TaxTMI 
TaxTMI 
2022 (2) TMI 180
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....of the above, 22,431 shares were issued to a foreign company named M/s Accel India IV (Mauritius) Ltd and the remaining shares were issued to Indian residents. The assessee submitted a valuation report, in which Discounted Free Cash flow (DCF) method was adopted and the value of share was determined at Rss.3118.77 per share. The AO noticed that the assessee has issued shares at a price higher than the price determined in the valuation report. 3. The AO further noticed that the valuation report was incomplete, i.e., the projected profit and loss account started from EBITDA. The report did not contain details as to how the EBITDA was arrived at. The AO also noticed that the assessee was incorporated on 09-09- 2015 and the shares have been issued within short period. He also observed that the assessee did not furnish any documentary evidence in support of the projected cash inflows in the valuation report. He also observed that there is no basis for taking discounting factor at 0.90 and expected rate of return @ 28.96%. By placing reliance on the decision rendered by Delhi bench of ITAT in the case of Agro Portfolio P Ltd (2018)(94 taxmann.com 112), the AO rejected DCF method and pro....
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....) (Bang.) and submitted that the AO is not entitled to change the method of valuing shares. We notice, in the above said case, the co-ordinate bench has followed the decision rendered by Hon'ble Bombay High Court in the case of Vodafone M-Pesa Ltd Vs Pr.CIT 164 DTR 257 and held that the AO cannot change the method of valuation adopted by the assessee. For the sake of convenience, we extract below the relevant observations made by the co-ordinate bench in the case of Futura Business Solutions (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 59. held as follows: "9. We have considered the rival submissions. First of all, we....
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....n 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 Bombay High Court in preference to various tribunal orders cited by both sides and therefore, we are not required t....
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....ailable 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 himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of va....
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....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 the balance-sheet as reduced by any 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 and any amo....
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....e 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 Officer has erred in considering the actuals of revenue and profits declared in the future years as a basis to dispute the projections. At the time of valuing the shares as on 16.04.2012, the actual results of the later years would not be available. What is required for arriving at the fair market value by following th....