AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (11) TMI 1076
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....of Cash Grail (P) Ltd (CGPL). 3. We have heard the rival submissions and perused the material available on record. The assessee is an individual and investor in start-up company styled as CGPL. The assessee is engaged in the business of trading of shares in derivative Segment (F&O) of capital market. The assessee during the year earned income from house property, income from business, income from capital gains and income from other sources. The return of income for AY 2022-23 was filed by the assessee on 04.11.2022 declaring total income of Rs. 32,71,14,870/-. During the year under consideration, the assessee transferred 801 shares held by him in CGPL to Vun Internet Partners on 22.04.2021 at a sale consideration of Rs. 54,960 per share. The short term capital gain arising on sale of these shares were duly reflected in the return of income filed by the assessee. To support the transfer price, the assessee submitted a valuation report obtained from Independent Chartered Accountants wherein, the value of shares of CGPL was worked out at Rs. 54,959.62 per share as on 20.04.2021 in accordance with Rule 11UA of the Income Tax Rules by adopting Net Asset Value (NAV) method. 4. The ....
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....ns that were raised before the ld AO and submitted that no defects whatsoever were found by the ld AO in the two valuation reports submitted for different tranches of sale of shares of CGPL. The assessee reiterated before the ld CIT(A) that 595 shares were sold on 15.02.2022 after a gap of 10 months from the first sale. At this time, CGPL had already raised investments from venture capital firm and from foreign investors which warranted the valuation to be obtained by adopting DCF method as it is one of the prevalent method in foreign market and also one of the recognized methods in Rule 11UA of the Income Tax Rules. Further, new investors of CGPL were willing to buy the shares at the desired share price worked out using DCF method by an independent merchant banker seeing the scope of growth of CGPL. It was submitted that both NAV and DCF are prescribed methods under Rule 11UA of the Income Tax Rules. It was also submitted that choice of usage of method of valuation of shares i.e. NAV or DCF always vested with the assessee, which cannot be tinkered by the ld AO without pointing out any defect in the said valuation of obtaining a valuation report from a third party expert. The asses....
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....growth of the company i.e. CGPL which is as under:- Date Reserves (Rs in lakhs) Revenue (Rs in lakhs) 31-03-2021 10289.29 3570.18 31-03-2022 61489.37 40510.37 9. The Ld CITA duly appreciated the aforesaid contentions of the assessee and deleted the addition made by the ld AO by observing as under:- "6.5 The submissions of the appellant are perused. Rule 11UAA read with rule 11UA gives the option to assessee to follow either NAV method or DCF method for determining fair market value of unlisted shares as on the date on which the shares of an unlisted company are transferred. The language of said rules places a choice upon assessee to follow either of the two methods. Further, when the assessee follows either of the method for first sale of unlisted shares during a year, the said rule does not restrict the assessee to use same method for all the subsequent sale of unlisted shares on different dates. The rule only requires the assessee to obtain a valuation report as on the date on which unlisted shares are transferred. Hence, if the unlisted shares are sold multiple occasions on different dates, the assessee has to obtain multiple valuation repo....
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....f cash flow, the discounted rate of return and cost of capital. In hindsight, on availability of the actual figures, if the future projections are not met, it cannot be said that the projections were wrong. To prove that the projections were unreliable, the learned Assessing Officer must examine how the valuation has been done. In a case future cash flow projections do not meet the actual figures, rejection of discounted cash flow method is not proper. If projected future cash flow and actual result matches, such situation would always be rare. For projecting the future cash flow certain assumptions are required to be made, there needs to be tested and then such exemptions becomes the base of estimation of such projected future cash flows. If there are no assumptions, there cannot be an estimate of future projected cash flows and then discounted cash flow method becomes redundant. For exercise of valuation, assumption made by the valuer and information available at the time of the valuation date are relevant. As the exercise of valuation must be viewed as on the date of the valuation looking forward and cannot be reviewed in retrospect. Further, the valuation is always made based o....
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....d valuation report from AARK & Co. LLP, Chartered Accountants, determining the value of shares at Rs. 54,960/- per share as on 20.04.2021 using NAV method and valuation report from Share India Capital Services Put ld determining value of shares at Rs. 7,12,664/- per share as on 31.12.2021 as per DCF method. During the assessment proceedings, the AO rejected the valuation of shares at Rs. 54,960/- per share on 22.04.2021 and substituted the aforesaid value of 801 shares with Rs. 7,12,664/-per share, by holding that obtained two different valuation report from two different valuers who used different methods. However, as mentioned above the AO cannot question the method adopted by the assessee and AO is bound to follow same unless he shows mistake in the method adopted by the assessee. The AO did not demonstrate that the methodology adopted by the appellate is not correct. The AO had simply rejected valuation report filed by assessee without mentioning as to what was found incorrect in the valuation reports submitted by the assessee. The appellant adopted a recognized method of valuation and AO has not brought on record any facts which show that the appellant adopted a demonstrably w....