TMI Blog2022 (12) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... re binding on them. Merely because the valuation report contains certain caveats and disclosures those factors are not sway the mind of the A.O or commissioner of Appeal and therefore remitted the matter to the file of the Assessing Officer for objectively evaluation of the valuation report submitted by the assessee. As per the Assessee, the Valuation report is be inconformity with the provisions of Section 56(2)(viib) read with Rule 11UA (2) of the Income Tax Rules. In our opinion, in view of the facts and the circumstances of the case, the Lower Authorities ought to have considered the valuation report of the Chartered Accountant submitted by the assessee and should have verified as to whether the said valuation report is inconformity with Section 56(2) (viib) of the Act read with Rule 11UA (2) of the Income Tax Rules or not and accordingly shoud have decided the matter by following the principal of consistency. In view of the above discussions, to render substantial justice, we remand the matter to the file of Ld. A.O. for the purpose of verifying as to whether the valuation report of the Chartered Accountant submitted by the Assessee is inconformity with the Section 56( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before the Ld.CIT (A). The Ld.CIT(A) vide order dated 23/10/2019 dismissed the appeal filed by the assessee. 5. Aggrieved by the order dated 23/10/2019 passed by the CIT(A), the assessee has preferred the present appeal on the grounds mentioned above. 6. As per the grounds of appeal, the assessee is aggrieved by the addition made u/s 56 (2) (viib) of the Act of Rs. 5,56,24,843/- without taking into the consideration of written submission filed by the assessee, further the Ld.CIT(A) has erroneously rejected the valuation report of the Charted Accountent. 7. We have heard the parties, perused the material on record and gave our thoughtful consideration. 8. During the relevant assessment year, the assessee had issued 5307/- equity shares of face value of Rs. 10/- each as a share premium of Rs. 11,296/- per equity share. The share premium was determined on the basis of discounted free cash flow Method (DCF) as per report of the chartered accountant which was prepared as per Section 56 (2) (viib) read with Rule 11UA (2) of the Rules. The Ld. A.O was of the opinion that the assessee cannot be considered as start up, the share valuation report relied upon by the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore remitted the matter to the file of the Assessing Officer for objectively evaluation of the valuation report submitted by the assessee. The relevant portion of the order is reproduced as under:- 20. We have carefully considered the rival contention and the orders of the lower authorities. The assessee has issued shares of ? 20 crores having face value of Rs. 10 lakhs and share premium of Rs 19.90 crores. Though learned assessing officer has made the addition of the about some under section 68 of the income tax at holding that appellant company has failed to prove the identity, creditworthiness of the companies and genuineness of the transaction. Therefore the substantive addition is made under section 68 of the income tax Act. However out of abundant caution the learned AO further invoked the provisions of section 56 (2) (viib) of the act which applies to a company in which public are not substantially interested, when it receives share premium which exceeds the fair market value as determined in accordance with the prescribed rules is an income of the recipient company. Therefore apparently assessee is a private limited company hence it is hit by the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the valuation. On careful consideration of the reasons given by the learned assessing officer the assessee has clearly stated that the valuation report is properly dated and further it may happen that the projected cash flow shown by the assessee at the time of the valuation did not materialize in subsequent year due to different business reasons such as delay in the project. The assessee has shown that there is a delay in the project and subsequently the LLC company has started earning the sum. If that be the case that if there is a variation in the discounted cash flow shown by the assessee with actual result in subsequent years, then the basic fallacy will arise that discounted future cash flow should be equal to the actual cash flow of the assessee. According to us it will result in absurdity. However it can also not be subscribed to the view that if there are wide variations in subsequent years with actual results compared with the projected cash flow submitted by the assessee, then in such situation if the projected cash floor is acce76pted then provisions of section 56(2)(viib) will become redundant. Therefore an objective evaluation of the valuation report submitted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sue of tax ability under section 56 (2) (viib) of the act after affording proper opportunity of hearing to the assessee. According to this, ground number two of the appeal of the assessee is allowed accordingly. 13. In the present case, the Ld. A.O. and the CIT(A) have rejected the valuation report in threshold without verifying the same. As per the Assessee, the Valuation report is be inconformity with the provisions of Section 56(2)(viib) read with Rule 11UA (2) of the Income Tax Rules. In our opinion, in view of the facts and the circumstances of the case, the Lower Authorities ought to have considered the valuation report of the Chartered Accountant submitted by the assessee and should have verified as to whether the said valuation report is inconformity with Section 56(2) (viib) of the Act read with Rule 11UA (2) of the Income Tax Rules or not and accordingly shoud have decided the matter by following the principal of consistency. 14. Therefore, in view of the above discussions, to render substantial justice, we remand the matter to the file of Ld. A.O. for the purpose of verifying as to whether the valuation report of the Chartered Accountant submitted by the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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