ACIT, CIRCLE- 3(1), NEW DELHI vs. APOLLO FIEGE INTEGRATED LOGISTICS (P) LTD., GURGAON

ORDER

PER ANUBHAV SHARMA, JM:

The assessee company was incorporated on 31st October, 2012 as a joint 2. venture between M/s Apollo Logisolutions Ltd. which owns 60% shareholding and M/s Fiege International Beteiligungs Gmbh which owns 40% of the shareholding. During AY 2015-16, the assessee company has issued 18 lakhs shares of M/s Apollo Logisolutions Ltd. and 12,010 shares of M/s Fiege International Beteiligungs Gmbh in proportion in proportion to their holding on the face value of Rs.10/- and premium of Rs.40/- thereof per share. Similarly, in AY 2016-17, the assessee had made allotment of equity shares to M/s Apollo Logisolutions Ltd. The ld. AO had made the additions u/s 56(2)(viib) r.w.r. 11UA in both the years. In AY 2015-16, a disallowance was also made u/s 14A r.w.r. 8D. In appeal, the ld.CIT(A) has deleted the additions for which the Revenue is in appeal raising the following grounds in AY 2015-16 and the same are reproduced below:- “1. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 7,20,00,000/- made u/s 56(2)(viib) of the Income Tax Act, 1961 on account of excessive premium received from domestic company namely M/s Apollo Logisolutions Limited on issue of equity shares ignoring the facts brought on record by the AO to justify the above addition.

2. On the facts and circumstances of the case, Ld. CIT(A) is not justified in holding that valuation of shares has been determined at Rs. 50/- per share as per DCF method and so no excess premium has been charged without appreciating the facts brought on record by the AO that the valuation of shares made by assessee as per DCF method is erroneous as 2 it is based on hypothetical figures and not based on true projection of future revenues and cash flows which is evident from perusal of financial statements for F.Y. 2014-15 & F.Y. 2015-16 in which total revenues are shown at Rs. 204.97 cr. & Rs. 206.95 cr. and profit before tax is at Rs. (-) 14.38 cr. and Rs.(-) 11.25 cr. respectively, whereas for the purpose of valuation of shares as per DCF method, the above items are taken at Rs. 157.80 cr. & Rs. 323.72 and Rs. 4.37 cr. and 6.55 cr. respectively.

3. On the facts and circumstances of the case Ld.CIT(A] is not justified in deleting the addition of Rs. 4,80,00,400/- made u/s 68 of Income-tax Act, 1961 on account of excessive premium received from M/s. Fiege International Beteiligungs Gmbh.

4. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 1,22,925/- made u/s 14A read with Rule 8D of IT Act without properly appreciating the facts brought on record by AO while making disallowance.

5. As regards the allotment of shares to M/s Apollo Logisolutions Ltd., it can be appreciated from the order of the ld.CIT(A) that the valuation certificate obtained from an independent Chartered Accountant on the basis of Discounted 3 Cash Flow Method has been relied.. We are in agreement with the ld.CIT(A) that the ld. AO had arbitrarily discarded the report on the basis that in the subsequent years the revenue from operations did not match the valuation report. In this context, the settled proposition of law is that the valuation report adopted by the assessee has to be accepted unless the AO is able to establish that the same is not based on actual figures. Only because there was a difference in the financials subsequently to the report, that cannot be a basis to discard the valuer’s report.