar) Judicial Member Accountant Member Dated: 05/07/2024 *Subodh Kumar, Sr. PS* Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(Appeals) 5. DR: ITAT ASSISTANT REGISTRAR