2020 (11) TMI 115

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....ndependent of each other. 1. Ground 1: The learned CIT(A) has erred in fact and in law, in confirming the addition of INR 97,173,230 made by the learned AO to the Appellant's returned loss of INR 19,86,50,599, under section 56(2)(viib) of the Act read with rule 11UA(2)(b) of the Income-tax Rules, 1962 ("the Rules"), by disregarding the valuation report prepared under the Discounted Cash Flow ("DCF") method, and adopting the Net Asset Value ("NAV") method for computation of the fair market value ("FMV") of shares issued by the Appellant during FY 2014-15. 2. Ground 2: That while the Appellant has valued the shares by following a method prescribed in the Rules, the AO erred in disregarding the same on an arbitrary basis, and the CIT(A) further erred in confirming the same. 3. Ground 3: That the CIT(A) and the AO grossly erred in comparing the actual revenue generated with the projections to reject the valuation made by the Appellant. 4. Ground 4: That the CIT(A) and the AO grossly erred in rejecting the valuation made by the Appellant on conjectures and surmises. 5. Ground 5: The learned CIT(A) I the learned AO has erred in fact and in....

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....om the details filed, Ld.AO observed that, assessee had computed the value as per DCF method and that there was nothing to suggest that DCF method was an appropriate method to value the shares. Ld.AO rejected DCF method adopted by assessee for the reasons that cash flow from operations were not positive, the growth rate was taken at 50% is unrealistically high and far from reality and assessee was suffering loss year by year. Ld.AO also noted that assessee is a company in which public is not substantially interested and therefore as per explanation to section 56(2)(viib) the method adopted should be net asset value for determining the fair market value rather than discounted cash flow method which is as per Rule 11UA(1)(c)(b) of Income tax Rules. 5. Ld.AO thus computed value of share premium at Rs. 51.32 per share and disallowed excess share premium of Rs. 9,71,73,320/-and treated as excess fair market value under section 56(2)(viib) of the Act. 6. Aggrieved by the addition, assessee preferred appeal before Ld.CIT(A). 7. Ld.CIT(A) was of the opinion that the primary onus to prove the correctness of the valuation report is on assessee as he has special knowledge is privy to....

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.... the appeal should be decided on merits. 14. Respectfully following the ratio laid down by Hon'ble Supreme Court in case of Collector, Land Acquisition and another vs Katiji and Ors., (Supra), we admit the appeal to be decided on merits. 15. On merits, Ld.AR submitted that on identical reasoning by Ld.CIT(A)/Ld.AO, this Tribunal has considered the valuation of shares in the following decisions: * Vodafone M-Pesa Pvt.Ltd vs DCIT reported in (2018) 92 Taxmann.com 73 (BOM) * Innoviti Payment Solutions Pvt.Ltd. vs ITO reported in (2019) 102 Taxmann.com 59 (Bang) * VBHC Value Homes Pvt.Ltd. vs ITO in ITA No. 2541/Bang/2019 by order dated 12/06/2020. 16. She thus submitted that, the issue may be remanded to Ld.AO for scrutinizing the valuation report filed by assessee. Ld.Sr.DR did not object for the issue to be remanded to Ld.AO for reconsideration based on the valuation report filed by assessee. 17. We have perused submissions advanced by both sides in light of records placed before us. 18. We note that this Tribunal in case of Innoviti Payment Solutions Pvt.Ltd. vs ITO (supra) while considering an identical issue had followed the ratio laid do....

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....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 assessment order dated 21st December, 2017 would on adoption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. In fact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need to be stayed." 12. As per above Para of this judgment of Hon'ble Bombay High Court, it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by callrg a final determination from an independent valuer to confront the asesee. But the basis has to be DCF method and he canno....

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....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 DOE 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 basis to decide about reliability of the projections. (3) 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. 10. From the paras reproduced above, it is seen that in this case, the Tribunal has followed....