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TMI Blog2023 (10) TMI 85X X X X Extracts X X X X X X X X Extracts X X X X ..... wn in case of M/s. Agro Portfolio Pvt. Ltd. vs. ITO [ 2018 (5) TMI 1088 - ITAT DELHI] . The order passed by the authorities below is found to be without any ambiguity and thus, upheld. The assessee s appeal is therefore found to be devoid of any merit and therefore dismissed. - Shri Chandra Poojari, Accountant Member And Ms. Madhumita Roy, Judicial Member For the Assessee : Shri Padam Chand Khincha, CA For the Revenue : Shri V. Parithivel, JCIT (DR) ORDER PER MADHUMITA ROY, JUDICIAL MEMBER The instant appeal filed by the assessee is directed against the order dated 11.05.2023 passed by the National Faceless Appeal Centre (NFAC), Delhi arising out of the order dated 29.12.2018 passed by the ITO, Ward No. 4(1)(4), Bangalore u/s. 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for A.Y. 2016-17 whereby and whereunder the addition of Rs. 1,04,50,000/- u/s. 56(2)(viib) of the Act made by the Ld.AO holding the share premium received by the appellant company is in excess of fair market value of the share has been confirmed. 2. The brief fact leading to the case is this that the appellant company engaged in providing software develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature or as per the provisions of Rule 11UA(2), which so ever is higher. Since the assessee has failed to substantiate the market value of shares, the provisions of Rule I 1UA(2) are attracted which reads as under:- Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause(i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely: - the fair market value of unquoted equity 1. Shares = (A-L) x (PV) (PE) where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmitted. Or the valuer adopted a demonstrably wrong approach or a fundamental error going to the root of the matter. In this case, the fundamentals of the Company adopted by the valuer is found to be highly inflated in comparison to the actual revenue in last 3 years. Hence, the value of the share adopted is highly inflated and it does not reflect the true state of affair of the company. 2.8. In a recent judgment dated 23/07/2018 in the case of M/s.Fidelity Business Services India (P) Ltd. .Vs. ACIT reported in 95 Taxmann.Com.253, the Hon'ble High Court of Karnataka has held that the Tribunal was perfectly justified in directing an enquiry into the FMV of shares of the assessee Company which could have an implication of taxability U/s.2(22) of the IT Act. Hence, the Hon'ble High Court of Karnataka has agreed to held enquiry into the FMV of the Share and conclusion drawn by the valuer can not be a sacrosanct figure, which can not be examined by the AO. 2.9. Further, the Hon'ble ITAT, New Delhi in the case of M/s. Agro Portfolio Pvt. Ltd has held that in the absence of correctness of the result of DCF method, left no option to the AO but to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Discounted Cash Flows (8,02,395) 27,43,771 35,34,096 45,66,719 64,86,250 No. of shares after conversion 12.840 Particulars Amount (Rs.) Cash Profit in 2019-20 98,96,617 Perpetuity Cash Flow After 5 years 19,04,25,736 Discounted Value of Perpetual Cash Flow 12,48,05,166 SUM of Discounted Cash Flows 1,65,28,441 Present Value of Business 14,13,33,606 Perpetuity value of share 11,007 Terminal Cashflow (Net Profit after tax Depreciation) *Growth Cost of Equity Growth rate 2.11. The valuation is based on the perpetuity value of PBDIT of the year 2019-20 of Rs. 91,19,017/-. On an analysis of the Table in Annexure-1 above, it is observed that the projections and the actual results achieved by the company b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference share at Rs. 1000/- per share should have been received by the company and the share premium to the tune of Rs. 1,04,50,000/- from Mr. Rathan Kumar to whom the said preference share was allotted was found to be in excess of FMV of the share and thus added to the total income of the assessee, which was inturn, confirmed by the First Appellate Authority. Hence the instant appeal before us. 5. At the time of hearing the instant matter, the Ld.Sr. Counsel Shri Padam Chand Khincha submitted before us that the authorities below has failed to appreciate that the shares under consideration are preference shares and not equity shares. Neither the addition u/s. 56(2)(viib) is applicable particularly when the share issued at a price lesser than the value determined as per Discounted Cash Flow method. According to him, the determination of the FMV of the preference share can be done applying Rule 11 UA (1)(c)(c). Further that the rejection of the certificate issued by the CA determining the share value as an independent professional as per the provision of law is bad in law. It was further argued by him that no addition can be made u/s. 56(2)(viib) without first determining the FMV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of preferential share has been determined by the CA. While rejecting the case of the appellant, the Hon ble Delhi Bench has been pleased to observe as follows: 14. Even before the Ld.CIT(A) also, as recorded by the Ld. CIT(A) the assessee did not produce any evidence to substantiate the basis of projections in cash flow but relied on the valuer's report vehemently contending that such a report cannot be disturbed by the Ld. AO. At no point of time tried to explain where did the Ld. AO went wrong in his comments on the figures reflected in the above valuation report of the expert. 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 the Rules the Ld. AO had no jurisdiction to adopt a different method than the one adopted by the assessee, and if for any reason the AO has any doubt recording such valuation report and does not agree with the same is bound to make a reference to the Income tax Department Valuation Officer to determine the fair market value of such capital asset. This is so because unless and until the assessee produces the evidences ..... X X X X Extracts X X X X X X X X Extracts X X X X
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