The DCIT, Circle-3(1)(1), Ahmedabad V. M/s. Phenix Procon Pvt. Ltd, Ahmedabad

ITA 1032/AHD/2019

• Counselvise Citation: [2024] 101 COUNSELVISE.COM (IT) 9038 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 7 month(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2024
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 31-10-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 18-06-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Question of law; Fair market value; Valuation report; Commercial expediency
• Section: 56; 56(2); 201; 143(2); 13; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER & Ms. MADHUMITA ROY, JUDICIAL MEMBER आयकर अपील सं./I. T. A. No . 1 032/Ahd/20 19 ( नधा रण वष / A ss es sment Year : 2015-16) T h e D C I T C e n tr a l C ir cle -3 (1 ) (1 ) , A h me da ba d बनाम/ Vs . M/ s. P h e ni x Pr oc on P v t . L t d. H - 1 0 07, T it a n iu m C it y C e ntr e, N r . Sa ch in To w e r , A n a n d Na g a r R o a d , S at e l li te, A h m ed ab a d थायी लेखा सं./जीआइआर सं./P A N/ G I R N o . : A A G C P 5 3 6 8 M (अपीलाथ /Appellant) . . ( यथ / Respondent) अपीलाथ ओर से /Appellant by : Shri Ashok Kumar Suthar, Sr. DR यथ क ओर से/Respondent by : Shri Sanjay R Shah, A.R. स ु नवाई क तार ख / D a t e o f H e a r i ng 01/11/2023 घोषणा क तार ख /D a t e o f P ro n o u nc e me n t 25/01/2024 O R D E R PER Ms. MADHUMITA ROY - JM: Th e in stant appeal filed by the as sessee i s directed against th e o rder dated 10. 04. 2019 p assed by the Ld. Commissioner o f Inco me Tax (Appeals)-9, Ah medabad (in short ‘CIT(A)’) arising out of th e order dated 18. 12. 201 7 passed by th e DCIT, Circle- 3(1 )(1), Ahmedabad, under S ection 1 43(3) of th e Income Tax Act, ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 2 - 1961, (hereinafter referred to as ‘the Act’) fo r Asse ss ment Year 2015-16 and whereby an d whereunder the addition made on account of charging of sh are premi u m in ex cess to the valu ation under Rule 11UA of th e In come Tax Ru les to the tune o f Rs. 2, 04, 1 0, 016 /- made by the Ld. AO has been deleted . 2. We have h eard the rival sub mi ssio ns made by the respective parties and we h ave also peru sed t he relevant materi als available on reco rd. 3. Th e brief fact s leading to th is case is this that the ass es see filed an e-return o n 28. 09.20 15 declaring to tal lo ss o f Rs. 1, 27, 2 4, 329 /-. Du rin g the year und er consid eration, the appellant issued 201 680 equ ity shares to the shareholders o f the co mpany at Rs. 119/- per share (face value Rs. 10/- per share and pre miu m Rs. 109 /- per share) o n 05. 03 . 2015 b ased on th e valu ation certificate obtained fro m the Ch ar tered Accoun tant as per Rule 11UA(2)(b) o f the Income Tax Rules, 19 62 (herein after referred to as ‘the Rule’). Subsequ ently, notice u nder Section 143(2) r. w. s. 142(1) of the Act was i ssu ed to the app ellan t directing the sub mi ssion of details b y the Ld. AO including a sh ow cause no tice as to why the valu ation certificate prepared by the Valuer should not be rejected and as to wh y th e fair ma rket valu e of the share s not to b e worked out as per Rule 11 UA(2 )(a) o f the Ru le instead of Rule 1 1UA(2)(b). The assessee categorically replied to this effect that th e Rule 11UA(2) prov ides an op tio n to the co mpany to select any of the methods g iven in clause (a) or (b) and ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 3 - accordingly d ecided to op t to issu e shares by discounted cash flow metho d. It was further su b mitted b y th e asse ssee th at to compare th e amounts projected with actual perfor mance, th e base shou ld be net cash flo w, b ased fro m the operations of the c o mp any and esti mated P BD AT with actual PBDAT canno t b e con siderably co mpared to find ou t th e real business situatio n. Th erefore, withou t prejudice to the valuation certificate sub mitted, the correct wo rk in g of fair market value as per 1 1UA(2)(a) resulted in to Rs. 17. 80 per share value. 