RUGBY REGENCY P.LTD,NEW DELHI vs. ADDL. CIT, RANGE-21, NEW DELHI

3. That orders passed by lower authorities are not sustainable on facts and are bad in law.”

3 12,96,28,561/- on wind mill and addition of Rs. 3,24,20,850/- u/s 56(2)(viib) of the Income Tax Act, 1961 (the “Act”) on 23.12.2017 u/s 143(3) of the Act.

5. Ground no. 1(i) to (v) relate to disallowance of depreciation of Rs. 12,96,28,561/- on wind mill which has been sustained by the Ld. CIT(A) by observing and recording his findings as under:

“3.2. I have carefully considered the assessment order and written submissions filed by the Ld. AR. The AO in the assessment order has disallowed the claim of the appellant with respect to depreciation of Rs. 12,96,28,561/- on Windmill claimed to be purchased in the year under consideration.

3.3. In this regard, the AO in the assessment order has observed that: a. the appellant has claimed to purchase 12MW Wind mill from M/s Ansal Properties and Infrastructure Limited through slump sale agreement dated 23/03/2015 for a consideration of Rs. 32,94,11,653/- out of which value of land is Rs. 53,40,250/- and balance consideration of Rs. 32,40,71,403/-has been capitalized under the head plant and machinery in the FY. 2014-15 and has claimed depreciation on the same (which is the subject matter of this appeal) b. As per the terms of agreement dated 23/03/2015, the appellant company has agreed to purchase the wind mill from the transferor for a lump sump of Rs. 32,94,11.653/- and the transfer of said asset will complete on completion date. The completion date has been defined in the Slump sale agreement as the date on which transferor company completes all the activities / obligations prescribed under the slum sale agreement Further, the said date is to be achieved within 180 days from the date of execution of agreement i.e 180 days from 23.03.2015. c. That the obligations/activities prescribed under the agreement includes:

1. 1. Registration of land lease deed in favor of the appellant company 2. Submission of letter from GEDA to GUVNL directing or transfer of power purchase agreement in favor of the appellant company 3. No dues certificate from lender to the wind mill business.

4. Receipt of all approvals / consents / permissions from Government of Gujarat, Gujarat Electricity Regulatory commissioner, Electricity Distribution Company etc

1.

2. M/s Ansal Properties & Infrastructure Limited (seller) is required to furnish their Board Resolution for assignment of all their rights, obligations, assets and liabilities in favor of M/s Rugby Renergy Pvt. Ltd. From the above remarks of M/s Gujarat Urja Vikas Nigam Limited (GUVNL) it can be noted that M/s Ansal Properties & Infrastructure Limited (seller) has not assigned their rights, obligations, assets and liabilities in favor of M/s Rugby Renergy Pvt. Ltd. h. That the operation and management agreement to run the wind mill was executed between the appellant company and M/s Suzion Global services Ltd on 5 27/07/2015 with effective date from 01/07/2015 which is also one of the essential conditions for completion of sale as per the slump sale agreement. The effective date and the execution date of this agreement both fall in subsequent year. This also signifies that no sale of wind mill has taken place in the year under consideration. i. That the enquiry from the assessing officer of M/s Ansal Properties & Infrastructure Limited (seller) also shows that no sale of wind mill has been declared by the seller in its books of account for the F. Y. 2014-15 relevant to AY 2015-16. j. That the first payment for purchase of wind mill by the appellant has been claimed to be made of 23.04.2014 of Rs. 3 crores, however, the due diligence study report of the wind mill was completed on 28.12.2014. Accordingly, this shows that the prior to the date of agreement their may be only some private arrangement between the parties for exchange of money in form of advance/loan. 3.4 Based on the above observations, the AO in the assessment order has disallowed the claim of depreciation on purchase of windmill 3.5 The appellant during the course of appellate proceedings has submitted written submission alongwith paper book. In the written submission the appellant has emphasized on the fact that 94% of the payment was made to the seller for purchase of wind mill alongwith lease hold rights over the land appurtenant there to till the completion of year under consideration. The appellant has also submitted that lease hold rights over the land were obtained w.e.f. 12.02.2015. The appellant has further submitted that the income to the extent of Rs. 7.58 crores with respect to the sale of power generation from wind mill has already been accounted for in the books of accounts. As regard the objections raised by GUVNL the appellant submitted that those objections were general in nature and are only with reference to substitution of name in power purchase agreement so as to enable the appellant to receive the revenue from sale of power directly. The appellant further submitted that it was because of this reason that M/s Ansal Properties & Infrastructure Limited (seller) had to transfer the revenue from wind mills to the appellant as the name of the appellant could not be substituted till 31.03.2015. 3.6. After going through the observations of the AO in the assessment order and the written submission filed by the appellant, I am of the view that the purchase of wind mill was governed by the slump sale agreement dated 23.03.2015 wherein various terms and conditions were specified which were to be complied with in order to complete the sale / transfer process. The AO in the assessment order has made various observations which depicts that the wind mill has not been transferred to the appellant company in the year under consideration. The observations of the year are duly supported by enquiries conducted by him during the course of assessment proceedings. With respect to the observation of the AO that M/s Ansal Properties & Infrastructure Limited (seller) has claimed depreciation for the whole year with respect to the wind mill in its books of accounts and no sale of wind mill has been declared by it, the appellant has simply stated that the wrong claim of depreciation by one party would not disentitle the other party to make genuine claim in this regard it is relevant to note here that transfer of an asset is a bilateral act. Based on the consent and agreement of both the parties. Accordingly, it is onus of the appellant to prove that how the transfer of asset and put to use of the same has taken place in the your under consideration in light of the fact that the seller party has not recorded any sale transaction in its books of accounts. In this regard it is also relevant to refer

