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TMI Blog2024 (6) TMI 465X X X X Extracts X X X X X X X X Extracts X X X X ..... lex issue for which the AO has limited authority to tinker the valuation of methodology applied. As we observed at beginning, it being statutory evidence is required to be given presumption of correctness under law as prepared by an expert. It cannot be assailed unless it is shown that valuation was made on the fundamentally erroneous basis or apparent mistake is pointed out and demonstrated. Resting an additional onus of proof on the assessee, apart from tendering the valuation report to substantiate the report also, cannot be sustained. In the case at hand, where the CIT(A) has co-terminus power to examine the issue threadbare, and after admitting the additional evidences, has drawn the conclusion, that the valuation report as submitted was good enough to explain the valuation, the grounds as raised by the revenue have no substance. Consequently appeal of the Revenue is dismissed. - Shri GS Pannu, Vice President And Shri Anubhav Sharma, Judicial Member For the Revenue : Shri Amit Katoch, Sr. Dr For the Assessee : Shri Salil Kapoor, Adv. And Shri Utkarsh Kumar Gupta, Adv. ORDER PER ANUBHAV SHARMA, JM This appeal has been preferred by the Revenue against the order dated 08.07.202 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in law in deleting the addition of Rs. 2,21,50,906/- u/s 56(2)(viib) of the I.T Act made by AO as assessee was unable to furnish the valuation report supporting his method adopted for determining the value of preference shares. 2. Whether in law and on facts of the case the order of the Ld. CIT(A) is erroneous and not tenable in law and on facts. (a) The Ld. Commissioner of Income Tax (Appeals) is erroneous and not tenable in law and on facts. (b) The appellant craves leave to add, amend any/all the grounds of appeal before or during the course of hearing of the appeal. 4. Heard and perused the records. 5. On appreciating the order of CIT(A), it can be seen that CIT(A) has deleted the addition by following conclusion: 5.7 On the basis of above facts, law and legal precedents on the issue, it is observed that (i) There is no allegation of introduction of any unaccounted money through shell companies for subscribing to the NCRPS of the appellant company. (ii) As per Rule 11UA, the prescribed methodology of determination of the Fair Market Value (FMV) of preference shares is not the same as that of the equity shares. (iii) The AO had given SCN for addition u/s 68A, but later chos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the formula for determining future discounted cash flows or even the method used by the AO. Further, as discussed above, the AO had not given any alternate rate or arranged an alternate report to negate the discounting rate used by the independent chartered accountant in DDVM. In my opinion the DDVM is appropriate methodology for valuating redeemable preference shares, wherein the amount of cash flow, period of cash flow and terminal value is known with reasonable certainty. Even in a stable cash flow company, this method gives reasonably valuations of business and equity shares. However, in companies with unstable cash flows, high fluctuations in profits, high growth companies having very high future cash flows, the Net asset Value may be better indication of valuation of equity shares. Further many tribunals, on the issue of valuation of equity shares as per Rule 11UA, had held that the method of valuation used is the choice of the appellant and cannot be changed by AO, without bringing credible material issues in the valuation method used. In these facts circumstances of the case, it is held that the contention of the AO to determine the valuation of NCRPS on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord in the form of additional evidence available at pages 15-17 of the Paper Book, it comes up that the AO has questioned the Dividend Discount Valuation Model (DDVM) which has used discount factor of 7.67% to arrive at the valuation. The AO submitted that assessee has failed to substantiate the discount figure and supporting documents for DDVM. On behalf of assessee following explanation was given below: The Expert has adopted the dividend discount model for valuation of preference share which is the most accepted method for such shares. The dividend discount model tells us how much we should pay for a stock for a given required rate of return. The report of valuation has already been furnished before your Honour through the Learned First Appellate authority. The Rule 11UA of the Income Tax Rules which specifically deal with the valuation of various kinds of shares, in relation to valuation of preference shares provides for as under - The fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of estimated cost of equity in WACC is the area of expert domain. For this reason only, the Rule 11UA mentions that the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. The appellant had submitted the valuation report of an independent accountant. In case the AO had any doubts with regard to any presumptions/estimates used in this report, it could have summoned the Independent accountant (valuer) and recorded his statement on these issues. The appellant is not competent to answer on the methodology and values used by the independent chartered accountant engaged as expert for preparing this report. This report has not been prepared by appellant and no evidences are in its possession on any parameters used by the expert in his report. The AO had not pointed any defects in the standard methodology of preparation of this report. The AO had not brought any other report from another prescribed valuer to negate any element of this report. The AO had not even estimated the discounting rate, which in her opinion would be appropriate in this case. In these facts circumstances, it is held that the AO had raised this objection witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ethodology applied. As we observed at beginning, it being statutory evidence is required to be given presumption of correctness under law as prepared by an expert. It cannot be assailed unless it is shown that valuation was made on the fundamentally erroneous basis or apparent mistake is pointed out and demonstrated. Resting an additional onus of proof on the assessee, apart from tendering the valuation report to substantiate the report also, cannot be sustained. As for this proposition of law, we rely upon following decisions as relied by assessee also:- i. Miheer H. Mafatlal v. Mafatlal Industries Ltd. ( AIR 1997 SC 506) ii. Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018- TIOL1358-ITAT-Jaipur] iii. G. L. Sultania and Anr. Vs. SEBI (AIR 2007 SC 2172) iv. ITO v. SBS Properties Finvest Pvt. Ltd. (ITA 278 and 2164/Del/2008) v. Duncans Industries Ltd. v. State of U.P. and Ors. 2000 ECR 19 (SC) vi. Securities Exchange Board of India Ors. [2015 ABR 291- (Bombay HC)] vii. DQ (International ) Ltd. vs. ACIT (ITA 151/Hyd/ 2015) viii. RenukaDatla (Mrs. ) v. Solvay Pharmaceuticals B.V. and ors. [2004] 265 ITR 435 (SC) ix. CIT Vs VVA Hotels Private Limited (Madras High Court) T.C.A. No. 670 o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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