TaxTMI 
TaxTMI 
2026 (2) TMI 635
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....he Act) along with questionnaire were issued and duly served upon the assessee. The ld. AO noted from the balance sheet that, the assessee had issued 10,00,000 shares having face value of Rs. 10/- each at a premium of Rs. 179.40/per share, thereby raising share capital of Rs. 18,94,00,000. The assessee had furnished the details of the share subscriber, M/s Zuari Infraworld India Ltd along with the report obtained in terms of Rule 11UA in respect of valuation of the shares. It is seen that the ld. AO had issued notice u/s 133(6) to the subscriber company, M/s Zuari Infraworld India Ltd and their reply was found to be in order. The ld. AO however was not agreeable to the DCF valuation analysis prepared by the Chartered Accountant and hence issued a show cause letter dated 03.11.2017 to the assessee. The ld. AO, in the show cause, inter alia observed that the projections and assumptions made in the DCF analysis was not supported by any valid documentary evidences and that the valuer had set out several caveats and limitations in his valuation report. The ld. AO therefore proposed to reject the DCF valuation and instead adopted the NAV of Rs. 87.30/per share as the FMV of shares, there....
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....vant information provided by the assessee to the valuer along with the financials for AYs 2016-17 to 2020-21. He held that, the financial results of the subsequent years did not support the projections made by the valuer and therefore the assessee was unable to substantiate the basis of the valuation report with requisite details and particulars. The ld. CIT(A) accordingly held that, the assessee failed to discharge its onus of furnishing evidences as requisitioned to test the DCF valuation and thus upheld the AO's action of rejecting the same. 5. After hearing the rival submissions and perusing the material placed on record, it is seen that the assessee company was formed to conduct the business of real estate. The assessee company was jointly promoted by three groups, viz. Infinity group, Adventz group and Urban Infra group to undertake the business of development of real estate at Vrindavan, Mathura. From the financials of the assessee, it is revealed that the assessee through its wholly owned subsidiaries had acquired large parcels of land and thereafter the assessee had entered into development agreements with the subsidiaries, pursuant to which, it had obtained development....
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....onsideration received for such shares as exceeds the fair market value of the shares: .... Explanation.-For the purposes of this clause,- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature,whichever is higher;" Rule 11UA(2): "Rule 11UA(2) :Notwithstanding anything contained in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1): - (A) the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the 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 shall be determined under sub-clause (a), sub-clause (b), sub-clause (c) or sub-clause (e), at the ....
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....he face value, then the difference between the fair market value and the consideration received upon issuance, is to be brought to tax by way of 'Income from Other Sources' u/s 56(2)(viib) of the Act. It is observed that, Section 56(2)(viib) is an anti-abuse provision brought in by the Finance Act, 2012 to deter the generation of unaccounted monies and tax the excessive premium received by closely held companies on issuance of shares to dubious entities. The legislative intent behind introduction of Section 56(2)(viib) was to check the menace of routing of unaccounted monies in garb of excess premium and not to hinder genuine and bonafide transactions undertaken for commercial considerations. In the present case, the assessee is found to have been promoted by three reputed real estate groups and one of existing promoter through their well-reputed company had infused fresh capital into the assessee company out of its accounted resources. Neither of the lower authorities has doubted the source of the investment and as such they cannot hinder the genuine and bonafide business transactions. The case of the assessee is supported by the following decisions wherein it has been held that S....
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....btedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated 21st December, 2017 would on adoption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. In fact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need to be stayed." 5.5. In the present case, it is observed that, the assessee had adopted the DCF valuation method as set out in Rule 11UA(2)(A)(b) as prescribed in the context of Section 56(2)(viib) of the Act. In view of the above judgment therefore, we agree with the lower authorities to the extent that they were empowered to examine the veracity of the FMV determined in accor....
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....9] 102taxmann.com59 (Bangalore - Trib.) has observed as follows: "14. In nutshell, our conclusions are as under:- (1) .... (2) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections." 5.7. The coordinate Bench of Delhi in the case of India Today Online (P.) Ltd. v. ITO [2019] 104 taxmann.com 385 (Delhi - Trib.) held the following: "31. .....DCF method is a recognised method where future projections of various factors by applying hindsight view and it cannot be matched with actual performance, and what Ld. CIT (A) is trying to do is to evaluate from the actual to show that the Company was running into losses, therefore, DCF is not correct. Valuation under DCF is not exact science and can never be done with arithmetic precision, hence the valuation by a Valuer has to be accepted unless, specific discrepancy in the figures and factors taken are found. Then AO or CIT(A) may refer to the a Valuer to examine the same." 5.8. In view of the above decisions, we are of the view that the projected....
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....ual results reported by the assessee in the subsequent years. It was observed by them that, no revenues or costs were recognized in the financials and therefore according to them, no actual construction activity had taken place, which contradicted the assumptions made in the DCF valuation report. The ld. AR, on the other hand, brought to our notice that, the assessee was following the completed contract method and therefore, the recognition of revenues and costs were postponed until the project was actually completed. He invited our attention to Note Nos. 16, 21 and 26 of the Financial Statements and showed that, the assessee had reported Construction WIP of Rs. 51.06 crores and Advance from customers towards villas / plots stood at Rs. 11.58 crores in the year ended 31st March, 2015. The ld. AR further explained that, due to external unavoidable circumstances, including delay in obtaining approval /clearances, COVID scenario, market dynamics etc., the project got delayed and therefore, no revenues / costs were recognized during the period reviewed by the lower authorities. He further showed us that, post COVID, the project has since been halted due to commercial reasons. Having co....