TMI Blog2020 (10) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed for statistical purposes. - ITA Nos.473 & 474/Bang/2020 - - - Dated:- 9-10-2020 - Shri George George K., Judicial Member And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri B.R. Sudheendra, A.R. For the Respondent : Shri Manjeet Singh, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: Both the appeals filed by the assessee are directed against separate orders passed by Ld. CIT(A)-7, Bengaluru and they relate to the assessment years 2015-16 2016-17 In both the appeals, the assessee is challenging the decision of Ld. CIT(A) in confirming the addition of excess share premium made u/s 56(2)(viib) of the Act. 2. The appeal filed by the assessee for assessment year 2015-16 is barred by limitation by 609 days. The assessee has filed a petition requesting the bench to condone the delay. 3. Ld. A.R. submitted that the assessee company was in its initial years of formation, when the assessment for assessment year 2015-16 was finalised. The assessee had incurred loss in that year and it was also having brought forward business losses. Hence, the addition made by the A.O. in respect of excess share premium did not give rise to any ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons given by the management and accordingly, he held that the value of share @ ₹ 632/- per share was an inflated value. The A.O. took the view that the value of share should be based on Net Asset Method mentioned in rule 11UA of the Income Tax Rules. Accordingly, the A.O. worked out the value of shares at ₹ 75/- per share under Net Asset Method. Since the par value of share is ₹ 10/-, the A.O. took the view that the assessee should have collected share premium at a price of maximum of ₹ 65/- per share. However, the assessee has collected share premium of ₹ 622/- per share. Accordingly, the A.O. took the view that the share premium collected in excess of ₹ 65/- I.e. ₹ 557/- per share is excess share premium and the same is assessable u/s 56(2)(viib) of the Act. Accordingly, he assessed the excess share premium of ₹ 1,36,67,666/- as income of the assessee under the head income from other sources u/s 56(2)(viib) of the Act. 7. In the previous year relevant to the assessment year 2016-17, the assessee has issued 11480 shares @ ₹ 632/- per share and collected share premium of ₹ 1,11,92,008/-. In this year also, the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he method of valuation and he has follow DCF method only. The decision rendered in the case of Innoviti Payment Solutions P Ltd (supra) was followed by another co-ordinate bench in the case of Futura Business Solutions P Ltd (ITA No.3404 (Bang) 2018. For the sake of convenience, we extract below the observations made by the co-ordinate bench in the case of Future Business Solutions P Ltd (supra):- 17. With regard to the correctness of DCF method adopted by the Assessee for valuing shares and the procedure to be followed when such method of valuation is not accepted by the AO, the ld. counsel for the Assessee has drawn our attention of the ITAT, Bangalore Bench in the case of VBHC Value Homes in ITA No.2541/Bang/2019 order dated 12-06-2020. The Tribunal, after relying on the decision of the Hon ble Bombay High Court in the case of Vodafone M-Pesa Ltd Vs Pr.CIT 164 DTR 257 and decision of the ITAT, Bangalore Bench in the case of 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 rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd arising out of the assessment order dated 21st December, 2017 would on adoption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. In fact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need to be stayed. 12. As per above Para of this judgment of Hon'ble Bombay High Court, it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a final 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. Hence, in our considered opinion, in the present case, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al result of future cannot be a basis to decide about reliability of the projections. (3) 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. 10. From the paras reproduced above, it is seen that in this case, the Tribunal has followed the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra). The Tribunal has noted that as per the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. If the Assessee determines the fair market value in a method as prescribed, the Assessing Officer does not have a choice to dispute the justification. The methods of valuation are prescribed in Rule 11UA(2) of the Rules. The provisions of Rule 11UA(2) reads as under:- (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- (a) 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ld. CIT(A) on the alleged discrepancies in the valuation report is as under: 1. Growth rate is taken at 12% year after year 2. WACC has been forecasted at 30% 3. The sales have been projected at ₹ 2,36,54,400/- for the F.Y.2012-13, ₹ 7,88,74,080/- for the F.Y.2013-14 and ₹ 14,00,00,000/- for the F.Y.2014-15, whereas the actuals as per the returns filed are ₹ 17,67,146/-, ₹ 4,50,06,477/- and ₹ 4,26,45,399/- only. In view of this, the growth rate of 12% is stated to be not acceptable. 4. The net profit has been projected at ₹ 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 fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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