AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 834
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....ntant who had valued the share at INR 1007/- per share followed DCF method. The AO observed that assessee has failed to file documentary evidences in support of the basis of projected data supply to the valuer for valuation of shares and thus, invoked the provisions of section 56(2)(viib) of the Act. Thereafter, AO has treated the entire share premium as income of the assessee u/s 56(2)(viib) of the Act and made the addition thereof. 3. Against the said order, the assessee preferred an appeal before Ld. CIT(A) who vide order dated 26.03.2019 deleted the addition made by AO. 4. Aggrieved by the order of Ld. CIT(A), Revenue is in appeal before the Tribunal by taking Grounds of appeal as per appeal Memo. 5. The solitary Ground of appeal of the Revenue is regarding deletion of addition of INR 4,36,59,000/- made u/s 56(2)(viib) of the Act. 6. Ld. Sr. DR for the Revenue vehemently supported the order of the AO and submits that assessee has failed to provide details based on which the projections were made by the valuer under DCF method for computing the value of the shares issued by the assessee. Ld. Sr. DR further submits that since the AO has doubted the methodology adopted....
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....hares, the AO has no power to change the said method. The main allegation of the AO is that assessee has not provided the details based on which the valuation was done. It is observed that the assessee vide letter dated 11.12.2017 placed at page 39 to 51 of PB, has provided all the details to the AO which were necessary for the purpose of the valuation of shares. Therefore, it cannot be said that assessee has failed to provide the requisite details. It is further observed that the AO has not pointed out any error in the Valuation Report submitted by the assessee. Ld. CIT(A) after considering these facts, has deleted the additions by making following observations:- 4.3. "I have considered the facts of the case and the submission made by the AR. It has been contended that the Compulsorily Convertible Preference Shares (CCPS) were issued to the holding company of the appellant ie. M/s Breezfresh Dairy and Agrofarms Pvt. Ltd. Each CCPS had a face value of Rs. 10 and premium of Rs. 990/- per CCPS and each CCPS was convertible into 100 equity shares of Rs. 10 each. In view of this, the AR has submitted that the shares after conversion would be issued at face value of Rs. 10 each....
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..../s. Rameshwaram Strong Glass (P) Ltd. V/s ITO, in which it has been held that when the law has specifically provided a method of valuation and the assessee exercised an option by choosing a particular method, changing the method or adopting a different method would be beyond the powers of the revenue authorities. It is further held that the DCF Method is essentially based on the projections (estimations) and hence these projections cannot be compared with the actuals to expect the same figures as were projected. 4.3.2. Further, reference is made to the decision of Hon'ble Delhi ITAT in the case of Stryton Exim India P.Ltd, vs ITO, in ITA No. 5982/Del/2018 in which vide order dated 23 October, 2018, it has been held that- "The learned assessing officer as well as the learned commissioner appeals rejected the valuation report submitted by the assessee for the sole reason that projections shown by the assessee in the project report of the cash flow did not materialize in subsequent years. It was also the reason for rejection of these reports as the chartered accountant who valued the shares of the company has given a proper disclaimer while certifying the valuati....
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....n of revenue and the valuation of shares done by the valuer has got reasonable basis. Moreover, as argued by the AR, there is no premium charged because each equity share will be issued at face value of Rs. 10 only on conversion of each CCPS into 100 equity shares. In view of these facts, the addition made by the AO is deleted and the grounds of appeal are allowed." 9. The Co-ordinate Bench of the Tribunal in the case of M/s. Breezefresh Dairy & Agro Farms Pvt. Ltd. vs ITO in ITA No.2151/Del/2019 [Assessment Year 2015-16] dated 27.10.2023 has deleted the additions made u/s 56(2)(viib) of the Act by making following observations:- 19. "The Assessing Officer disregarded the valuation report mainly on the ground that the valuation of equity shares was based on the projections of the revenue which was not there. The assessee has applied DCF Method for the purpose of valuation of shares and has relied on the valuation report of an expert valuer. 20. There is a settled law on the issue that as per section 56(2)(viib) of the Act r.w.r 11UA of the ITAT Rules, that as per Sec. 56(2)(viib) of the Act read with Rule-11 UA of the Income tax Rules, 1962, every assessee has ....
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....es the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law." 5.1 Similarly, it has been held that where a valuation report is to be rejected, the authority should pinpoint any specific inaccuracies or short comings in the DCF valuation report. In the Rockland Diagnostics Services Pvt. Ltd. vs. ITO case of Intelligrape Software Pvt. Ltd., vs. ITO in ITA No.3925-Del- 2018 (Delhi Trib.), it has been held as under: "23. The AO was not able to pinpoint any specific inaccuracies or short comings in the DCF valuation report of the Chartered Accountant/Valuer other than stating that year-wise results as projected are not matching with the actual results declared in the final accounts. Before the Id. CIT (A), reasons for variation between projected and actuals were duly explained. The Ld. CIT (A) has accepted such explanation but rejected the DCF valuation report as submitted by the assessee. Accordingly, in the absence of any defect in the valuation of shares arrived by the 11 assessee on the basis of DC....