6 to the comments / objections raised by GUVNL vide its letter dated 10.04.2015 (quoted in the assessment order) that no request for transfer of power purchase agreement has been initiated by M/s Ansal Properties & Infrastructure Limited (seller) and there is no board resolution which could depict that all their rights, obligations, assets and liabilities have been assigned in favor of the appellant company. The said comments/ objections raised by GUVNL also leads to the conclusion that M/s Ansal Properties & Infrastructure Limited (seller) has not transferred the wind mill in the name of the appellant company till the completion of year under consideration. Further, the appellant has also not been able to bring any evidence on record in the form of any confirmation / copy of board resolution of M/s Ansal Properties & Infrastructure Limited (seller) which could substantiate that the wind mill was transferred in its favor and was put to use before the end of year under consideration. In this regard it is also relevant to refer to the observation of the AO in Para 4.6 of the assessment order that the appellant has only submitted no dues and "possession" certificate signed by party M/s Ansal Properties & Infrastructure Limited (seller) however there is no date of certificate and date of possession mentioned on the same and further the columns of signature and particulars of witnesses have been left blank. The said observation of the AO depicts that the date of possession of asset has not been substantiated by the appellant and the so called certificate produced by it has no sanctity because of the defects pointed out by the AO. Also during the course of appellate proceedings the appellant has not brought forward any evidence which could depict the date of possession. The appellant has also not made any counter submission in this regard 3.7. The observation of the AO in Para 4.5 of the assessment order is also relevant to evaluate whether the wind mill was transferred in the name of appellant in the year under consideration or not. The AO has observed that the appellant entered into operation and management agreement to run the wind mill with M/s Suzlon Global services Ltd. on 27.07.2015 with effective date from 01.07.2015. The said observation of the AO clearly leads to the conclusion that operation and management of the wind mill has been taken over by the appellant from the seller in the subsequent year consequent to which it has entered into a fresh agreement for operation and management of the wind mill with M/s Suzlon Global services Ltd. These facts further substantiate the stand of the AO in the assessment order that no transfer of the asset (wind mill) has taken place in the year under consideration. Further, as regard the argument of the appellant that in the year under consideration it has booked revenue from the wind mill, the AO in the assessment order has rightly stated that there was no written agreement between the two parties that wind mill in the year under consideration is to be run by the appellant company and billing of revenue was to be done by M/s Ansal Properties & Infrastructure Limited and then the same is to be passed on to the appellant company. The revenue declared by the appellant can at best be said to be a private arrangement of revenue sharing between the parties to compensate the appellant for interest and other expenses. However, the said arrangement does not change the fact that the transfer of wind mill has not completed in the year under consideration so as to make the appellant eligible for claiming of depreciation of the same as per the provision of section 32 of the act. Further it is noted that the appellant in its written submission has failed to controvert the said observations of the AO in the assessment order and has only argued the matter on the ground that it has paid 94% of the consideration till the completion of this year and has booked revenue from the sale of power. However, it is relevant to point out here that nothing has been brought on record by the appellant which could prove the possession and the use of wind mill by it in the year under 7 consideration which is the essential factors for claiming of deduction of depreciation Accordingly, the disallowance of depreciation of Rs. 12,96,28,561/- made by the AO is hereby confirmed. Hence, the ground of appeal is ruled against the appellant.”

