DCIT 2(2)(1), MUMBAI V. MAX HOSPITALS AND ALLIED SERVICES LIMITED, MUMBAI

ITA 3085/MUM/2025

AI Insights

The case involves three separate appeals by the revenue against Max Hospitals and Allied Services Limited concerning the assessment years 2016-17, 2017-18, and 2018-19. The primary issues in the appeals were the deletion of the addition made on account of share premium and the disallowance of depreciation on a deposit made to the society running Nanavati Hospital. The Assessing Officer (AO) had initially rejected the valuation of shares and disallowed the depreciation, which was later contested and overturned by the CIT(A). The Tribunal's decision relied heavily on the methodology of valuation adopted by the assessee and the legal interpretation of the relevant sections of the Income Tax Act.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 717267 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: F
• Assessment Year: 2018-2019
• Appeal Filed On: 30-04-2025
• Other Referred Cases: Cinestaan Entertainment (P) Ltd. vs. ITO, Sreelekha Banerjee & Others Vs. Commissioner of Income Tax, SA Builders vs. CIT, Panipat Woollen and General Mills Company Ltd. vs. CIT, Bangalore International Airport Ltd. vs. The Deputy Commissioner Of Income-Tax, Circle-11 (2) Bangalore, The Commissioner Of Income Tax-I Bangalore
• Laws Referred To: Income Tax Act, Income Tax Rules, 1962
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA; DR
• Assessee Lawyers: K. SHIVRAM AW RAHUL HAKKANI; AR
• Keywords: Set aside; Question of law; Corroborative evidences; Depreciation; Fair market value; Commercial expediency; Valuation report; Revision of order
• Section: 143(3); 263; 32; 56(2); 133(6); 6

Judgement Text

" | आयकर अपीलीय अिधकरण ा यपीठ, मुंबई | IN THE INCOME TAX APPELLATE TRIBUNAL “F” BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY, HON’BLE VICE PRESIDENT & SHRI NARENDRA KUMAR BILLAIYA, HON’BLE ACCOUNTANT MEMBER I.T.A. No. 3083/Mum/2025 Assessment Year: 2016-17 I.T.A. No. 3084/Mum/2025 Assessment Year: 2017-18 I.T.A. No. 3085/Mum/2025 Assessment Year: 2018-19 DCIT, 2(2)(1) Vs Max Hospitals and Allied Services Limited 401, 4th Floor Man Excellenza SV Road, Ville Parle Mumbai - 400056 [PAN: AAGCR9198D] अपीला थ\u0016/ (Appellant) \u0017\u0018 यथ\u0016/ (Respondent) Assessee by : Dr. K. Shivram a/w Shri Rahul Hakkani, A/R Revenue by : Shri Vivek Perampurna, CIT D/R सुनवाई की तारीख/Date of Hearing : 05/08/2025 घोषणा की तारीख /Date of Pronouncement: 11/08/2025 आदेश/O R D E R PER NARENDRA KUMAR BILLAIYA, AM: I.T.A. No. 3083/Mum/2025, I.T.A. No. 3084/Mum/2025, I.T.A. No. 3085/Mum/2025 are three separate appeals by the revenue preferred against three separate orders of NFAC, Delhi [hereinafter ‘the ld. CIT(A)’] pertaining to AY 2016-17, 2017-18 and 2018-19. 2. Since common grievance is involved in the captioned appeals, they were heard together and are disposed off by this common order for the sake of convenience and brevity. Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 2 3. The representatives were heard on the facts of AY 2016-17 where the grievance of the revenue reads as under:- “Ground no. I \"Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition made on account of security premium amounting to Rs. 10,73,82,810/-u/s 56(2)(viib) of the Act without considering the defects pointed out by the Assessing Officer in the valuation report of shares under Discounted cash flow method by Merchant Banker in its assessment order?\" Ground no. 2 \"Whether on the facts and circumstances of the case and in law, the CIT(A) erred in deleting the disallowance of depreciation @ 25% amounting to Rs: 6,25,00,000/- on the deposit of Rs. 25 Crores paid to the Society running the BN Nanavati hospital without appreciating the fact that the payment of deposit made by the assessee was only conditioned and that assessee would get refund of such deposit in case of cancellation?\" Ground no. 3 \"The apellant craves the leave to add, amend, alter and/or delete any of the grounds of appeal as above.\" 4. Briefly stated the facts of the case are that the assesse filed its return of income for AY 2016-17 on 14/10/2016 declaring total loss for the year at Rs. 5,49,54,209/-. The assessment u/s 143(3) of the Act was completed on 19/12/2018 accepting the returned income of the assessee. Later on, the assessment order was set aside by the PCIT u/s 263 of the Act pursuant to which fresh assessment proceedings were initiated. 