TaxTMI 
TaxTMI 
2025 (8) TMI 1683
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.... as "the Act"] for Assessment Year 2016-17. The ACIT, Circle-2(1)(1), Ahmedabad [hereinafter referred to as "Assessing Officer or AO"], had framed the assessment under section 143(3) vide his order dated 15.12.2018. Facts of the Case 2. The assessee filed its return of income on 05.10.2016 declaring total income of Rs. 3,26,60,820. The book profit under section 115JB was declared at Rs. 3,34,20,417. The case was selected through CASS for complete scrutiny. The assessment was completed under section 143(3). During the relevant previous year the assessee issued 6,00,000 equity shares of face value Rs. 10 per share at a premium of Rs. 190 per share, as under: - Shri Kirit Vassa 1,00,000 shares - M/s Goldmine Stocks Pvt.....
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....ctual revenue and profits for A.Ys. 2016-17 to 2018-19 were lower by a factor of about 2 to 15 compared to the projections. The AO also recorded that FMV as on 31.03.2015 as per Rule 11UA was only Rs. 90.23 per share. 6. The AO reproduced the comparative statement of "Profit After Tax (PAT) as per projected method" vis-à-vis "PAT as per audited financials" for certain years, which highlighted the wide divergence between projections and actual results. The details are as under: Financial Year PAT as per Projected Method (Rs. in lacs) PAT as per Audited Financials (Rs. in lacs) 2014-15 199.85 193.37 2015-16 465.82 228.52 2016-17 536.10 82.97 2017-18 616.90 42.35 7. The Assessing Office....
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....ssee obtained a valuation report from an independent chartered accountant adopting DCF, which is one of the recognised methods under Rule 11UA; that such method is necessarily based on projections which, in turn, depend on multiple factors like growth of the company, general economic and market conditions, demand and supply, cost of capital and other variables explained by the assessee in its letter dated 14.12.2018; and that valuation is inherently an exercise based on approximation and cannot be rejected merely because actual performance later diverges from projections. 11. In support, the CIT(A) relied upon judicial precedents and reproduced extracts, including the judgement of Hon'ble Delhi High Court in case of PCIT v. Cinestaan Ent....
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....h the assessee and there was no perversity shown. The addition of Rs. 6,58,62,000 made under section 56(2)(viib) was deleted and the corresponding grounds were allowed. 13. Aggrieved, the Revenue is in appeal before us, raising the following grounds: 1) In the facts and on the circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs. 6,58,62,000/- made by A.O. on account of excess amount received as security premium u/s. 56(2)(viib) of the Act, ignoring the facts of the case that assessee has incorrectly valued the shares at much higher value than the FMV of shares. 2) The Revenue craves leave to add/alter/amend and /or substitute any or all of the grounds of appeal. 14. The learn....
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....peal. But in the present appeal filed by Revenue there is no such defect. The objection is therefore rejected. 17. Coming to the merits, it is an undisputed fact that the assessee issued 6,00,000 shares during the year under consideration at a premium of Rs. 190 per share, thereby receiving share capital of Rs. 60,00,000 and share premium of Rs. 11,40,00,000. The Assessing Officer invoked section 56(2)(viib) of the Act on the reasoning that the fair market value as per Rule 11UA was only Rs. 90.23 per share (NAV method), whereas the assessee had adopted the Discounted Cash Flow (DCF) method showing a much higher value of Rs. 214.47 per share. The AO observed that the projections furnished in the DCF valuation were inflated and unrealisti....
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....asoning adopted by the CIT(A). Valuation is not an exact science but a technical exercise involving approximations and forecasts. Courts have repeatedly held that such exercise is best left to experts, and unless perversity or mala fides are shown in the report of the valuer, the same cannot be discarded by the AO. In the present case, the Revenue has not brought any material on record to establish that the DCF valuation furnished by the assessee was inherently flawed or manipulated. The mere fact that actual performance of the company in later years did not match projections cannot, by itself, be a ground for rejecting the valuation. 20. We also take note of the undisputed fact that the shares were issued only to existing group entities....