DREAMS DWELLERS LLP(AS LEGAL REPRESENTATIVE OF MEGACORP DEVELOPERS PVT LTD,MUMBAI V. ACIT -24(1) (EARLIER ACIT CIR 10(1)(1), MUMBAI), MUMBAI

ITA 4937/MUM/2024

AI Insights

The case involves Dreams Dwellers LLP, which appealed against the order of the Commissioner of Income-tax (Appeals) sustaining the addition made by the Assessing Officer under the head 'income from other sources' for the share premium received in excess of fair market value. The Tribunal examined the valuation report prepared by an independent chartered accountant, which used the discounted cash flow method to determine the fair market value of the shares. The Tribunal noted that the Assessing Officer and the CIT(A) did not adequately address the valuation methodology or provide a basis for rejecting the expert's valuation. Consequently, the Tribunal allowed the appeal, directing the deletion of the addition made by the Assessing Officer.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 471379 (ITAT-MUMBAI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-01-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2014-2015
• Other Referred Cases: Deputy Commissioner of Income tax vs. Weldon Polymers (P.) L. 163 taxmann.com 773 (Delhi Trib.), DQ Entertainment in ITA No. 151/Hyd/2015, CIT Vs Vibhu Talwar (11 taxmann.com 419), CIT Vs Bharti Cellular Ltd, Him Agri Fresh (P) Ltd vs ITO (2021) 129 taxmann.com 250 /190 ITD 429, Vodafone M pesa Ltd vs PCIT reported in 92 taxmnn.com 73
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SANYOGITA NAGPAL
• Assessee Lawyers: AJAY SINGH
• Keywords: Set aside; Fair market value; Valuation report
• Section: 143(3); 250; 143(1); 56; 68; 73

Judgement Text

"IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “D” MUMBAI BEFORE SHRI OM PRAKASH KANT (ACCOUNTANT MEMBER) AND SHRI SUNIL KUMAR SINGH (JUDICIAL MEMBER) ITA No. 4937/MUM/2024 Assessment Year: 2014-15 Dreams Dwellers LLP (As Legal representative of Megacorp Developers Pvt. Ltd., Mumbai) 702, Natraj, MV Road, Junction W E Highway, Andheri (E), Mumbai-400069. Vs. ACIT-24(1) (Earlier ACIT Cir 10(1)(1) Mumbai), Room No. 604, 6th floor, Piramal Chambers Parel, Mumbai-400012. PAN NO. AAFCM 0366 B Appellant Respondent Assessee by : Mr. Ajay Singh Revenue by : Ms. Sanyogita Nagpal, CIT-DR Date of Hearing : 19/12/2024 Date of pronouncement : 30/01/2025 ORDER PER OM PRAKASH KANT, AM This appeal by the assessee is directed against order dated 27.07.2024 passed by the Ld. Commissioner of Income-tax (Appeals) – National Faceless Appeal Centre, Delhi [in short ‘the Ld.CIT(A)’] for assessment year 2014-15, raising grounds challenging addition for premium being more than fair market value. 2. Briefly stated, facts of the case are that the assessee limited liability partnership 27.01.2016. Prior to that Megacorp Developers Pvt. Ltd., which was in the business of construction of residential complexes Dwellers Pvt. Ltd. vide 10.10.2014 with appointed 27/01/2016, M/s Dreamz Dwellers Pvt. Ltd. got converted into the present assessee i.e. limited liability partnership. For the year under consideration i.e. assessment year 2014 relevant time M/s Dreamz D on 28.09.2014 declaring total income return of income filed by the assessee was processed u/s 143(1) of the Income-tax Act, 1961 (in short ‘the Act’). Subsequently, the return of income filed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. The assessment was completed by way of order 30.12.2016 wherein addition was made from other sources’ in share premium amount received in excess of fair market value 3. On further appeal, the addition made by the Assessing Officer was sustained by the Ld. CIT(A). Aggrieved the assessee is in appeal ITA No. ion for alleged sum received against share more than fair market value. Briefly stated, facts of the case are that the assessee limited liability partnership firm, which came into existence on rior to that its predecessor, a company Megacorp Developers Pvt. Ltd., which was in the business of construction of residential complexes, got merged with Dwellers Pvt. Ltd. vide Hon’ble High Court of Bombay 10.10.2014 with appointed date as 31.03.2014. Subsequently on Dreamz Dwellers Pvt. Ltd. got converted into the assessee i.e. limited liability partnership. For the year under consideration i.e. assessment year 2014-15, the assessee Dreamz Dwellers Pvt. Ltd.) filed return of income on 28.09.2014 declaring total income at Rs.1,08,28,783/ return of income filed by the assessee was processed u/s 143(1) of tax Act, 1961 (in short ‘the Act’). Subsequently, the ed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. The assessment was completed by way of order u/s 143(3) 30.12.2016 wherein addition was made under the head ‘income from other sources’ invoking