TaxTMI 
TaxTMI 
2023 (7) TMI 1452
X X X X Extracts X X X X
X X X X Extracts X X X X
....he very outset, the ld. counsel for the assessee withdrew Cross Objections filed by the assessee. Therefore, the same are dismissed as withdrawn. 3. The peculiar facts for A.Y 2014-15 are that the impugned appeal by the Revenue in ITA No. 1721/DEL/2022 is for the assessment order framed pursuant to the direction of the PCIT u/s 263 of the Income-tax Act, 1961 [the Act, for short] and that order of the PCIT u/s 263 of the Act is under challenge in appeal before us by the assessee in ITA No. 2014/DEL/2021. 4. For the sake of our convenience, we would first address the appeals by the Revenue on the merits of the case. 5. Briefly stated, the facts of the case are that the assessee is a company incorporated under the Companies Act, 1956 and is engaged in the business of running, owning, establishing, taking over, run on lease all kinds of hotels, resorts, restaurants, holiday camps and other hospitality services in this regard. The assessee company was constructing hotels under the brand name of Novotel and Pullman in Aerocity, New Delhi and for the said purpose, it had entered into an agreement with Delhi International Airport Limited [DIAL] for leasehold land and further to operate....
X X X X Extracts X X X X
X X X X Extracts X X X X
....carded valuation of shares as submitted by the assessee. The Assessing Officer was of the firm belief that as the shares are issued at premium and value at which shares were issued was higher than the value determined u/s 56(2)((viib) of the Act r.w.r 11UA of the Rules, excess of the issue price over the value determined has to be assessed to tax u/s 56(2)(viib) of the Act. Consequently, the Assessing Officer made addition of Rs. 17,53,37,194/- qua investment towards equity received from the resident investor. 12. Similarly, for A.Y 2015-16, addition was made to the tune of Rs.39,34,10,900/-. In 2016-17, addition amounted to Rs. 58,20,07,914/- and in A.Y 2017-18 addition of Rs. 13,41,47,939/- was made. 13. Since the underlying facts in all the additions were identical, the ld. CIT(A) decided to dispose the appeals of the four A.Ys by a common order. 14. After considering the facts and submissions and finding that the valuation of shares is duly supported by a valuation report as per Rule 11UA of the IT Rules, the ld. CIT(A) observed as under: "(i) Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pted the discounted cash flow method. 17. Per contra, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. It is the say of the ld. counsel for the assessee that the NAV applied by the Assessing Officer for determining the Fair Market Value is full of mathematical errors and if those mathematical errors are corrected, there would be no difference between the value adopted by the assessee and the valuation adopted by the Assessing Officer. 18. We have given thoughtful consideration to the orders of the authorities below. The entire quarrel revolves around the determination of fair market value of the shares. At the very outset, it has to be understood that the assessee has not issued and allotted shares to strangers but the shares have been issued to the existing promoters and existing shareholders. Therefore, the question of identity goes into oblivion. 19. Provisions of section 56(2)(viib) and Rules 11UA read as under: Relevant provision of 56(2)(viib) of the Act are reproduced below: "56(2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to inco....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hares for the purposes of sub clause (1) of clause (a) of Explanation to clause (vub) 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 appellant, namely:- (a) The fair market value of unquoted equity shares = (A-L) XPV PE Where, A = book value of the assets in the balance sheet as reduced by any amount of tax paid as deduction or collection at source of as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance sheet as asset including unamortized amount of deferred expenditure which does not represent the value of any asset L= book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (1) the paid up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if t....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... balance-sheet (including the notes annexed thereto and forming part of the accounts) drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the annual general meeting of the shareholders of the company; "valuation date" means the date on which the property or consideration, as the case may be, is received by the appellant." (emphasis supplied)" 20. From the above, we understand that the valuation of an unquoted equity shares in terms of Rule 11UA of the Rules can, at the option of the assessee, be determined as per either NAV Method or as per Discounted Free Cash Flow Method, which means that the option is given to the assessee and once the assessee has exercised an option, the Assessing Officer is bound to follow the same unless by bringing cogent material on record, the Assessing Officer established perversity in the method adopted by the assessee. 21. A perusal of the record shows that the basis of valuation report is free cash flow projections weighted average cost of material, terminal value total company value, fair market value of the company. Method adopted by the assessee is in line with the relevant provisions and releva....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bsp; 24. From the above chart, it can be seen that the Assessing Officer has not even considered equity and preference share capital. Further, number of convertible preference shares have been computed by the Assessing Officer @ Rs. 10/- whereas the actual face value is of Rs. 100/- per share. Because of these gross mathematical errors, the Assessing Officer computed the NAV as per the share as on 31.03.2014 at Rs. 2.70 as against Rs. 92.67 by the assessee. 25. The corrected FMV as per NAV Method is as under: If the mathematical corrections are considered, it can be seen from the above chart that there is hardly any variation between the FMV adopted by the assessee and that of the AO, be it DCF or NAV. 26. The Hon'ble High Court of Delhi in the case of Cinestaan Entertainment [supra] has held a under: "13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescribed methodology. The Appellant-Reven....