6. Before us, the Ld. AR submitted that depreciation is claimed by the transferor of the assets and therefore not allowed in the hands of the assessee in the same year. He reiterated the submissions made before the Ld. CIT(A) which appear at pages 1-6 of the revised Paper Book. The Ld. AR filed a brief summary of sequence of events to show that the assessee is the beneficial owner of the asset and hence depreciation should be allowed. He relied upon the decision of Hon’ble Madras High Court in CIT vs. Smt. Sivakami (2010) 322 ITR 64 (Mad), a copy of which is placed before us.

8 APIL for Financial Year 2014-15. Admittedly, seller company APIL has claimed depreciation on wind mill during the A.Y. 2015-16. Therefore denial of impugned depreciation in the hands of the assessee is justified. The contention raised during appellate proceedings have been dealt with by the Ld. CIT(A) by recording cogent reasons. The decision of Hon’ble Madras High Court in the case of Smt. Sivakami (supra) will not render assistance to the assessee as in that case the assessee established ownership of buses by documentary evidence whereas in the case at hand purchase of wind mill in the Financial Year 2014-15 could not be proved with documentary evidence. The twin conditions precedent, namely ownership and use of the asset i.e. wind mill, for purposes of assessee’s business during the Financial Year 2014-15 relevant to A.Y. 2015-16 are not satisfied in the case of the assessee. We, therefore decline to interfere and decide ground No. 1 and its sub-grounds against the assessee.

9. Ground No. 2(i) to (iv) relate to addition of Rs. 3,24,20,850/- u/s 56(2)(viib) of the Act which has been confirmed by the Ld. CIT(A) by observing and recording his findings as under:

