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TMI Blog2024 (9) TMI 1130X X X X Extracts X X X X X X X X Extracts X X X X ..... MI 1508 - ITAT DELHI] and remit the matter to the desk of the AO who shall proceed to undertake a valuation afresh bearing in mind the provisions made in Section 56(2)(viib) and ensuring that while the DCF Method is adhered to, if in case the data which has been provided by the respondent assessee is found to warrant further examination, it would be open to the AO to enlist the services of an appropriate valuer. - HON'BLE MR. JUSTICE YASHWANT VARMA AND HON'BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV For the Appellant: Mr. Prashant Meharchandani, SSC with Mr. Akshat Singh, Ms. Ritika Vohra, Mr. Utkarsh Kandpal, Advs For the Respondent: Mr. Ved Jain, Mr. Nischay Kantoor, Ms. Soniya Dudeja, Advs ORDER 1. We had upon hearing learned counsels appearing for respective sides passed the following order on 05 February 2024:- xxxxxx xxxxxxx xxxxxx 4. The ITAT has, in our considered opinion, rightly come to conclude that actual figures could not have been taken into consideration for the purposes of Section 56(2)(viiib) of the Act. We find that the aforesaid position would also flow from the judgment of this Court in Pr.CIT vs. Cinestaan Entertainment Pvt. Ltd. [2021:DHC:780-DB] where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... method or valuation albeit has simply rejected the valuation of the assessee. 33. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer . There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Where as in a DCF met ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups. iii) DQ(International) Ltd. vs. ACIT (ITA 151/Hyd/2015) 10. In our considered view, for valuation or an intangible asset only the future projections along can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed . 34. The aforesaid ratios clearly endorsed our view as above. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 35. There is another very important angle to view such cases, is that, here the shares have not been subscribed by any sister conc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue . There is no dispute that methodology adopted by the Respondent-Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstructions and apprise us as to the correctness of the observation of the AO that it had not been provided any basis / documentary evidence in support of the projected data provided to the valuer. 8. Let the relevant record consequently be produced before us or instructions obtained on or before the next date fixed. 9. Let the matter be called again on 05.04.2024. 2. Today and before us, it is undisputed that the Assessing Officer [ AO ] while rejecting the valuation report which had been submitted by the respondent assessee had proceeded to frame the order on the basis of actual figures which had obtained. It was the aforesaid procedure adopted which fell for adverse comment of the Commissioner of Income Tax (Appeal) [ CIT(A) ] as well as Income Tax Appellate Tribunal [ ITAT ]. It becomes pertinent to observe that an estimation would to some extent be based on an approximate evaluation. That estimation would not be liable to be questioned on the basis of actual facts or figures. Ultimately, the correctness of an estimation would have to be tested on the basis of a legitimate and valid assessment. 3. In our considered opinion, while the ITAT was therefore justified in upholding th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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