TMI Blog2020 (12) TMI 667X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2016-17. The assessee is aggrieved by the decision of Ld CIT(A) in confirming the addition of share premium amount of ₹ 3,74,90,118/- made by the AO u/s 56(2)(viib) of the Income-tax Act,1961 ['the Act' for short]. 2. The facts relating to the case are stated in brief. The assessee company is engaged in the business of designing, manufacturing, developing, exporting and supplying cutting edge medical devices to address critical unmet healthcare needs. During the year under consideration, it has issued 20,304 equity shares having face value of ₹ 10/- each at price of ₹ 2,100.10/- per share to resident investors. The assessee thus collected share premium of ₹ 4.24 crores. The assessee furnished a valuation report in support of the share premium amount collected by it, wherein shares had been valued under discounted cash flow method (DCF method). 3. The A.O. was of the view that the shares of the company have been over valued and accordingly asked the assessee to justify the valuation. After considering the explanations of the assessee, the A.O. took the view that the valuation report has been prepared on the basis of projected fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... examined the issue of valuation of shares under DCF method in the case of Innoviti Payment Solutions P Ltd (supra) and has followed the decision rendered by Hon'ble Bombay High Court in the case of Vodafone M Pesa Ltd vs. PCIT (164 DTR 257). Accordingly, it was held that the AO should scrutinize the valuation report prepared under DCF method and if necessary, he can carry out fresh valuation either by himself or by calling a final determination from an independent valuer to confront the assessee. The AO cannot change the 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 Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to 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. (2) 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. (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 Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the shares are issued at a premium and at a value higher than the fair market value. The fair market value contemplated in the provisions above is as under: - (a) The fair market value of the shares shall be the value (i) As may be determined in accordance with such method as may be prescribed; or (ii) Any other value to the satisfaction of the Assessing Officer .. The law provides that, the fair market value may be determined with such method as may be prescribed or the fair market value can be determined to the satisfaction of 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 va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that 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. The decision of ITAT, Delhi in the case of Agro Portfolio Ltd. 171 ITD 74 has also been considered by the ITAT, Bangalore in the case of VBHC Value Homes Pvt.Ltd.(supra). 20. The gist of the findings of the Assessing Officer and the 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.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed for statistical purpose. 12. The facts are identical in the instant cases, i.e., the AO has proceeded to determine the value of shares in both the years by adopting different method without scrutinizing the valuation report furnished by the assessee under DCF method. Accordingly, following the decisions rendered by the co-ordinate benches, we set aside the orders passed by Ld CIT(A) in both the years and restore the impugned issue in both the years to the file of the AO with the direction to examine this afresh as per the directions given by the co-ordinate bench in the case of Innoviti Payment Solutions P Ltd (supra). 6. In the instant case also, the facts are identical, i.e., the AO has proceeded to determine the value of shares by adopting different method without scrutinizing the valuation report furnished by the assessee under DCF method. Accordingly, following the decisions rendered by the co-ordinate benches, we set aside the orders passed by Ld CIT(A) and restore the impugned issue to the file of the AO with the direction to examine this afresh as per the directions given by the co-ordinate bench in the case of Innoviti Payment Solutions P Ltd (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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