section 56(2)(viib) of the Act share premium amount received in excess of fair market value On further appeal, the addition made by the Assessing Officer was sustained by the Ld. CIT(A). Aggrieved the assessee is in appeal Dreams Dwellers LLP 2 ITA No. 4937/MUM/2024 sum received against share Briefly stated, facts of the case are that the assessee is a e into existence on a company namely M/s Megacorp Developers Pvt. Ltd., which was in the business of got merged with M/s Dreamz of Bombay order dated Subsequently on Dreamz Dwellers Pvt. Ltd. got converted into the assessee i.e. limited liability partnership. For the year 15, the assessee ( at filed return of income Rs.1,08,28,783/-. The return of income filed by the assessee was processed u/s 143(1) of tax Act, 1961 (in short ‘the Act’). Subsequently, the ed by the assessee was selected for scrutiny and statutory notices under the Act were issued and complied with. The u/s 143(3) dated under the head ‘income 56(2)(viib) of the Act for alleged share premium amount received in excess of fair market value. On further appeal, the addition made by the Assessing Officer was sustained by the Ld. CIT(A). Aggrieved the assessee is in appeal before the Income-tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. 4. Before us, the Ld. counsel for the assessee has filed a Paper Book containing pages 1 to 192. 5. The grounds raised by the assessee are in relation to valuation of the share premium received on lower authorities. The facts in brief qua the issue in dispute are that the assessee issued 1,23,000 (CPS) of Rs. 10 each to M/s Altus Developers Pvt. Ltd of Rs.990/- per share for the purpose of carrying out construction activities in the company or through various group companies Before the AO, the assessee filed terms and conditions preference shares, dividend on such shares, payment method, transfer description and terms of redemptions etc. section 56(2)(viib) of the Act gets attracted when company receives the consideration for issue of share the fair market value of the shares the assessee. It was submitted on that share price was derived as specified section 56(2)(viib) o Sub-Rule (1) of Rule 11UA of the Income the said Rule, the fair market value of unquoted shares and securities other than the equity shares listed on the recognized stock exchange ITA No. tax Appellate Tribunal (in short ‘the Tribunal’) raising the grounds as reproduced above. Before us, the Ld. counsel for the assessee has filed a Paper Book containing pages 1 to 192. The grounds raised by the assessee are in relation to valuation of the share premium received on preference share rejected by the lower authorities. The facts in brief qua the issue in dispute are that the assessee issued 1,23,000 redeemable preference sha to M/s Altus Developers Pvt. Ltd per share for the purpose of carrying out construction in the company or through various group companies Before the AO, the assessee filed terms and conditions dividend on such shares, payment method, transfer description and terms of redemptions etc. T section 56(2)(viib) of the Act gets attracted when company receives the consideration for issue of share the fair market value of the shares, which is deemed to be income of the assessee. It was submitted on behalf of the assessee company share price was determined on the basis of fair market value derived as specified section 56(2)(viib) of the Act r.w. clause (c) of Rule (1) of Rule 11UA of the Income-tax Rules, 1962. Under the said Rule, the fair market value of unquoted shares and securities other than the equity shares of a company the recognized stock exchange, shall be estimated to be Dreams Dwellers LLP 3 ITA No. 4937/MUM/2024 tax Appellate Tribunal (in short ‘the Tribunal’) Before us, the Ld. counsel for the assessee has filed a Paper The grounds raised by the assessee are in relation to valuation preference share rejected by the lower authorities. The facts in brief qua the issue in dispute are preference shares to M/s Altus Developers Pvt. Ltd. at a premium per share for the purpose of carrying out construction in the company or through various group companies. Before the AO, the assessee filed terms and conditions of issue of dividend on such shares, payment method, The provisions of section 56(2)(viib) of the Act gets attracted when a unlisted company receives the consideration for issue of share in excess of is deemed to be income of behalf of the assessee company on the basis of fair market value f the Act r.w. clause (c) of tax Rules, 1962. Under the said Rule, the fair market value of unquoted shares and company, which is not shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report of merchant banker or an accountant in respect of such valuation. The