TaxTMI 
TaxTMI 
2021 (8) TMI 1094
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.... wherein shares had been valued under discounted cash flow method (DCF). The A.O. noticed that the projections given in the valuation report prepared under DCF method do not tally with the actual, as per the return of income. Accordingly, he took the view that "net asset value" method is the correct method to determine the share premium. Accordingly the AO determined the share premium at Rs. 7.72 per share under Net Asset value method. Accordingly, he assessed the excess share premium amount of Rs. 67,09,738/- u/s 56(2)(viib) of the Act. The Ld. CIT(A) also confirmed the same and hence, the assessee has filed this appeal before us. 3. The Ld. A.R. submitted that the DCF method is one of the recognized methods prescribed u/s 11UA of the I.T. Rules. She submitted that the AO did not change the methodology adopted by the assessee to determine the share premium. In this regard, she placed her reliance on the decisions rendered by the coordinate bench in the case of Flutura Business Solutions Pvt. Ltd. Vs. ITO (2020) 117 Taxmann.com 567 and also the decision rendered in the case of Innoviti Payment Solutions Pvt. Ltd. Vs. ITO (2019) 102 Taxmann.com 59. The Ld. A.R. submitted that, in....
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....thod and if necessary, he can carry out fresh valuation either by himself or by calling a final determination from an independent valuer to confront the assessee. The AO cannot change the method of valuation and he has follow DCF method only. The decision rendered in the case of Innoviti Payment Solutions P Ltd (supra) was followed by another co-ordinate bench in the case of Futura Business Solutions P Ltd (ITA No.3404 (Bang) 2018. For the sake of convenience, we extract below the observations made by the co-ordinate bench in the case of Future Business Solutions P Ltd (supra):- "17. With regard to the correctness of DCF method adopted by the Assessee for valuing shares and the procedure to be followed when such method of valuation is not accepted by the AO, the ld. counsel for the Assessee has drawn our attention of the ITAT, Bangalore Bench in the case of VBHC Value Homes in ITA No.2541/Bang/2019 order dated 12-06-2020. The Tribunal, after relying on the decision of the Hon'ble Bombay High Court in the case of Vodafone M-Pesa Ltd Vs Pr.CIT 164 DTR 257 and decision of the ITAT, Bangalore Bench in the case of Innovit Payment Solutions Pvt.Ltd., Vs ITO(2019) 102 Taxmann.com....
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....he 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 calling a final determination from an independent valuer to confront the assessee. But the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. Hence, in our considered opinion, in the present case, when the guidance of Hon'ble Bombay high Court is available, we should follow this judgment of Hon'ble B....
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....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 the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra). The Tribunal has noted that as per the judgment of Hon'ble Bombay High Court, it was held that AO can scrutinize the valuation report and he can determine a fresh valuation either by himsel....
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....y other value to the satisfaction of the Assessing Officer........ The law provides that, the fair market value may be determined with such method as may be prescribed or the fair market value can be determined to the satisfaction of the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. If the Assessee determines the fair market value in a method as prescribed, the Assessing Officer does not have a choice to dispute the justification. The methods of valuation are prescribed in Rule 11UA(2) of the Rules. The provisions of Rule 11UA(2) reads as under:- "(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (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 sub-section (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 of the assessee, namely:- (a) the fair market value of unquoted equity shares = where, (A-L) x (PV), (PE) A = book value of the assets in....
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....method and he cannot change the method of valuation which has been opted by the Assessee. The decision of ITAT, Delhi in the case of Agro Portfolio Ltd. 171 ITD 74 has also been considered by the ITAT, Bangalore in the case of VBHC Value Homes Pvt.Ltd.(supra). 20. The gist of the findings of the Assessing Officer and the ld. CIT(A) on the alleged discrepancies in the valuation report is as under: 1. Growth rate is taken at 12% year after year 2. WACC has been forecasted at 30% 3. The sales have been projected at Rs. 2,36,54,400/- for the F.Y.2012-13, Rs. 7,88,74,080/- for the F.Y.2013-14 and Rs. 14,00,00,000/- for the F.Y.2014-15, whereas the actuals as per the returns filed are Rs. 17,67,146/-, Rs. 4,50,06,477/- and Rs. 4,26,45,399/- only. In view of this, the growth rate of 12% is stated to be not acceptable. 4. The net profit has been projected at Rs. 30,94,769/- for the F.Y.2012-13, Rs. 1,29,86,330/- for the F.Y.2013-14 and Rs. 2,16,06,523/- for the F.Y.2014-15, whereas the actuals as per the returns filed are (-) Rs. 5,40,078/-, (-) Rs. 1,25,58,421/- and (-) Rs. 2,70,00,184/- only. 21. We are of the view that, the Assessing....