TaxTMI 
TaxTMI 
2025 (1) TMI 1821
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....essee had issued equity shares and Cumulative Convertible Preference shares (CCPS) to certain resident individuals and also to a non-resident at a premium. The assessee had charged share premium of Rs. 210/- per share to 11363 equity shares issued to a resident subscriber and Rs. 756.37 per share in respect of both equity shares and preference shares issued to other resident and non-resident subscribers. The aggregate amount of share premium collected from resident and non-resident subscribers is detailed below:- Share premium collected from Residents 3,64,36,494 Share premium collected from a non-resident 19,73,90,635 Total 23,38,27,129 The AO noticed that the assessee had obtained valuation certificate from a Chartered Accountant, who had valued the shares under DCF method at Rs.532/- per share. The AO further noticed that the CA had valued the shares on the basis of projected cash inflows, but the data relating thereto had been provided by the assessee only. The AO further noticed that the actual financial results achieved by the assessee in the subsequent years did not match with the projected figures given in the valuation report. Hence, the AO rejected th....
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....ollected share premium of Rs. 756.37 per share. Before Ld CIT(A), the assessee agreed that the value of share may be adopted at Rs.532/- per share and accordingly, the share premium collected from the resident subscribers over and above the value shown in valuation report may be assessed u/s 56(2)(viib) of the Act. Accepting the said contentions, the ld CIT(A) decided this issue as under:- "6(e). Addition of share premium made u/s. 56(2)(viib) to this extent of Rs. 1,00,99,791/- is hereby confirmed. Thus, after excluding share premium received from non-resident share holders, dispute remains to the amount of Rs. 3,64,36,494/-, in which the assessee agreed for Rs. 1,00,99,794/- and the same is hereby confirmed. After considering this, balance amount of Rs. 2,63,63,700/- is hereby deleted. Accordingly, this ground is hereby partly allowed." The Revenue is aggrieved by the relief granted by the Ld CIT(A). 5. We heard the parties and perused the record. With regard to the relief granted in respect of share premium collected from the non-resident subscriber, there should not be any dispute that the same will not fall within the ambit of sec.56(2)(viib) of the Act, since t....
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....as under:- "15. A perusal of Rule 11UA(2) would indicate that the assessee is enabled to determine the FMV of the unquoted equity shares either in accordance with the formula prescribed in clause (a) or on the basis of a report drawn by a merchant banker who may have determined the FMV as per the DCF Method. 16. In our considered opinion, the language of Rule 11UA(2) indubitably places a choice upon the assessee to either follow the route as prescribed in clause (a) or in the alternative to place for the consideration of the AO a Valuation Report drawn by a merchant banker as per the DCF method. However, and as is manifest from a conjoint reading of Section 56(2)(viib) read along with Rule 11UA(2), the option and the choice stands vested solely in the hands of the assessee. 17. While it would be open for the AO, for reasons so recorded, to doubt or reject a valuation that may be submitted for its consideration, the statute clearly does not appear to empower it to independently evaluate the face value of the unquoted equity shares by adopting a valuation method other than the one chosen by the assessee. It is this aspect which was duly acknowledged by the ....
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....lowed average value of PECV method as well as NAV method to justify the sale consideration actually received. We are of the opinion that ld Assessing Officer has not carried out valuation by an independent valuer and merely chosen a part of the valuation report submitted by the assessee. Therefore, we restore back the issue to the AO for referring the matter to a valuation expert by way of the issue of commission and thereafter, determining the FMV of the undertaking of the food division of the assessee." 19. Proceeding along similar lines, the Hyderabad Bench of the ITAT in Jt. CIT(OSD) v. MLR. Auto Ltd. [IT Appeal No. 115 (Hyd) of 2021, dated 28-12- 2023] had held as follows:- "17.1. The conjoint reading of Section 56(2)(viib) and Rule 11U and 11UA makes it abundantly clear that in case assessee exercised his option for determination of the fair market value of the shares and exercise then such decision of the assessee shall be final and binding on the assessing officer. The option was given by the Act to the assessee either to apply the DCF method or net asset valuation method, this option is not available to the assessing officer. Rule 11UA provides the method....
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.... to assessee by adopting discounted cash flow method. Therefore, such an option given to the assessee cannot be withdrawn or taken away by the learned Assessing Officer by adopting different method of valuation i.e., net asset value method. The method of valuation is always the option of the assessee. The learned Assessing Officer is authorised to examine whether assessee has adopted one of the available options properly or not. In the present case, the learned Assessing Officer has thrust upon the assessee, net asset value method rejecting discounted cash flow method for only reason that there is a deviation in the actual figures from the projected figures. It is an established fact that discounted cash flow method is always based on future projections adopting certain parameters such as expected generation of 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 mee....
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....ine that method. Naturally, if the discounted cash flow method and net asset value method gives the same result, where would have been the need to prescribe the two methods in the law. In view of above facts, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 69,000,000 made by the learned assessing officer u/s 56 (2) (viib) of the act. Accordingly, ground Nos. 3 and 4 of the appeal of the learned Assessing Officer are dismissed." 21. We deem it apposite to lastly take note of the following pertinent observations as appearing in a decision rendered by the ITAT Bench at Bangalore in Taaq Music (P.) Ltd. v. ITO [2020] SCC OnLine ITAT 9482 :- "11. The law provides that, the fair market value may be determined with such method as may be prescribed or the fair market value can be determined to the satisfaction of the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. If the Assessee determines the fair market value in a method as prescribed the Assessing Officer does not have a choice to dispute the justification. The methods of valuati....