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TMI Blog2020 (7) TMI 393X X X X Extracts X X X X X X X X Extracts X X X X ..... el the assessee to adopt another method i.e. book value method - exercise of such option cannot be therefore challenged by the revenue authorities with the same has exercised at first place by the assessee but the AO is undisputedly entitled to scrutinise, verify and examine the valuation report and determine the fresh valuation either by himself or from an independent valuation after confronting the assessee. But at the same time, it is ample clear that the basis has to be the DCF method and it is not open to the revenue to change the method of valuation which has been opted by the assessee. In the instant case, the value adopted and computed by the assessee as per Rule 11UA(2)(c)(b) by following DCF method at ₹ 51/85 and the assessee company has received shares and issued/allotted @ ₹ 50 per share including premium and this rate has not been contested or challenged by the AO and during hearing before him by ld D.R. From a careful reading of the assessment order, clearly observe that the AO merely compelled the assessee to change the valuation method from DCF method to another book value method, which is not permissible as per Rule 11UA(2)(c)(b) and other provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e value including share premium more than ₹ 50 per share but the same was not accepted and the same was rejected at the threshold without any proper consideration. Ld counsel submitted that in para 4.4 of the assessment order, the AO himself noted that calculation placed by the assessee is not as per Rule 11UA(1)(c)(b) of I.T.Rules, 1962 (hereinafter the rules ) but what is the provision as per said rule is not clear. Ld counsel vehemently pointed out that the AO calculated the value per share at ₹ 31.96 which is not correct and justified in accordance with the Rule 11UA(1)(c)(b) of I.T.Rules. 6. Placing reliance on the order of ITAT Jaipur Bench in the case of M/s. Rameshwaram Strong Glass (P) Ltd., vs ITO in ITA No.884/JP/2016 for A.Y. 2013-14 order dated 12.7.2018, ld counsel for the assessee submitted that as per Rule 11UA(1)(c)(b) of I.T.Rules, the assessee has two options to value the shares and premium at fair market value viz; (1) discounted cash flow method or (2) book value method and it is the prerogative of the assessee to opt or chose one out of these two methods for valuing its shares. Further, drawing my attention towards calculation of fair market v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that whether the consideration so received exceeds the fair market value of the shares?. From the assessment order, I observe that the Assessing Officer has made a calculation in para 4.4 of the assessment order determining the fair market value at ₹ 31.96 per share taking the book value of the assets in the balance sheet as on 1.4.2014 but as per Rule 11UA(1)(c)(b) of the Rules, it is the prerogative of the assessee to estimate the fair market value of the shares issued by it adopting one method out of two methods i.e. discounted cash flow method or book value method and after properly exercising his right, the assessee submitted a valuation before the AO showing the valuation of share at ₹ 51.85 per share by valuing discounted cash flow method. The revenue authorities cannot force the assessee to adopt particular method for valuing the fair market value of the share especially when Rule 11UA(1)(c)(b) provides that it is the option of the assessee to chose any method either discounted or book value method for estimating the fair market value of the shares issued by it during the relevant financial period. Therefore, I am not inclined to agree with the action of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. The explanation to section 56(2)(viib) provides that the fair market value of such shares means the value determined in accordance with the method as may be prescribed. The method of valuation has been prescribed in rule 11UA which reads as under: xxx . 16 As it is clear from the above, sub-rule 2 of rule 11UA talks about method of valuation of unquoted equity shares of the assessee company specifically for the purposes of section 56(2)(viib) of the act and the same overrides the general provisions of sub-rule 1 of rule 11UA. In the instant case, the context in which the valuation of the shares have to be determined is in the context of the section 56(2)(viib) of the Act as invoked by the AO and therefore, both the assessee and the revenue are equally guided by the said provisions and there is no discretion with either of the parties in terms of non-applicability of Sub-rule 2 of Rule 11UA. Therefore, we are unable to accede to the contention so raised by the Id DR4 that sub-rule 1 of rule 11UA which provides for determination of fair market value4 of unquoted equity shares as per book value as per formula so specified is applicable in the instant case. Rather, Sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustry in which the assessee operates. 18 .. 19. In light of above discussions and in the entirety of facts and circumstances of the case, the order of the Id CIT(A) is confirmed and the ground taken by the Revenue is dismissed. 4.5.6 We also find that in the case of Vodafone M-Pesa Ltd. vs. PCIT (2018) 92 Taxmann 73 (Bombay) (DPB 79-83), the Hon ble Mumbai High Court in para 9 has observed that 9. .Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee.-------- The AO though observed that the assessee raised loans from the above associate concerns and has converted them into shares application/premium money. However, it has not shown how it will affect the correctness of the valuation claimed. It is not the case of the AO that the shares were allotted to the outsiders non-related persons but the existing amount of the loans from the related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged by the revenue authorities with the same has exercised at first place by the assessee but the AO is undisputedly entitled to scrutinise, verify and examine the valuation report and determine the fresh valuation either by himself or from an independent valuation after confronting the assessee. But at the same time, it is ample clear that the basis has to be the DCF method and it is not open to the revenue to change the method of valuation which has been opted by the assessee. 11. In view of above, in the instant case, the value adopted and computed by the assessee as per Rule 11UA(2)(c)(b) by following DCF method at ₹ 51/85 and the assessee company has received shares and issued/allotted @ ₹ 50 per share including premium and this rate has not been contested or challenged by the AO and during hearing before him by ld D.R. From a careful reading of the assessment order, I clearly observe that the AO merely compelled the assessee to change the valuation method from DCF method to another book value method, which is not permissible as per Rule 11UA(2)(c)(b) and other provisions of the Act. As per the Explanation (a) (ii) to Section 56(2)(viib), speaks about the satisf ..... X X X X Extracts X X X X X X X X Extracts X X X X
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