TMI Blog2022 (2) TMI 180X X X X Extracts X X X X X X X X Extracts X X X X ..... lant : Sri G.S. Prashanth, A.R. For the Respondent : Sri M.K. Biju, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: The assessee has filed this appeal challenging the order dated 07-08-2019 passed by LD CIT(A)-3, 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 Excess Share premium amount made u/s 56(2)(viib) and also u/s 68 of the Income-tax Act,1961 ['the Act' for short]. 2. We heard the parties and perused the record. The assessee company is engaged in the business of providing a platform to facilitate greater supply chain visibility and efficiency to all the players in road transportation industry. During the year under consideration, the assessee has issued 40,765 preference shares having a face value of ₹ 10/- each at a price of ₹ 3,158.39 per share. Out of the above, 22,431 shares were issued to a foreign company named M/s Accel India IV (Mauritius) Ltd and the remaining shares were issued to Indian residents. The assessee submitted a valuation report, in which Discounted Free Cash flow (DCF) method was adopted and the value of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Associates. However, the assessee has obtained another valuation report from M/s S C Prashanth Co, wherein the share premium was determined at ₹ 3,148.39 per share. The assessee has furnished a copy of valuation report obtained from M/s S C Prashanth Co as additional evidence. The Ld A.R prayed for admission of both the additional evidences. 6. We heard Ld DR and perused the record. Both these evidences furnished by the assessee were not available before the AO. According to Ld A.R, both these evidences are important documents relating to the present dispute and accordingly it was prayed that these additional evidences be admitted. Since these documents support the claim of the assessee, in the interest of natural justice, we are of the view that these documents should be admitted. Accordingly, we admit both these documents. 7. With regard to the valuation of shares, the Ld A.R placed his reliance on the decision rendered by the co-ordinate bench in the case of Futura Business Solutions (P) Ltd (2020) (117 taxmann.com 567) (Bang.) and submitted that the AO is not entitled to change the method of valuing shares. We notice, in the above said case, the co-ordinate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 164 DTR 257. The tribunal has reproduced part of Para 9 of this judgment 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 assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hence, the same can be used to make a reliable future estimate but in case of 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge the method opted by the assessee as has been held by the Hon'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect of cumulative preference shares; P E = total amount of paid up equity share capital 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... result of future cannot be a basis to decide about reliability of the projections. 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. The order of ld.CIT(A) is accordingly set aside for deciding the issue afresh after due opportunity of hearing to the Assessee. 8. In the instant case, both the additions, i.e., addition made u/s 56(2)(viib) of the Act and sec.68 of the Act relate to the share premium amount, i.e., both the additions arise out of common issue only. The assessee has also filed certain additional evidences. We earlier noticed that the assessee had adopted DCF method for valuing the shares, while the AO has adopted NAV method. In view of the above said decision rendered by the co-ordinate bench, which in turn has followed the decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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