assessee company derived price per share of preference share on the basis of valuation report obtained from such report is placed on paper book page report has laid down conditions of redeemable preference obtained specified dividend fair market value of the preference share based on the present value of the future cash inflow. It is submitted that discounted applied on this model is 12% per annum (on the basis of the Coupon rate) in the expired term is 1 11.5% per annum. The assessee explained the justification of the fair market value as under: “Further with regards to the ratio by the valuer, in order to determine the fair value of the redeemable preference shares, the assesse company has adopted the method to value the cash flows in the form of investment, dividend and redemption proceeds of the redeemable preference shares which are discounted at an appropriate discount rate to arrive at the present value of future cash inflows. Such model is akin to the dividend discounting model or discounting cash model which is an internationally accepted valuatio It is submitted that applying the above technique, the valuation report has derived the the present value per share of Rs 10268.89/ preference shares in the valuation report the assesse company has issued preference shares at Rs.10000/ ITA No. price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report of merchant banker or an accountant in respect of such valuation. The assessee company ed price per share of preference share on the basis of valuation report obtained from a chartered accountant. such report is placed on paper book page 41-45. The said valuation has laid down the methodology as well as ns of redeemable preference shares. The valuation report obtained specified dividend discounting the model for arriving fair market value of the preference share based on the present value of the future cash inflow. It is submitted that discounted applied on this model is 12% per annum (on the basis of the rate) in the expired term is 1 years with coupon rate of The assessee explained the justification of the fair market value as under: “Further with regards to the rationale for the valuation done by the valuer, in order to determine the fair value of the redeemable preference shares, the assesse company has adopted the method to value the cash flows in the form of investment, dividend and redemption proceeds of the mable preference shares which are discounted at an appropriate discount rate to arrive at the present value of future cash inflows. Such model is akin to the dividend discounting model or discounting cash model which is an internationally accepted valuation methodology. It is submitted that applying the above technique, the valuation report has derived the the present value per share of Rs 10268.89/-. Hence on the basis of the fair value of the said preference shares in the valuation report the assesse pany has issued preference shares at Rs.10000/ Dreams Dwellers LLP 4 ITA No. 4937/MUM/2024 price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report of merchant banker or an accountant in respect of such valuation. The assessee company ed price per share of preference share on the basis of a chartered accountant. A copy of The said valuation the methodology as well as terms and he valuation report discounting the model for arriving at the fair market value of the preference share based on the present value of the future cash inflow. It is submitted that discounted rate applied on this model is 12% per annum (on the basis of the years with coupon rate of The assessee explained the justification of the nale for the valuation done by the valuer, in order to determine the fair value of the redeemable preference shares, the assesse company has adopted the method to value the cash flows in the form of investment, dividend and redemption proceeds of the mable preference shares which are discounted at an appropriate discount rate to arrive at the present value of future cash inflows. Such model is akin to the dividend discounting model or discounting cash model which is an It is submitted that applying the above technique, the valuation report has derived the the present value per share of . Hence on the basis of the fair value of the said preference shares in the valuation report the assesse pany has issued preference shares at Rs.10000/- each (Rs 10 Face Value and Rs 9990/ it is submitted that the assesse company has issued the shares at a price which is not above the fair market value of the said preference shares redemption it is submitted that the assessee company has been merged with M/s. Keystone Realtors Pvt. Ltd. i.e. to whom the shares were issued. Hence it is submitted that the assesse company has justified