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Income Tax Appellate Tribunal, DELHI BENCH: ‘H’ NEW DELHI
Before: SHRI SAKTIJIT DEY, VICE- & SHRI GIRISH AGRAWAL
PER GIRISH AGRAWAL, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of learned Commissioner of Income-Tax(Appeals)-,Faridabad vide appeal No. 10664/2018- 19dated 17.03.2020 against the assessment order passed under Section 143(3) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”), dated 27.12.2018 for assessment year 2016-17, passed by ITO, Ward 2(1), Faridabad.
There is a delay of 23 days in filing the present appeal. Impugned order by learned Commissioner of Income-Tax(Appeals) is dated 17.03.2020 which is claimed to have been received on 18.11.2020. 4 Assessee has filed the present appeal on 09.08.2021. Assessee has placed on record a petition for condonation of delay along with an affidavit. The said period for filing the present appeal falls during the pandemic of COVID-19 for which Hon'ble Supreme Court in the case of suo moto Writ Petition (C) No.3 of 2020 dated 10.01.2022 has excluded the period from 15.03.2020 to 28.02.2022 for the purpose of taking into account limitation. Vide this order, a further period of 90 days has been granted for providing the limitation from 01.03.2022. Accordingly, considering the said decision and facts of the case, aforesaid delay is condoned and the appeal is admitted for adjudication.
Grounds taken by the assessee are as under:
That the Ld. CIT(A) has erred in law as well as on facts in confirming addition of Rs.93,00,000/- u/s. 68 of the IT Act, 1961 on account of alleged unexplained share premium and share capital despite furnishing all the documentary evidence for establishing identity, creditworthiness of the investors and the genuineness of the transaction.
2. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant u/s 251(1) of the Act by Rs.62,00,000/- under the head income from other sources by /X,
ITANo.l06/De 1/2021 Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 applying section 56(!2)(viib) of the Act on protective basis and rejecting the valuation report furnished under Rule llUA(2)(b) of the Income Tax Rules, 1962 i.e., Discounted Cash Flow Method.
3. That the Ld. CIT(A) has erred in law as well as on facts in * enhancing the income of appellant by not issuing valid show- cause-notice as mandated u/s 250(2) of the Act.
4. That the Ld. CIT(A) has erred in law as well as on facts in enhancing the income of appellant on protective basis u/s. 56(2) (viib) r.w.r. 11UA of IT rules without appreciating the fact that the case was selected for limited scrutiny to verify “whether the funds received in the form of share premium are from disclosed sources and have been correctly offered to tax” which restrict the scope of assessing authorities to scrutinize only the source of share premium.
5. That the Ld. CIT(A) has erred in law as well as on facts in initiating the penalty proceedings u/s. 271(l)(c) of the Act.
Brief facts of the case as culled out from the records are that assessee filed its return of income on 28.08.2016, reporting total income of Rs.2,68,160. Case of the assessee was selected for limited scrutiny under CASS to verify “whether refund received in the form o f share premium are from disclosed sources”. Statutory notices under Section 143(2) and 142(1) along with questionnaire were issued which were duly complied Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 with by the assessee. In the course of assessment, assessee submitted copy of ITR, computation of income, audit report along with audited financial statement, memorandum and articles of association, certificate of incorporation and other relevant annexure. In para 1 of the impugned order, learned Assessing Officer has categorically noted that “assessee filed reply electronically on 24.10.2018 consisting bank book and bank statement, details o f directors and share premium and valuation report as per R u le llU A (c ) o f the A c t”. In the same paragraph, learned Assessing Officer further noted that “show- cause-notice dated 07.12.2018 was issued to the assessee fixing the hearing fo r 10.12.2018 and f o r filing the requisite information. In response, assessee has furnished copy o f earlier
reply along with confirmation with relevant documents fr o m the parties o f allottee o f shares during the year. The reply o f the assessee company is on ITBA and has been placed on records.”
