TMI Blog2021 (8) TMI 1094X X X X Extracts X X X X X X X X Extracts X X X X ..... ber For the Appellant : Smt. Suman Lunkar, A.R. For the Respondent : Shri Kannan Narayanan, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed this appeal challenging the order dated 9.12.2019 passed by Ld. CIT(A)-7, Bengaluru and it relates to the assessment year 2016-17. The assessee is aggrieved by the decision of Ld. CIT(A) in confirming the addition of share premium amount of ₹ 67,09,738/- made by the A.O. u/s 56(2)(viib) of the Income-tax Act,1961 ['the Act' for short]. 2. The facts relating to the issue are stated in brief. During the year under consideration, the assessee has allotted 3,44,386 shares having face value of ₹ 10/- at a premium of ₹ 32.49, ₹ 15.75 ₹ 18.21 per share to resident persons. The assessee furnished a valuation report in support of the share premium amount, wherein shares had been valued under discounted cash flow method (DCF). The A.O. noticed that the projections given in the valuation report prepared under DCF method do not tally with the actual, as per the return of income. Accordingly, he took the view that net asset value method is the correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this issue urged in both the years may also be restored to the file of the A.O. with a similar directions for examining the valuation report furnished by the assessee under DCF method. 10. The Ld. D.R., on the contrary, supported orders passed by Ld. CIT(A). However, he did not object to the proposal that the assessee to restore the matter to the file of the A.O. following the decision rendered by coordinate bench of the Tribunal. 11. We have heard the rival contentions and perused the record. We notice that the co-ordinate bench has 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but we reproduce herein below full Para 9 of this judgment. 9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly 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 su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a start up where no past data is available, this view of us that the projection should be on the basis of reliable future estimate should not be insisted upon because in those cases, the projections may be on the basis of expectations and in such cases, it should be shown that such expectations are reasonable after considering various macro and micro economic factors affecting the business. 14. In nutshell, our conclusions are as under:- (1) The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Bombay High Court. The relevant paras of this Tribunal order are already reproduced above which contain the directions given by the Tribunal to the AO in that case. In the present case also, we decide this issue on similar line and restore the matter back to the file of AO for a fresh decision with similar directions. Accordingly, ground No.3 of the assessee's appeal is allowed for statistical purposes. 18. The gist of the conclusion is that the law contemplates invoking provisions of section 56(2)(viib) of the Act only in situations where 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as shown in the balance-sheet; P V = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method. 19. The provisions of Rule 11UA(2)(b) of the Rules provides that, the Assessee can adopt the fair market value as per the above two methods and the choice of method is that of the Assessee. 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) and has taken the 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 re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 23. In the result, the appeal is 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 coordinate 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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