in issuing shares at a of Rs.9990/ cannot be taxed u/s. 56(2)(vii) of The Income Tax Act, 1961 during the year under consideration. It is therefore submitted that addition made by the Learned Assessing Officer is unjustified an and without understanding the facts of the case. It is therefore prayed to your honour that such addition made by the learned assessing officer should be deleted and necessary guidance shall be given in this rega 5.1 Further, the assessee explained preference share capital was received from ld AO has not invoked section 68 of the Act the nature and source of money received however was not agreed with the methodology fair market value of the share premium received valuer. According to him net worth of company does not justify issue of share premium. has rejected the report mainly on the basis that valuation by the assessee is not as per rule 11UA of the Rules secondly, the assessee has not submitted intention preference share, thirdly basis to determine the fair market value, rationale investors would not be more than the net asset value of ITA No. (Rs 10 Face Value and Rs 9990/- Share premium). Therefore, it is submitted that the assesse company has issued the shares at a price which is not above the fair market value of the said preference shares. Further before the date of redemption it is submitted that the assessee company has been merged with M/s. Keystone Realtors Pvt. Ltd. i.e. to whom the shares were issued. Hence it is submitted that the assesse company has justified in issuing shares at a of Rs.9990/- per share and therefore the share premium cannot be taxed u/s. 56(2)(vii) of The Income Tax Act, 1961 during the year under consideration. It is therefore submitted that addition made by the Learned Assessing Officer is unjustified and on the basis of assumptions & presumption and without understanding the facts of the case. It is therefore prayed to your honour that such addition made by the learned assessing officer should be deleted and necessary guidance shall be given in this regard.” Further, the assessee explained that entire money preference share capital was received from group entities ld AO has not invoked section 68 of the Act as he has urce of money received. The Ld. Assessing Officer however was not agreed with the methodology of computation of the of the share premium received by the independent According to him net worth of company does not justify issue of share premium. On the issue of valuation, the Ld. CIT(A) has rejected the report mainly on the basis that valuation by the assessee is not as per rule 11UA of the Rules the assessee has not submitted intention thirdly, the valuation report is not basis to determine the fair market value, lastly, value as per any rationale investors would not be more than the net asset value of Dreams Dwellers LLP 5 ITA No. 4937/MUM/2024 Share premium). Therefore, it is submitted that the assesse company has issued the shares at a price which is not above the fair market value of Further before the date of redemption it is submitted that the assessee company has been merged with M/s. Keystone Realtors Pvt. Ltd. i.e. to whom the shares were issued. Hence it is submitted that the assesse company has justified in issuing shares at a premium per share and therefore the share premium cannot be taxed u/s. 56(2)(vii) of The Income Tax Act, 1961 during the year under consideration. It is therefore submitted that addition made by the Learned Assessing Officer is d on the basis of assumptions & presumption and without understanding the facts of the case. It is therefore prayed to your honour that such addition made by the learned assessing officer should be deleted and necessary guidance entire money of entities only. The as he has not doubted The Ld. Assessing Officer computation of the by the independent According to him net worth of company does not justify ue of valuation, the Ld. CIT(A) has rejected the report mainly on the basis that firstly, the valuation by the assessee is not as per rule 11UA of the Rules, the assessee has not submitted intention for issue of uation report is not a conclusive , value as per any rationale investors would not be more than the net asset value of the shares. The relevant finding of the Ld. CIT(A) is reproduced as under: “6.26 In view that the valuation adopted by the appellant is not in accordance with Rule 11UA r.w.r. 11U. The appellant has also not submitted intention/ end use of funds. After issuance of preference shares, it got merged w can not be contended that security premium was received with anticipation of further benefits. The net asset value of the shares of the appellant are negative and after knowing that the appellant company would not survive for lon investor would invest such whopping premium. Thus, the preference shares issued by the appellant would have not fetched such high premium in open market. Accordingly, the fair market value of preference shares may be restricted to only face value and the premium so received is found to be unjustified in the underlined case.” 5.2 On perusal of facts of instant case, we find that ld CIT(A)’s has not appreciated the facts 11UA of Rules prescribe for than equity share i.e. preference shares as under: “Determination of fair market value. 