2020 (12) TMI 1062 - AT - Income Tax

Addition u/s 56(2)(viib) - Appellant has received consideration in excess of fair market value of shares - valuation technique adopted by the valuer - Whether AO was justified in rejecting DCF method followed by the assessee? - HELD THAT - As relying on VBHC Value Homes Pvt. Limited 2020 (6) TMI 318 - ITAT BANGALORE - We are of the opinion that the action of Ld. AO in rejecting use of DCF method is not proper. We also find considerable merit in the argument advanced by Ld. AR that the under DCF, the information to be considered should be as on date of valuation. In the instant case, Ld. AO has erred in comparing estimated projections with the actual audited revenues. See M/S. INNOVITI PAYMENT SOLUTIONS PVT. LTD. 2019 (1) TMI 688 - ITAT BANGALORE We do not approve the approach and the findings of either Ld AO or Ld CIT(A). The decisions relied upon by Ld CIT(DR) are also not relevant. In case of Agro Portfolio 2018 (5) TMI 1088 - ITAT DELHI it was a case of ex-parte assessment. AO directed the appellant to furnish material in support of is valuation applying DCF. In reply there was no compliance by the assessee and therefore left with no other alternative AO completed assessment u/s. 144 applying NAV method. In the present case, as noted by us above, the appellant has not only participated during assessment but also categorically highlighted the errors in factual findings of the Ld AO. In this case the assessee filed a writ before Hon'ble High Court challenging jurisdiction of AO. Decision of Hon'ble Kerala High Court has also been considered in case of VBHC Value (supra). We set aside the matter back to the records of Ld AO for a de novo examination of DCF Valuation adopted by the appellant as per law. The Ld. AO is directed to re-examine the matter afresh.

Summary

Issues Involved:
1. Confirmation of income assessment under section 143(3) of the Income-tax Act, 1961.
2. Addition of INR 247,499,862 under Section 56(2)(viib) of the Act.
3. Rejection of valuation reports and method of share valuation.
4. Comparative analysis of projected and actual revenue.
5. Levy of interest under sections 234A and 234B.
6. Initiation of penalty proceedings under section 271(1)(c).

Detailed Analysis:

1. Confirmation of Income Assessment:
The assessee challenged the order confirming the assessment of income at INR 23,69,90,961 against the returned loss of INR 1,05,08,901. The Tribunal noted that the Assessing Officer (AO) made a cumulative addition of INR 24,74,99,862 by invoking Section 56(2)(viib).

2. Addition under Section 56(2)(viib):
The genesis of the addition arose from the issuance of 1,059,153 equity shares to the holding company, Yatra Online Private Limited (YOPL). The AO doubted the valuation reports prepared using the Discounted Cash Flow (DCF) method and instead used the Net Assets Value (NAV) method, resulting in a negative valuation of shares. The Tribunal emphasized that Section 56(2)(viib) is a deeming provision and must be interpreted literally. The Tribunal rejected the argument that the provision should be interpreted purposively to avoid hardship.

3. Rejection of Valuation Reports:
The AO rejected the DCF method used by the assessee, citing discrepancies and reliance on management-provided projections without due diligence. The Tribunal highlighted that Rule 11UA provides an option to the assessee to choose either the NAV or DCF method. The AO's rejection of the DCF method and substitution with the NAV method was deemed improper. The Tribunal cited various judicial precedents asserting that the AO must adhere to the method chosen by the assessee unless there is a substantial basis for deviation.

4. Comparative Analysis of Projected and Actual Revenue:
The AO compared the projected revenue with actual revenue, finding significant discrepancies. The Tribunal noted that projections are inherently uncertain and should not be strictly compared to actual figures. The Tribunal emphasized that the AO should scrutinize the valuation report but cannot change the chosen method. The Tribunal directed the AO to re-examine the DCF valuation without comparing it to actual figures.

5. Levy of Interest under Sections 234A and 234B:
The Tribunal did not provide a detailed analysis of the interest levied under sections 234A and 234B, focusing primarily on the valuation and addition issues.

6. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal did not specifically address the initiation of penalty proceedings under section 271(1)(c), as the primary focus was on the valuation and addition under Section 56(2)(viib).

Conclusion:
The Tribunal set aside the AO's order rejecting the DCF method and directed a de novo examination of the DCF valuation. The AO was instructed to re-examine the matter, adhering to the chosen method by the assessee and providing a fair opportunity for the assessee to substantiate their case. The appeal was partly allowed for statistical purposes.