“4.2. I have carefully considered the assessment order and written submissions filed by the Ld AR The AO in the assessment order has added Rs 3,24,20,850/ under section 56(2)(viib) on account of shares being issued at excessive rate. The facts of the case are that the appellant company has issued 12.03,000 shares at the rate of Rs 50 per share. The said value taken by the appellant is based on the valuation report issued by Chartered Accountant wherein valuation of shares has been carried out on in accordance with rule 11U/11UA as per discounted cash flow method. In the valuation report the AO noticed that the same was in turn based on the projections and estimates given by the management of the appellant company. Accordingly, the AO during the assessment proceedings required the appellant to justify the values worked out in the report The appellant however simply put its reliance on the valuation report of the Chartered Accountant. The AO in this regard noticed that the valuer in his report has given a disclaimer that financials projections used in the report have been provided to him by the appellant company and accordingly the valuer assume no responsibility for its accuracy and completeness. It is also noticed by the AO that the financial projections made in the report dated 14/11/2014 was based on the proposed business plan to be started in the Jan, 2015 in the valuation report it has been mentioned by the valuer that the appellant is in process of acquisition of operational wind power projects from M/s Ansal Properties & Infrastructure Limited (APIL) of 12 MW situated in Gujarat and KS Oil Limited of 46.4 MW situated at Rajasthan & Madhya Pradesh and process of acquisition will be complete by January 1, 2015. Based in the said assumptions the projections has been made by the appellant company which has been utilized by the valuer for 9 valuation of shares However, it is noticed by the AO that the wind power plant 12 M of APIL has not been purchased by the appellant in the year under consideration but in the subsequent year and also the 46 4 MW power project of KS Oil Limited was never acquired by the appellant. Accordingly, the AO was of the view that the projections made by the appellant are highly inflated, hence not reliable. Thereafter, the AO required the appellant to work out the value of shares on the basis of assets and liabilities as provided under Rule 11UA of the IT Rules. The appellant submitted its working before the AD as per which the Book value of the shares was worked out at Rs.39.15. However, the same was rejected by the AO as the working was not as per the methodology give in the rule 11UA. Lastly the AO in the assessment order has computed the fair market value of the shares based on value of assets and liabilities as on last audited balance sheet as prescribed under Rule 11UA and worked out the fair market value of shares at Rs.23.05 per share. Based on the said value of share the AO in the assessment has worked the excessive value recovered by the appellant company at Rs.3,24,20,850/- which has been added in the hands of the appellant under section 56(2)(viib) of the Act. 4.3. The appellant in the written submissions made during the appellate proceedings has tried to justify the financial projections for 20 years used in the valuation report prepared as per discounted cash flow method which has been rejected by the AO in the assessment order. The appellant in this regard has submitted that it has fully acquired the 12MW wind mill project of M/s Ansal Properties & Infrastructure Limited (APIL) also disclosed revenue with respect to the same in the year under consideration. Further as regards the 46.4 MW windmill project of M/s KS Oils Limited, the appellant submitted that as on the valuation dated i.e 14.11 2014 the appellant through its holding company submitted its bid to the State Bank of India and was declared highest bidder on 24.11.2014 and said acquisition was in final stage at that time in support of the contention the appellant has submitted copy of bid documents and communications in the paper book. However, due to some unforeseen circumstances, the acquisition did not go through and the bid was cancelled and the said project could not be acquired by the appellant. However, the appellant kept on its pursuit for the expansion and growth in power sector and subsequently acquired 1.8 MW and 9 MW power projects in District Kutch, Gujarat on 20.04 2017 and 14.06.2017 which has resulted in considerable revenue. In support of its contention the appellant has submitted copy of sale certificate dated 14.06.2017 from J & k bank for purchase of 9 MW power plant and confirmation from GUVNL dated 20.04.2017 with respect to the name change in the power purchase agreement for 1.8 MVV power project, in the paper book. 4.4 The appellant on the basis of said facts submitted that the Discounted Cash Flow Method is based on financial projections which may vary from actual results. The appellant also submitted that the valuation report in its case is realistic and based on documentary evidences and hence the AO was not justified in rejecting the said valuation. The appellant in this regards as has also relied upon judicial pronouncements where it has been held that revenue is not allowed to change the method adopted by the assessee without pointing out any error or fault in the same. 4.5. After going through the observations of the AO in the assessment and submissions of the appellant, I am of the view the valuation of shares relied upon by the appellant is based on discounted cash flow method, however, the question that needs to be addressed here is that whether projections and estimations used therein are reliable or not. In this regard, it is noticed that the appellant has claimed to have 10 acquired 12 MW windmill power project from M/s Ansal Properties & Infrastructure Limited (APIL), however this issue has already been adjudicated against the appellant in ground no one and it is held that the appellant has not taken the possession of the plant in the year under consideration and hence the transfer of asset cannot be said to be taken place in the year under consideration. Even otherwise if it is assumed that on the date of valuation of shares i.e. on 14.11.2014, it was not possible for the appellant to anticipate correctly that whether the 12MW project will be taken over by it or not, then also the appellant was not justified in taking projections with respect to the said project. In this regard it is noticed that as on the date of valuation of the shares le 14.11.2014 the appellant did not even had the technical due diligence report/study based since the report has been issued by the expert m/s Mitcon Consultancy & Engineering Services Limited, Pune for the first time on 26.12.2014. As on the date of valuation the appellant did not have any document or evidence in its hand which could have enabled it to even work out the correct cost of the project. Accordingly, it is reasonably concluded that the appellant did not have any material/document/reasonable, basis for calculating or working the projected financial for the next 20 years on the date valuation of shares. Hence, projections of the appellant company with respect to the 12 MW power project convict the said the reliable for the purpose of valuation of shares. 4.6. Further as regards the 46.4 MW project with respect the claim of the appellant is that as on the date of valuation of shares the bid was already filed and later on it was declared to be highest bidder, I am of the view that the projection of the appellant with respect to this project can also not be relied upon. In this regard, the most important fact which is noticed is that the bids for this 46.4 MW were filed by the M/s Goyal MG Gases Pvt. Ltd which happens to be the holding company of the appellant company. However, the argument of the appellant in this regard is that the said bid was filed on its behalf. The said argument of the appellant appears to be vague and not supported by any documentary evidence, since the bid documents nowhere specifies the name of the appellant company, nor it has been established whether the such type of arrangement was permitted by the auctioneer/bid conductor SBI. Accordingly, it is mere a lame submission of the appellant that it applied for purchase of 46.4MW power project. True fact is that was M/s Goyal MG Gases Pvt. Ltd who applied for the bid which appellant company has tried to portray as if the said bid was filed by it. Since, no bid was filed by the appellant company in its own name, it can be concluded that the appellant was not justified in projecting next 20 years financials with respect to the said project and using the same for valuations of its shares. Even otherwise if it is assumed that the said bid was filed by the appellant then also it was not justified in projecting the financials of the said project and using the same for the purpose of valuation of its shares since there was not reasonable certainty that the said project will be allotted to the appellant company. Simply, filing of bid cannot be considered as an event which could lead to reasonable certainty that the same will result into acquisition of the project. Bid can be filed by any person qualified for the same however the same does not mean that every person filing the bid can assume that his bid is successful and value its shares at higher price using projections. In the present case of the appellant has itself submitted that it was declared the highest bidder on 24 11.2014, however the valuation date is 14,11.2014 in view of these facts, on the date of valuation of shares ie. 14.11.2014, surprisingly there is nothing on record which could be treated as persuading factor which lead the appellant company believe that the power project against which bid has made will be allotted to it only. Moreover, the bid was not even made by but by some other company. These whole set of facts proves that the 11 appellant had acted highly superficially in making projections with respect to a project with which it had no nexus on the date of valuation of shares and using the said projections for the purpose of valuation of shares in this regard, it is also noticed that the appellant has not even the basis or documents or facts and figures based on which the projections were made and subsequently used by the valuer in valuation report. Hence, projections of the appellant company with respect to the 48 4MW power project cannot be said be reliable for the purpose of valuation of shares. 4.7 Further, the submission of the appellant that in future it has acquired two windmill power projects of 9 MW on 14.06.2017 and 1.8 MW on 20.04.2017 which have generated reasonable revenue and accordingly the same substantiates the projections made by it in the valuation report, is baseless and not tenable. The argument of the appellant in first place cannot be accepted, since, it has not be specified whether the said argument was taken before the AO or not and documentary evidences brought forward in this regard in form of copy of sale certificate dated 14.06.2017 from J&k bank for purchase of 9 MW power plant and confirmation from GUVNL dated 20 04.2017 with respect to the name. change in the power purchase agreement for 1.8 MW power project, in the paper book were submitted before the AO or not. The AO has also not acknowledged any such argument of the appellant in the assessment order. Furthermore, the acquisition of two windmill power projects of 9 MW and 1 BMW are subsequent event cognizance of which cannot be taken for the purpose of valuation of shares of shares on valuation date ie. 14.11.2014. Even if the same is considered the appellant has not specified that to what extent it has contributed to its revenue so as to substantiate the projected revenues. Hence, this argument of the appellant is rejected 4.8. In view of the above, the discounted cash flow method adopted by the appellant for the valuation of shares cannot be relied upon since the same is full of errors and faults as pointed in the above. During the course of assessment proceedings also the appellant failed to submit any document, evidence or information which substantiate the valuation report and projections adopted therein. Hence, the AO was justified in rejecting the said method of valuation of shares adopted by the appellant. Further the judicial pronouncements relied upon by the appellant in its written submission are distinguishable on the facts of the present case, since in the present case the projected data adopted in discounted cash flow method of share valuation adopted by the appellant has no reasonable basis. Further, the method of valuation adopted by the AO has not been controverted by the appellant in its submissions neither any defect in the same has been painted by the appellant. Accordingly, the valuation done by the AO in the assessment order based on assets and liabilities and value of shares at Rs. 23.05 per share worked out from the same is hereby upheld. Hence, the addition made by the AQ of Rs 3,24.20,850/- is hereby confirmed. This ground of appeal is ruled against the appellant.”