11UA. 30[(1)] For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely, (a) valuation of jewellery, (i) …… (ii) ……. (iii) ……. (b) valuation of archaeological collections, drawings, paintings, sculptures or any work of art,— (i) …………… (ii) ………….. (iii) ……………… (c) valuation of shares and securities, ………………………………. ITA No. the shares. The relevant finding of the Ld. CIT(A) is reproduced as “6.26 In view of the above, I am of the considerate opinion that the valuation adopted by the appellant is not in accordance with Rule 11UA r.w.r. 11U. The appellant has also not submitted intention/ end use of funds. After issuance of preference shares, it got merged with group company, thus it can not be contended that security premium was received with anticipation of further benefits. The net asset value of the shares of the appellant are negative and after knowing that the appellant company would not survive for long, no rational investor would invest such whopping premium. Thus, the preference shares issued by the appellant would have not fetched such high premium in open market. Accordingly, the fair market value of preference shares may be restricted to value and the premium so received is found to be unjustified in the underlined case.” On perusal of facts of instant case, we find that ld CIT(A)’s has not appreciated the facts of the case properly. Firstly Rules prescribe for valuation of unquoted shares of other than equity share i.e. preference shares as under: Determination of fair market value. [(1)] For the purposes of section 56 of the Act, the fair market value of a property, ther than immovable property, shall be determined in the following manner, namely, valuation of jewellery,— valuation of archaeological collections, drawings, paintings, sculptures or any work of ……………… valuation of shares and securities,— ………………………………. Dreams Dwellers LLP 6 ITA No. 4937/MUM/2024 the shares. The relevant finding of the Ld. CIT(A) is reproduced as of the above, I am of the considerate opinion that the valuation adopted by the appellant is not in accordance with Rule 11UA r.w.r. 11U. The appellant has also not submitted intention/ end use of funds. After issuance of ith group company, thus it can not be contended that security premium was received with anticipation of further benefits. The net asset value of the shares of the appellant are negative and after knowing that g, no rational investor would invest such whopping premium. Thus, the preference shares issued by the appellant would have not fetched such high premium in open market. Accordingly, the fair market value of preference shares may be restricted to value and the premium so received is found to be On perusal of facts of instant case, we find that ld CIT(A)’s has Firstly, the rule valuation of unquoted shares of other [(1)] For the purposes of section 56 of the Act, the fair market value of a property, ther than immovable property, shall be determined in the following manner, namely,— valuation of archaeological collections, drawings, paintings, sculptures or any work of (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.] 5.3 The assessee following the above rule has valuation report from an independent chartered account, which in our opinion, is as per the rule 11UA the assessee explained that it was engaged in the construction and development of real estate projects and is pa group, which expresses intention of use of fund. purpose of section 56(2)(viib) conclusive value of assessee but the requirement is will fetch in open market and for that purpose rule has prescribed to obtain a valuation report from an independent valuer , which the assesses has obtained. No mistake has been pointed out in the methodology adopted by t CIT(A). Lastly, in the case of tax vs. Weldon Polymers (P.) L. 163 taxmann.com 773 (Delhi Trib.), the Co-ordinate Bench of the Tribunal addressed issue of violation of preference u/s 56 the Rules. The ITAT ruled that correct provision of the valuation preference share are under Rule 11UA(1)(c) of the Rules which mandates that fair market value of unquoted redeemable shares be determined ITA No. the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such n.]” The assessee following the above