4. As there was h uge variatio ns of th e projection with that of th e actual figures has been fo und by the AO, he reject ed the same with the ob servations that the v aluatio n repo rt is no t based on reliable p arameter s and made an addition o f rs. 2, 04, 10, 016/- as per pro visio ns laid down und er Sectio n 56(2)(viib) of the Act. 5. In appeal, the said addition was deleted by the Ld. CIT(A). Hen ce, th e instant appeal by the Reven ue before us. 6. After careful read ing of the orders p assed by the au th orities below, we fin d that the case o f the as sessee is this th at as per Rule 11UA(2), it is at the option of the asses see to deter mine the valuation of un quoted equ ity sh ares followin g the mann er laid down un der clause (a) or clau se (b ) o f the Rule 11UA(2) o f the Rules which is as follows: Rule 11UA(2) ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 4 - “[(2) Notwithstanding anything contained in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule (1):— (A) the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares, as shall be determined under sub-clause (a), sub-clause (b), sub-clause (c) or sub-clause (e), at the option of the assessee, where the consideration received by the assessee is from a resident ; and under sub-clauses (a) to (e) at the option of the assessee, where the consideration received by the assessee is from a non-resident, in the following manner:— (a) the fair market value of unquoted equity shares =(A-L)× [PV/PE], where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L= book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:— (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 5 - merchant banker as per the Discounted Free Cash Flow method; (c) where any consideration is received by a venture capital undertaking for issue of unquoted equity shares, from a venture capital fund or a venture capital company or a specified fund, the price of the equity shares corresponding to such consideration may, at the option of such undertaking, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from a venture capital fund or a venture capital company or a specified fund: Provided that the consideration has been received by the undertaking from a venture capital fund or a venture capital company or a specified fund, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation. Explanation.—For the purposes of this clause,- (i) "specified fund" shall have the same meaning as assigned to it in clause (aa) of Explanation to clause (viib) of sub-section (2) of section 56; (ii) "venture capital company", "venture capital fund" and "venture capital undertaking" shall have the same meaning assigned to them in clause (b) of Explanation to clause (viib) of sub-section (2) of section 56. Illustration: If a venture capital undertaking receives a consideration of fifty thousand rupees from a venture capital company for issue of one hundred shares at the rate of five hundred rupees per share, then such an undertaking can issue one hundred shares at this rate to any other investor within a period of ninety days before or after the receipt of consideration from venture capital company. (d) the fair market value of the unquoted equity shares determined by a merchant banker in accordance with any of the following methods: (i) Comparable Company Multiple Method; (ii) Probability Weighted Expected Return Method; (iii) Option Pricing Method; (iv) Milestone Analysis Method; (v) Replacement Cost Methods; (e) where any consideration is received by a company for issue of unquoted equity shares, from any entity notified under clause (ii) of the first proviso to clause (viib) of sub-section (2) of section 56, the price of the equity shares corresponding to such consideration may, at the option of such company, be taken as the fair market value of the equity shares to the extent the consideration from such fair market value does not exceed the aggregate consideration that is received from the notified entity: Provided that the consideration has been received by the company from ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 6 - the entity notified under clause (ii) of the first proviso to clause (viib) of