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TMI Blog2024 (12) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... rious disclaimers made by the Valuer to reject the method. It is normal that the valuer give various disclaimer such as the values are provided by the management and they have not carried out any verification. This cannot be the basis to reject the method adopted by the assessee. Coming to the issue of review of the actual performance with the projection it is settled law that the AO cannot review the projected figures adopted by the assessee at the time of projections. Therefore, this method of evaluating actual performance with projected figure after 4 or 5 years is not proper. Assessee has adopted one of the approved method of valuation under rule 11UA. Therefore, the rejection of such method is not proper and unjustified. Accordingly, we direct the AO to accept the valuation provided by the assessee and delete the additions proposed by him. In the result, ground nos. 3 4 are allowed. Addition u/s 68 - issue of shares at Rs. 1 is the same share which are issued by the assessee with share premium - Valuations of shares are proper based on the DCF method. Further, we observe that the shares were issued to the existing shareholders, therefore, the AO cannot invoke the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on for applying the DCF method, also submitted certified Valuation Report by a chartered accountant along with relevant case law. After considering the submissions of the assessee, the Assessing Officer found the same to be not satisfactory and observed that valuation report is prepared on 02.06.2014 which is based on projected financials of the company for the next five financial years and does not factor in the actual performance of the assessee company in subsequent period. Further, he observed that the issuance of shares at a value higher than the fair market value, the provision of section 56(2)(vii-b) of the Act is applicable. He also observed that the fair market value of unquoted shares may be determined either as per Net Assessed Value (NAV) or DCF method as determined by a merchant banker or an accountant. 4. He observed that the above valuation was certified by a chartered accountant, after perusal of the valuation report. He observed disclaimers recorded by the chartered accountant while issuing the certificate that he has prepared the valuation report on the basis of projected financials of the company for next five years as provided by the management of the company an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red in appreciating that AO had determined valuation unliterally without any show cause/opportunity to assessee. 4. That, Id. lower authority further erred in ignoring 4 the facts on record and sustained the addition merely on the basis of surmises and conjectures unilaterally. 5. That, Id. lower authority grossly erred in not even considering the ground against addition of Rs. 1,82,360/- made u/s 68 of the Act, being share application money though addition is illegal in as much as Id. AO himself has accepted receipt of share premium from same parties and assessee had discharged onus by filing relevant documents. 6. That, Ld. lower authority grossly erred in not even considering the ground against the disallowance of Rs. 39,285/- made by Id. AO by arbitrarily and against the facts on record holding said expenses as capital expenditure. 6. At the time of hearing learned AR submitted that ground no. 1 is general. Ground no. 2 is raised on the issue of not giving proper opportunity, he submitted that assessee does not want to press this ground. The same are dismissed as not pressed. 7. With regard to ground no. 3 learned AR submitted that assessee has applied one of the approved metho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port has rejected the DCF method based on the disclaimers depicted in the valuation report and he has proceeded to evaluate the actual performance vis a vis projection. 11. After considering the submissions of both the parties we observe that assessee is a start-up company, has no past financials and we also observe that the assessee has adopted one of the approved method under Rule 11UA. It is also relevant to note that as per Rule 11UA, option is given to the assessee to adopt one of the approved method for the purpose of valuation of unquoted shares either under Net Assets value or DCF method. As per the above choice of option, assessee has adopted one of the approved method for valuing its shares. The Hon ble High Court of Delhi held exact similar view in the case of Pr. CIT vs. Cinestaan Entertainment (P) Ltd. [2021] 433 ITR 82 (Delhi). The relevant ratio is as below: 13. From the aforesaid extract of the impugned order, it becomes clear that the learned ITAT has followed the dicta of the Hon'ble Supreme Court in matters relating to the commercial prudence of an assessee relating to valuation of an asset. The law requires determination of fair market values as per prescrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the assessee adopted a demonstrably wrong approach, or that the method of valuation was made on a wholly erroneous basis, or that it committed a mistake which goes to the root of the valuation process. 12. Further, the Assessing Officer also proceeded to review the various disclaimers made by the Valuer to reject the method. It is normal that the valuer give various disclaimer such as the values are provided by the management and they have not carried out any verification. This cannot be the basis to reject the method adopted by the assessee. 13. Coming to the issue of review of the actual performance with the projection it is settled law that the Assessing Officer cannot review the projected figures adopted by the assessee at the time of projections. Therefore, this method of evaluating actual performance with projected figure after 4 or 5 years is not proper. 14. In our considered view the assessee has adopted one of the approved method of valuation under rule 11UA. Therefore, the rejection of such method is not proper and unjustified. Accordingly, we direct the Assessing Officer to accept the valuation provided by the assessee and delete the additions proposed by him. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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