rule has valuation report from an independent chartered account, which in is as per the rule 11UA(1)©© of the Rules. the assessee explained that it was engaged in the construction and development of real estate projects and is part of a large real estate group, which expresses intention of use of fund. Thirdly purpose of section 56(2)(viib) of the Act, requirement is not that a conclusive value of share premium has to be determined but the requirement is to determine a value which a share will fetch in open market and for that purpose rule has prescribed to obtain a valuation report from an independent valuer , which the assesses has obtained. No mistake has been pointed out in the methodology adopted by the valuer either by the AO or the ld n the case of Deputy Commissioner of Income tax vs. Weldon Polymers (P.) L. 163 taxmann.com 773 (Delhi ordinate Bench of the Tribunal addressed issue of violation of preference u/s 56(2)(viib) of the Act under Rule 11UA of the Rules. The ITAT ruled that correct provision of the valuation preference share are under Rule 11UA(1)(c) of the Rules which mandates that fair market value of unquoted redeemable be determined with the assistance of a report prepared by a Dreams Dwellers LLP 7 ITA No. 4937/MUM/2024 the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such The assessee following the above rule has submitted a valuation report from an independent chartered account, which in of the Rules. Secondly, the assessee explained that it was engaged in the construction and rt of a large real estate Thirdly, for the requirement is not that a determined by the to determine a value which a share will fetch in open market and for that purpose rule has prescribed to obtain a valuation report from an independent valuer , which the assesses has obtained. No mistake has been pointed out in the he valuer either by the AO or the ld Deputy Commissioner of Income- tax vs. Weldon Polymers (P.) L. 163 taxmann.com 773 (Delhi – ordinate Bench of the Tribunal addressed issue of of the Act under Rule 11UA of the Rules. The ITAT ruled that correct provision of the valuation of preference share are under Rule 11UA(1)(c) of the Rules which mandates that fair market value of unquoted redeemable preference with the assistance of a report prepared by a merchant banker or an accountant. The Bench held that valuation report prepared by the qualified under the law unless proven otherwise, as tho the necessary technical knowledge and experience to undertake such valuations. Further limited authority to alter or challenge the valuation methodology employed by such experts unless there is a clea fundamental errors or apparent mistakes in the valuation process To challenge the expert valuation demonstrate that said valuation instant case also, the AO or ld CIT(A) has basis for questioning the expert’s valuation method. Therefore, r of the opinion that it was not sufficient merely express dissatisfaction The Assessing Officer has not provided any substantial evidence and credible alternatives The Chartered Accountant has applied proper method of dividend discounting cash flow method. Further, we the case of DQ Entertainment in ITA No. 151/Hyd/2015 for assessment year 2010 should be left to be the wisdom estimate cash flow of the future years cannot actual down the line. view that future projected revenue ITA No. merchant banker or an accountant. The Bench held that valuation report prepared by the qualified experts is presumed unless proven otherwise, as those experts possess echnical knowledge and experience to undertake Further, it is held that the Assessing Officer has limited authority to alter or challenge the valuation methodology employed by such experts unless there is a clea or apparent mistakes in the valuation process challenge the expert valuation, the Assessing Officer must said valuation had fundamental error instant case also, the AO or ld CIT(A) has not provide basis for questioning the expert’s dividend discount rate Therefore, relying on the above decision, we are of the opinion that it was not sufficient for the Assessing Officer to dissatisfaction on expert methodo Assessing Officer has not provided any substantial evidence and credible alternatives while challenging expert valuation process. The Chartered Accountant has applied proper method of dividend discounting cash flow method. Further, we note that the Tribunal in DQ Entertainment in ITA No. 151/Hyd/2015 for assessment year 2010-11 has observed that matter of valuation should be left to be the wisdom of expert and method adopted for estimate cash flow of the future years cannot be replaced with the actual down the line. In that case, the Assessing Officer was of the projected revenue was estimated at