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TMI Blog2020 (8) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. (ii) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Hence, he has to satisfy about the correctness of the projections, Discounting factor and Terminal value etc. with the help of Empirical data or industry norm if any and/or Scientific Data, Scientific Method, Scientific study and applicable Guidelines regarding DCF Method of Valuation. The order of ld.CIT(A) is accordingly set aside for deciding the issue afresh after due opportunity of hearing to the Assessee. Appeal is allowed for statistical purpose. - Shri N.V. Vasudevan, Vice Presi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... collected by the assessee is not justified. Since share premium amount collected from resident persons could alone be assessed u/s 56(2)(viib) of the Act, the AO assessed the share premium of ₹ 1,77,77,760/- as the share premium collected from resident shareholders. 6. The Ld. CIT(A), in principle, agreed with the view taken by the AO. However, he noticed that the share premium received from resident shareholders is ₹ 88,88,880/- only and not ₹ 1,77,77,760/- as assessed by the A.O. Accordingly, he confirmed the addition to the extent of ₹ 88,88,880/-. Aggrieved, the assessee has filed this appeal before us. 7. We heard the parties and perused the record. We notice that the A.O. did not examine the valuation report furnished by the assessee in which value of shares has been arrived under DCF method. The question as to whether the A.O. could reject the DCF valuation was examined by the Bengaluru Bench of Tribunal in the case of M/s. Futura Business Solutions Pvt. Ltd. (ITA No.3404/Bang/2018) relating to assessment year 2013- 14 and the matter was restored to the file of the A.O. with the following observations by following decision rendered by another bench of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The tribunal has reproduced part of Para 9 of this judgment but we reproduce herein below full Para 9 of this judgment. 9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. 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. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated 21st Dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reliable future estimate but in case of a start up where no past data is available, this view of us that the projection should be on the basis of reliable future estimate should not be insisted upon because in those cases, the projections may be on the basis of expectations and in such cases, it should be shown that such expectations are reasonable after considering various macro and micro economic factors affecting the business. 14. In nutshell, our conclusions are as under:- (1) The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the assessee. But the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. (2) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. (3) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bombay High Court. The relevant paras of this Tribunal order are already reproduced above which contain the directions given by the Tribunal to the AO in that case. In the present case also, we decide this issue on similar line and restore the matter back to the file of AO for a fresh decision with similar directions. Accordingly, ground No.3 of the assessee's appeal is allowed for statistical purposes. 18. The gist of the conclusion is that the law contemplates invoking provisions of section 56(2)(viib) of the Act only in situations where the shares are issued at a premium and at a value higher than the fair market value. The fair market value contemplated in the provisions above 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) Any other value to the satisfaction of the Assessing Officer .. The law provides that, the fair market value may be determined with such method as may be prescribed or the fair market value can be determined to the satisfaction of the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method. 19. The provisions of Rule 11UA(2)(b) of the Rules provides that, the Assessee can adopt the fair market value as per the above two methods and the choice of method is that of the Assessee. The Tribunal has followed the judgment of Hon'ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd., Vs. Pr. CIT (supra) and has taken the view that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the Assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the Assessee. The decision of ITAT, Delhi in the case of Agro Portfolio Ltd. 171 ITD 74 has also been considered by the ITAT, Bangalore in the case of VBHC Value Homes Pvt.Ltd.(supra). 20. The gist of the findings of the Assessing Officer and the ld. CIT(A) on the alleged discrepancies in the valuation report is as under: 1. Growth rate is taken at 12% year after year 2. WACC has been forecasted at 30% 3. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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