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TMI Blog2021 (1) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... ing relief to the assessee by holding that the AO was not justified in taking the book value of shares of the immovable property for valuation and should have taken the higher DCF method adopted value 0f the allotted shares as returned by the assessee since it was the higher valuation of the two methods expressly prescribed by the Act/rules when this finding of the Id.ClT(A) is in contravention of the provisions of section 56(2(viib) & Rule 11 UA, as nowhere in these provisions is it mentioned that higher valuation of two methods should be adopted for the purpose of arriving at the FMV 4. The LdCIT(A) erred in giving relief to the assessee without taking into consideration the ratio laid down in the decision of the Hon'be ITAT., Delhi in the case of M/s Stryton Exim India Pvt Ltd Vs ITO in ITA No. 5982/Del/2018(AY 2014-15), wherein it has been held that objective evaluation of the valuation report submitted by the assessee deserves to be carried out 5. For these reasons, it is prayed that the order of the learned CIT(A) be set aside and that of Assessing Officer be restored." 3. Brief facts of the case are that the assessee company is engaged in the business of selling DTCP ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee for the relevant period, there is a huge difference in actual earnings and projections considered for valuation of shares and hence, value arrived at by the assessee adopting DCF method is not giving correct price of shares as on the date of issue and accordingly, rejected the DCF method followed by the assessee and arrived at fair market value of shares on net asset value method at Rs. 61,200/- . Accordingly, excess premium charged over and above fair market value has been treated as income under section 56(2)(viib) of the Act. 4. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee has reiterated its arguments made before the Assessing Officer to justify issue of shares at premium ofRs. 1,05,708/-. The assessee further submitted that the company owns huge inventory of immovable property and market value of said asset as on valuation date itself works out to Rs. 1,03,018/- per share and hence, arriving at value of shares at Rs. 61,200/- on net asset value method by taking book value of assets is contrary to prescribed method for valuation of shares. The assessee further submitted that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , he opined that the Assessing Officer was not justified in taking book value of shares of the immovable property for valuation as against DCF method followed by the assessee which is one of the method prescribed under Rule 11UA and approved by the Accountant as mandated under law. Accordingly, deleted the additions made towards excess premium on issue of shares under section 56(2)(viib) of the Act. 6. The learned DR submitted that the learned CIT(A) has erred in deleting the additions made by the Assessing Officer towards excess premium on issue of shares under section 56(2)(viib) of the Act by accepting discounted cash flow method selected by the assessee for valuation of shares, as against value adopted by the Assessing Officer under net asset value method as per Rule 11UA.The learned DR further submitted that the learned CIT(A) has erred in holding that Assessing Officer was not justified in taking book value of shares of immovable property and should have taken the higher value of DCF method adopted by the assessee in contravention of provisions of section 56(2)(viib) of the Act and Rule 11UA, as nowhere in these provisions, it is mentioned that higher valuation of the two me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11UA, and therefore, value arrived at by Assessing Officer at Rs. 61,200/- on book value of assets is contrary to Rule 11UA of I.T. Rules, 1962. The learned CIT(A), after considering relevant facts has rightly deleted additions made by the Assessing Officer and his order should be upheld. 8. We have heard both the parties, perused the material available on record and gone through the orders of authorities below. The assessee has issued shares at premium and such shares has been issued on the basis of valuation report as on the date of issue of shares by following discounted cash flow method as prescribed under Rule 11UA of Income Tax Rules, 1962. The assessee has arrived at value of shares at Rs. 1,10,069/- per share. According to the assesse, value arrived at by DCF method is correct value of shares as on the date of issue, because even if it is considered on net asset value method, the value for equity shares works out to Rs. 1,00,380/-, if stock in trade held by the assessee is valued at market value or value as per stamp duty purposes. Therefore, it is incorrect on the part of the Assessing Officer to come to the conclusion that value arrived at by the assessee under DCF meth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the given facts and circumstances of the case, because DCF method is suitable only if companies which are in total control the business being in a position to project income on the basis of asset and intangibles. Since, the assessee is not carrying any intangibles, he was of the opinion that DCF method followed by the assessee does not give correct value of shares. 9. We have given our thoughtful consideration to the arguments on both sides, in light of facts brought out by the authorities including valuation report submitted by the assessee under DCF method. DCF method is one of the trusted methods for valuation of shares and said method is prescribed under Rule 11UA of Income Tax Rules, 1962. Therefore, the Assessing Officer cannot brush aside DCF method for simple reason that assessee does not carry any intangibles in its business. Further, once assessee chooses a particular method and said method is approved method for valuation of shares, then Assessing Officer cannot change the method adopted by the assessee for valuing market value of shares for discounted cash flow method to net asset value method, because the statue does not permit the Assessing Officer to choose a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares. The value adopted by the Assessing Officer under net asset value method even though a prescribed method does not give correct value of shares in the given facts and circumstances of the case, because amended provisions of Rule 11UA by the Finance Act, 2017 w.e.f 01.04.2018 has permitted valuation of immovable property as per guidance value for the purpose of valuation of shares. In this case, if stock in trade held by the assessee in the form of immovable property has been valued as per guidance value, then value of one equity share works out to Rs. 1,00,380/-, which is almost equal or nearer to value arrived at by the assessee under DCF method. Therefore, value of shares arrived at by Assessing Officer under net asset value method cannot be accepted. Therefore, we are of the considered view that the learned CIT(A), after considering the relevant facts has rightly deleted the additions made by the Assessing Officer towards excess premium charged on issue of shares u/s.56(2)(viib) of the Act. Hence, we are inclined to uphold the findings of the learned CIT(A) and dismiss the appeal filed by the Revenue. 12. In the result, the appeal filed by the Revenue is dismissed. Order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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