higher side Dreams Dwellers LLP 8 ITA No. 4937/MUM/2024 merchant banker or an accountant. The Bench held that valuation presumed to be correct se experts possess echnical knowledge and experience to undertake , it is held that the Assessing Officer has limited authority to alter or challenge the valuation methodology employed by such experts unless there is a clear evidence of or apparent mistakes in the valuation process. the Assessing Officer must fundamental error. In the not provided a sound discount rate of elying on the above decision, we are the Assessing Officer to logy or results. Assessing Officer has not provided any substantial evidence challenging expert valuation process. The Chartered Accountant has applied proper method of dividend note that the Tribunal in DQ Entertainment in ITA No. 151/Hyd/2015 for has observed that matter of valuation method adopted for be replaced with the he Assessing Officer was of the estimated at higher side whereas there were no actual revenues Tribunal in the said case has held that future projections with the actual. in the case of CIT Vs Vibhu Talwar ( 11 taxmann.com 419) Hon’ble Supreme Court in the case of (330 ITR 239) held that the Revenue opinion from independent expert The Amaritsar Bench of the ITAT in the case of Ltd vs ITO (2021) 129 taxmann.com 250 /190 ITD 429 method of valuation of shares challenged by the AO only if it was not a recognised method of valuation as per rule 11UA(2) of Rules. ITAT in the case Flutura Business Solutions P Ltd Vs ITO (2020)_ 117 taxmann.com 567 fresh valuation by himself or by calling a independent valuer to confront to the assessee but he cannot change the method assessee and for scrutinizing valuati available on date of valuation has to be considered and actual results of future cannot be a basis to deicide about reliability of projections. The Hon’ble Bombay High Court in the case of Vodafone M pesa Ltd has held that department should not interfere in the method of valuation selected by the assessee. The relevant finding of Hon’ble High Court is reproduced as under: ITA No. were no actual revenues in subsequent years. The Tribunal in the said case has held that Revenue cannot replace the projections with the actual. The Hon’ble High Court of Delhi CIT Vs Vibhu Talwar ( 11 taxmann.com 419) Hon’ble Supreme Court in the case of CIT Vs Bharti Cellular Ltd held that the Revenue authorities should take expert independent expert while deciding matter of valuation The Amaritsar Bench of the ITAT in the case of Him Agri Fresh (P) Ltd vs ITO (2021) 129 taxmann.com 250 /190 ITD 429 method of valuation of shares adopted by the assessee could be challenged by the AO only if it was not a recognised method of valuation as per rule 11UA(2) of Rules. The Bangluru Bench of ITAT in the case Flutura Business Solutions P Ltd Vs ITO (2020)_ 117 taxmann.com 567 held that the AO can determine a fresh valuation by himself or by calling a determination valuer to confront to the assessee but he cannot change the method of valuation which has been opted by the assessee and for scrutinizing valuation report , facts and data available on date of valuation has to be considered and actual results of future cannot be a basis to deicide about reliability of The Hon’ble Bombay High Court in the case of Vodafone M pesa Ltd Vs PCIT reported in 92 taxmnn.com 73 has held that department should not interfere in the method of valuation selected by the assessee. The relevant finding of Hon’ble High Court is reproduced as under: Dreams Dwellers LLP 9 ITA No. 4937/MUM/2024 in subsequent years. The evenue cannot replace the The Hon’ble High Court of Delhi CIT Vs Vibhu Talwar ( 11 taxmann.com 419) and CIT Vs Bharti Cellular Ltd should take expert while deciding matter of valuation. Him Agri Fresh (P) Ltd vs ITO (2021) 129 taxmann.com 250 /190 ITD 429 held that adopted by the assessee could be challenged by the AO only if it was not a recognised method of The Bangluru Bench of ITAT in the case Flutura Business Solutions P Ltd Vs ITO held that the AO can determine a determination from an valuer to confront to the assessee but he cannot which has been opted by the on report , facts and data available on date of valuation has to be considered and actual results of future cannot be a basis to deicide about reliability of The Hon’ble Bombay High Court in the case of 92 taxmnn.com 73 has held that department should not interfere in the method of valuation selected by the assessee. The relevant finding of Hon’ble 9. We note that, the Commissioner of Income impugned order dat the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Ass Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, Assessing Officer is undoubtedly entitled to scrutinise 