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TMI Blog2019 (6) TMI 925X X X X Extracts X X X X X X X X Extracts X X X X ..... nishing the data from the Assessee at any point of time. Thus, they have not given any opportunity to the assessee to further clarify the projected cash flows. It is agreed that valuation is not mechanical process but, determined from market trends and other factors and after considering them, the valuer can determine the value of share. Even if the said is doubted, the AO should have given proper opportunity to the assessee for allowing the assessee to clarify the aspects of the valuation of the projected cash flow, which the AO failed to do so as well as the CIT(A) also did not take into account the submissions made by the Assessee. Thus, it will be appropriate to remand back all the issues contested herein to the file of the Assessing Officer with a direction to decide the same afresh - appeal of the assessee is partly allowed for statistical purpose. - ITA No. 7505/DEL/2018 - - - Dated:- 18-6-2019 - Shri R. K. Panda, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Ajay Wadhwa, Adv, Ms. Aushi Gupta, CA For the Respondent : Smt. Sulekha Verma, CIT(DR) ORDER PER SUCH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. CIT (A) failed to appreciate that it did not matter whether the shares were issued to the holding company at par or at premium since the entire money received by the appellant was from its holding company, which had in turn received the money from the directors. 7. The CIT(A) has erred in law and on facts in holding that the issue of shares does not constitute a right issue as the shares were not offered on a proportionate basis to the existing shareholders. Therefore, according to the CIT(A) the ratio of the Bombay Tribunal in the case of Sudhir Menon HUF Vs. ACIT(2014) 45 taxmann.com 176 is not applicable. 8. The AO/CIT(A) has also erred in applying the explanation to the section 56(2)(viib) of the Act, which is as under- (a) the fair market value of the shares shall be the value- (i) as may be determined in accordance with such method as may be prescribed; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprise thus worked out, loans have been deducted to arrive at the equity value of the company. However, a perusal of the account of the assessee and computation of income for the year under consideration reveals that the assessee has been consistently reported heavy losses. A significant cost in respect of the property was the interest expenses on capital borrowed for construction which, for the year under consideration was ₹ 3.83 crores, if such interest is considered, the net cash flows from property becomes negative. The cash flows projected by the assessee company are also found to be completely at variance with the projection used for DCF method. The Assessing Officer further observed that the valuation done by the accountants suffers from the defect that it does not take into account the significant financial outflow on account of interest on capital borrowed for construction of the property. If such cost were considered there would be net cash out flow and valuation would realistically reflect the perpetual losses being reported by the assessee. The assessee was asked to explain why such interest expenses were not taken into account for calculation of equity value. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accountants Act, 1949 A CA in practice is deemed to be guilty of professional misconduct if he permits his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast. Further as per SRE-3400, The Examination of Prospective Financial Information issued by the Institute of Chartered Accountants of India - provides that the management is responsible for the preparation and presentation of the prospective financial information, including the identification and disclosure of the sources of information, the basis of forecasts and the underlying assumptions. The auditor may be asked to examine and report on the prospective financial information to enhance its credibility, whether it is intended for use by third parties or for internal purpose. Thus, while making report on projection, the auditor need to mention that his responsibility is to examine the evidence supporting the assumptions and other information in the prospective financial information, his responsibility does not include verification of the accuracy of the projections, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of shares, projections are based on the credible data. The valuer had reduced the entire amount of loan from the enterprise value to arrive at the value of equity shareholders as per the requirement of the method as prescribed in the International Standards and guidelines issued by the ICAI. Neither the valuer nor the management had stated anywhere that the loans have been paid off, but the method was to arrive at the value of equity by reducing the loans. It was an assumption that the cash flows will generate infinitely. Estimation of stable growth rate till perpetuity is of great significance. Ideally perpetuity growth rate should not be more than the expected economic growth rate. Growth rate has been assumed by the valuer after analysing the industry growth rate, (growth rate was determined after analysing the reports published by the Indian Brand Equity Foundation). Various factors and published data have been considered for determining the growth rate for calculating the terminal value. Valuer had after considering the various reports and the industry growth rate conservatively taken 5%. The projection of the occupancy and rentals were based o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... res were taken as per the redemption terms. And Repayment of incorporate loans were taken at the 5th year. Reason for the spiked up figure of repayment in second year was the redemption of the debentures as per the terms of redemption. Loans were reduced on the date of valuation by the valuer to calculate the NPV. The valuer had applied the method to arrive at the NPV as required by the Assessing Officer. Sources were not required to explain to apply the method. Same as given in point No. 3 of assessee s contention before the CIT(A). The CIT(A) has erred in stating that no clarification letter was produced/ furnished before him/ Assessing Officer. The letter dated 16.12.2016 was furnished before the Assessing Officer and again before the CIT(A) vide submissions dated 07.07.2017.During the course of assessment or appellate proceedings the Assessing Officer and the CIT(A) did not asked any further clarification or document and the assessee was of the view that they were satisfied with the clarification given. The allegation of the CIT(A) that the assessee did not furnish such clarification or the documents referred therein is not factually correct. (A) Extract of the certificate - re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver examine the material used. In the judgment of Supreme Court referred in Para 9.1, conclusion was based on the material - whether the material was relevant or not. Thus, the Ld. AR submitted that the Assessing Officer has not only a right but he is also duty bound to examine the valuation report evaluate it and record his findings on the same. Such finding should be based on relevant material and rational view taken in a judicious manner. The CIT(A) never examined the material. 8. The Ld. AR submitted that Section 56(2( (viib) does not apply in the cases where right shares were issued by the assessee. The assessee had offered the right shares to the existing shareholders of the company proportionate to the existing shareholding of the shareholders. M/s Primeland Real Estate Pvt. Ltd.(Holding Company) had subscribed the right issue to the extent of the 7,00,000/- shares and permitted the appellant company to offer its remaining shares to the other existing shareholders of the company, if the board desired to offer them to another shareholders. The board of the assessee company had decided to allot the remaining shares to M/s Eureka Ventures as it had subscribed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e law the valuation made by the expert can only be disputed based on the valuation report made by another expert and therefore, the valuation made by the CIT(A) presuming himself being an expert in the field of valuation was not in accordance with the law. The Assessing Officer as well as the CIT(A) both certainly could not understand the valuation method prescribed under the rule 11UA(2)(b) i.e. DCF method and found out various discrepancies in the valuation report submitted by the assessee which was made by an expert , Chartered Accountant. In fact, the CIT(A) considered himself an expert and made his own valuation which was not as per the valuation method prescribed under the Act. The Ld. AR relied upon the following decisions: Rameshwaram Strong Glass (P) Ltd. Vs. Income-tax Officer [2018] (96 taxmann.com542) Assistant Commissioner of Income-tax, Mumbai Vs. Koch Chemical Technology Group(India) Ltd. (2015) (64 taxmann.com 464) Smt. Suman Goelvs. Income Tax Officer [2013] (1SOT 127) M/s Ozoneland Agro Pvt. Ltd. [ITA No. 4854/Mum/2016} 9. The Ld. DR relied upon the Assessment Order and the order of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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