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TMI Blog2020 (10) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... uded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (i) ..... (viia)...... (viib) where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares: Provided that this clause shall not apply where the consideration for issue of shares is received- (i) by a venture capital undertaking from a venture capital company or a venture capital fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf. Explanation.-For the purposes of this clause,- (a) the fair market value of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.4.2013 and therefore those provisions were not applicable. This plea was rejected by the AO by observing that though the Assessee received of major portion of consideration for shares in the previous year relevant to AY 2012-13, the sum so received was in the nature of Share Application Money pending allotment and the issue of shares was the relevant point of time for application of the provisions of Sec.56(2)(viib) of the Act. The shares were allotted in the previous year relevant to AY 2013-14 and therefore the provisions of Sec.56(2)(viib) were applicable to the case of the Assessee. The CIT(A) concurred with the view of the AO. We are in agreement with the view of the revenue authorities on this aspect. We find that though the expression used in Sec.56(2)(viib) of the Act is "where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration", those words are followed by the words "for issue of shares". The relevant point of time at which consideration received as "share application money pending allotment" becomes "consideration for issue of shares", when shares are allo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee. The AO held that the basis of working of the value of shares under the DCF method was details and workings provided by the Assessee as per the whims and fancy of the management to arrive at higher value to issue shares at a huge premium. For these reasons, the AO rejected the valuation report prepared as per DCT method and proceeded to value shares as per the book value method and ultimately held that a sum of Rs. 86,09,018 was consideration received in excess of FMV of shares and brought the said sum to tax u/s.56(2)(viib) of the Act. 7. On appeal by the Assessee, the first appellate authority viz., the ld.CIT(A) held that the Assessing Officer is well within his powers to disturb the valuation of the chartered accountant furnished by the Assessee substantiating the fair market value. The ld. CIT(A) also relied on the decision of ITAT, Delhi in the case of Agro Portfolio (P) Ltd Vs Income Tax Officer, Ward-1(4), New Delhi (2018) 94 Taxmann.com 112 (Delhi-Trib), wherein it was held as follows:- "15. In these circumstances, we are unable to accept the contentions of the assessee that in view of the provisions under section 56(2)(viib) of the Act read with Rule 11UA(2) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A), the Assessee is in appeal before the Tribunal. 9. With regard to the correctness of DCF method adopted by the Assessee for valuing shares and the procedure to be followed when such method of valuation is not accepted by the AO the ld. counsel for the Assessee has drawn our attention of the ITAT, Bangalore Bench in the case of VBHC Value Homes Pvt. Ltd., Vs ITO in ITA No.2541/Bang/2019 order dated 12-06-2020, the Tribunal after relying on the decision of the Hon'ble Bombay High Court in the case of Vodafone M-Pesa Ltd Vs Pr.CIT 164 DTR 257 and decision of the ITAT, Bangalore Bench in the case of Innoviti Payment Solutions Pvt. Ltd., Vs ITO(2019) 102 Taxmann.com 59 held as follows:- "9. We have considered the rival submissions. First of all, we reproduce paras 11 to 14 from the Tribunal order cited by learned AR of the assessee having been rendered in the case of Innoviti Payment Solutions Pvt. Ltd., Vs. ITO (supra). These paras are as follows: "11. As per various tribunal orders cited by the learned AR of the assessee, it was held that as per Rule 11UA (2), the assessee can opt for DCF method and if the assessee has so opted for DCF method, the AO cannot discard the sam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by him. In fact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need to be stayed." 12. As per above Para of this judgment of Hon'ble Bombay High Court, it was held that the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a final 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. Hence, in our considered opinion, in the present case, when the guidance of Hon'ble Bombay high Court is available, we should follow this judgment of Hon'ble Bombay High Court in preference to various tribunal orders cited by both sides and therefore, we are not required to examine and consider these tribunal orders. Respectfully following this judgment of Hon'ble Bombay High Court, we set aside the order of CIT (A) and restore the matter to AO for a fresh decision in the light of this judgment of Hon'ble Bombay High Court. The AO should scrutinize the valuation report and he should determine a fresh valuatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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." 10. From the paras reproduced above, it is seen that in this case, 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). The Tribunal has noted that as per the judgment of Hon'ble Bombay High Court, it was held that 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 Tribunal has followed the judgment of Hon'ble Bombay High Court and disregarded various other Tribunal orders against the assessee which were available at that point of time. In the present case also, we prefer to follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer does not have a choice to dispute the justification. The methods of valuation are prescribed in Rule 11UA(2) of the Rules. 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 i.e., either DCF method or fair market value of the unquoted equity shares determined by a merchant banker. 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). 12. In view of the above legal position, we are of view that the issue with regard to valuation has to be decided afresh by the AO on the lin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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