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 t change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated 21st December, 2017 would on ado sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. Infact, he has completely disregarded the DCF Method the fair market value. Therefore, the demand in the facts need to be stayed. ITA No. 9. We note that, the Commissioner of Income impugned order dated 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares has to be done/adopted at the Assessee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, Assessing Officer is undoubtedly entitled to scrutinise 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 DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated 21st December, 2017 would on adoption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. Infact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need Dreams Dwellers LLP 10 ITA No. 4937/MUM/2024 9. We note that, the Commissioner of Income-Tax in the ed 23rd February, 2018 does not deal with the primary grievance of the petitioner. This, even after he concedes with the method of valuation namely, NAV Method or the DCF Method to determine the fair market value of shares essee's option. Nevertheless, he does not deal with the change in the method of valuation by the Assessing Officer which has resulted in the demand. There is certainly no immunity from scrutiny of the valuation report submitted by the Assessee. Therefore, the Assessing Officer is undoubtedly entitled to scrutinise 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 he DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee. If Mr. Mohanty is correct in his submission that a part of demand arising out of the assessment order dated 21st ption of DCF Method will be sustained in part, the same is without working out the figures. This was an exercise which ought to have been done by the Assessing Officer and that has not been done by him. Infact, he has completely disregarded the DCF Method for arriving at the fair market value. Therefore, the demand in the facts need 5.4 We are of the considered view that, in the instant case, has valued the share premium invoking Net Asset Value (NAV) method substituting the dividend di the independent valuer. N identified in the valuation report that would warrant its rejection. The report cannot be dismissed solely on the grounds that th premium. Accordingly, and in respectful agreement with the findings of the Hon’ble Courts/ the conclusions of the Learned CIT(A) on the issue in dispute and direct the deletion of the additio The grounds of appeal raised by the assessee are allowed. 6. In the result, the appeal of the assessee is allowed. Order pronounced in the open Court on Sd/- (SUNIL KUMAR SINGH JUDICIAL MEMBER Mumbai; Dated: 30/01/2025 Rahul Sharma, Sr. P.S. ITA No. We are of the considered view that, in the instant case, has valued the share premium invoking Net Asset Value (NAV) method substituting the dividend discounting method applied by the independent valuer. No fundamental flaw or deficiency has been identified in the valuation report of independent valuer by the AO that would warrant its rejection. The report cannot be dismissed solely on the grounds that the assessee has received a high premium. Accordingly, and in respectful agreement with the Hon’ble Courts/Tribunal cited above, we set aside the conclusions of the Learned CIT(A) on the issue in dispute and direct the deletion of the addition made by the Assessing Officer. The grounds of appeal raised by the assessee are In the result, the appeal of the assessee is allowed. nounced in the open Court on 30/01/2025. - Sd/ SUNIL KUMAR SINGH) (OM PRAKASH KANT JUDICIAL MEMBER ACCOUNTANT MEMBER Dreams Dwellers LLP 11 ITA No. 4937/MUM/2024 We are of the considered view that, in the instant case, the AO has valued the share premium invoking Net Asset Value (NAV) scounting method applied by o fundamental flaw or deficiency has been of independent valuer by the AO that would warrant its rejection. The report cannot be dismissed e assessee has received a high premium. Accordingly, and in respectful agreement with the Tribunal cited above, we set aside the conclusions of the Learned CIT(A) on the issue in dispute and n made by the Assessing Officer. The grounds of appeal raised by the assessee are accordingly In the result, the appeal of the assessee is allowed. /01/2025. Sd/- OM PRAKASH KANT) ACCOUNTANT MEMBER Copy of the Order forwarded to 1. The Appellant 2. The Respondent. 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. //True Copy// ITA No. Copy of the Order forwarded to : BY ORDER, (Assistant Registrar) ITAT, Mumbai Dreams Dwellers LLP 12 ITA No. 4937/MUM/2024 BY ORDER, (Assistant Registrar) ITAT, Mumbai "