TaxTMI 
TaxTMI 
2023 (6) TMI 426
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....essee has issued shares at a premium based on the valuation done using Discounted Cash Flow [DCF] method as certified by a Chartered Accountant. The AO rejected the method of valuation quoting various reasons and arrived at the valuation based on Fair Market Value [FMV] method using the book value of the assets & liabilities as per the financials. The AO invoked the provisions of section 56(2)(viib) and made an addition of Rs.33,71,77,500. The AO also made a disallowance u/s. 40(a)(ia) of the Act towards the payments made by the assessee for management fees, outsourcing expenses and license fees. 4. Aggrieved, the assessee filed appeal before the CIT(Appeals), who upheld the addition/disallowance made by the AO. The assessee is in appeal before the Tribunal against the order of the CIT(Appeals). 5. There is a delay of 355 days i.e., 293 days upto the date of pre- Covid-19 pandemic and 62 days during the Covid-19 period. The assessee filed an affidavit with the reasons for the delay and prayed for condonation of delay. The relevant extract of the same is as follows:- "3. In this regard, the Appellant humbly submits that the entire finance team was headed by one Mr. Ravindran Kol....
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....l, Bangalore takes a lenient and compassionate view and condone the delay of 355 days in filing the Appeal before your Honours and hear the same on merits for the advancement of substantial cause of justice. The reason for the delay in filing the present appeal of about 355 days was due to reason beyond the control of the Appellant." 6. The ld. DR contended that the delay should not be condoned. 7. We have considered the rival submissions and perused the material on record. The main reason for the delay submitted by the assessee is that the CFO of the company, Mr. Ravindran Kolliakal leaving the company suddenly and the impugned order was not brought to the attention of the management who came to know of it only on initiation of penalty proceedings on 18.3.2020 and filed the appeal based on professional advice. In our considered view, the reason given by the assessee is a reasonable cause and we therefore condone the delay and consider the appeal for adjudication. Valuation of shares 8. The AO during the course of assessment noticed that the assessee has received share premium on allotment of shares to the tune of Rs.33,71,77,500 and called for the details of the same. The ass....
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....the shares using FMV method by taking into consideration the book value of assets and liabilities. As per the workings of the AO the value of shares was arrived at (-) 47.05. The AO therefore invoked the provisions of section 56(2)(viib) and made addition of the entire amount of share premium of Rs. 33,71,77,500 12. The CIT(A) upheld the addition made by the AO on the ground that the assessee has not employed any scientific method for determining the valuation of shares and the valuation is done solely with an intention to arrive at the higher value of issue of shares at the premium. In this regard, the CIT(A) relied on the order of the Kerala High Court in the case of Sunrise Academy of Medical Specialties India P. Ltd., 96 taxmann.com 43. Aggrieved, the assessee is in appeal before the Tribunal. 13. Before us, the ld. AR submitted that the AO has relied on a statement recorded during the survey proceedings of UKN Properties Pvt Ltd., but never shared the copy of the statement to the assessee in order to file any rebuttal. The ld AR also submitted that DCF method of valuation is one of the recognized methods of valuation for arriving at the value of shares and the assessing auth....
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.... the coordinate Bench of the Tribunal in the case of Town Essential Private Limited Ltd. in ITA No.139/Bang/2020 dated 30.6.2021 has considered the issue rejection of DCF method adopted by the assessee for valuation of shares and held as under:- "8. 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 we notice that the ITAT, Bangalore Bench in the case of VBHC Value Homes Pvt. Ltd., Vs ITO in ITA No.2541/Bang/2019 order dated 12-06-2020, after relying on the decision of the Hon'ble Bombay High Court in the case of Vodafone MPesa Ltd Vs Pr.CIT 164 DTR 257 and decision of the ITAT, Bangalore Bench in the case of Innoviti 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 reproduce paras 11 to 14 from the Tribunal order cited by learned AR of the assessee having been rendered in the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra). These paras are as follows: "11. As per various tribunal orders cited by the learned AR of the assessee, it was held that as....
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....ithout 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 to examine and consider these tribunal orders. Respectfully following this judgment of Hon'ble Bombay High Court, we set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment ....
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....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 valuation which has been opted by the assessee. The Tribunal has followed the judgment of Hon'ble Bombay High Court and disregarded various other Tribunal....
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.... 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)(b) of the Rules provides that, the Assessee can adopt the fair market value as per the above two methods i.e., either DCF method or fair market value of the unquoted equity shares determined by a merchant banker. The choice of method is that of the Assessee. 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) and has taken the view that the 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 valuation which has been opted by the Assessee. The decision of ITAT, Delhi in the case of Agro Portfolio Ltd. 171 ITD 74 and the decision of the Bangalore Bench in the case of TUF Rheinland NIFE Academy Pvt.Ltd. (TS-92-ITAT- 2019(Bang)has also ....
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.... valuation report is that the Director during the survey proceedings has stated that there is no valuation report. We are unable appreciate this reason for rejection as the satisfaction to be recorded by the AO should not be objective satisfaction exercised at his discretion, but a subjective satisfaction based on the facts of the case. The lower authorities have not examined the basis on which the valuation is done and from the perusal of facts, no details in this regard have been called for by the lower authorities. The valuation report is rejected based on the objective satisfaction and not based on detailed examination. 19. In view of the above discussion and respectfully following the decision of the Tribunal in the case of Town Essential Private Limited Ltd. (supra), we hold that the valuation done by the assessee cannot be rejected without recording any finding to the contrary by the lower authorities and therefore we delete the addition made in this regard. Disallowance u/s. 40(a)(i)/(ia) 20. During the course of hearing, the AO noticed that the assessee has made certain payments without deducting tax at source as listed below:- Particulars Amount (Rs.) Management ....