4.1 On the basis of various details furnished by the assessee, learned Assessing Officer observed that assessee has allotted
3,10,000 equity shares of Rs.10 per share at a premium of Rs.20 per share to five'entities. Details of number of shares allotted along with the allottee companies is tabulated as under:
Total Premium Share Share Name of No. of Nom inal am ount C apital Prem ium Person / equity Value per (in Rs.) paid shares per share (in (in Rs.) Entity- in clu d in g share (in Rs.) prem ium Rs.) (in Rs.) &date of allotm en t.
3,00,000 20 1,00,000 2,00,000 Best 10,000 10 Buildm artP vt. Ltd. 24.01.2015
20 8,00,000 16,00,000 24,00,000 Cee Aar 80,000 10 Decors 13.10.2015
2,00,000 3,00,000 10,000 10 20 1,00,000 Herculese Builders 13.10.2015 Coim batore P. Ltd.
18,00,000 27,00,000 90,000 10 20 9,00,000 Nu Ruchi 10.3.2016 Barter Pvt.
Ltd .
24,00,000 36,00,000 10 20 12,00,000 Sanford 1,20,000 Prom oters 1 1.05.2015 Pvt. Ltd.
31,00,000 62,00,000 93,00,000 3,10,000 Total 4.2 Learned Assessing Officer called for details and explanation on the above transactions to which assessee furnished its replies as noted above. Learned Assessing Officer v Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 also issued notices under Section 133(6) of the Act to all the above five entities which were received by them. Out of the five entities, only one entity i.e. Best Buildmart Pvt. Ltd. replied to A the notice and furnished the required documents and details.
Based on the information gathered by the learned Assessing Officer, a show-cause-notice dated 07.12.2018 was issued fixing the date of hearing on 10.12.2018.In this respect, learned Assessing Officer noted that assessee did not respond to this show-cause-notice. The details called for by the learned Assessing Officer vide this show-cause-notice is listed as under:
“1. Please furnish copy o f ITR along with computation o f income, P & L account, balance sheet and audit report in Forms 3CB and 3CD (if applicable) or notes thereto.
2. Please furnish brief note on nature o f business and place on business carried out during the year.
Please furnish copy o f all bank accounts maintained 3. by you fo r the period from 1.4.2015 to 31.03.2016 relevant to the assessment year 2016-1 7.
4. Please furnish complete details o f share prem ium received during the year. The information should include name, PAN, complete latest address, share prem ium received, mode o f payment from investors. Please give all the details to prove identity, creditworthiness, genuineness o f the investors. 1
5. Please provide the details o f authorised share capital and also furnish the details o f share application money and Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17
addition in share application money during the year, if any, the source o f addition with bank statement. Also produce list o f shareholders along with their PAN.
6. Complete address, PAN, copies o f ITRs and bank statements o f the persons/concerns to whom share on premium have been allotted during the year.
7. m Please explain whether company/assessee has received any consideration f o r issue o f shares that exceeds the face o f such shares (share premium), then please furnish the valuation o f shares and securities in accordance with the provisions o f Rule l l U A ( c ) o f the Income-tax Rules 1962;
8. Please give the details when these shares were allotted to the investors and whether there is any buy-back f o r the shares the details thereof.
Please provide B oard’s resolution with regard to share capital and from it is to be received as it is mandatory as per law.
10. Please provide the minutes o f meeting o f the directors.
11. Please provide the details o f stamp duty paid on the shares issued.
Please submit copy o f share application form and share certificate and produce original fo r verification in view o f the provisions o f sec. 134 o f the Income Tax Act, 1961”.
4.3 Learned Assessing Officer observed that mere production of audit report, balance sheet and plea of assessee that payment is through bank, is not sufficient. He noted that onus of assessee of explaining nature and source of credits does not get discharged merely by filing the documentary evidences. He v Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 thus concluded the assessment and made an addition of Rs.93,00,000 towards share capital and share prem ium by treating it as bogus transaction as unexplained credits under 4 Section 68 of the Act. While making this addition, he held that investors could not furnish the required information and that source of share premium remained not only unsatisfactory but also valued at high premium without any cogent basis.
