TMI Blog2023 (10) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. Admittedly, this rule is applicable in the present case and as provided in the said rule the assessee had option to obtain fair market value on the basis of valuation done by the accountant. Now the assessee has obtained valuation of accountant. Section 56(2)(vii)(b) provides fair market value of shares to be the one as may be determined in accordance with the method as may be prescribed or as may be substantiated to the satisfaction of Assessing Officer. Hence, if the method adopted by the assessee is not in accordance with the Rules contained in Explanation (a)(i) to section 56(2)(vii)(b), above any other method to the satisfaction of the AO can be adopted. The obvious corollary is that if the method adopted by the assessee is in accordance with the method contained in the Act read with Rules, the AO cannot disregard the same without cogent reasoning. Admittedly in this case the assessee has adopted a method which is in accordance with that prescribed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed two valuation reports dated 15.03.2012 and 09.03.2015 before AO; that valuation report dated 15.03.2012 prepared by the Chartered Accountant as per rule 11UA wherein value of shares has been calculated at Rs. 1509/-; that since the future projects for expansion were stated to be revised, fresh valuation report dated 09.03.2015 from the same valuer was filed considering the revised future projections; that once the basis of projection is changed and valuation is revised, the old valuation report looses its relevance; that therefore, valuation report dated 15.03.2012 becomes academic and matter of reference for history after fresh valuation done by the company on 09.03.2015; that hence, revised valuation report dated 09.03.2015 is to be considered for valuation of shares. 4.1 Thereafter, ld. CIT (A) elaborately considered the facts and passed the following order :- 6.10 As regards valuation of shares, the Ld. AR submitted that the financial projections were made considering the future projects, market conditions, domestic political conditions, international political conditions, shifting of tourism from J K to HP, religious and tourist importance of place of the project, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is additional facility is expected to get operational by the end of FY 2021- 2022. The company decided to expand considering the response of its current business operations and tourism pro-motion activities of the state. 6.16 It is also noted that there are ITO Five Star Hotel in McLeodganj or even in Dharamshala itself. 6.17 It is further noted that the appellant company started its hotel operations and also secured brand cum management tie up with ITC - Fortune Group under the experienced management. Hotel is generating positive cash flows since inception. 6.18 The location of the hotel in Dharamshala is also unique as the place is having extra ordinary importance being seat of His Holiness Dalai Lama apart from tourist destination. 6.19 The AO has made the addition on the ground that the projections used in valuation report are unrealistic. However, from perusal of the audited accounts of the appellant, as provided, for latest three years, it is found that actual figures are much more favorable than the projected figures. Comparison between actual and projected figures of latest 3 years filed by the Ld. AR is as under: FY Projected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Bill, 2012, the amendment to section 56(2) by insertion of a sub-clause (viib), was classified under the heading Measures to Prevent Generation and Circulation of Unaccounted Money . Therefore, this section is an anti-abuse provision aimed at arresting circulation of unaccounted money in the economy, as prior to this companies were issuing shares at a substantial premium to convert the unaccounted money through shell companies without providing any valuation justifying the premium. 6.24 On going through the financials of the investor, namely, M/s ForzaMedi India Private Limited as provided, it is seen that it is having net revenue and net profit of Rs. 1,62,64,17,526/- and Rs. 33,68,26,585/- respectively for the year ended 31.03.2015. It had accumulated profits of Rs. 84,64,30,563/- as on 31.03.2015. It seems that the decision of the investor to make investment in the appellant company was a strategic business move keeping in mind the market opportunities. Therefore, the purpose of investment is demonstrated to be genuine and conversion of the unaccounted money through shell companies is not borne out of record because the investor is a cash rich company with net profit of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same by AO with book value of shares is not tenable and addition made by the AO u/s 56(2)(viib) amounting to Rs. 2,43,32,640/- is hereby deleted. 5. Against the above order, Revenue is in appeal before us. We have heard both the parties and perused the records. 6. Ld. DR for the Revenue relied upon the order of Delhi Bench of the ITAT in the case of Agro Portfolio (P.) Ltd. vs. ITO 94 taxmann.com 112 (Delhi-Trib.) for the proposition that valuation made on unrealistic forecast is not sustainable. 7. Per contra, ld. Counsel of the assessee submitted that ld. CIT (A) has properly appreciated the facts. He supported the findings of the ld. CIT (A). He further relied upon several case laws in this regard. 8. We note that in this case, ld. CIT (A) has given a finding that actual performance of the assessee is even better than the forecast. Hence, any adverse inference on account of forecast is not appropriate and sustainable. Further, we note that ld. CIT (A) has passed a very reasonable and elaborate order. Furthermore, we find it appropriate to refer to the provisions of section 56(2)(vii)(b) of the Act and Rule 11UA as under :- Section 56(2) provides for addition in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ished or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a Category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 (15 of 1992); (ab) trust means a trust established under the Indian Trusts Act, 1882 (2 of 1882) or under any other law for the time being in force; (b) venture capital company , venture capital fund and venture capital undertaking shall have the meanings respectively assigned to them in clause (a), clause (b) and clause (c) of Explanation to clause (23FB) of section 10. Rule 11UA of the Act provides for valuation. Relevant sub-rule applicable for this assessment year with regard to valuation of shares and securities read as under : 11UA(1)(c) valuation of shares and securities, (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely, (i) if the quoted shares and securities are received by way o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in accordance with the law applicable thereto; (iv) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (v) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balancesheet; PV = the paid up value of such equity shares. (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. [(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of subrule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of subsection (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value is defined to be the value as may be determined in accordance with such a method as may be prescribed or as may be substantiated by the company to the satisfaction of the Assessing Officer based on certain aspect specified in the rule. Rule 11UA of the Act provides the necessary rule. Rule 11UA(1)(C)(c) which is the relevant here, provides that the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. Admittedly, this rule is applicable in the present case and as provided in the said rule the assessee had option to obtain fair market value on the basis of valuation done by the accountant. Now the assessee has obtained valuation of accountant. Section 56(2)(vii)(b) provides fair market value of shares to be the one as may be determined in accordance with the method as may be prescribed or as may be substantiated to the satisfaction of Assessing Officer. Hence, if the method adopted b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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