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2022 (12) TMI 1508 - AT - Income TaxAddition u/s 56(2)(viib) - rejection of valuation report of the valuer - premium received on issue of equity share exceeds its ‘Fair Market Value’ (FMV) and consequently the excess premium received on issue of equity share is susceptible to tax in view of provisions of Section 56(2)(viib) as deemed income of the assessee - Substitution of value of shares - valuation as per DCF method - AO proceeded to determine value based on actual figures of profits for next two years, i.e., F.Ys. 2015-16 and 2016-17 in substitution of the projected profits before tax adopted in the valuation report HELD THAT:- The assessee in the instant case has proceeded to issue equity share at a premium on the basis of independent valuer report wherein DCF method was adopted for the purposes of determination of fair market value. The Assessing Officer has not disputed the DCF method adopted for valuation per se. AO however, has compared the projected figures used by the valuer with the actual figures available at the time of assessment. AO displaced the FMV determined as per DCF method based on projected figures by replacing the same by actual figures to discard the justification of share premium. We find that such action of the AO substitute the figures estimated at the time of valuation towards ensuing years by actual figures made available to AO at the later point of time is squarely in contrast to the judgment of Cinestaan Entertainment [2021 (3) TMI 239 - DELHI HIGH COURT] and decision of Intelligrape Software Pvt. Ltd [2020 (10) TMI 403 - ITAT DELHI] In Cinestaan [2021 (3) TMI 239 - DELHI HIGH COURT] took cognizance of the identical situation, i.e., the AO had disregarded the valuation report of the assessee primarily on the ground that the projections of revenue considered for the purpose of valuation do not match with the actual revenue arose in the subsequent years - in the fact situation observed that the assessee company has adopted a recognized method of valuation and the revenue could not show that assessee has adopted demonstrably wrong approach. It was observed that valuation is not an exact science and therefore cannot be done with arithmetic precision. It is a technical and complex issue which should best be appropriately left to the consideration and wisdom of experts in the field, having regard to the imponderables which enter the process of valuation of shares. The Hon’ble High Court thus upheld the action of the ITAT and consequently the additions made under the deeming provisions of Section 56(2)(viib) made by the AO were reversed. Similar view has been taken in Intelligrape Pvt. Ltd [2020 (10) TMI 403 - ITAT DELHI] wherein it was observed that the valuation based on future projections at the time of issue of shares cannot be inferred as the actual figures may vary depending on the market conditions and host of other factors. Appeal of the assessee is allowed.
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