sub-section (2) of section 56, within a period of ninety days before or after the date of issue of shares which are the subject matter of valuation. (B) the fair market value of compulsorily convertible preference shares for the purposes of sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub- section (2) of section 56 shall be the value, on the valuation date, as determined- (i) in accordance with the provisions of sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clause (a), sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee, where such consideration is received from a resident; and (ii) in accordance with the provisions of sub-clauses (b) to (e) of clause (A), at the option of the assessee, or based on the fair market value of unquoted equity shares determined in accordance with sub-clauses (a) to (e) of clause (A), at the option of the assessee, where such consideration is received from a non-resident.” 7. It is a fin ding o f the Ld. AO that the appellant comp any issued and allotted 20 1680 equity shares o f face value o f R s. 10 /- and premiu m o f Rs. 109 /- per share totallin g to Rs. 119/- per share and, th erefore, th e share pre miu m o f R s. 2, 1 9, 83, 1 20/- was receiv ed. It fu rth er appears th at the assessee filed the Fair Market Valu e Certificate dated 04.0 3.2016 ob tained fro m Shah & Patel, Chartered Acco untan t with wo rk ing wh ich has been rep ro duced by th e Ld. AO in h is order, wh erefro m, it appears that the Chartered Accoun tant adopted th e DCF method (Discou nted cash flow metho d) and work ed out th e value o f the shares at Rs. 119/- with share premiu m o f Rs. 109 /- having face value of R s. 10/-. Initially, th e Ld . AO d id no t accept the valuation report and ado pted the value of share s at Rs. 9. 80/- upo n app lying the for mula as per Rule 11UA o f IT Rules as against value adop ted at Rs. 1 19/- and pro posed to tax the income of R s. 2, 20, 23 , 456/- b y inv oking the pro visio n of Sectio n 56(2)(vii)(b ) o f th e Act but subsequ ently ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 7 - upon co nsid ering the re-wo rk in g provided by th e assessee b y and under the letter dated 15. 12. 201 7, the Ld. AO added the differen ce of Rs. 101. 20 by taking th e fair market value o f the shares at Rs. 17. 80 as ag ainst the v alued shares at Rs. 11 9/- by the assesse e and ultimately made addition to th e tune o f Rs. 2, 04, 10, 016/-. The case o f the Revenue is th is th at the projections had b een made withou t any p arameter and the actu al figu res o f P& L accou nt as available on 04. 03. 201 5 i. e. nearer to 31. 03. 201 5 has not been considered. As there has been a steep differen ce in the esti mated figu re for A. Y. 2 016-17 as on the date of making the asses sment on 18.1 2.2017 , the finan cial statements were av ailable, the Ld. AO shifted the meth od of DCF to ALV as p resc rib ed in Rule 11UA o f th e IT Rules. This particular aspect has been duly con sidered by th e Ld. CIT(A). On this p lea, he considered th e judg ment pass ed by th e ITAT, Jaipur in case of Ra meshwaram Strong Glass Pvt. Ltd . as relied u pon by the assessee where the following observation s were made: “S e ct i o n 5 6 o f t h e I n co m e - t a x A c t , 1 9 6 1 r ea d w i t h ru l e 1 1 U A o f t h e In co m e - t a x R u l es , 1 9 6 2 -I n c o m e f r o m o t h er s o u r c es - C h a r g e a b l e a s (S u b - se c t i o n (2 ) ( vi i b ) ) - A s s e ss m en t y e a r 2 0 1 3 - 1 4 -A s s e s s e e - c o mp a n y i ss u e d 1 , 4 0 , 0 0 0 s h a r es h a vi n g f a c e v a l u e o f R s . 1 0 e a c h , a t p r e m i u m o f R s . 