Aggrieved, assessee went in appeal before the learned
Commissioner of Income-Tax(Appeals).
Before the learned Commissioner of Incom e-Tax(Appeals),
assessee made a detailed submission which is reproduced in the order of learned CIT(A) from page 2 to 19. While giving his findings, learned Commissioner of Income-Tax(Appeals) observed that assessee has not made any compliance. He further observed that though these companies are registered with ROC, having PAN, having bank accounts, filing their income-tax returns etc. but in fact these are just existing on papers. According to him, mere filing of ITR, PAN, names and addresses, balance sheet, ROC record is not enough to establish the identity and creditworthiness and genuineness in respect of the share applicants. In reference to show-cause- notice dated 07.12.2018 issued under Section 142(1) of the assessee. He thus concluded by upholding the addition made by the learned Assessing Officer.
5.1 In furtherance to the above, learned Commissioner of Income-Tax(Appeals) noted that assessee has failed to bring on record any evidence to justify the basis of share premium charged in excess of its face value. He also noted that no valuation report justifying the premium charged in respect of such shares was furnished by the assessee. Thus, he resorted to enhancement of assessment under section 251(1) of the Act on protective basis by making an addition of Rs.62,00,000 for which he held that share premium received in excess of face value is treated as income under Section 56(2)(viib) of the Act.
Accordingly, appeal of the assessee was dismissed and total income was enhanced under Section 251(1) of the Act on protective basis. Aggrieved, assessee is in appeal before the Tribunal.
Learned counsel for the assessee submitted that all the relevant details and evidence to explain the identity, creditworthiness and genuineness of the transaction were ' Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 placed on record and assessee had fully discharged its initial burden casted under Section 68 of the Act. He stated that nature of these receipts is towards share capital and share A premium which is by cheques from allottee company who are all income tax assessees. He further stated that assessee has explained the source and nature of receipts of these funds and has brought on record all the documentary evidence in this respect. It was categorically submitted that all the details and' documents which the learned Assessing Officer called for vide show-cause-notice dated 07.12.2018 (specifics listed above) were furnished before him. All these documents and evidence forms part of the paper book placed on record. Index o f the paper book containing the listing of the same is reproduced below for ease of reference:
minify TO P APfe'R^bo'lj' Page Particulars Date No(s) T j^iTH om eA ppH cancePvt. Ltd. lUiiic —--- 1-31 Form I Certificate of Incorporation alongwith 2.05.2013 Memorandum and Articles o f Association 32-57 Board Report, Tax audit report alongwith li. [2.6.2018 balance sheet and profit and loss account for FY A 2015 - 16 relevant to A.Y. 2016 - 17 58-60 Valuation of share as per DCF method. iii. 61-65 Notice u/s 142(1) of the Act along with replies. ivw furnished. 66-67 Ledger o f H.D.F.C Bank statement from v. 01 04 2015 to 31.03.2016 68-69 Ledger o f Axis Bank Statement from vi. 04.04.2015-31.03.2016 70-71 Bank Statement of HDFC Bank vii. 72-80 ------ ------------ Form No. PAS-3 yiii. Best Buildmart Pvt. Ltd. 81-86 Form I Certificate of Incorporation alongwith 26.07.2005 ‘i. Memorandum and Articles o f Association. 87-99 Copy of Tax Audit report alongwith balance li. sheet and profit and loss account for FY 2015 - 16 relevant to assessment year 2016 - 17 100-101 Copy of Acknowledgment o f return of income 11.09.2016 iii- alongwith statement of computation o f income 102 Share application form IV. 103 Confirmation of .accounts V. 01.04.2016 104 Share certificate vi. 105 Bank statement oflD B I Bank from 01.04.201> vii. 31.03.2016
JM/s Cee Aar Decors Pvt. Ltd. 106-112 Form I Certificate of Incorporation alongwith 10.07.1996 i- Memorandum and Articles o f Association. 113-125 Copy of tax audit report alongwith balance sheet n. and profit and loss account for FY 2015 - 16 relevant to assessment year 2016-17 i
126-127 iii. Copy of Acknowledgment of return of income 14.09.2016 alongwith statement of computation of income 128 iv. Share application form 129 v. „ Confirmation of accounts 01.4.2016 130 vi. Share certificate A 131-132 vii. Bank statement from 01:07.2015 to 31.08.2016
