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TMI Blog2021 (11) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... t of opinion among the technical experts, but the necessary corollary thereof doesn t necessarily mean than the valuation so determined doesn t stand on sound foundation in terms of data and methodology and the fair market value and issue of shares is not supported by the valuation report. We agree with the contention advanced by the ld A/R that even where there is a technical breach in terms of obtaining and submitting the valuation report from an associate member of ICAI as against fellow member of ICAI; and even taking into consideration report of the merchant banker, the position will remain the same and the provisions of section 56(2)(viib) continues to remain inapplicable and thus, the order passed by the Assessing officer cannot be held as prejudicial to the interest of Revenue which is an essential condition for invocation of jurisdiction u/s 263 - Decided in favour of assessee. - ITA No. 11/JP/2021 - - - Dated:- 1-11-2021 - Shri Sandeep Gosain, JM And Shri Vikram Singh Yadav, AM For the Assessee : Sh. Sanjeev Jain (CA) For the Revenue : Sh. B. K. Gupta (Pr. CIT) ORDER PER: VIKRAM SINGH YADAV, A.M. This is an appeal filed by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs and as per the valuation report, fair market value of shares of the company as at 31.03.2016 was ₹ 215/- The ld PCIT however setaside/ cancelled the assessment and restored the matter back to the file of AO with the director to pass fresh assessment order. It was submitted that against the said order and findings of ld PCIT, the assessee is in appeal before the Tribunal. 5. It was submitted by the ld A/R that the assessee has been given the option under Rule 11UA(2) to opt for valuation of shares as per the method of its choice and accordingly it chose Discounted free cash flow Method and submitted valuation report obtained from a Chartered Accountant in Practice based on certain figures. There was a technical mistake in obtaining the report. The report was obtained from an Associate Member of the ICAI as against the Fellow Member as prescribed under Rule 11U. However, the report submitted by the assessee at the time of assessment was never rejected or questioned by the AO. The assessee duly submitted the valuation report however due to technical mistake on the part of the assessee, it has received the notice u/s 263. Here it should be noted that the technical mistak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y both persons is nearly similar. 9. It was submitted that the assessee company issued shares at a price which is much lower than the price worked out by both the persons as is explained in the below mentioned table : Particulars Amount Valuation of shares as per the valuation report submitted by the assessee at the time of assessment to the Assessing authority. 250.00 Valuation of shares as per the Valuation report prepared by the Merchant Banker. 219.00 Share valuation taken by the Assessee at the time of issue of shares issued on valuation. 200.00 10. It was submitted that there was no loss of revenue to the Department and the order passed by the Assessing officer was not prejudicial to the interest of the revenue by accepting the valuation of shares done by the Company @ 200/- while issuing shares. 11. It was submitted that in the case of Malabar Industrial Co. Ltd. Vs. Commissioner of Income Tax [2000] 109 TAXMAN 66 (SC), it was held by the Hon ble Supreme Court that in order to inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd, during the proceedings u/s 263 vide submission dated 10.12.2020, the fair value of equity share has been taken at ₹ 219.50 as per share. Thus, it is seen that there is wide variations as regard the value of shares, furnished by the assessee company during the course of assessment proceedings and vide submission dated 10.12.2020, especially in view of the fact that the Merchant Banker in the Note mentioned on page No. 12 (annexure-2), has specifically mentioned that we have used the same data which has been provided by the company to Chirag Parakh for preparation of valuation report) . 7. In view of the above, the creditability of the Fair Market Value of the shares furnished by the assessee company becomes doubtful and the same cannot be accepted as such. Further, the assessee company has failed to comply with the statutory requirement as regards valuation of shares, as per the Income Tax Act and Rules. 8. Thus, it is useful to refer to the Explanation-2 below section 263(1) inserted w.e.f. 01.06.2015 by Finance Act, 2015, which provides that: Explanation 2. - For the purpose of this section, it is hereby declared that an order passed by the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of revisionary proceedings, the ld PCIT pointed out that the valuation report has been obtained from an associate member of ICAI as against fellow member of ICAI as prescribed under Rule 11UA(2). The assessee thereafter obtained and submitted a report from a merchant banker who is equally qualified to issue such valuation report under Rule 11UA(2) and who has determined the fair market value of the shares at ₹ 219.50 per shares which is still higher the value at which the shares were issued by the assessee company. Thus, even where the report of the merchant banker is considered, the provisions of section 56(2)(viib) continues to remain inapplicable. Further, there is no adverse finding recorded by the ld PCIT and no dispute which has been raised regarding the discounted cash flow method of valuation and the methodology adopted in both the valuation reports. Though there is a variation in valuation so determined in two reports on account of certain underlying assumption regarding illiquidity ratio, as highlighted by the ld A/R, there can always be a different of opinion among the technical experts, but the necessary corollary thereof doesn t necessarily mean than t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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