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TMI Blog2024 (8) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... an scrutinize the contents or working of the method adopted by the assessee so as to find out the fair valuation. In case, the AO is not satisfied with the working of the assessee, then the AO may draw fresh valuation or get fresh valuation report from independent valuer, but such fresh valuation can only be done as per the method adopted by the assessee as in the present case assessee adopted DCF method. As such the AO cannot change the method from DCF to NAV method. AO has exceeded his jurisdiction by rejecting the method adopted by the assessee and brought another method for valuing the shares of the company. The action of the AO by substituting the method for the valuation of shares which was subsequently upheld by the learned CIT(A) is contrary to the provisions of law and therefore the same is not sustainable. There was a transaction between the independent parties namely Delivery Hero and ANI Technology for transfer of the shares of the assessee company at a price of ₹ 13.94 per share. The Delivery Hero is a foreign company which transferred equity share to a resident company i.e. ANI Technology. The value of the share i.e. Rs. 13.94 per share was accepted under the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r share having a face value of Rs. 10 per share. 3. After the transfer of the shares as discussed above, the assessee company issued 14,66,02,662 shares to ANI Technologies Pvt. Ltd., at Rs. 13.94 inclusive of a face value of Rs. 10 and share premium of Rs. 3.94 per share. The assessee accordingly received share capital and share premium from ANI Technologies Pvt. Ltd., for a sum of Rs. 57,76,14,488/- and Rs. 1,46,60,26,600/- aggregating to Rs. 2,04,36,41,108/- only. 4. However, the AO during the assessment proceedings observed that the assessee has been incurring losses from assessment years 2013-14 to 2019-20 persistently whereas there has been huge growth in the turnover and profit in the project report. Moreover, there was a disclaimer given by the valuer in the project report that they have not carried out due diligence procedures on the financial statements but prepared the project report based on the information as submitted by the assessee. As such, the valuer has relied upon the information submitted by the management of the assessee company. 5. In such circumstances, the AO was of the view that the valuation has been done by the valuer to achieve the desired valuation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provisions of sec. 56(2)(viib) of the Act mandates to bring the amount of premium to the tax under the deeming provisions if it is charged more than the fair market value. Therefore, only the amount of share premium exceeding the share market value should only to be considered for the purpose of addition as provided under the deeming provisions of sec. 56(2)((viib) of the Act. However, the AO disagreed with the submission of the assessee on the reasoning that the projections can be made only after considering the historical data, which is more reliable. As such, the assessee has been incurring losses consistently and, therefore, the projections made by the valuer are not reliable. 11. According to the AO, the assessee has not registered with a startup company and, there was also no investment from venture capitalist, therefore, the assessee company does not fall under the exception of the startup companies. The provisions of sec. 56(2)(viib) of the Act are without any ambiguity, whereas the speech of the Finance Minister was in general context and, therefore, the speech cannot referred. Thus, the AO rejected the claim of the assessee and treated the share capital issued mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal before us. 17. The ld. AR before us filed a paper book running from pages 1 to 497 and contended that the AO has exceeded jurisdiction by challenging the method adopted by the assessee i.e. valuation of shares from DCF to NAV method. 18. As per the ld. AR, the valuation of the shares made by the assessee was accepted under the Companies Act/ FEMA and RBI. It was also submitted that while valuing the shares under DCF method the future prospect/ growth is considered, which has been done in the instant case after referring to the data of comparable companies. Accordingly, the ld. AR prayed before us that no addition is warranted in the given facts and circumstances under the provisions of sec. 56(viib) of the Act. 19. On the other hand, the ld. DR vehemently supported the order of the authorities below. 20. We have heard the rival contentions of both the parties and perused the materials available on record. In the present case, the assessee company was the wholly owned subsidiary of Delivery Hero and during the year the assessee company was taken over by ANI Technologies. After takeover by ANI Technology, the assessee company has issued fresh 14,66,02,662 shares to the company na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the method provided under clause (a) or clause (b) is available with assessee. Admittedly, the method adopted by the assessee i.e. DCF method for determining fair market value was one of the methods prescribed under the provisions of section 56(2)(viib) read with income tax rule 11UA of Income Tax Rule. The AO cannot interfere in the method selected for the valuation of the shares. However, the AO can scrutinize the contents or working of the method adopted by the assessee so as to find out the fair valuation. In case, the AO is not satisfied with the working of the assessee, then the AO may draw fresh valuation or get fresh valuation report from independent valuer, but such fresh valuation can only be done as per the method adopted by the assessee as in the present case assessee adopted DCF method. As such the AO cannot change the method from DCF to NAV method. In holding so, we draw support and guidance from the judgment of Hon ble Bombay High Court in the case of Vodafone M-Pesa Ltd. v. Pr. CIT [2018] 92 taxmann.com 73/256 Taxman 240 where it was held as under: 9. We note that, the Commissioner of Income-Tax in the impugned order dated 23rd February, 2018 does not deal with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eport 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. 20.4 Thus, we are of the view that the AO has exceeded his jurisdiction by rejecting the method adopted by the assessee and brought another method for valuing the shares of the company. In view of the above we hold that the action of the AO by substituting the method for the valuation of shares which was subsequently upheld by the learned CIT(A) is contrary to the provisions of law and therefore the same is not sustainable. 20.5 In addition to the above, it is very pertinent to note that there was a transaction between the independent parties namely Delivery Hero and ANI Technology for transfer of the shares of the assessee company at a price of ₹ 13.94 per share. The Delivery Hero is a foreign company which transferred equity share to a resident company i.e. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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