TMI Blog2020 (7) TMI 71X X X X Extracts X X X X X X X X Extracts X X X X ..... 20 (6) TMI 318 - ITAT BANGALORE ] i.e., (i) the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. (ii) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Hence, he has to satisfy about the correctness of the projections, Discounting factor and Terminal value etc. with the help of Empirical data or industry norm if any and/or Scientific Data, Scientific Method, Scientific study and applicable Guidelines regarding DCF Method of Valuation. The order of ld.CIT(A) is accordingly set aside for deciding the issue afresh after due opportunity of hearing to the Assessee. Appeal is allowed for st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares shall be taxed as income from other sources. 4. Aggrieved by the order of the AO the Assessee preferred appeal before the CIT(A). Out of the above share premium received, premium to the extent of ₹ 46,79,840/- related to shares issued to non-residents. Considering the position of law that the provisions of section 56(2)(viib) of the act has no application to premium received from non-residents, the ld.CIT(A) deleted additions to this extent. The balance addition of ₹ 1,82,51,360/- (₹ 2,29,31,200 ₹ 46,79,840) was confirmed by the CIT(A). 5. The only issue contested in the appeal is the addition to the extent of ₹ 1,82,51,360/- confirmed by the ld. CIT(A). The details of the share holders who have been allotted shares and the face value of shares and also premium are as under: - Allotted to Residents Name of the share holder No. of shares Date of allotment of shares Face value of shares @ ₹ 10/- Premium received at 146.17 per share Mr.Krishnan Raman 20,277 28.01.2013 2,02,770 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of section 56(2)(viib) of the Act in regard to this allotment also. 8. The second category of shares issued at a premium relates to issue of 60831 equity shares of the total value of ₹ 95 lacs issued to the following persons: Name of the share holder No. of shares Date of allotment of shares Face value of shares @ ₹ 10/- Premium received at 146.17 per share Mr.Krishnan Raman 20,277 28.01.2013 2,02,770 29,63,897 Mr.Thaiparambil Jude Derick Jose 20,277 28.01.2013 2,02,770 29,63,896 Mr.Srikanth Muralidhar 20,277 28.01.2013 2,02,770 29,63,897 9. It was the plea of the Assessee that in respect of 60831 equity shares of the value of ₹ 95 lacs issued on 28.01.2013 to the aforesaid persons, that the Assessee purchased Intellectual Property Rights (IPR) from the aforesaid three promoters for a consideration of ₹ 95 lakh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fundamental basis of arriving at a free cash flow itself is prima facie erroneous. This value has not been compared with the NAV method or any other method leading to a face of creditability. Since the projection made by the assessee is not acceptable effort has been made to value the share as per section 56 r.w.r. 11UA. The same is worked out as under: - FMV under rule 11UA calculated as on 30.04.2012: Particulars Amount in Rs. Assets A Fixed Assets 42,46,140 Bank account 1,69,726 44,15,866 Liabilities L Current liabilities 20,056 Share capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bankers solely relied upon an assumed without independent verification, the truthfulness accuracy and completeness of the information and the financial data provided by the company. A perusal of this long disclaimer clearly shows that the merchant banker did not do anything reflecting their expertise, except mere applying the formula to the data provided by the assessee. We, therefore, are unable to brush aside the contention of the Revenue that the possibility of tailoring the data by applying the reverse engineering to the pre determined conclusions. 16. For all these reasons, we are of the considered opinion that there has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the merchant banker, in the absence of which the correctness of the result of DCF method cannot be verified. This left no option to the AO but to reject the DCF method and to go by NAV method to determine the FMV of the shares. Without such evidence, it serves no purpose even if the matter is referred to the Department's Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Innovit Payment Solutions Pvt.Ltd., Vs ITO(2019) 102 Taxmann.com 59 held as follows: 9. We have considered the rival submissions. First of all, we reproduce paras 11 to 14 from the Tribunal order cited by learned AR of the assessee having been rendered in the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra). These paras are as follows: 11. As per various tribunal orders cited by the learned AR of the assessee, it was held that as per Rule 11UA (2), the assessee can opt for DCF method and if the assessee has so opted for DCF method, the AO cannot discard the same and adopt other method i.e. NAV method of valuing shares. In the case of M/s. Rameshwaram Strong Glass (P) Ltd. vs. The ITO (Supra), the tribunal has reproduced relevant portion of another tribunal order rendered in the case of ITO vs. M/s Universal Polypack (India) Pvt. Ltd. in ITA No. 609/JP/2017 dated 31.01.2018. In this case, the tribunal held that if the assessee has opted for DCF method, the AO cannot challenge the same but the AO is well within his rights to examine the methodology adopted by the assessee and/or underlying assumptions and if he is not satisfied, he can challenge the same and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se, when the guidance of Hon'ble Bombay high Court is available, we should follow this judgment of Hon'ble Bombay High Court in preference to various tribunal orders cited by both sides and therefore, we are not required to examine and consider these tribunal orders. Respectfully following this judgment of Hon'ble Bombay High Court, we set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment of Hon'ble Bombay High Court. The AO should scrutinize the valuation report and he should determine a fresh valuation either by himself or by calling a final determination from an independent valuer and confront the same to the assessee. But the basis has to be DCF method and he cannot ITA No. 2541/Bang/2019 ITA No. 37/Bang/2020 S. P. Nos. 29 and 59/Bang/2020 change the method of valuation which has been opted by the assessee. In our considered opinion and as per report of research committee of (ICAI) as reproduced above, most critical input of DCF model is the Cash Flow Projections. Hence, the assessee should be asked to establish that such projections by the assessee based on which, the valuation report is prepared by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... judgment of Hon'ble Bombay High Court, it was held that AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. The Tribunal has followed the judgment of Hon'ble Bombay High Court and disregarded various other Tribunal orders against the assessee which were available at that point of time. In the present case also, we prefer to follow the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra) in preference to the judgment of the Hon'ble Kerala High Court cited by DR of the Revenue rendered in the case of Sunrise Academy of Medical Specialities (India) (P.) Ltd. Vs. ITO (supra) because this is settled position of law by now that if two views are possible then the view favourable to the assessee should be adopted and with regard to various Tribunal orders cited by learned DR of the Revenue which are against the assessee we hold that because we are following a judgment of Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fair market value of unquoted equity shares = where, (A L) (PV), (PE) A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 30,94,769/- for the F.Y.2012-13, ₹ 1,29,86,330/- for the F.Y.2013-14 and ₹ 2,16,06,523/- for the F.Y.2014-15, whereas the actuals as per the returns filed are (-) ₹ 5,40,078/-, (-) ₹ 1,25,58,421/- and (-) ₹ 2,70,00,184/- only. 21. We are of the view that, the Assessing Officer has erred in considering the actuals of revenue and profits declared in the future years as a basis to dispute the projections. At the time of valuing the shares as on 16.04.2012, the actual results of the later years would not be available. What is required for arriving at the fair market value by following the DCF method are the expected and projected revenues. Accordingly the valuation is on the basis of estimates of future income contemplated at the point of time when the valuation was made. It has been clarified by the Assessee that the product which was being developed by the Assessee has substantial value and the Assessee was able to raise funds to the tune of ₹ 50.13 crores from international market 22. In view of the above legal position, we are of view that the issue with regard to valuation has to be decided afresh by the AO on the lines indicated in the d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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