5. During the course of the scrutiny assessment proceedings, the AO noticed that the assessee received share premium of Rs. 10,73,82,810/-. The AO noticed that the valuation was done on the basis of discounted cash flow method (DCF method) wherein PAT for the FY 2015-16 and 2016-17 was shown at Rs.33.81 crore, Rs.30.67 crore and Rs.27.32 crore respectively. The AO found that the assessee had suffered losses in FY 2014-15 and 2015-16 and had no revenue from operations during these two years. The AO formed a belief that the valuation report was only made to justify the premium of Rs. 10,73,82,810/-. Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 3 6. The assessee made strong submissions claiming that the FMV of shares was derived as per methods prescribed under Rule 11UA(2)(b) of the Income Tax Rules, 1962 (hereinafter “the Rules”) r.w.s. 56(2)(viib) of the Act. The AO observed that the assesse has issued 1,07,38,281 equity shares of Rs. 10/- each at a premium of Rs. 10/- each to promoters & persons other than promoters. 6.1. Based on the above facts, the AO came to the conclusion that the valuation of share prices is not correct for the following reasons:- 1. “As stated above, the assessee company has been incorporated May 2014 and the estimates of the accounts were much higher implying that the assessee had adopted incorrect assumptions of steep profits in order to escalate the share price. 2. It is seen from the valuation report that there were wide variations in assumptions in report and the values. It is seen that assessee had suffered losses and there was no revenue from operations during the last three years. 3. There is no indication or evidence as to how the estimates or projects are made in arriving at the projected figures for profits before tax, Terminal Value and Equity value of the shares, EBIDTA. These values adopted are nowhere near to the actual and achievements. As such, there is no rationale behind the figures adopted in this valuation other than the reasons best known to the assessee. There are no positive reserves and surplus as on the date of issuing shares or on the date of valuation and on the date of receipt of premium. The book value per share of the company was at Rs.10 per share could not justify charging of any premium on shares that of a rupee more than the face value but the value per share was determined at a rate as high as Rs.10 per share, which is higher by 100% of the face value. 4. The assessee does not have any hidden assets in the form of patents, copy rights, intellectual property rights or even investments etc., belonging to the company based on which the assessee would be likely to substantially enhance its profits, which may have a bearing on the premium to be charged on allotment of the fresh shares. 5. The assessee has only adopted the Discounted Cash Flow method in valuation which in itself is unrealistic and purely based on vague projections without any supporting evidences. The assessee was new in to business in the year 2014, the basis on which such high estimate of revenues and profits is better known to the assessee as no evidences or prospects taken into consideration have been submitted in support thereof. Therefore, there is no credibility for the valuation as the future results shown in said report are proved to be mere wild guesses as the books of the assessee prove that the assessee could not generate the profits as indicated in the valuation report. 6. Thus, the premium charged by the assessee is unscientific and unjustified. It is pertinent to mention here that various higher judicial for a regarding colourable Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 4 devices used for the purpose of tax evasion and in particular the decision of the Hon’ble Supreme Court in the case of Mc. Dowell and Co. Ltd., (1985) 154 ITR 148. 7. The premium attached to the shares has not been received from open market. It is an admitted position that it is a limited group transaction and is not entered with open and general subscribers who could pay the premium. 8. The shares had no capability and no intrinsic value to give price to premium in the industrial, normal and actual worth of the company. 9. Further, the Hon’ble Supreme Court in the case of Sreelekha Banerjee & Others Vs. Commissioner of Income Tax held that if explanation is unconvincing and one which deserves to be rejected, the Department can reject and draw the inference that the amount represents income either from the source already disclosed by the assessee or from some undisclosed source.” 7. Referring to the provisions of Section 56(2)(viib) of the Act, the AO treated the premium of Rs. 10/- as assessee’s income for the year under consideration and made addition of Rs. 10,73,82,810/- in AY 2016-17. 