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TMI Blog2024 (11) TMI 697X X X X Extracts X X X X X X X X Extracts X X X X ..... stioned the applicability and computation of the fair market value as per either of the methods and therefore, there is no question of forming a reason to believe that as the valuation is less in one method and the assessee has adopted the method having higher valuation method, then there is escapement of income. We are of the opinion that the Assessing Officer could not have assumed the jurisdiction to reopen the assessment on the ground that to verify the veracity and the computation as per the DCF method adopted by the assessee on the ground that the assessee did not fulfill the projected growth as per the discounted cash flow method in the subsequent year because at the time of making projection, no assessee would be in a position to predict the future growth as per the projection. The impugned notice is accordingly quashed and set aside. - HONOURABLE MR. JUSTICE BHARGAV D. KARIA AND HONOURABLE MR. JUSTICE D.N.RAY Appearance : For the Petitioner(s) No. 1: Mr B S Soparkar (6851). For the Respondent(s) No. 1,2: Mr. Varun K. Patel (3802). ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. Heard learned advocate Mr. B.S. Soparkar for the petitioner and learned Senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share is determined at Rs.73/as per Value/price based on book value of share (Net Asset Value) and Rs. 143 as per value/price on Discounted Free Cash Flow method as per annexue-1 2 submitted by the assessee, The assessee company has issued 350500 equity shares of Rs.153/each at @ premium of Rs. 143/per share on 26.03.2015. On Verification of the both the certificate prepared by the Chartered accountant, there is huge difference of Rs. 80/- was found. Hence, the Discounted cash flow method adopted by the assessee is not acceptable at this stage. Further, the assessee has produced the projected cash flow value actual cash flow maintained. On verification of data provided by the assesses, there is also huge difference in projected value and actual value. The difference is worked out as under. Projected Growth Actual Particulars 31.3.2015 31.03.2016 31.03.2017 31.3.2015 31.3.2016 31.3.2017 Sales Gross 152.23 163.51 169.15 145.60 129.14 124.67 Excise 17.23 18.51 19.15 16.64 15.29 13.51 Net Sale 135.00 145.00 150.00 126.06 113.85 111.16 Growth 7.91 10.00 5.00 1.97 -15.21 -2.69 Growth% 6.22 7.41 3.45 1.55 -11.79 -2.36 Profit before Depri. Tax (PBDIT) Int 25.25 25.86 26.00 16.97 12.49 17. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered for arriving at valuation of the shares were ultimately not achieved by the petitioner in the subsequent year. 5.2 In support of his submissions, reliance was placed on the decision of Hon ble Delhi High Court in case of Agra Portfolio (P.) Ltd vs. Principal Commissioner of Income Tax reported in [2024] 161 Taxmann.com 303 wherein, the Hon ble Delhi High Court while considering the provisions of Rule 11UA of the Rules held that if the assessee determines the fair market value in the method as prescribed, the Assessing Officer does not have choice to dispute the justification and the method of valuation as prescribed in Rule 11UA (2) of the Rules provides that the assessee can adopt the fair market value as per either Net Asset Fair Market Value method or DCF method of the unquoted equity shares determined by a merchant banker and the choice of the method is that of the assessee. 5.3 It was therefore submitted that once the petitioner has adopted the DCF method of valuation during the course of the regular assessment, the Assessing Officer could not have made any addition on the basis of the stand taken by respondent No. 1 while recording the reasons for reopening. 5.4 Relian ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e two methods of valuation, the Assessing Officer was justified in reopening of the assessment. 6.3 It was therefore submitted that the respondent-Assessing Officer has credible information and material from the insight portal and after applying due process, has formed reason to believe that there is escapement of income and there is no fishing inquiry being made coupled with the fact that there was no scrutiny assessment carried out in the facts of the present case and as such, the impugned notice issued by the Assessing Officer for reopening is in accordance with law and no interference may be made. 7. Having heard learned advocates for the respective parties and considering the material on record it appears that the reasons recorded for reopening are based upon the applicability of the DCF method vis-a-vis Net Asset Value Method prescribed under Rule 11UA of the Rules. According to the Assessing Officer, there is difference in valuation of Rs. 80/- between the computation of the fair market value by applying these two methods and accordingly, there is escapement of income of Rs. 80/- as the valuation as per the Net Asset Value is less as compared to the value as per DCF method. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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:- (a) the fair market value of unquoted equity shares =| (A-L)(PE)| x (PV) 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 Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L=book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccountant (till 24th of May 2018). In the present case the assessee has valued the shares according to one of the options available to assessee by adopting discounted cash flow method. Therefore, such an option given to the assessee cannot be withdrawn or taken away by the learned Assessing Officer by adopting different method of valuation i.e., net asset value method. The method of valuation is always the option of the assessee. The learned Assessing Officer is authorised to examine whether assessee has adopted one of the available options properly or not. In the present case, the learned Assessing Officer has thrust upon the assessee, net asset value method rejecting discounted cash flow method for only reason that there is a deviation in the actual figures from the projected figures. It is an established fact that discounted cash flow method is always based on future projections adopting certain parameters such as expected generation of cash flow, the discounted rate of return and cost of capital. In hindsight, on availability of the actual figures, if the future projections are not met, it cannot be said that the projections were wrong. To prove that the projections were unreli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se one of the options available under the provisions of the law for valuing the shares. The learned Assessing Officer needs to examine that method. Naturally, if the discounted cash flow method and net asset value method gives the same result, where would have been the need to prescribe the two methods in the law. In view of above facts, we do not find any infirmity in the order of the learned Commissioner of Income-tax (Appeals) in deleting the addition of Rs. 69,000,000 made by the learned assessing officer u/s 56 (2) (viib) of the act. Accordingly, ground Nos. 3 and 4 of the appeal of the learned Assessing Officer are dismissed. 21. We deem it apposite to lastly take note of the following pertinent observations as appearing in a decision rendered by the ITAT Bench at Bangalore in Taaq Music Pvt. Ltd. vs. Income Tax Officer:- 11. The law provides that, the fair market value may be determined with such method as may be prescribed or the fair market value can be determined to the satisfaction of the Assessing Officer. The provision provides an Assessee two choices of adopting either NAV method or DCF method. If the Assessee determines the fair market value in a method as prescribed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aside and this issue is remanded to the AO for decision afresh, after due opportunity of hearing to the Assessee. 12. Similarly, the Hon ble Himachal Pradesh High Court while confirming orders passed by the CIT(A) and Tribunals has held as under: 14. The Tribunal confirmed the finding of fact that the assessee did not receive any consideration for allotment of shares in the previous year relevant to the current assessment year, and upheld the view of the CIT (Appeal) if no consideration was received in the previous year under consideration, Section 56 (2) (viib) of the Act has no application. It held that the consideration in the form of unsecured loans were received from the partner of the erstwhile firm in the year 2010, as evidenced from loan agreement, and the Assessing Officer could not bring out any material facts to show that such conversion of loans to equity shares was a ploy to defraud revenue of the tax on such transaction. The Tribunal went further and observed that the Assessing Officer is not authorized to pick and choose a particular method of valuation of shares, since the option in that regard is specifically given only to the assessee as per Rule 11UA (2) of Inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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