M/s Herculese builders Pvt. Ltd. 133-138 i. • Form I Certificate of Incorporation alongwith 22.02,2005 Memorandum and Articles of Association. 139-151 ii. Copy of Tax Audit report alongwith balance •sheet and profit and loss account for FY 2015 - 16 relevant to assessment year 20i 6 - 17. 152-153 iii. Copy of Acknowledgment o f return of income 12.09.2016 alongwith computation. 154 iv. Share Application Form. 155 01.04.2016 v. Confirmation of accounts 156 vi. Share Certificate 157-158 vii. . Bank statement from Axis Bank from 01.04.2015 to 31.03.2016
M/s Nu- Ruchi Barter P vt Limited 159-162 i. Form I Certificate of Incorporation alongwith 11.01.1995 Memorandum and Article Of Association. 163-185 ii. Tax audit report and balance sheet and profit and loss account for FY 2015 - 16 relevant to assessment year 2016 - 17 186 iii. Copy o f Acknowledgment of return of income. 25:02.2017 187-188 iv. Share Application Form. 189 v. Confirmation of accounts 01.04.2016 190 ; vi. Share Certificate . 191 vii. Bank statement of H.D.F.C from 1.10.2015 to . 31.3.2016
M/s Sanford Promoters Pvt. Ltd. 192-196 i. Form I Certificate of Incorporation alongwith 22.10.2007 Memorandum and Article o f Association. 197-209 ii. Auditor Report alongwith balance sheet and P/L Account for FY 2015 - 16 relevant to A Y 2016 - 1 7 210-211 iii. Acknowledgment of return of income alongwith 03.09.2016 > computation o f income. 212 iv. Share Application Form. 213 - v. Confirmation of account 1.04.2016 214. vi. Share certificate vii. Bank Statement of H.D.FC Bank from 1.4.2015 215 to 31.3.2*016 Copy of Written Submitted filed before CIT(A) 216-243 3.
6.1 Learned counsel for the assessee strongly submitted that observations of both the learned Assessing Officer and the learned Commissioner of Income-Tax(Appeals) are grossly incorrect and devoid of facts on record in respect of non- compliance by the assessee of the show-cause-notice dated 07.12.2018. He submitted that assessee has furnished its reply on 23.12.2018 on the portal of the department for which he referred to the response sheet generated from the portal to demonstrate that response was in fact submitted on 23.12.2018 with *response type as F ull”. In the same response sheet, he also referred to the attachment which was furnished by the assessee. According to the learned counsel, this submission made by the assessee as well as the preceding submission dated 24.10.2018 which was partial in nature has been altogether ignored before taking adverse view against the assessee. Copy of response sheets for the said two submissions of 24.10.2018 and 23.12.2018,uploaded on the Department
14 v Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 Portal, are placed on record with the written submissions furnished by the learned counsel.
A 6.2 In respect of response by the investor companies to notices issued under Section 133(6) of the Act received by them, learned counsel submitted that one of the entities had replied to the same and furnished all the required details and documents. The other entities did not respond though they received the notices. For these entities, assessee furnished all the relevant documents and details called for by the learned Assessing Officer for which reference can be made to the scanned copy of Paper Book Index extracted above.
6.3. In respect of the observation by the learned Assessing Officer on the valuation of the shares towards charging of share premium of Rs.20 per share, learned counsel submitted that share valuation report from the Chartered Accountant in accordance with Rule 11 UA(2)(b) of the Rules was furnished, placed on record. This fact is noted by the learned Assessing Officer in para 1 page 2 of the impugned assessment order itself, quoted supra. Learned Assessing Officer has not pointed out any defects nor any discrepancies in respect of the Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 valuation report which justifies the premium charged by the assessee wherein the valuation has been arrived at by adopting Discounted Cash Flow Method (DCF). It was strongly asserted that enhancement of income made by the learned Commissioner of Income-Tax(Appeals) on the ground that no valuation report was filed is grossly incorrect, without any basis and devoid of correct verifiable fact. Learned counsel further submitted that in respect of investor, Best Buildmart Pvt. Ltd., the amount of Rs.3,00,000 was received in the preceding assessment year i.e.on24.01.2015 and, therefore, is not a credit raised during the year which can be added under section 68 of the Act.