10. Before us, the Ld. AR relied upon the written submission made before the Ld. CIT(A) which appears at pages 7 -12 of the revised Paper Book. He emphasised that the assessee issued during the year 12,03,000/- equity shares having face value of Rs. 10/- at Rs. 50/- each and received Rs. 6,01,50,000/-. The valuation is supported by Chartered Accountant’s

12 certificate wherein he determined the fair market value at Rs. 50.50 per share in accordance with the Discounted Cash Flow method as prescribed under Rule 11UA(2)(b) of the Income Tax Rules, 1962. This was not acceptable to the Ld. AO who recomputed the fair market value at Rs. 23.05 per share on the basis of Net Worth of the company amounting to Rs. 2,77,29,150/- and added the difference of Rs. 3,24,20,850/- (Rs. 6,01,50,000 – Rs. 2,77,29,150/-) to the income of the assessee u/s 56(2)(viib) of the Act. The Ld. AR contended that Discounted Cash Flow method is a well recognised method of valuation and if consideration for issue of shares is based on such method, the Ld. AO cannot invoke the provisions of section 56(2)(viib) of the Act. The Ld. AR pointed out that the assessee has issued the shares to its 100% holding company, M/s Goyal MG Gases P. Ltd. and therefore the provision of section 56(2)(viib) are not applicable. He placed reliance on the decisions of Delhi Bench of the Tribunal in M/s KBC India Pvt. Ltd. vs. ITO in dated 02.11.2022 and in DCIT vs. Hometrail Buildtech Pvt. Ltd. in ITA No. 6095/Del/2019 dated 15.09.2023.