7.1. Proceeding further, the AO noticed that the assessee has claimed depreciation @ 25% on the deposit paid of Rs. 25 Crores to the society running Nanavati Hospital. The assesse was asked to justify its claim of depreciation. In its reply, the assessee strongly contended that the payment of non-refundable deposit for acquisition of rights for operation and management of a hospital is an intangible asset for the assessee and, therefore, covered under the provisions u/s 32(1)(ii) of the Act and is eligible for depreciation. The assessee also pointed out that depreciation was allowed in AY 2015-16. All the contentions of the assessee were dismissed by the AO who went on to disallow the claim of depreciation of Rs. 6.25 Crores. 7.2. The assessee challenged the additions before the ld. CIT(A) and reiterated its claim. The ld. CIT(A) after considering the facts and the submissions found that in AY 2018-19, during the first appellate proceedings, the revenue has accepted the valuation report from the same valuer who valued the share premium at Rs. 29.60/- for shares of Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 5 Rs.10/- face value. The ld. CIT(A) observed that the AO was informed by the assessee about the additions u/s 56(2)(viib) of the Act in the AY 2016-17 and 2017-18, yet after applying his mind on the facts of the case and despite having knowledge that in the earlier AYs, the additions u/s 56(2)(viib) of the Act have been made on account of rejection of valuation report, the AO has accepted the same in AY 2018-19. The ld. CIT(A) deleted the addition of Rs. 10,73,82,810/-. Proceeding further, insofar as the issue of depreciation is concerned, the ld. CIT(A) found that the same was claimed on the WDV which means that the deprecation was allowed in the earlier year. Therefore, the ld. CIT(A) was of the opinion that the same cannot be disallowed in the subsequent years and deleted the disallowance of depreciation. 8. Before us, the ld. D/R strongly relied upon the findings of the AO, the ld. Counsel for the assessee reiterated what has been stated before the lower authorities. 9. We have given a thoughtful consideration to the orders of the authorities below. The undisputed fact is that the assessee has applied DCF method for the purpose of valuation of shares and has relied upon the valuation report of the Chartered Accountant in this regard. There is a settled law on this issue that as per Section 56(2)(viib) of the Act r.w.r. 11UA of the Rules, every assessee has an option to do valuation of shares and determine its FMV either by DCF method or NAV method and that the AO cannot examine or substitute his own value in place of the value so determined. The ITAT Delhi bench in the case of Cinestaan Entertainment (P) Ltd. vs. ITO [2019] 106 taxmann.com 300 (Delhi), has held as under:- Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 6 “32. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Whereas in a DCF method, the value is based on estimated future projection. These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the ld. Counsel, for instance: — (i) Securities & Exchange Board of India (supra) - (Bombay HC)] \"48.6 Thirdly, it is a well settled position of law with regard to the valuation. that valuation is not an exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is bu its very nature based on projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information.\" (ii) Rameshwaram Strong Glass (P.) Ltd. (supra) \"4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 7 history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups.\" (iii) DQ (International) Ltd. (supra) \"10........... In our considered view, for valuation of an intangible asset, only the future projections along can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed\". The aforesaid ratios clearly endorsed our view as above. 33. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law.” 10. This decision of the Co-ordinate Bench has been affirmed by the Hon’ble High Court of Delhi in [2021] 433 ITR 82 (Delhi). The relevant part of the judgment reads as under:- “8. We have heard and duly considered the arguments and contentions advanced by the learned counsel for both the parties. 9. In the present case, the Respondent-Assessee has received share premium from various subscribers/equity partners. These funds were required by the Respondent- Assessee for film production. The shares were issued based on the valuation received from the prescribed expert i.e., a Chartered Accountant who used the DCF method which is one of the methods stipulated under Section 56(2)(viib) read with Rule 11UA(2)(b).Based on the valuation report dated 15.12.2014, the Respondent- Assessee issued shares to various equity partners at a premium as per the following table: S. No. Name of equity partner Date of Issue No. of Shares Premium (Rs.) per share Amount of premium (Rs.) 1. Shri Anand Mahindra 06.01.2015; 23.02.2015 