TaxTMI 
TaxTMI 
2025 (11) TMI 1513
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....hat the there cannot be a change in the method of valuation despite the fact that Pr. CIT making the observation of shares of assessee company being highly inflated, in the order u/s 263 of the I.T. Act, 1961? 3. At the outset as noted by the Registry, there is a delay of 50 days in filing the appeal by the Revenue before this Tribunal. The ld. DR drew our attention to the application vide F. No. DCIT/Cir-3(1)(1)/Condonation of Delay/2023-24 dated 29/01/2024 requesting condonation of delay in filing the appeal before this Tribunal by 51 days. The main reason as cited by the Revenue is that due to pressing time barring matters and other miscellaneous works, the filing of the appeal is delayed. Further, it is submitted that the delay being unintentional and due to unavoidable reasons & accordingly prayed that the delay may be condoned & the appeal may be admitted for adjudication on merits. 3.1 The ld. AR of the assessee did not seriously opposed to the condonation of delay. 3.2 Perused the record and having heard learned DR &ld. Counsel for the assessee, it is perceived that the explanation offered in the condonation application is plausible and sufficient cause being shown....
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....r sources as per the provisions of section 56(2)(viib) of the Act, was contested before the ld. CIT(A)/NFAC. 6. The ld. CIT(A)NFAC, after considering the submissions of the assessee, allowed the appeal of the assessee vide order dated 12.10.2023. The relevant observations and findings of the ld.CIT(A) is reproduced below for ease of reference & convenience: "5.2 I have considered the facts and circumstances of the case and material available on record on the above matter. It is seen that AO has applied Fair market value (FMV) of share premium value as per section 56(2)(viib) r.w. rule 11UA of Income Tax Rules as per NAV. The appellant has calculated as per DCF method and submitted the chartered accountant report for the same. Hon'ble Bombay High Court in the case of Vodafone M-Pesa Ltd. v. PCIT as reported in 164 DTR 257 dealt on the issue of NAV or DCF method and relevant para of this judgment is reproduced herein below "9. We note that, the Commissioner of Income- Tax in the impugned order dated 23rdFebruary, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Meth....
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.... made by the AO on the basis of NAV is directed to be deleted. Hence the ground numbers 2 & 3 of appeal is allowed." 7. Aggrieved by the order of the ld. CIT(A)/NFAC, wherein the addition made by the ld. AO has been deleted, has filed this present appeal before this Tribunal. 8. Before us, the ld. D.R. for the revenue has vehemently submitted and argued that the ld. CIT(A)/NFAC was not justified in deleting the addition made by the AO and further submitted that the valuation report submitted by the assesses is not justifiable as the projection of revenue given in the report does not match with the actual revenue of the subsequent years and further argued that the DCF (Discounted Cash Flow) method adopted by the assessee is not acceptable as the correct method, as the valuation of the shares of the company should be as per the Fair Market Value of Shares. Thus, the ld. DR contended that the total Share premium amounting to Rs. 5,34,10,000/- is in excess of the Fair Market Value of the shares which is computed as per the Rule 11UA(2)(b) of the Income-tax Rules r.w.s. 56(2)(viib) of the Act and the Fair Market Value as per NAV method adopted by the AO of Rs. 20.88/- per....
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.... the estimation made as on the date of valuation with that of the actuals due to various market forces and expediencies of the business of the assessee, which fact has to be considered. The assessee had adopted the DCF method considering the vast experience and in-depth knowledge and nature of the industry has projected its revenues, which in its perception was a fairly achievable keeping in view the general trends of the industry, the scale of operations achievable in future etc. The projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the va....
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....6(2)(viib) of the Act. The ld. Counsel also contended that the shares subscribed by the parties are not related to the assessee and the genuineness of the investment is also not doubted. 10.1 We are of the considered opinion that the Rule 11UA has been prescribed for determination of the value of unquoted equity shares. Further Rule 11UA(2) of the Rule is for determining the fair market value of the unquoted equity shares following the DCF method as one of the manners. As per the Rule 11UA(2) of the Rules, the assessee has the option to adopt any method for evaluation of the value of unquoted equity shares. Thus the Assessee can either adopt NAV or DCF method. The Rule 11UA (2) is reproduced below for ease of reference: - "(2) Notwithstanding anything contained in sub-clause (b) of sub-clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner clause (a) or sub-clause (b), at the option of the assessee, namely:- (a) the fa....
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.... of the reasons as quoted by the AO for not considering the valuation report is that the Director during the survey proceedings has stated that there is no valuation report. We are unable appreciate this reason for rejection as the satisfaction to be recorded by the AO should not be objective satisfaction exercised at his discretion, but a subjective satisfaction based on the facts of the case. The lower authorities have not examined the basis on which the valuation is done and from the perusal of facts, no details in this regard have been called for by the lower authorities. The valuation report is rejected based on the objective satisfaction and not based on detailed examination. 19. In view of the above discussion and respectfully following the decision of the Tribunal in the case of Town Essential Private Limited Ltd. (supra), we hold that the valuation done by the assessee cannot be rejected without recording any finding to the contrary by the lower authorities and therefore we delete the addition made in this regard." 10.4 Further, the Hon'ble Jurisdictional Karnataka High Court on an appeal by the revenue against the said order of the Tribunal in M/s. Waterline H....