6.4 To buttress the submission and contentions raised by the learned counsel, he placed reliance on several judicial precedents, table of which is reproduced as under:
16 ' Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17
INDEX TO PAPERBOOK - II OF JUDICIAL PRONOUNCMENTS
Page No. Particulars Date S. No. Copy of judgment of Hon’ ble Tribunal in the matter of 1 - 14 12.02.2021 1. Mantram Commodities Pvt. Ltd. vs. ITO in 6170/DeI/2019 for Assessment Year 2015-16
1 5-5 9 Copy of judgment of Hon’ble Tribunal in the matter of 25.04.2022 2. Mantram Commodities Pvt. Ltd. vs. ITO in for Assessment Year 2016-17 ,
60 - 115 Copy of judgment of Hon’ble Tribunal in the matter o f M/s. 3. 05.05.2022 Potent Foods Pvt. Ltd. vs. ITO in for Assessment Year 2016-17
Copy of judgment of Hon’ble Tribunal in the matter o f Dayalu 116-141 12.07.2022 ' 4. Iron & Steel Pvt. Ltd. vs. ITO in < Dayalu Fashion Pvt. Ltd. vs. ITO in ITA No. 6174/D/2019 and Devesh Cinemas Pvt. Ltd. vs. ITTO in ITA 6184/Del/2019 for Assessment Year 2015-16 Copy of Judgement of Hon’ble Supreme Court in the matter of 5. 11.09.2019 142 PCIT v. Bharat Securities Pvt. Ltd. [2020] 113 taxmann.com 32 (SC) 6. 05.08.2019 Copy o f Judgement o f Hon’ble Supreme Court in the matter of 143-144 PCIT v. Rohtak Chain Co. Pvt. Ltd. [2019] 110 taxmann.com 59 (SC) Copy of Judgement of Hon’ble Supreme Court in the matter of 145 7. 18.02.2019 PC IT v. Chain House International Pvt. Ltd. [2019] 103 taxmann.com 435 (SC) 07.08.2018 . Copy of Judgement of Hon’ble Madhya Pradesh High Court in 146-172 8. the matter o f PC IT (1) Indore v. Chain House International Pvt Ltd. [2018] 98 taxmann.com 47 (Madhya Pradesh) Certificate: It is hereby certified that documents placed at S. No. 1 to 8 are copies o f judicia pronouncements on which assessee is seeking to place reliance. '*
Per contra, learned Sr. DR submitted that investor companies except one had not responded to notices issued under Section 133(6) of the Act. He further submitted that learned Commissioner of Income-Tax(Appeals) had discussed and analysed all the documents, more particularly, the balance 4 sheets of all the investor companies to demonstrate that they lacked creditworthiness to make the investment in share Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 capital of the assessee. Accdrding to him, even the valuation report for justification of the share premium charged by the assessee is not proper. He, thus, contended to uphold the addition made by the learned Assessing Officer. He placed reliance pn the order of the learned Commissioner of Income- Tax(Appeals) for the same.
We have heard the rival contentions and gone through the material placed on record. We note that Ld. AO did not go through the details submitted by the assessee for the subscriber companies. To our mind, Ld. AO could have taken an adverse view only if he could point out the discrepancies or insufficiency in the evidence and details furnished in his office.
