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TMI Blog2020 (7) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee furnished the computation of fair market value of shares but as per the AO, same is not in accordance with Rule 11UA(a)(c)(b) of the I.T.Rules. Therefore, the AO calculated the fair market value of shares under Rule 11UA at Rs. 31.96 per share and as the assessee has received Rs. 14,43,200/- over & above the FMV which is treated as income of the assessee u/s.56(2)(viib) of the Act. 4. On appeal, the CIT(A) confirmed the action of the Assessing officer. 5. Ld counsel for the assessee submitted that in this case, the Assessing Officer made addition on the basis of conjectures and surmises. Ld counsel submitted that the assessee submitted a calculation before the AO properly establishing the share value including share premium more than Rs. 50 per share but the same was not accepted and the same was rejected at the threshold without any proper consideration. Ld counsel submitted that in para 4.4 of the assessment order, the AO himself noted that calculation placed by the assessee is not as per Rule 11UA(1)(c)(b) of I.T.Rules, 1962 (hereinafter ' the rules') but what is the provision as per said rule is not clear. Ld counsel vehemently pointed out that the AO calculated the valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otment, the said amount is correctly treated as income of the assessee u/s.56(2)(viib) of the Act. 8. On careful consideration of rival submissions, first of all, I may point out that undisputedly present case is pertaining to a case in which the public are not substantial interested and the shares of the assessee company are not listed or traded on any of recognized exchange. It is also not in dispute that during the financial year i.e. 2014-15 relevant to assessment year 2015-16, the assessee company has received consideration of sale/allotment of 80,000 shares at a face value of Rs. 10 and at a premium of Rs. 40 per share. The limited issue for my consideration is that whether the consideration so received exceeds the fair market value of the shares?. From the assessment order, I observe that the Assessing Officer has made a calculation in para 4.4 of the assessment order determining the fair market value at Rs. 31.96 per share taking the book value of the assets in the balance sheet as on 1.4.2014 but as per Rule 11UA(1)(c)(b) of the Rules, it is the prerogative of the assessee to estimate the fair market value of the shares issued by it adopting one method out of two methods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e consideration so received for such shares exceeds the fair market value of the shares. Where the answer to the same is in affirmative, the excess so determined over the fair market will be brought to tax as income from other sources as per the provisions of section 56(2)(viib) of the act which reads as under: ''Where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the segregate consideration received for such shares exceeds the fair market value of the shares.'' 15. The explanation to section 56(2)(viib) provides that the fair market value of such shares means the value determined in accordance with the method as may be prescribed. The method of valuation has been prescribed in rule 11UA which reads as under: xxx....... 16 As it is clear from the above, sub-rule 2 of rule 11UA talks about method of valuation of unquoted equity shares of the assessee company specifically for the purposes of section 56(2)(viib) of the act and the same overrides the general provisions of sub-rule 1 of rule 11UA. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed turnover numbers instead of actual numbers and discounting factor, etc which, in our view, has been satisfactorily explained by the assessee company during the appellate proceedings and nothing has been brought on record which can substantially challenge the methodology or the underlying assumption while determining the value of the shares. Further, the fact that the said valuation and the projected financials have been found acceptable by the Bank while sanctioning the term loan and working capital limits, it cannot be said that the same are purely hypothetical and not based on sound financial understanding and market dynamics of the industry in which the assessee operates. 18..... 19. In light of above discussions and in the entirety of facts and circumstances of the case, the order of the Id CIT(A) is confirmed and the ground taken by the Revenue is dismissed." 4.5.6 We also find that in the case of Vodafone M-Pesa Ltd. vs. PCIT (2018) 92 Taxmann 73 (Bombay) (DPB 79-83), the Hon'ble Mumbai High Court in para 9 has observed that "9. ....Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value method whereas the assessee adopted the value of shares by following discounted cash flow method (DCFM) and the objection of the AO primarily rest on the premise that the method adopted by the assessee company is not appropriate. As I have noted above that it is the prerogative and privilege of the assessee to adopt one method and once the assessee has chosen discounted cash flow method for valuing its shares then the AO or any other revenue authorities cannot compel the assessee to adopt another method i.e. book value method. However, I may also make it clear that the exercise of such option cannot be therefore challenged by the revenue authorities with the same has exercised at first place by the assessee but the AO is undisputedly entitled to scrutinise, verify and examine the valuation report and determine the fresh valuation either by himself or from an independent valuation after confronting the assessee. But at the same time, it is ample clear that the basis has to be the DCF method and it is not open to the revenue to change the method of valuation which has been opted by the assessee. 11. In view of above, in the instant case, the value adopted and computed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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