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TMI Blog2023 (10) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... les and software, registered on 09.04.2015 filed its return of income on 23.09.2016 declaring loss of Rs. 9,40,028/-. It is relevant to mention that the assessee company did not claim itself as a start-up as defined by DIPP, neither filed any certificate to prove that the company is registered as a start-up. During the course of scrutiny assessment, a notice u/s. 143(2) followed by notice u/s. 142(1) was issued to the assessee. It was revealed that the assessee credited a sum of Rs. 1,14,95,000/- under security premium reserve account. It had allotted 1045 shares totaling value of Rs. 10,45,000/- (Rs. 1,000/- per share) and treated the balance of Rs. 1,04,50,000/- as share premium. The equity shares of Rs. 1,000/- each were issued at premium of Rs. 10,000/- each to one Shri Rathan Kumar. The valuation report of the accountant was also filed. It was found that the valuation of the shares were done on the books following DCF method forecasting the future growth which is a hypothetical estimation and not in accordance with Rule 11 UA of the IT Rules as of the opinion of the Assessing Officer. 3. During the course of scrutiny assessment, the valuer of the shares namely Shri K.R. Naras ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of any asset: L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- 1. the paid-up capital in respect of equity shares; 2. the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; 1. reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; 1. any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; 1. any amount representing provisions made for meeting liabilities, other than ascertained liabilities; 1. any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; P E = total amount of paid up equity share capital as shown in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ected financials, 2014-15, 2015-16, 2016-17, 2017-18, 2018-19 & 2019-20. The sales and PAT projections based on which the share value has been arrived at is reproduced as under:- "ANNEXURE-I Convertible after 2019-2020 Existing equity shares : 300 No. of Preference shares : 1045 Preference shares to be converted to Equity Shares : for 1 Preference shares 12 Equity Shares Years 15-16 16-17 17-18 18-19 19-20 Cash Flows Net Profits (9,40,027) 25,99,447 38,25,408 56,21,374 91,19,017 Depreciation 1,37,632 4,50,000 5,40,000 6,48,000 7,77,600 Cash Flow For Year (8,02,395) 30,49,447 43,65,408 62,69,374 98,96,617 Discounting rate Risk free rate 15-16 7.75 7.75 7.75 7.75 7.75 Risk Premium 5.26 5.26 5.26 5.26 5.26 Discount Rate 11.14 11.14 11.14 11.14 11.14 Discount factor 1.00 0.90 0.81 0.73 0.66 Discounted Cash Flows (8,02,395) 27,43,771 35,34,096 45,66,719 64,86,250 No. of shares after conversio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including intangible assets being good will, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature has not been provided by the assessee, the determination of the FMV of the preference share on the basis of the explanation rendered by the assessee was not found to be acceptable and therefore, the face value of the preference share ought to have been taken as the value of the share at which the appellant company should have received the preference share capital including the premium as of the opinion of the Ld.AO. According to him, only the face value of the preference share at Rs. 1000/- per share should have been received by the company and the share premium to the tune of Rs. 1,04,50,000/- from Mr. Rathan Kumar to whom the said preference share was allotted was found to be in excess of FMV of the share and thus added to the total income of the assessee, which was inturn, confirmed by the First Appellate Authority. Hence the instant appeal before us. 5. At the time of hearing the instant matter, the Ld.Sr. Counsel Shri Padam Chand Khincha submitted before us that the authorities below has failed to appreciate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of estimation and having no cogent basis been doubted by the Ld.AO. It is also a fact that considering the judgment passed by the Hon'ble Delhi Tribunal in case of M/s. Agro Portfolio Pvt. Ltd. vs. ITO in ITA No. 2189/Del/2018 for A.Y. 2014-15 wherein it has been held that when the correctness of result of the DCF method is doubted, it is no option left to the Ld.AO instead rejecting the DCF method and go by NAV method to determine the fair market value of the share. The fact appears in the case of M/s. Agro Portfolio Pvt. Ltd. is akin to the fact mentioned in the case before us. Instead of merchant valuer the value of preferential share has been determined by the CA. While rejecting the case of the appellant, the Hon'ble Delhi Bench has been pleased to observe as follows: "14. Even before the Ld.CIT(A) also, as recorded by the Ld. CIT(A) the assessee did not produce any evidence to substantiate the basis of projections in cash flow but relied on the valuer's report vehemently contending that such a report cannot be disturbed by the Ld. AO. At no point of time tried to explain where did the Ld. AO went wrong in his comments on the figures reflected in the above valuation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities ITA No. 2189/Del/2018 below. While confirming the same, we dismissed the appeal as devoid of merits." 9. We find that the facts mentioned in the above judgment is identical to that of the facts available before us. However, so far as the prayer for setting aside the issue to the file of the Ld.AO for a fresh consideration upon considering the report to be called for from the DVO is concerned, we do not find any merit in such submission rendered by the Ld.AR. Infact, we do not find any reason to interfere with the order passed by the authorities below in not accepting the valuation report so prepared by the CA in regard to the preferential share available to the assessee keeping in view the provisions of section 56(2)(viib) r.w.Rule 11UA and according to us, the value of preferential share is rightly taken as the value of the share at which the company should have received the preference share capital including the premium. Thus having regard to the facts and circumstances of the case, the finding of the authorities below to this effect that the share premium received by the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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