In paragraph 01 of the impugned assessment order, learned Assessing Officer has noted about the documentary evidence furnished by the assessee. In the same paragraph, it is noted by him that ‘assessee has furnished confirmation with relevant documents from the parties o f allottees o f shares, reply o f which is on IT BA Contrary to this noting, an adverse view is drawn about the non-compliance by the assessee to the show-cause- notice dated 07.12.2018. In fact, assessee has furnished its reply with supporting documents against the said show-cause- 4
18 v Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 notice by uploading it on the Income-tax portal on 23.12.2018, which is prior to the completion of assessment. This submission furnished by the assessee has been altogether A ignored by both the authorities below.
8.1 We note that details sought by the learned Assessing
Officer vide show-cause-notice (as listed above) were all furnished by the assessee in the course of assessment. Thus, what was sought through issue of notices under section 133(6) of the Act on the investor companies was made available by the assessee itself. Learned Assessing Officer has not bothered to discuss or point out any defect or deficiency in the documents furnished by the assessee of the share subscribing companies.
These evidences furnished have been neither controverted by the learned Assessing Officer during the assessment proceedings nor anything substantive brought on record to justify the addition made by him. Learned Assessing Officer has simply added the amount of share capital and share premium on the ground that notices under section 133(6) have not been responded by the investor companies and that mere I filing of documentary evidence is not enough to establish the trilogy of section 68 of the Act. In the case of one investor company, viz. Best Buildm&rt Pvt Ltd, amount of Rs. 3,00,000 was received in the preceding assessment year, on 24.01.20 15 which cannot be subjected to tax under section 68 in the year under consideration as it is not a cash credit during the year.
8.2 From the perusal of paper book (scanned copy index of the same is extracted above) and the documents placed therein, it is vivid that all the share applicants are (i) income tax assessees, (ii) they are filing their income tax returns, (iii) share application form and share certificate is available on record which were furnished by the assessee, (iv) share application money was made by account payee cheques, (v) details of the bank accounts belonging to share applicants and their bank statements, (vi) all the share applicants are having substantial creditworthiness represented by their capital and reserves, duly disclosed and reported in their audited balance sheets. Observations made by learned CIT(A) that assessee has not made any compliance is baseless and contrary to material placed on record by the assessee.
8.3 It is also noted from their audited financial statement that all the investing companies have sufficient own funds available
ITA I\lo.l06/Del/2021 Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 With them to make investment in the assessee though learned
CIT(A) despite analysing their balance sheets on this fact has taken an adverse view. From the perusal of records placed by the assessee of all the share subscribing companies, it can be safely held that the assessee has discharged its initial burden and the burden shifted on the learned Assessing Officer to enquire further into the matter which he failed to do so. We draw our force from the decision of the Hon’ble Bombay High
Court in the case of PCIT v. Paradise Inland Shipping Pvt. Ltd.
[2017] 84 taxmann.com 58 (Bom) wherein it was held that once the assessee has produced documentary evidence to establish the existence of the subscriber companies, the burden would shift on the revenue to establish their case.
8.4 For the above observations and finding, reliance is also placed on the decision of H on’ble jurisdictional High Court of Delhi in the case of PCIT vs. Agson Global (P) Ltd [2022] 441 ITR 550 (Del) wherein it was held that ‘where assessee- company received share capital/premium money from several investors and was able to place sufficient documentary evidence to establish that money which assessee paid to investors was routed back to it in f o r m o f share capital/ share premium, since Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 identity, creditworthiness and genuineness o f investors was proved, AO was not justified in making addition under section 68.’ 8.5 We also refer to the decision of Hon'ble Supreme Court in the case of PCIT vs. NRA Iron & Steel Pvt. Ltd. (2019) 103 taxmann.com 48 (SC) wherein vide para 11, certain principles which emerged are listed. The same is reproduced as under:
“11. The principles which emerge where sums o f money are credited as Share Capital/Premium are : i. The assessee is under a legal obligation to prove the genuineness o f the transaction, the identity of the creditors, and credit-worthiness of the investors who should have the financial capacity to make the investment in question, to the satisfaction of the AO, so as to discharge the primary onus.(2007) 158 Taxman 440 [2008)307 ITR ii. The Assessing Officer is duty bound to investigate the credit-worthiness of the creditor/ subscriber, verify the identity o f the subscribers, and ascertain whether the transaction is genuine, or these are bogus entries of name-lenders. iii. If the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit-worthiness, then the genuineness of the transaction would not be established. In such a case, the assessee would not have discharged the primary onus contemplated by Section 68 o f the Act. ”
From the above (ii), we note that Assessing Officer is duty bound to investigate the creditworthiness of the creditor/subscriber, verify the identity of the subscriber and ascertain whether the transaction is genuine or these are bogus entries of name lenders. In absence of any investigation made by the learned Assessing Officer as well as by the V Pingash Home Appliances Pvt. Ltd. A.Y. 2016-17 learned CIT(A), the addition cannot be sustained merely based on inferences made from circumstances and without gathering evidence.
