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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI R.S. SYAL & SHRI PARTHA SARATHI CHAUDHURY
आदेश / ORDER PER R.S. SYAL, VP : This appeal filed by the assessee is directed against the order passed by the CIT(A), Pune-4 on 05-03-2020 confirming addition made by the AO u/s.56(2)(viib) of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) at Rs.1,23,75,530/- in relation to the A.Y. 2015-16. 2. There is a delay of 154 days in filing the appeal by the assessee. Prima-facie, it appears that the delay is attributable to covid-19 pandemic period and, therefore, the delay is condoned by virtue of judgment of the Hon’ble Supreme Court in Cognizance for Extension of Limitation, In re 438 ITR 296 (SC) read with judgment in Cognizance for Extension of Limitation, In re 432 ITR 206 (SC) dated 08-03-2021 and 421 ITR 314.
Pithily put, the factual panorama of the case is that the assessee is a Private Limited company engaged in the business of Poultry farming. During the year under consideration, it received share premium of Rs.2.45 crore and odd by converting outstanding unsecured loans from the Directors into 24,506 equity shares of Rs.100/- at a premium of Rs.900/- making total share price at Rs.1,000/-. On being called upon to justify the valuation of the shares, the assessee furnished a report under Discounted Cash Flow (DCF) method determining value at Rs.436.57 per share. Finding certain mistakes in the said report, the assessee revised the report determining the value under the same method at Rs.1,024/-. The AO disregarded the assessee’s calculation under the DCF method and adopted the Net Asset Value (NAV) method for share valuation.
In this way, he worked out the value at Rs.395/- per share. The AO noted that since the assessee adopted fair market value at Rs.900 per share, he computed excess amount of Rs.505/- per share and added it u/s.56(2)(viib) of the Act resulting into an addition of Rs.1,23,75,530/-. The ld. CIT(A) affirmed the addition, against which the assessee has come up in appeal before the Tribunal.
Having heard the rival submissions and gone through the relevant material on record, it is seen that the assessee valued the shares under DCF method at Rs.1,024/- per share. The calculation of Rs.1,024/- per share has been given in the report of the Chartered Accountant from page 86 onwards. Page 89 gives the figures of projections, which constitute the basis of valuation, for the years ending 31-03-2015 to 31-03-2019 at Rs.109.79 crore, Rs.135.20 crore, Rs.143.88 crore, Rs.170.38 crore and Rs.174.66 crore. As against the above projections, the actual revenue of the assessee for these years is Rs.109.68 crore, Rs.146.77 crore, Rs.140.50 crore, Rs.181.74 crore and Rs.212.58 crore. This shows that the assessee, while determining the fair value of share at Rs.1024/-, projected the figures of revenue rather on a conservative side. The AO has simply discarded the assessee’s method of valuation under the DCF without pointing out any mistake therein and proceeded with the NAV method determining value at Rs.395/- per share.
At this stage, a useful reference can be made to the judgment of the Hon’ble jurisdictional High Court in Vodafone M-Pesa Limited Vs. PCIT (2018) 256 Taxman 240 (Bom.). In that case, the AO raised the demand by changing method of valuation of shares issued at premium from the Discounted Cash Flow to Net Asset Value (NAV) method. The Hon’ble High Court, ruling in favour of the assessee, held that “the AO is undoubtedly entitled to scrutinize the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the Discounted Cash Flow method and it is not open to him to change the method of valuation which has been opted for by the assessee”.
Adverting to the facts of the instant case, it is seen that the assessee adopted the DCF method and determined the value of share at Rs.1,024/-. As against that, the shares were issued only at premium of Rs.900/-. Since the AO has not found out any flaw in the calculation done by the Valuer under the DCF method, which is rather on a conservative side, it is held that the same has to be accepted. We, therefore, overturn the view taken by the ld. CIT(A) on this score and order to delete the addition.
In the result, the appeal is allowed. Order pronounced in the Open Court on 21st November, 2022.