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2018 (1) TMI 789 - AT - Income TaxDetermining the price of shares of First Advantage Pvt. Ltd. - TPA - valuation of the shares sold - ALP determination - Held that:- In the case under appeal, estimate made by the assesse for determining PGR and the valuation of the shares is better and more convincing than the estimation made by the departmental authorities. The Hon’ble Bombay High Court in the case of Titan Time Products Limited (2015 (1) TMI 105 - BOMBAY HIGH COURT), has held that valuation reports of experts should not be rejected by the departmental authorities unless the assumption considered in the report are proved to grossly erroneous or another expert-opinion is obtained contradicting the earlier report. In the present matter the DRP has not given any cogent or valid reason for rejecting the four reports submitted by the assessee. We find that during the year under consideration there was buy back of shares of FAPL from FADV, Singapore, that the shares of FAPL were sold by the Singapore entity at the same rate at which they were sold by the assessee to the Singapore AE, that the TPO had examined the buyback agreement of the shares(i. e. sale of shares by Singapore entity to FAPL)and held that the transaction was at Arm’s length. If the subsequent transaction was found to be at fair market value then what was the justification for not treating the first transaction at arm’s length, is not coming out of the order of the TPO/DRP. It is one of the recognised principle of valuation that a high PGR would require a proportionate higher cost of equity. If the said theory is applied to the facts of the case under consideration, the cost of equity will have to be taken at minimum of 17.57% (for 7% PGR). Therefore, we agree with the argument advanced by the assessee that if cost of equity was taken at 17.57%, then the value of a share of FAPL would be lower than value determined by the independent valuer. In short the transaction i. e. valuation of shares of FAPL, was at Arm’s length. - Decided in favour of assessee
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