Delhi ITAT holds that when Assessee’s method for determining fair market value per share is rejected by the Revenue then “it is bounden duty on their part to either rework the fair market value based on their conclusions or adopt the other method available which is NAV”.
The ITAT deleted addition of bogus share capital made under Section 68 since the Assessee duly discharged its onus from all fronts to get out of the rigours of section 68; ITAT observes that “merely because in the bank statements of the investors there were certain credits and the monies had been immediately given to so many parties including the assessee, it cannot be directly concluded that those transactions in the books of investor companies are bogus”.
The ITAT held that the Assessee proved source of source by the balance available in the bank account of the investors; Further observes that “the nature of receipt as share capital is also established from the fact that the investor companies had duly reflected the fact of making investments in the assessee company in their respective balance sheets and had also given a separate confirmation to this effect before the lower authorities directly in response to the notice u/s 133(6)”.
The Assessee-Company received sum of Rs.43.25 lacs towards share capital from three investors and furnished copy of certificate of incorporation along with memorandum of association and articles of association, audited financial statements, ITR acknowledgements with computation of total income, share application forms, confirmation of accounts, bank statements to prove both the receipt and refund of funds.
The department held it to be bogus share capital taxable under Section 68; CIT(A) observed that the Assessee additionally received Rs.17 Lacs from the said parties and thus, enhanced the addition under Section 68.
ITAT finds that Assessee furnished the preliminary documents pertaining to the investors before the AO and veracity of the same were examined by issuing notices under Section 133(6) which were duly responded by the investors.
ITAT remarks that these facts go to prove that the Assessee duly discharged its onus to prove the three ingredients of section 68 namely, the identity and credit worthiness of the investors and the genuineness of the transaction.
ITAT notes that “investors are having sufficient net worth in their kitty which proves the credit worthiness for making investment in the assessee company”.
ITAT finds that all the transactions are routed through regular banking channels and the fact of the investors making investments in assessee company is reflected in their balance sheet and also confirmed by them separately directly before the Revenue.
Hence, holds that the genuineness of the transactions cannot be doubted in the instant case.
ITAT further observes that “these investors are regularly assessed to income-tax. Hence, the identity of the investors cannot be doubted”.
ITAT, thus, directs deletion of addition under Section 68 as well as the enhancement made by CIT(A); Regarding addition under Section 56(2)(viib) on account of excess share premium, ITAT notes that DCF valuation suffers from infirmities as Assessee has not commenced its business, neither invested in any fixed assets nor gave any advance for purchase of fixed assets or goods showing its intent to start the business in the near future.
The ITAT opined that the Revenue rejected the DCF method adopted by the Assessee, however, the lower authorities ought to have reworked the fair market value; Finds that valuation of share as per NAV method which worked out to Rs.1,880 per share when compared to the issue price at Rs.60 per share, duly justifies the share premium of Rs.50 per share.
The ITAT DeleteD addition under Section 56(2)(viib) of the Act as share premium could not be construed as excessive.
Case Title: Movefast Automobiles Pvt. Ltd. V/s ITO