We hold that since the shares of a foreign company were acquired by the assessee company in the instant case, the ld AO ought to have relied on the balance sheet as audited by the auditor appointed under the Indian Companies Act. In the instant case, the ld AO had relied on the balance sheet of KNP Industries Pte Ltd, Singapore, which is prepared in accordance with Singapore Companies Act, which fact is not in dispute before us. Admittedly, the case of the assessee falls squarely on clause (ii) of the definition of “Balance Sheet‟ as defined in Rule 11U of the Rules supra. Hence it is mandatory to draw a balance sheet as on the valuation date i.e. 10.2.2015 /11.2.2015 (being the date of purchase of shares by the assessee company) and that the said balance sheet should have been audited by an auditor appointed under section 224 of the Companies Act, 1956. Hence it could be safely concluded that the ld AO had applied the valuation method on a different date which is not in accordance with law and that since the computation mechanism provided in Rule 11UA of the Rules is not applicable to the facts of the instant case, the provisions of section 56(2)(viia) of the Act also could not be invoked
No doubt in the present case, the ld.AO has applied for such approval which was granted on 29.3.2017, but before grant of approval, the ld.AO has already issued notice on 28.3.2014 which is without any jurisdiction. He can issue notice only after getting approval. Thus, the ld.CIT(A) has rightly quashed the assessment because the very foundation for issuance of notice under section 148 is the approval from the competent authority, i.e. Commissioner of Income Tax, and in the absence of such, such notice is void ab initio
So far as the penalty proceedings are concerned, the assessee has made out a prima facie case in favour of the assessee proving that the outcome of the appeal before ITAT will directly impact the proceedings which are hurriedly being finalized by the authorities below, which may entail huge liability by way of penalty on the assessee. In our opinion, so long as the appeal is pending before the Tribunal, the Revenue authorities should be restrained from passing any order imposing penalty on the assessee u/s 271C and 206AA of the Act however the proceedings may continue
||Amarjit Singh (JM), Rajendra (AM)
||56(2)(viib), Rule 11UA
||consistency principle, res judicata, valuation of shares
||Dr. K. Shivram, Rahul Hakani
||May 2, 2018 (Date of pronouncement)
||May 9, 2018 (Date of publication)
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S. 56(2)(viib) Fair Market Value of shares transferred: Rule 11UA allows the assessee the right to adopt the method of his choice for valuing shares (DCF, NAV etc). The AO has no jurisdiction to insist that the assessee should adopt only a particular method for determining the value of the shares. AOs should not deviate from earlier years’ decisions without assigning any concrete and justifiable reasons. Tax determination cannot be left to whims and fancies of a person. It is a serious task and has to be accomplished in a disciplined manner. If an assessee has been allowed a certain concession in earlier year/(s) it cannot be withdrawn in subsequent years without plausible reasons
Section 56 allows the assessees to adopt one of the methods of their choice. But,the AO held that the assessee should have adopted only one method for determining the value of the shares.In our opinion,it was beyond the jurisdiction of the AO to insist upon a particular system, especially the Act allows to choose one of the two methods.Until and unless the legislature amends the provision of the Act and prescribes only one method for valuation of the shares,the assessees are free to adopt any one of the methods.
The power of condoning the delay is with the Court/Tribunal under the Limitation Act as well as u/s 253(5) r.w.s. 252(1) of the Income Tax Act. The petition of assessee has to be examined by the court/Tribunal after hearing both the parties and after considering the reasons, facts etc. Hence, the order passed by the Registrar is ultra virus beyond his power. hence his order is non-est in the eyes of the law. Henceforth the Registrar should desist from passing such orders and he should put up all petitions before the Bench.
Anyhow, after receipt of the information from DGIT(Inv.) Mumbai, the Assessing Officer issued the notice u/s 133(6) of the Act to all the parties but the said noticed were not served upon the said parties. The Assessing Officer also deputed the tax inspector to verify the genuineness of the claim and to know about the existence said 20 parties but the 17 parties were not available at the given address. However, notices served upon the Sampart Steel, Revika Trade Impex P. Ltd., Jindal Corporation but these parties nowhere submitted the required information. Sufficient evidence has been submitted by the assessee before the AO
AO has not disputed the quantitative details and also day to day stock register maintained by the assessee. Assessee company being a trader of goods, AO not having doubted the genuineness of sales, could not have gone ahead and made addition in respect of peak balance on such purchases. Accordingly, CIT(A) concluded that issue boil down to find out the element of profit embedded in bogus purchases which the assessee would have made. When the corresponding sales have not been doubted and the quantitative details of purchases and sales vis-a-vis stock was available, we deem it appropriate considering the entirety of facts and circumstances of the case to restrict the addition to the extent of 2% of such bogus purchase. Accordingly, the order of both the lower authorities are modified and AO is directed to restrict the addition to the extent of 2% on such purchases.
Purchase and sale of shares outside the floor of Stock Exchange is not an unlawful activity. Off-market transactions are not illegal. It is always possible for the parties to enter into transactions even without the help of brokers. Therefore, it is not possible to hold that the transactions reported by the assessee were quite sham on the legal proposition arrived at by the CIT(A) that off-market transactions are not permissible. The assessee has stated that the transactions were made with the help of professional mediators who are experts in off-market transactions. When the transactions were off-market transactions, there is no relevance in seeking details of share transactions from Stock Exchanges. Such attempts would be futile. Stock Exchanges cannot give details of transactions entered into between the parties outside their floor. Therefore, the reliance placed by the assessing authority on the communications received from the Stock Exchanges that the particulars of share transactions entered into by the assessee were not available in their records, is out of place. There is no evidential value for such reliance placed by the assessing authority. The assessee had made it very clear that the transactions were not concluded on the floor of the Stock Exchange. The matter being so, there is no probative value for the negative replies solicited by the assessing authority from the respective Stock Exchanges. We are of the considered view that the materials collected by the assessing authority from the Stock Exchanges are not valid to dispel or disbelieve the contentions of the assessee
The AO has not conducted any independent enquires for making the addition especially since the assessee has discharged its primary onus of showing books of account, payment by way of account payee cheque and producing bills for purchase of goods. (i) By relying on the official website of the Sales Tax Department, Government of Maharashtra regarding suspicion parties providing accommodation entries, the AO has made an addition. In response to the show cause notice issued by the AO, the assessee has supplied copy of bills, cop of the bank statement to prove that payment made for purchases, and copy of ledger accounts of all eight parties. The assessee is an individual carrying on a proprietary business in the name of M/s Noble Construction Company, undertaking construction work of dams and canals on behalf of Government of Maharashtra in the interior part of the State. In the interior parts the goods are not available easily. The Government contracts are time barring contract and the work is required to be completed on time. Accordingly, when the material is required in emergency the telephonic orders are placed upon the parties who supply the materials at site. The corresponding consumption of materials in respect of which the purchases were affected by the assessee firm have not been doubted by ld. AO. Neither any document information has been provided by the AO nor he has given any opportunity to the assessee to cross examine the said party and AO has concluded that the purchases by assessee company from the said party is bogus merely on the basis of information from Sales Tax Department.
The principle “Audi alteram partem”, i.e. no man should be condemned unheard is the basic canon principles of natural justice and accordingly we find merit in the contentions of the assessee that Rule 46A of the Income Tax Rules cannot be over ride the principles of natural justice. Hence we are of the view that the learned CIT(A) was not justified in refusing to admit the various additional evidences furnished by the assessee