2025 (7) TMI 1584

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....rtal. During assessment proceedings, the Assessing Officer observed that assessee has issued share capital on 19.09.2016 and 31.03.2017. As per the valuation report submitted by the assessee vide report dated 15.09.2016 and 25.02.2017, the shares were issued at a premium of Rs. 30/- and Rs. 100 respectively. The Assessing Officer observed that earning before tax projected in these reports for FY 2016-17 was at Rs. 97,00,000/- whereas in reality assessee has incurred loss of Rs. 3.02 crores for FY 2016-17 and the assessee was asked to substantiate the above. In response, assessee submitted as under :- ".................... ICPL had a turnover of INR 208.90 lakhs for the year ending March 31, 2016 at the time of acquisition and assessee paid an amount of INR 700 lakhs for the proposed acquisition of 100% equity shares of ICPL. Copy of Balance sheet and Profit & Loss account of ICPL for FY 16 & 17is attached. This valuation of ICPL in an Independent Arm's length deal was approximately done at 3.5 X of the turnover of the company and can be taken as comparable transaction for the purpose of valuation of share of assessee issued by Valuer on Feb. 25, 2017. Copy of ICPL acqu....

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.... assessee has incurred huge loss as well as the turnover achieved was Rs. 4,11,00,695/- and he doubted the method adopted for valuation of shares by adopting such values. He also rejected the claim of favourable business environment for the company based on the passage of Maternity Bill by the Rajya Sabha. He further observed that as per the decision of ITAT in the case of Agro Portfolio Pvt. Ltd. vs. ITO, the valuation method of the assessee can be rejected by the Assessing Officer and can carry out his own independent valuation. Based on the above decision, he rejected the valuation of shares adopted by the assessee. He further observed that the value of the share which was used to allot the share of the company to its shareholders are excess and observed that the value of the share was not correctly determined with the help of DCF method, therefore, he proceeded to determine the same by applying the other method proposed in Rule 11UA of the Income-tax Rules, 1962 i.e. Net Asset Value Method. By adopting the same, he determined the value of shares at Rs. 31/- per share. Therefore, he observed that as per the net asset value method, the fair market value of the shares is Rs. 31/- ....

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....ck money were never intended to be made applicable on genuine and bona fide commercial transactions; that the assessee had a choice to adopt either Discounted Cash Flow (DCF) or Net Assets Value (NAV) method for determining the Fair Market Value (FMV) of shares and that the AO cannot substitute his method for the method adopted by the assessee; that in the subsequent Financial Year 2020-21 the renowned French company M/s Sodexo SA has determined the FMV of shares at Rs. 264 on which shares were issued being much higher than the FMV adopted by the company in the current assessment year." 7. At the time of hearing, ld. AR of the assessee submitted that assessee is engaged in the business of running play school and day care centres at various locations in India. In order to expand the operations, it has approached Bank of Baroda and borrowed loan in order to acquire another company, namely Integrated Child Care Pvt. Ltd. (ICPL). Further for the same reason, assessee has issued shares to its promoters in two tranches on 19.09.2016 and 31.03.2017 at a premium of Rs. 31 per share and Rs. 100 per share respectively. Before issue of shares to promoters, assessee has obtained valuation o....

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.... vs. ITO (2018) 96 taxmann.com 542 (Jaipur-Trib.); (ii) DQ (International) Ltd. vs. ACIT (2016) 72 taxmann.com 142; (iii) Vodafone M-Pesa Ltd. vs. DCIT (2020) 114 taxmann.com 323 (Mumbai - Trib.). 11. On the other hand, ld. DR of the Revenue brought to our notice findings of the Assessing Officer and ld. CIT (A), he submitted that he heavily relies on the findings of the lower authorities. 12. Considered the rival submissions and material placed on record. We observe that assessee is engaged in the business of running play school and day care centres at various locations in India and during the year, assessee has acquired another company, namely ICPL, in that process, assessee has borrowed loan from Bank of Baroda and also decided to issue fresh shares to its promoters. Accordingly, assessee has valued its shares before issue of shares to its promoters. The independent valuer submitted his valuation report dated 15.09.2016 and 25.02.2017. They have valued the shares and determined the premium at Rs. 31 per share and Rs. 100 per share respectively. The Assessing Officer analysed the valuation report and observed that the basic information for valuation of the....