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TMI Blog2024 (12) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ceedings in 2021 and there was no basis for claim of premium of ₹. 140/- at the time of issuance of shares to its promoters/existing shareholders. Therefore, admittedly, there was no valuation by DCF method at the time of issuance of shares as rightly held by the ld. CIT(A) and we hold the same. AR placed on record Income Tax (Twenty First Amendment), Rules, 2023 in respect of Rule 11UA regarding option of assessee to adopt the date of valuation - On plain reading of the sub-rule (3) of Rule 11UA clearly explains the date of valuation report by merchant bankers for the purposes of sub-rule (2) is not more than 90 days prior to the date of issue of shares which are subject matter of valuation of such date may at the option of the assessee be deemed to be the valuation date. As discussed above, the ld. CIT(A) held that there was no valuation report by merchant banker at the time of issuance of shares, since we agreed with the findings of the ld. CIT(A), we reject the arguments of the ld. AR that it is option left to the assessee to adopt any date i.e., the date of valuation report by merchant bankers for the purpose of sub-rule (2) be deemed to be the valuation date. Valuation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , which is clear from page 5 of the assessment order. Therefore, we find no force in the argument of the ld. AR that no opportunity was given to the assessee during the course of assessment proceedings. Therefore, we find the submission of the ld. AR in remitting the matter to the file of the Assessing Officer is not acceptable, consequently rejected and ground No. 11 is dismissed. Thus, we proceed to decide the issue on merits. 3. The ld. AR submits that ground Nos. 1 to 10 raised by the assessee are relating to only one issue of challenging the action of the ld. CIT(A) in confirming the addition made by the Assessing Officer under section 56(2)(viib) of the Income Tax Act, 1961 [ Act in short]. 4. We note that on an examination of the records during the course of assessment, the Assessing Officer found the assessee issued 317000/- shares to different persons at ₹. 150/- per share including at a premium of ₹. 140/- per share for an amount of ₹. 4,75,50,000/-. The Assessing Officer reproduced the computation of fair market value shown by the assessee in page 2 3 of the assessment order. The Assessing Officer did not accept the said computation of the fair market v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued unquoted equity shares and not the rule 11UA(1)(c) as relied by the appellant in it's submission because Rule 11UA(1) (c) is applicable for determination of 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. 4.5 In the present case, the FMV of the shares determined under rule 11UA comes to Rs. 63.47/- per share whereas the appellant had issued the shares at Rs. 150/- per share. The appellant has supported its valuation by furnishing a valuation report of Merchant Banker, which has been rejected by the AO stating that the valuation was done after the discussion with management of the appellant. During the assessment proceedings as well as appellate proceedings, the appellant had contended that the valuation of shares was determined on the market value of the land (immovable assets) whereas in the valuation report, this basis has not been considered and adopted discounted cash flow (DCF) method. It is also observed during the appellate proceedings that the so called Merchant Banker was appointed on 16th March, 2021 and it had submitted its valuation report on 18th March, 2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicable. On a similar facts, the Hon'ble ITAT Delhi Bench in the case of Agro Portfolio (P.) Ltd. Vs ITO [2018] 94 taxmann.com 112 (Delhi - Trib) [2018] 171 ITD 74 (Delhi - Trib.) held that where assessee allotted shares to a company and fair market value of shares was done by a Merchant banker only on basis of Direct Cash Flow (DCF) method depending on data supplied by assessee and no evidence was produced for verifying correctness of data supplied by assessee, Assessing Officer was justified in rejecting DCF method and adopting Net Asset Value method. The Court further held that since without any evidence, correctness of result of Discounted Cash Flow method could not be verified, it would serve no purpose even if matter was referred to Department's Valuation Officer and hence Assessing Officer was justified in rejecting DCF method and to go by NAV method to determine FMV of shares. In view of the above facts, legal provisions and judicial decision, I don't find any infirmity in the order of the AO by adopting the FMA calculated under Rule 11UA(2)(a) of the IT Rule. Thus, the sole issue involved in the present appeal is dismissed. 5. Before us, the ld. AR placed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he report furnished during the course of assessment proceedings cannot be taken into consideration. The fair market value determined by the assessee under DCF method during the course of assessment proceedings relevant to the assessment year 2018-19 is not justified, but it should have been at the time of issuance of shares. The Assessing Officer correctly rejected the report on fair market value adopted by Merchant Banker under DCF method and proceded to value by the method under Rule 11UA of the IT Rules as it governs the determination of fair market value. She argued vehemently that there was no error in the order of the ld. CIT(A) as he correctly appreciated the value adopted by the Assessing Officer in following the method under Rule 11UA of the IT Rules. She submits that the arguments of the ld. AR are not acceptable in stating that there was no statutory period to file the valuation report of the fair market value and drew our attention to Rule 11UA of the IT Rules. She argued that the said Rule 11UA provides determination of fair market value of unquoted equity shares shall be the value on the valuation date. She submits that the assessee obtained valuation report during th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tter dated 18.03.2021, wherein, it is contended that the DCF method as provided under Rule 11UA(2)(b) of IT Rules are based on the generally accepted principles and methods followed internationally and on arms-length basis. Further, it is contended the most common valuation approaches are on income based approach, market based approach and asset based approach. The ld. AR vehemently contended that as per the DCF method, the estimated FMV is at ₹. 196.98 as on 16.03.2018 per share. We note that the assessment was passed on 19.04.2021, whereas, the above said letter dated 18.03.2021 along with report of pages 4 to 6 of index was before the Assessing Officer for his consideration during the course of assessment proceedings. The Assessing Officer, while considering the same and holding the same is not acceptable, determined the fair market value of shares under section 56(2)(viib) of the Act r.w. Rule 11UA of IT Rules. The assessee agitated the non-consideration of DCF method by the Assessing Officer before the ld. CIT(A). The ld. CIT(A) discussed the same in para 4.5 of the impugned order. According to him, the assessee did not obtain any valuation under DCF method on or before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold the same. 10. The ld. AR placed on record Income Tax (Twenty First Amendment), Rules, 2023 in respect of Rule 11UA regarding option of assessee to adopt the date of valuation. On plain reading of the sub-rule (3) of Rule 11UA clearly explains the date of valuation report by merchant bankers for the purposes of sub-rule (2) is not more than 90 days prior to the date of issue of shares which are subject matter of valuation of such date may at the option of the assessee be deemed to be the valuation date. As discussed above, the ld. CIT(A) held that there was no valuation report by merchant banker at the time of issuance of shares, since we agreed with the findings of the ld. CIT(A), we reject the arguments of the ld. AR that it is option left to the assessee to adopt any date i.e., the date of valuation report by merchant bankers for the purpose of sub-rule (2) be deemed to be the valuation date. 11. Further, the ld. AR placed reliance on the order of the Tribunal in the case of M/s. Brio Bliss Life Science P. Ltd. v. ITO in ITA No. 3067/Chny/2019 dated 22.02.2023. On perusal of the same, we note that the Tribunal remanded the matter to the file of the Assessing Officer for his ..... X X X X Extracts X X X X X X X X Extracts X X X X
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