2023 (7) TMI 403 - AT - Income Tax

Addition u/s 56(2)(viib) - issue of shares at premium - Determination of fair market value - DCF v/s NAV method of valuation of shares - unverified data supplied by assessee - DCF method was rejected by the AO after finding discrepancies in the basis of valuation adopting different method of calculation of share in the Fair Market Value - HELD THAT - The assessee has obtained the method for DCF for as calculating the FMV of share. In assessment order without finding any lacuna, the ld. AO has changed the method from DCF to NAV. The very purpose of certification of DCF valuation by a merchant banker or chartered accountant is to ensure that the valuation is fair and reasonable. Such valuation is to be done by an expert of the subject only, which an assessing officer is not expected to be. The said rule provides that such valuation shall be the fair market value for the purpose of this section based on DCF Method. The Rule nowhere permits the AO to make any adjustment therein. AO has rejected the DCF method due to unverified data supplied assessee. But the impugned order is not coming under same factual matrix of the case Agro Portfolio Private Ltd 2018 (5) TMI 1088 - ITAT DELHI - AO was not able to establish about any dispute about the correctness of data as supplied by the assessee to merchant banker. The ld. AO had not taken any technical support related to valuation of the share of assessee in impugned assessment year. The data in valuation is basis of projection which was calculated by the Merchant Banker/ Chartered Accountant. The change of method of valuation is not in accordance with the relevant provisions of the Act and the Rules stated above. Accordingly, we uphold the findings of the ld. CIT(A) and set aside the addition made by the ld. AO. Accordingly, grounds taken by the revenue in this respect are dismissed.

Summary

Issues Involved:
1. Deletion of addition made under Section 56(2)(viib) of the Income Tax Act.
2. Adoption of the Discounted Cash Flow (DCF) method for share valuation.
3. Allowance of deduction on account of interest on delayed payment of TDS/TCS.
4. Disallowance of depreciation claimed on trucks in excess of 15%.

Summary:

1. Deletion of Addition under Section 56(2)(viib):
The revenue challenged the deletion of an addition of Rs. 3,38,60,465/- made under Section 56(2)(viib) by the CIT(A). The AO had rejected the DCF method adopted by the assessee for share valuation and instead used the Net Asset Value (NAV) method, citing discrepancies in the EBITDA projections. The Tribunal upheld the CIT(A)'s decision, stating that the assessee is entitled to choose the method of valuation as per Rule 11UA(2) of the Income Tax Rules. The Tribunal noted that the AO did not find any substantial discrepancies in the data provided by the assessee and that the DCF method is a recognized method of valuation.

2. Adoption of DCF Method:
The Tribunal emphasized that the law allows the assessee to adopt either the NAV or DCF method for share valuation. The DCF method was supported by a valuation report from a Chartered Accountant, and the AO was not justified in changing the method of valuation. The Tribunal cited cases like Principal Commissioner of Income Tax vs. Cinestaan Entertainment (P) Ltd. and Vodafone M-Pesa Ltd. vs PCIT, which support the assessee's right to choose the valuation method.

3. Interest on Delayed Payment of TDS/TCS:
The revenue argued that the CIT(A) erred in allowing a deduction of Rs. 2,38,149/- on account of interest on delayed payment of TDS/TCS. The Tribunal agreed with the revenue, referencing the Supreme Court decision in Bharat Commercial & Industries Ltd., which held that interest on delayed payment of income tax is not an allowable expenditure under Section 37(1) of the Act. Thus, this ground was allowed in favor of the revenue.

4. Depreciation on Trucks:
The AO had disallowed Rs. 5,28,924/- claimed as depreciation on trucks in excess of 15%, restricting it to 15%. The CIT(A) sustained this disallowance, and the Tribunal upheld the CIT(A)'s decision. This issue was not contested further by the assessee.

Conclusion:
The Tribunal dismissed the revenue's appeal on grounds (i) to (iii) concerning the addition under Section 56(2)(viib) and the adoption of the DCF method but allowed the appeal on ground (iv) regarding the interest on delayed payment of TDS/TCS. The appeal was thus partly allowed.