TaxTMI 
TaxTMI 
2025 (8) TMI 1278
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....hares, stock, debentures, debenture stock, bonds, obligations and units. The case was selected for Limited Scrutiny to examine the following issues: - Expenses debited to P&L A/c for earning exempt income as per schedule BP of ITR is significantly lower as compared to investments made to earn exempt income; - Introduction of large capital NBFC/Investment Companies. - Low income in comparison to high loans/advances/ Investment in shares appearing in balance sheet. 3. During the year under appeal, assessee company issued 9,40,000 equity shares having face value of Rs. 10/- each at a premium of Rs. 490/- per share and received Rs. 94,00,000/- as share capital and Rs. 46,06,00,000/- as share premium. The value of per equity share was valued at Rs. 500.74 by following DCF method in terms of the report of Merchant banker dt. 02.11.2018. While valuing the share, the explanation (a)(i) of section 56(2)(viib) was applied according to which the value has to be determined as per Rule 11UA of the Income Tax Rules, 1962 which provide the choosing of method at the option of the assessee. Further said explanation provides that value should be determined as per Rule 1....
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....ethod are not matching with the actual financials of the assessee. It is further submitted by ld. CIT DR that assessee has not started its business properly thus charging of such a high premium is not acceptable. He further submits that from the perusal of the financials filed by the assessee for the A.Ys. 2016-17, 2017-18 and 2018-19, it is noticed that the assessee has shown total income of Rs. NIL Rs. 2130/- and Loss of Rs. 50,70,398/- respectively and no basis was given for the discount rate. As per ld. CIT DR, under DCF method for valuation of shares, the analysts requires to understand the business and make probing questions regarding the fundamentals of the business that drive value and sustainability of the cash flows projections given by the management. As per ld. CIT DR, the valuation report in the present case is not supported by any such exercise or calculations and based on baseless projections. It is further argued by ld. CIT DR that in subsequent years there is huge difference between the assumption of income/ operating expenses as per valuation report and actual income/operating expenses declared by the assessee company in the return of income filed for the respecti....
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....ng P. Ltd. Vs. ITO 203 ITD 384 (ITAT Delhi) - PCIT vs Waterline Hotels (P.) Ltd. [2025] 172 taxmann.com 820 (Karnataka) - PNP Maritime Services (P.) Ltd. vs DCIT [2023] 157 taxmann.com 517 (Mumbai-Trib.) - PRL Developers (P.) Ltd. vs ACIT [2024] 164 taxmann.com 328 (Mumbai-Trib.) - Rameshwaram Strong Glass (P.) Ltd.vs ITO [2018] 96 taxmann.com 542 (Jaipur-Trib.) - DQ Entertainment (International) Ltd. Hyderabad vs ACIT [ITA No.151/Hyd/2015] - DCIT vs M/s. Ozoneland Agro Pvt.Ltd. in ITA No.4854/Mum/2016 - Mediplus Health Services (P.) Ltd. vs ITO [2016] 68 taxmann.com 29 (Hyderabad-Trib.) 8. Ld. AR thus prayed for the confirmation of the order of the ld. CIT(A) who deleted the addition after appreciating the above stated facts and further by following the judgement of coordinate bench of ITAT in the case of Thinkstations Learning (P) Ltd. Vs. ACIT in ITA No. 9824/Del/2019 wherein the hon'ble bench has followed the decision of jurisdictional high court in the case of Cinestaan Entertainment Pvt.Ltd. (supra). He Prayed accordingly. 9. We have heard the rival submission and perused the material available on record. In....
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....e fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent- Assessee is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr. Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation o....
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....s pointed out by the AO in the valuation report submitted by the assessee during remand proceedings. The ld. CIT(A) further considered the judgements of the Co-ordinate bench and the Hon'ble Jurisdictional High Court in the case of Cinestaan Entertainment Pvt.Ltd. (supra) and deleted the additions by accepting the valuation report of merchant banker filed by the assessee. The final conclusion arrived at by the ld. CIT(A) in para 9 of the order is as under: 9. "To sum-up, the conclusions that are drawn after the exhaustive discussion in the preceding paras are as under:- a. The appellant has adopted a prescribed method of valuation for arriving at the fair market value of shares as per DCF method by a Merchant Banker. b. Jurisdictional Tribunals / courts have held that the AO cannot tinker with the DCF methodology by comparing projections with actual figures. c. Courts have held that challenging the valuation lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. d. The valuer makes forecast on approximation based on the potential value of th....