4,15,385 1949 80,95,85,365/- 2. Shri Rakesh Jhunjhunwala 24.03.2015 19,207 2602 4,99,80,793/- 3. Shri Radhakishan Damani 24.03.2015 19,207 2602 4,99,80,793/- Total 4,53,799 90,95,46,200/- Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 8 10. The AO has disregarded the valuation report of the Respondent-Assessee primarily on the ground that the projections of revenue as considered for the purpose of valuation do not match the actual revenues of subsequent years. The AO has made additions based on the assumption that the Respondent-Assessee made no efforts to achieve the projection as made out in the valuation report and therefore the share premium received by the Respondent-Assessee is without any basis and contrary to provisions of Section 56(2)(viib) read with Section 2(24)(xvi) of the Act. Further, the AO held that the Respondent-Assessee has failed to submit any basis of projection. He also held the view that in order to achieve the said projection, the Respondent- Assessee should have invested the share premium amount to earn certain income/return and whereas the Respondent-Assessee made investments in zero percent debentures of its associate company and therefore the basic substance of receiving a high premium is not justified. 11. We note that in the instant case, the AO had issued notice under Section 133(6) to all the investors to seek confirmation, information and documents pertaining to the issuance of shares. Further, the venture agreement between the Respondent- Assessee and the investors was also filed before the AO. The learned ITAT thus, after due consideration of the record, concluded that neither the identity, nor the creditworthiness and genuineness of the investors and the pertinent transaction could be doubted. This fact stood fully established, before the AO and has not been disputed or doubted. Therefore, the nature and source of the credit stood accepted. 12. In this factual background, the learned ITAT then proceeded to examine whether the AO after invoking the deeming provision under Section 56(2)(viib), could have determined the FMV of the premium on the shares issued at nil after rejecting the valuation report given by the Chartered Accountant based on one of the prescribed methods under the Rules adopted by the valuer. On this aspect, after examining the statutory provisions and the factual position, the ITAT inter-alia observed as under: “32. What is seen here is that, both the authorities have questioned the assessee's commercial wisdom for making the investment of funds raised in 0% compulsorily convertible debentures of group companies. They are trying to suggest that assessee should have made investment in some instrument which could have yielded return/ profit in the revenue projection made at the time of issuance of shares, without understanding that strategic investments and risks are undertaken for appreciation of capital and larger returns and not simply dividend and interest. Any businessman or entrepreneur, visualise the business based on certain future projection and undertakes all kind of risks. It is the risk factor alone which gives a higher return to a businessman and the income tax department or revenue official cannot guide a businessman in which manner risk has to be undertaken. Such an approach of the revenue has been judicially frowned by the Hon'ble Apex Court on several occasions, for instance in the case of SA Builders, 288 ITR 1 (SC)and CIT vs. Panipat Woollen and General Mills Company Ltd., 103 ITR 66 (SC). The Courts have held that Income Tax Department cannot sit in the armchair of businessman to decide what is profitable and how the Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 9 business should be carried out. Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA(2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. Here, in this case, Assessing Officer has not substituted any of his own method or valuation albeit has simply rejected the valuation of the assessee. 33. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 11U. Here, in this case, Assessing Officer has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Whereas in a DCF method, the value is based on estimated future projection. These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. Precisely, these factors have been judicially appreciated in various judgments some of which have been relied upon by the ld. Counsel, for instance: i) Securities &Exchange Board of India & Ors [2015 ABR 291 (Bombay HC)] \"48.6 Thirdly, it is a well settled position of law with regard to the valuation that valuation is not and exact science and can never be done with arithmetic precision. The attempt on the part of SEBI to challenge the valuation which is bu its very nature based on Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 10 projections by applying what is essentially a hindsight view that the performance did not match the projection is unknown to the law on valuations. Valuation being an exercise required to be conducted at a particular point of time has of necessity to be carried out on the basis of whatever information is available on the date of the valuation and a projection of future revenue that valuer may fairly make on the basis of such information.