TMI Blog2013 (11) TMI 774X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer dated 22.06.2012 under section 143(3) read with section 92CA and 144C(5) of the Income Tax Act, 1961 passed on the basis of the directions of the Dispute Resolution Panel dated 4.6.2012. 2. The brief facts of the case are that the assessee is a fully owned subsidiary of M/s. Ascendas Land International Pte Ltd., Singapore. The said company in turn is wholly owned subsidiary of Ascendas Pte Singapore. The assessee is engaged in the business of building and leasing of Technology Parks, High tech buildings, Bio-technology parks etc. Another company M/s. Ascendas IT Park (Chennai) Pvt. Ltd. (hereinafter referred to as "AITPCL") was incorporated on 3rd November, 2003 with the object of developing, owning and leasing IT Parks and Hi-tech buildings and built to suit and ready built facilities in India. The assessee had 84.97% shareholding of the said company. The remaining shareholders of the company are as follows:- i) M/s. Ascendas Property Management Services India Pvt.Ltd. : 4.02% ii) Tamil Nadu Industrial Development Corporation Ltd. 11% iii) Balance 0.01% shares were held by individual investors. The assessee on 30.03.2007 entered into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 had remitted the file back to the Assessing Officer with a direction to rework the value afresh in accordance with the directions and observations made in the said order. The A.R. placed on record a copy of the order of the Tribunal in the aforesaid appeal. 4. When confronted with the situation, the DR submitted that the issue has already been adjudicated by the Tribunal in the said appeal of the assessee. 5. We have heard both the parties and have gone through the orders of the authorities below and the order of the Tribunal dated 2.1.2013 in ITA No.1736/Mds/2011 for the assessment year 2007-08. We find that the issue in dispute is identical to the one already decided by the Tribunal in the aforementioned appeal. In fact, the ground of appeal in the present case is the continuation of the transaction, which had taken place in the assessment year 2007-08. The Tribunal while adjudicating the appeal of the assessee for the assessment year 2007-08 has held as under:- "15. We have heard rival contentions and perused the orders carefully. Before setting out the questions that are to be answered, it has to be noted that the transactions which have been subjected to the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gth. The question here is whether we can consider the sale of shares by LTIL to APFI to be uncontrolled. For answering this, we have to look at the agreement entered between the Assessee, LTIL, LTIAL APFI placed at P.34 to 91 of the Paper Book. At one end of this agreement is LTIL and Assessee together, and on the other end APFI. The sellers are Assessee and LTIL. Sellers joined together and sold the shares held by them in LTIAL to APFI. Had these been independent transactions entered into by two different parties, the sale would not have been ordinarily effected through one agreement. APFI was interested in purchasing the shares of LTIAL, only if both Assessee and LTIL sold their respective holdings at a single price. Every clause in the said agreement applies to both Assessee and LTIL. Even the consideration of Rs. 79 crores mentioned at clause No.3 of the said agreement is a consolidated one. Thus, the price for which shares of LTIAL were transferred was based on a single agreement and, therefore, to say that one part of that agreement would be an uncontrolled transaction, for comparing it with the other part, would, in our opinion, be unacceptable. The agreement has to be tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the word 'shall' need not always be mandatory and could also be read as "may", is a rule laid down by the Hon'ble Gujarat High Court in the case of CIT v. Gujarat Oil Allied Industries (201 ITR 325). This is more or less the same view taken by the Hon'ble Apex Court in the case of Director of Inspection of Income Tax (Investigation) v. Pooran Mal Sons (96 ITR 390) and in the case of Sainik Motors v. State of Rajasthan (AIR 1961 SC 1480). Hence, while finding the most appropriate method it is not that modern valuation methods fitting the type of underlying service or commodities have to be ignored. Fixing enterprise value based on discounted value of future profits or cash flow, is a method used worldwide. Endeavour is only to arrive at a value which would give a comparable uncontrolled price for the shares sold. If viewed from this angle, we cannot say that the discounted cash flow method adopted by the TPO was not in accordance with sec.92C(1). 18. Now coming to the argument of the Authorised Representative that TPO was bound by the value fixed by the Chartered Accountant in accordance with CCI guidelines. This in our view cannot be accepted for the simple reason th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rnings and then dividing it with the number of shares. Both the TPO and assessee in its reply to the TPO, had used the second method whereby the companies concerned were valued by discounting their future cash flows over a period of 20 years and thereafter dividing such value by the total number of shares. 20. Most important aspect in the application of DCF is the discounting factor used for working out the net present value (NPV). The Discounting factor generally used is the Weighted Average Cost of capital. Widely used method of valuation based on discounted cash flow seems to be as under :- Value of operating asset + Non-operating asset = Value the enterprise Value of enterprise - Value of debt = Value of equity 21. It is obvious that difficult parts are (i) determining the future cash flows, (ii) determining the cost of equity, (iii) determining the cost of debt and (iv) determining the period of discounting. Here both parties have agreed that 20 years is an appropriate one and hence last mentioned difficulty is not there. Future cash in-flow also can be reasonably ascertained since major part of the earnings of the assessee are rental or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 20,707 Debt Debt - Phase 2 67,05,35,528 Debt Total Debt 1,58,41,56,235 Debt Total Debt Equity 2,264,156,235 Thus, in working out the WACC the Assessing Officer considered only equity and debt of Phase 1. Nevertheless in the Denominator he took the aggregate of equity share application money, debt of phase 1 and debt of phase 2. This is an obvious mistake in the working out done by the TPO. As pointed out by Assessee, PV factor also is to be spread starting with the year in which the transaction took place. For a valuation to have some amount of objectivity it is imperative that errors in calculations are avoided and variables are considered within a reasonable limit so that acceptable values can be arrived at. Even a slight change in the discounting ratio will result in substantial change in the valuation of the company. If the ALP of the shares are worked out without considering a reasonable value for the enterprise, it will result in injustice. As already noted by us here, there is no dispute with regard to cash inflows and cash out-flows. Only dispute is only with regard to weighted avera ..... X X X X Extracts X X X X X X X X Extracts X X X X
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