13 13. In an identical case of KBC India Pvt. Ltd. (supra) equity shares were allotted by the assessee to its holding company at premium and the Tribunal held that in such a scenario no addition can be made u/s 56(2)(viib) of the Act. The observations of the Tribunal contained in paras 9 and 10 of the decision (supra) are extracted below.

“8. I have considered rival submissions in the light of the decisions relied upon and perused the materials on record. On a reading of the assessment order as well as the order of learned first appellate authority, it is very much clear that the genuineness of the transaction relating to sale of shares by the assessee to its holding company has not been doubted.

10. In the facts of the present appeal, the transaction relating to allotment of shares is between a holding company and its wholly owned subsidiary. Therefore, no outsider is benefited through such transaction. When the assessee-company has been promoted by the holding company, infusion of additional fund through share premium can only benefit either the holding company or the subsidiary and no third party is involved. In such a scenario, logically, no addition can be made under section 56(2)(viib) of the Act. For arriving at such conclusion, I draw support from the decisions of the Tribunal in the case of ACIT Vs. Y. Venkannachaudhary (supra) and Vaani Estates Pvt. Ltd. Vs. ITO (supra).

14 14. Similarly, in the case of Hometrail Buildtech Pvt. Ltd. (supra), the ITAT held thus:

“11. We have given thoughtful consideration to the orders of the authorities below. There is no dispute that the valuation of the assessee is supported by valuation report from a technical expert who has adopted DCF method, which is one of the recognized methods u/r 11UA of the Rules. Therefore, the Assessing Officer erred in rejecting the method.

12. On a perusal of the relevant sections read with the Rules, we are of the view that the action of the Assessing Officer in substituting the method of valuation is beyond jurisdiction. We are of the view that DCF Method is based on projections which are based on factors like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors.

15. The Hon'ble High Court of Delhi in the case of PCIT Vs. Cinestaan Entertainment 433 ITR 82 has held a under: “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 prescribed methodology. The Appellant-Revenue had the option to conduct its own valuation and determine FMV on the basis of either the DCF or NAV Method. The Respondent-Assessee being a start-up company adopted DCF method to value its shares. This was carried out on the basis of information and material available on the date of valuation and projection of future revenue. There is no dispute that methodology adopted by the Respondent- Assessee has been done applying a recognized and accepted method. Since the performance did not match the projections, Revenue sought to challenge the valuation, on that footing. This approach lacks material foundation and is irrational since the valuation is intrinsically based on projections which can be affected by various factors. We cannot lose sight of the fact that the valuer makes forecast or approximation, based on potential value of business. However, the underline facts and assumptions can undergo change over a period of time. The Courts have repeatedly held that valuation is not an exact 15 science, and therefore cannot be done with arithmetic precision. It is a technical and complex problem which can be appropriately left to the consideration and wisdom of experts in the field of accountancy, having regard to the imponderables which enter the process of valuation of shares. The Appellant-Revenue is unable to demonstrate that the methodology adopted by the Respondent-Assessee is not correct. The AO has simply rejected the valuation of the Respondent-Assessee and failed to provide any alternate fair value of shares. Furthermore, as noted in the impugned order and as also pointed out by Mr. Vohra, the shares in the present scenario have not been subscribed to by any sister concern or closely related person, but by outside investors. Indeed, if they have seen certain potential and accepted this valuation, then Appellant-Revenue cannot question their wisdom. The valuation is a question of fact which would depend upon appreciation of material or evidence. The methodology adopted by the Respondent-Assessee, accepted by the learned ITAT, is a conclusion of fact drawn on the basis of material and facts available. The test laid down by the Courts for interfering with the findings of a valuer is not satisfied in the present case, as the Respondent-Assessee adopted a recognized method of valuation and Appellant-Revenue is unable to show that 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.

14. In view of the foregoing, we find that the question of law urged by the Appellant-Revenue is purely based on facts and does not call for our consideration as a question of law.” The ITAT relied upon the decision of the Hon’ble Delhi High Court in PCIT vs. Cinestaan Entertainment 433 ITR 82 (Del).

16 17. In the result, appeal of the assessee is partly allowed.