TaxTMI 
TaxTMI 
2022 (9) TMI 868
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....sed by the AO in this regard, the assessee filed calculation of valuation of shares following the Discounted Cash Flow Method (DCF) duly certified by a Chartered Accountant. However, the AO noted that the assessee had submitted three valuations of different values i.e. Rs. 110/-, Rs. 21.86 and Rs. 117.31 out of which only the value of Rs. 213.86 was certified by the Chartered Accountant and, therefore, such uncertified valuations were not acceptable in terms of Rule 11UA of the Income Tax Rules, 1962 (hereinafter called 'the Rules'). The AO further observes that since the valuation in terms of Rule 11UA was Rs. 101.62 per share and whereas the assessee had issued the shares at Rs. 110/- per share, the difference of Rs. 8.38 per share was the excess value received by the assessee company in terms of the Fair Market Value (FMV) which was to be charged to tax in terms of provisions of section 56(2)(viib) of the Act which was calculated at Rs. 89,51,365/- and added to the income of the assessee. 2.2 Aggrieved, the assessee approached the Ld. CIT (A) challenging the aforesaid addition but the appeal of the assessee was dismissed. 2.3 Now, the assessee has approached the Tribunal and c....
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....he Ld. Authorized Representative submitted that the assessee had submitted calculation of the valuation of the shares on the basis of 'Discounted Cash Flow' method, duly certified by the Chartered Accountant, which has been reproduced at page no. 3 of the assessment order and had further submitted another valuation of the shares on the 'Net Asset Value Method' by taking the stamp duty valuation of the immovable property of the company and, as per that, the valuation of the shares had been arrived at Rs. 117.31 as reproduced at page 5 of the assessment order. It was submitted that the Assessing Officer, however did not consider these two valuations mainly on the basis that in the 'Discounted Cash Flow Method', the discounting factor of 7% has been taken arbitrarily and on estimate basis and held that as the valuation was an afterthought and he, thereafter, calculated the FMV of the unquoted equity shares as on 15.03.2014, on the basis of the 'net worth' on the basis of the 'book value of assets & liabilities' which was contrary to the settled law on the issue. 3.1 It was further submitted that on appeal, the Ld. CIT (A) had held that FMV (Fair Market Value) cannot be taken on the b....
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....is a recognized valuation as per Rule 11UA(2) and, for that, the discounted cash flow method, duly certified by the Chartered Accountant had been submitted and such valuation being made by an expert, the Assessing Officer is not expected to change such valuation and the Rules nowhere permit the AO to make the adjustment therein. 3.4 The Ld. AR referred to the order of the Jaipur Bench of the ITAT in the case of "Rameshwaram Strong Glass Pvt. Ltd. vs. ITO" reported in 172 ITD 571 wherein it has been held that there was no discretion with the AO to discard the method of valuation adopted by the assessee and also it was further held that when the law has specifically provided a method of valuation and the assessee has exercised an option by choosing a particular method (DCF), changing the method by adopting a different method would be beyond the powers of the Revenue Authorities. The Ld. AR also relied upon the judgment of the Hon'ble Delhi High Court in the case of PCIT vs. Cinestaan Entertainment Pvt. Ltd. (2021) 191 DTR 345 in which the same principle has been upheld and the order of the Tribunal deleting the addition made u/s 56(2)(viib) was upheld. 3.5 The Ld. AR also relied up....
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....ted in 51 CCH 0222 (Hyd Trib) * ACIT vs Karle International Pvt Ltd. As reported in 53 CCH 0291 (Bang Trib) 3.9 It was, thus, vehemently argued that, therefore, the Assessing Officer and the Ld. CIT (A) were not justified in making and upholding the addition of Rs. 89,51,365/- by rejecting the method of valuation and the assessee's issuance of unquoted shares, at a value of Rs. 110/- per share, being less than the value as per Section 56(2)(viib) of the Income Tax Act, 1961 both by the 'Net Asset Method' and by the 'Discounted Cash Flow Method', no addition was called for u/s 56(2)(viib) of the Income Tax Act, 1961. 4.0 In rival submissions, the Ld. Senior DR relied upon the order of the AO and the Ld. CIT (A) and argued that the assessee had arbitrarily taken the value of shares at Rs. 110/- per share and that the valuation has to be adopted as per the book value and that the Assessing Officer/ Ld. CIT (A) has rightly considered the valuation of unquoted shares at Rs. 101.62/- per share and the 'net asset method' adopted by the assessee is not justified, since that was brought into the Statute by way of an amendment by the Finance Act, 2017 and, thus, cannot be given retrospec....
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....r second proviso to section 40(a)(ia) is declaratory and curative and it has retrospective effect from 1-4-2005 - Held, yes" II. Judgment in the case of Calcutta Export Company of Supreme Court of India reported in [2018] 93 Taxmann.com 51 (SC) in which it has been held as under: "Section 40(a)(ia) of the Income-tax Act, 1961 - Business disallowance - Interest etc. paid to a resident without deduction of tax at source (Retrospective operation) - Assessment year 2005-06 - Whether amendment made by Finance Act, 2010, to provisions of section 40(a)(ia) is curative in nature and it should be given retrospective operation from date of insertion of said provision i.e. with effect from assessment year 2005-06 - Held, yes [Paras 28, 30 and 31] [In favour of assessee]" III. J udgment in the case of PCIT vs. Shivpal Singh Chaudhary reported in 558 of 2017 (O&M) dated June 5, 2018, in which it has been held as under: Business expenditure-Interest, commission, brokerage etc. to a resident-Assessee filed return of income-During assessment proceeding, AO noted that Assessment was completed u/s 143(3) by making addition-AO completed assessment after making additions under Ss 40(a)(ia) a....
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.... by relying upon the above said precedents, we hold that the 'Net Asset Method' as adopted by the assessee on the basis of the Stamp Duty Valuation is in order, being beneficial provision and covered by the judgment of the jurisdictional Punjab & Haryana High Court in the case of Shiv Pal Singh Chaudhary (supra) and further by the Hon'ble Apex Court in the case of Kolkata Export Co. (supra). 7.4 We further opine that even the valuation by the 'Discounted Cash Flow Method' is in order and that issue is covered by the judgments of the Hon'ble Delhi High Court, Hon'ble Bombay High Court as well as by the order of the Chandigarh Bench of the Tribunal in the case 'Dada Ganpati Gold Products Pvt. Ltd.' as cited 'supra'. The finding of the Tribunal in that case is being reproduced herein under for a ready reference: "The second limb of the argument of the learned counsel is that the learned Principal Commissioner of Income-tax has wrongly rejected the valuation of shares at Rs. 33.44. As asked by the learned Principal Commissioner of Income-tax, during the course of proceedings under section 263 of the Act, the assessee filed valuation report of fair market value of unquoted equity sha....