A 9. In respect of valuation of shares for charging of share premium, learned Assessing Officer himself has noted in the impugned order that assessee had furnished a Valuation Report obtained by it from a Chartered Accountant, as per Rule llU A (c ) of the Rules. Despite this fact on record, learned CIT(A) stated that assessee has failed to bring on record any evidence to justify the basis of share premium charged in excess of its face value. Assessee has chosen the DCF method for valuation of its shares which is a permissible option available to the assessee and the same has not been disputed by the learned Assessing Officer as to any discrepancy or deficiency in the same. We note that for the purpose of section 56(2)(viib) of the Act, valuation of shares has to be done in accordance with Rule 11UA of the Rules. Admittedly, it is a fact on record that during the course of assessment itself, assessee had furnished a valuation report in accordance with Rule 1 1UA wherein value of share was arrived at Rs. 30/- per share with face value of Rs. 10/- and share premium of Rs. 20/- per share.
9.1. Further, we note that learned CIT(A) has resorted to enhance of income by making an addition of Rs. 62,00,000 on account of share premium received in excess of face value without, complying with the provisions of section 251 of the Act, more so on protective basis.
9.2 On the issue of share premium charged by the assessee which has been alleged to be excessive by the authorities below, we place our reliance on the decision of Hon'ble Supreme Court in the case of PCIT v. Rohtak Chain Co. (P.) Ltd [2019] 110 taxmann.com 59 (SC). Head note of the same reads as under:
“Section 68 o f the Incom e-tax Act, 1961 - Cash credits (S h a res) - A ssessm en t years 2012-13 to 2013-14 - High Court by im pugned order held that issuing share at a prem iu m is a com m ercial decision and it is p re rog a tiv e o f Board o f D irectors o f a com pany to decide p rem iu m am ount and it is w isdom o f sha reh old er w hether they want to sub scrib e shares at such a p rem iu m or not and, ultim ately, this is a m utual d ecision betw een both com panies and their sha rehold ers; thus; one genuineness, cred itw orth in ess and identity o f investors are established, revenue should not ju s tifia b ly p u t its e lf in arm ch a ir o f a b u sinessm an or in p o sitio n o f Board o f D irectors and assum e role o f a scerta in in g how m uch is a reasonable prem iu m having regard to circum stances o f case - Thus, it held that once genuineness, creditw orth in ess and identity o f investors were established, no addition could be made as cash credit on ground that shares were issued at excess prem ium . ”
Considering the facts and circumstances of the case and the material placed on ,record, we find that assessee has \ . Pingash Home Appliances Pvt. Ltd. , A.Y. 2016-17 130 arSed ^ ° nUS l ° PTOVe the and creditworthiness of the share subscribing companies and the genuineness o f the to w a rd s s u m Qf R s 93>00 0 0 0 / _ A c c o r d .n g l y CIT(A, and deiete the addition made towards share capital and share premium u/s. 68 of the A c, We ^ ^ ^ enhancement of total income made by learned C1T(A) o f Rs 62,00.000/- on protective basis by treating the h uy treating the share premium CXC6SS of fflpp ttq . as income under section S6(2)(viib) of ‘ « Act, on the strength of the observations and discussion made above in this respect, including the judicial precedent referred. Accordingly, grounds taken by the assessee are allowed.
In the result, appeal of the assessee is allowed.