TaxTMI 
TaxTMI 
2025 (11) TMI 981
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....ee had filed return of income for the relevant assessment year 2015-16 declaring an income of 10,42,410/- on 29.09.2015. In the assessment order passed under section 143(3) of the Act dt. 26.12.2017, the Ld. Assessing Officer has made addition. of 2,27,50,000 claimed u/s 56 (2)(viib) r.w.r. 11 UA of the Act. The assessee Company allotted shares of Rs. 10 - each to M/s Gallop Infrastructure Limited on 31.03.2015 at a premium of Rs. 190 each. The issue price of the shares at a premium of Rs. 190/- was based on valuation as per rule 11 UA by an accountant as per DCF method. The Ld.AO noted the deficiencies in the valuation adopted by the assessee and proceeded to reject the DCF method adopted by the appellant and consequently made the impugned addition of Rs. 2,27,50,000. 3.0. The Ld. DR vehemently argued that the relief accorded by the Ld.CIT(A) is highly excessive and unwarranted. It was stated that reliance has been placed upon unconnected judicial precedents. It was accordingly pleaded that the impugned appellate order be set aside and that of Ld.AO be restored. 4. The Ld.Counsel for the assessee argued in favour of the order of Ld.CIT(A). It was contended that the relief ac....
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....Accountant or merchant banker. Moreover, the market value of the assets owned by the assessee as on 01.12.2014 i.e. before the date of issue of shares as valued by government registered valuer is approx.. 4358 lacs against the total no. of shares existing on that date being 21.6 lacs hence, FMV of each share('4358/21.6 = 201.75) which is more than the value at which the shares were allotted to 'Gallops Infrastructure Ltd. 3.10 Majority of the immovable properties held by the appellant were purchased by it as agricultural lands 6-7 years back when its price was very low. Thereafter, the appellant got the use of the said agricultural lands converted to residential use by obtaining necessary approvals from appropriate government authorities and because of the same, its market value is likely to increased many folds as compared to its book value. The AO can refuse the method of valuation after proving that the methodology resorted by the assessee is incorrect or not as per the standards laid down. The courts have held this view as is evident from the following observations of Hon'ble jurisdictional High Court of Delhi in Pr .Commissioner of Income Tax Vs. M/s Cinestaan....
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....th regard to the valuation that valuation is not and exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is but its very nature based on projections by applying what is essentially ahindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information." ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018-TIOL- 1358-ITAT- Jaipur) "4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valua....
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....mation, based on potential value of business. However, the underline facts and assumptions can undergo changeover 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 of material or evidence. The methodology adopted by....
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.... 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. v. 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 has also been considered by the ITAT, Bangalore in the case of VBHC Value Homes Pvt. Ltd. (supra). 12. In view of the above legal position, we are of view that the issue with regard to valuation has to be decided afresh by the AO on the lines indicated in the decision of ITAT,....