\" ii) Rameshwaram Strong Glass Pvt. Ltd. v. ITO [2018-TIOL-1358- ITAT- Jaipur) \"4.5.2. Before examining the fairness or reasonableness of valuation report submitted by the assessee we have to bear in mind the DCF Method and is essentially based on the projections (estimates) only and hence these projections cannot be compared with the actuals to expect the same figures as were projected. The valuer has to make forecast on the basis of some material but to estimate the exact figure is beyond its control. At the time of making a valuation for the purpose of determination of the fair market value, the past history may or may not be available in a given case and therefore, the other relevant factors may be considered. The projections are affected by various factors hence in the case of company where there is no commencement of production or of the business, does not mean that its share cannot command any premium. For such cases, the concept of start-up is a good example and as submitted the income-tax Act also recognized and encouraging the start-ups. iii) DQ(International) Ltd. vs. ACIT (ITA 151/Hyd/2015) “10. In our considered view, for valuation or an intangible asset only the future projections along can be adopted and such valuation cannot be reviewed with actuals after 3 or 4 years down the line. Accordingly, the grounds raised by the assessee are allowed\". 34. The aforesaid ratios clearly endorsed our view as above. In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 35. There is another very important angle to view such cases, is that, here the shares have not been subscribed by any sister concern or closely related person, but by an outside investors like, Anand Mahindra, Rakesh Jhunjhunwala, and Radhakishan Damania, who are one of the top investors and businessman of the country and if they have seen certain potential and accepted this valuation, then how AO or Ld. CIT(A) can question their wisdom. It is only when they have seen future potentials that they have Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 11 invested around ₹ 91 crore in the current year and also huge sums in the subsequent years as informed by the ld. counsel. The investors like these persons will not make any investment merely to give dole or carry out any charity to a startup company like, albeit their decision is guided by business and commercial prudence to evaluate a startup company like assessee, what they can achieve in future. It has been informed that these investors are now the major shareholder of the assessee company and they cannot become such a huge equity stock holder if they do not foresee any future in the assessee company. In a way Revenue is trying to question even the commercial prudence of such big investors like. According to the Assessing Officer either these investors should not have made investments because the fair market value of the share is Nil or assessee should have further invested in securities earning interest or dividend. Thus, under these facts and circumstances of the case, we do not approve the approach and the finding of the ld. Assessing Officer or ld. CIT(A) so to take the fair market value of the share at 'Nil' under the provision of Section 56(2)(viib) and thereby making the addition of ₹ 90.95 crores. The other points and various other arguments raised by the ld.counsel which kept open as same has been rendered purely academic in view of finding given above. 36. Other grounds are either consequential or have become academic, hence same are treated as infructuous. In the result appeal of the appellant assessee is allowed.” 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 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 Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 12 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. 11. On finding parity of facts, respectfully following the decision of the Co-ordinate Bench and the Hon’ble Delhi High Court, we do not find any reason to interfere with the findings of the ld. CIT(A). Accordingly Ground No. 1 is dismissed. 