2022 (2) TMI 180 - AT - Income Tax

Addition of Excess Share premium amount made u/s 56(2)(viib) and sec.68 - change the method of valuing shares - HELD THAT - As both the additions arise out of common issue only. The assessee has also filed certain additional evidences. We earlier noticed that the assessee had adopted DCF method for valuing the shares, while the AO has adopted NAV method. In view of the above said decision rendered by the co-ordinate bench, which in turn has followed the decision rendered by Hon ble Bombay High Court in the case of Vodafone M-Pesa Ltd 2018 (3) TMI 530 - BOMBAY HIGH COURT AO is not entitled to change the method of valuation of shares. Accordingly, we set aside the order passed by LD CIT(A) and restore all the issues to the file of AO with the directions similar to the one given by the co-ordinate bench in the above said case. Appeal filed by the assessee is treated as allowed for statistical purposes.

Issues Involved:
1. Addition of Excess Share Premium under Section 56(2)(viib) of the Income-tax Act, 1961.
2. Addition of Excess Share Premium under Section 68 of the Income-tax Act, 1961.
3. Method of Share Valuation (DCF vs. NAV).

Detailed Analysis:

1. Addition of Excess Share Premium under Section 56(2)(viib):
The assessee issued preference shares at a price of ?3,158.39 per share, while the valuation report determined the value at ?3,118.77 per share using the Discounted Free Cash Flow (DCF) method. The Assessing Officer (AO) observed discrepancies in the valuation report, such as incomplete details on EBITDA and lack of documentary evidence for projected cash inflows. Consequently, the AO rejected the DCF method, opting instead for the Net Asset Value (NAV) method, determining the share value at ?2,770.12. The AO assessed the excess share premium on shares issued to resident investors under Section 56(2)(viib).

2. Addition of Excess Share Premium under Section 68:
For shares issued to a foreign entity, M/s Accel India IV (Mauritius) Ltd, the AO assessed the excess share premium under Section 68, citing the assessee's failure to prove the creditworthiness of the foreign investor. The AO's determination was based on the same valuation discrepancies noted previously.

3. Method of Share Valuation (DCF vs. NAV):
The assessee contested the AO's rejection of the DCF method, presenting additional evidence, including a new valuation report from M/s S C Prashanth & Co, which valued the shares at ?3,148.39 per share. The Tribunal admitted these additional evidences in the interest of natural justice. The Tribunal referenced the case of Futura Business Solutions (P) Ltd, where it was held that the AO cannot change the method of valuation adopted by the assessee. The Tribunal cited the Bombay High Court's decision in Vodafone M-Pesa Ltd, which stated that while the AO can scrutinize the valuation report, the basis must remain the DCF method if chosen by the assessee.

Tribunal's Decision:
The Tribunal set aside the order passed by the CIT(A), restoring the issues to the AO with directions to adhere to the DCF method for valuation. The AO is instructed to scrutinize the valuation report and, if necessary, determine a fresh valuation either by himself or through an independent valuer, but the basis must be the DCF method. The AO must consider only the facts and data available at the date of valuation, disregarding future actual results. The primary onus to prove the correctness of the valuation report lies with the assessee.

Conclusion:
The appeal filed by the assessee is allowed for statistical purposes, with the AO directed to reassess the valuation based on the DCF method, ensuring compliance with the guidelines set forth in the cited judicial precedents.

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