TMI Blog2023 (12) TMI 645X X X X Extracts X X X X X X X X Extracts X X X X ..... at Rs. 14.815 per share which is at par with the FMV at which shares have been issued to the holding company. Thus the premium charged is supportable by the valuation report and the premium charged is quite negligible and charged to existing shareholder. Thus effectively, the benefit if any arising to the company in turn benefits to the subscriber having pre-existing right in the company. Thus, in our view, the conclusion drawn by the CIT(A) cannot be faulted either on facts or in law. Revenue appeal dismissed. - Shri Pradip Kumar Kedia, Accountant Member And Shri Yogesh Kumar Us, Judicial Member For the Appellant : Shri Rahul Khare, CA For the Respondent : Ms. Kranti E. Khobragade, Sr.DR, Shri Sandeep Kumar Mishra, Sr.DR ORDER PER PRADIP KUMAR KEDIA-A.M. : The captioned appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-V, New Delhi ( CIT(A) in short) dated 29.08.2019 arising from the assessment order dated 17.12.2018 passed by the Assessing Officer (AO) under Section 143(3) of the Income Tax Act, 1961 (the Act) concerning AY 2016-17. 2. The grounds of appeal raised by the Revenue read as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions and material placed, the CIT(A) adjudicated the issue in favour of the assessee. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder for ready reference: 6. In ground no.2 the appellant disputed addition of Rs. 2,63,00,000/on account of share premium u/s. 56(2)(viib) of the Act. 6.1 During the year under consideration, the appellant has issued 52,60,000 equity shares to M/s K.V. Aromatics Pvt. Ltd. having face value of Rs. 10/- each with a premium of Rs. 5/- on each share, thereby a total premium has been received for Rs. 2,63,00,000/-. Other shares were also issued however, no premium has been taken. Further, the K.VAromatics Pvt. Ltd. is its holding company and other share holders are also the share holder of appellant company. 6.2 During assessment proceedings, it was observed by the AO that this share premium is excessive considering the financials of the appellant and NAV of appellant's shares is negative therefore, share premium value of Rs. 5/- per share is not substantiated. In absence of any satisfactory reply, the entire addition has been made, invoking provisions of section 56(2)(viib) of the Act. 6.3 It has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are as per formula (A-L)*(PV)/(PE) or as per the FMV worked out for the unquoted shares determined by a valuer/CA/merchant banker etc. as per discount free cash flow method. It is at the option of assessee to choose between two whichever is higher. In the present case, the appellant has opted for the second option for working out the fair market value of shares duly supported by report of a Chartered Accountant. 6.9 On the other hand, AO has not provided any sound reasoning or not brought on record any material to counter the argument or to negate the submissions of the appellant. He has rejected the projection with the contention that the present NAV is negative, without commenting upon the DCF method for the projections made. It is pertinent to note that projections of future profits are only the estimates and not the exact working of future profits. This has also been held by Hon'ble ITAT Delhi Bench in the case of India Today Online Pvt. Ltd. (Supra) that DCF method is a recognized method where future projections of various factors by applying hindsight view and it cannot be matched with the actual performance. 6.10 Therefore it is clear that as per the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets-based NAV method which is based on actual numbers as per latest audited financials of the assessee company. These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant, it cannot be said that the value adopted by the appellant is liable to be rejected or subjected to tax u/s. 56(2)(viib) of the Act, enforcing the change of method of valuation of FMV of shares. Accordingly, the valuation done by appellant is found to be in accordance with law. Therefore in view of above discussions and considering the extant law, this addition is directed to be deleted. Thus the appellant gets a relief of Rs. 2,63,00,000/-. This ground of appeal is allowed. 5. Aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before the Tribunal. 6. We have considered the rival submissions and perused the first appellate order and the assessment order. The documents referred to and also case laws referred in the course of hearing by the respective sides have been taken into account. 6.1 The Revenue has controverted the action of the CIT(A) on the touchstone of Section 56(2)(viib) of the Act towards allotment of equity shares to the subscriber KV Aromatics Pvt. Ltd. which is the existing shareholder, holding 51% of the equity share of the assessee-company. The effect of issues of shares to holding company at a premium has been examined by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oven holding and subsidiary company is of no consequence. We also affirmatively note the decision of SMC Bench in the case of KBC India Pvt. Ltd. vs. ITO in ITA No.9710/Del/2019 order dated 02.11.2022 (SMC) where it was observed that Section 56(2)(viib) could not be applied in the case of transaction between holding company and wholly owned subsidiary in the absence of any benefit occurring to any outsider. 6.2 The Co-ordinate Bench has essentially observed that where the allotment has been made to existing shareholders, the deeming provisions of Section 56(2)(viib) would not ordinarily be applicable. This apart, the assessee, in the instant case, has also dislodged the observation of the Assessing Officer that the net worth at the time of issuance of shares were in negative by adducing valuation report. As per the valuation report, the FMV has been determined at Rs. 14.815 per share which is at par with the FMV at which shares have been issued to the holding company. Thus the premium charged is supportable by the valuation report and the premium charged is quite negligible and charged to existing shareholder. Thus effectively, the benefit if any arising to the company in tur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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