12. Insofar as Ground No. 2 is concerned, there is no dispute that the depreciation was allowed in earlier assessment years and the assessee has claimed depreciation on the WDV. It is also not in dispute that the assessee had paid non-refundable deposit for getting the rights of operation and management of Nanavati Hospital and the said payment has been treated as purchase of intangible rights. The Hon’ble High Court of Karnataka in the case of Bangalore International Airport Ltd. Versus The Deputy Commissioner Of Income-Tax, Circle-11 (2) Bangalore, The Commissioner Of Income Tax-I Bangalore [2023] 457 ITR 229 (Kar), has held as under:- “10. It is not in dispute that the assessee has incurred certain expenditure. Shri Sanmathi's contention is, the expenditure was not proved before the Assessing Officer. Shri Suryanarayana submitted that subject to assessee demonstrating Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 13 factual expenditure, assessee may be permitted to capitalize such expenditure and to claim depreciation on that expenditure. 11. In Areva T & D India Ltd., assessee-appellant therein had entered into Slump Sale Agreement and acquired know-how, business contacts, business information, etc. The Delhi High Court framed the following questions for consideration; \"Whether on the facts and in the circumstances of the case, the Tribunal erred in law in holding that know-how, business contacts, business information, etc. acquired as part of the slump sale described as were not entitled for depreciation under Section 32(1)(ii) of the Income Tax Act?\" and held that the intangible assets acquired under Slump Sale Agreement were in the nature of business or commercial rights of similar nature specified in Section 32 (1)(ii) of the Income Tax Act, 19614 and eligible for depreciation under the said act. 12. In the case on hand, assessee has entered into various agreements with Central and State Government, etc. The assessee's agreement referred to hereinabove is with the Central Government. Assessee's case is, to obtain that agreement it has incurred certain expenditure. Shri Suryanarayana, pointed out that in case the assessee transfers its rights under the agreement, it will be transfer of an intangible asset similar to the one considered in Areva T & D India Ltd., and he is right in his submission. A Concession or a right which accrues over a period of time under an agreement will be in the form of an intangible asset and when transferred, the transferee will also be entitled for continuation of the benefit. Assessing Officer has stated that the expenses in this case are mostly towards legal, technical and management fee. Such expenditure is incurred to obtain a legally enforceable agreement. In our considered view, the ITAT has rightly held that such expenses can be capitalized. It is settled that assessee shall be entitled to claim depreciation on such expenses which can be capitalized. 13. Shri Sanmathi's contention that CIT(A) has recorded that the assessee has not proved the expenditure also merits consideration. It is relevant to note that CIT(A), on appreciation of material on record, has held in Para 4.9 that assessee had acquired business and commercial rights and licenses by making payment which were in the nature of 'intangible asset' entitled for claiming depreciation under Section 32(1)(ii) of the Act. This finding has not been challenged by the Revenue before the ITAT. 14. The second substantial question of law is whether a lease right constitutes an intangible right. In our view, Shri Suryanarayana is right in his submission because, the intangible right accrued in favour of assessee is transferable and therefore, the cost incurred towards acquiring leasehold rights shall be eligible for depreciation. Printed from counselvise.com I.T.A. No. 3083/Mum/2025 I.T.A. No. 3084/Mum/2025 I.T.A. No. 3085/Mum/2025 14 13. In light of the above, we do not find any error or infirmity in the findings of the ld. CIT(A). Ground No. 2 is also dismissed. 14. Before parting, in ITA No. 3085/Mum/2025 pertaining to AY 2018- 19, the only dispute relates to the deletion of disallowance of depreciation which has been dealt with hereinabove. 15. In the result, appeals by the revenue are dismissed. Order pronounced in the Court on 11th August, 2025 at Mumbai. Sd/- Sd/- (SAKTIJIT DEY) (NARENDRA KUMAR BILLAIYA) VICE PRESIDENT ACCOUNTANT MEMBER Mumbai, Dated 11/08/2025 *SC SrPs *SC SrPs *SC SrPs *SC SrPs आदेश की \u0015ितिलिप अ\u001aेिषत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. \u0015 थ / The Respondent 3. संबंिधत आयकर आयु\" / Concerned Pr. CIT 4. आयकर आयु\" ) अपील ( / The CIT(A)- 5. िवभागीय \u0015ितिनिध ,आयकर अपीलीय अिधकरण, मुंबई /DR,ITAT, Mumbai, 6. गाड& फाई/ Guard file. आदेशानुसार/ BY ORDER TRUE COPY Assistant Registrar आयकर अपीलीय अिधकरण ITAT, Mumbai Printed from counselvise.com "