6 0 p e r s h a r e - A s s e s s e e h a d d e t e r m i n ed F a i r M a r ke t V a l u e (F MV ) o f s h a r e s o n b a s i s o f D i s co u n t C a s h F l o w ( D C F) m e t h o d i n a c co r d a n c e w i t h ru l e 1 1 U A ( 2 ) ( b ) r e a d w i t h s e c t i o n 56 ( 2 ) ( v i i b ) - A ss e s si n g O f f i c e r r ej e c t ed su ch v a l u a t i o n d o n e b y as s es s ee a n d d e t er m i n e d F M V o f s h a r es b a s e d o n N e t A s s et V a l u e (N A V ) m et h o d - C o n s e q u en t l y , e x c e s s p r em i u m c h a r g e d b y a s s e s s e e w as c o n s i d er e d a s i n c o m e f r o m o t h e r s o u r ce s a n d w a s a d d e d t o i n co m e of a s s e s s e e - I t w a s n o t e d t h a t l a w h a d sp ec i f i c a l l y co n f e r r e d a n o pt i o n u p o n a s s e s s e e t h a t f o r p u rp o s e o f s e ct i o n 5 6 ( 2 ) (v i i b ) an a s s e s s e e c o u l d a d o p t a n y o f m e t h o d s me n t i o n e d u n d er r u l e 1 1 UA (2 ) - W h e t h er w h e n l a w h a d s p e c i f i ca l l y g i v e n a n o p t i o n t o a s s e s s e e t o c h o o s e a n y o f me t h o d o f v a l u a t i o n o f h i s ch o i c e a n d a ss e ss e e e x erc i se d a n o p t i o n b y ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 8 - ch o o s i n g a p a r t i c u l a r m e t h o d ( D C F h e r e ) , c h a n g i n g me t h o d o r a d o p t i n g a d i f f e r e n t m e t h o d w o u l d b e b ey o n d p o w e r s o f r e v e n u e a u t h o r i t i e s H el d , y e s Wh et h e r, f u r t h er , s i n c e w h i l e f o l l o w i n g D C F me t h o d , a ss e s se e h a d c o n s i d e r e d p l a n t c a p a c i t y , i n da t r y a n d m a r k e t co n d i t i o n s , s u n ct i o n i n g o f l o a n b y b a n k a n d t h a t v al u a t i o n re p o r t s w er e p r ep o r e d a s p e r g u i d e l i n e s g i v e n b y I n st i t u t e o f C h a r t e r e d A c c o u n t a n t s o f In d i a a n d A s s e s s i n g O f f i c er h a d n o t f o u n d a n y f a u l t i n sa i d r e p o r t . A s s e s s i n g O f f i c e r w a s u n j u s t i f i e d i n rej e c t i n g v a l u a t i o n re p o r t s u b m i t t e d b y a s s e ss e e b a s ed o n D C F m e t h o d - H el d , y e s ( P a r a s 4 5 a n d 4 . 5 3 ) ( I n f a v o u r o f a s s e s s e e ) C i r cu l a r s a n d N o t i f i ca t i o n s C B D T L e t t e r F i l e N o . 1 7 3 / 1 4 / 2 0 1 8 - I T A . I , d a t e d 6 - 2 - 20 1 8 . F A C TS Th e a s s es s e e w a s a p r i v a t e l i mi t ed c o m p a n y . T h er e wa s n o b u s i n e s s a c t i vi t y d u r i n g t h e s t a r t i n g a s se s s m e n t y e a rs e x c e pt p u r ch a s e o f a l a n d w o r t h R s . 3 . 2 7 l a k h s . D u r i n g t h e y e a r u n d e r con s i d er a t i o n , t h e a s s e s s e e h a d i s s u e d 1 , 4 0 , 0 0 0 s h a r e s h a v i n g t h e f a ce va l u e o f R s 1 0 ea ch , a t t h e p r e m i u m o f R s . 6 0 p e r s h a r e, r e ce i vi n g a t o t a l p r em i u m o f R s . 8 4 l a k h s o ve r a n d a b o v e t h e sh a r e a p p l i c a t i on m o n e y o f R s. 1 4 l a k h s . Th e a ss e ss e e h a d d et e r m i n e d F a i r M a r k et V a l ue ( F M V ) o n t h e b a s i s o f D i s c o u n t e d C a s h F l o w M e t h o d A s p er t h e A s s es s i n g Of f i c e r , t h e p r e r e q u i s i t e f o r i s s u e o f s h a r e a t p r e m i u m w a s t h e s u b s t a n t i a l i n cr e a s e i n t h e n e t w o rt h o f t h e i n co m e w h i c h w a s m a i n l y d u e t o t h e p ro f i t a b i l i t y, cr e d i b i li t y . g o o d w i l l e t c . o f t h e c o n c e r n , h o w ev e r , s u c h re q u i r e m e n t s w er e n o t a va i l a b l e i n t h e p r e s e n t c a s e . T h e re f o r e , t h e s e s h a r e s d i d n o t h a v e i n t r i n si c v a l u e t o g i v e p r i c e t o p r e m i u m i n t h e b u s i n e ss , t h u s , p r em i um o f R s . 6 0 p e r sh a r e d i d n o t a p p ea r t o b e j u st i f i a b l e . Th e A s s e s sin g O f f i c er f o u n d t h a t c a l c u l a t i o n o f s h a r e p r e m i u m w a s n o t i n a c c o r da n c e w i t h ru l e II U A a n d a f t er r e f e r r i n g t o r u l e 1 1 U A ( 2 ) ( b ) , t h e As s e s s i n g O f f i c e r co mp u t e d t h e F MV o f s h a r e b a s e d o n B o o k V a l u e a n d fi n a l l y h e l d t h a t t h e f a i r m a r k et v a l u e o f u n q u o t e d e q u i t y s h a r es o f t h e a s s es s e e c o m e s t o R s . 3 2 . 7 6 o n l y a n d t h e a s s es s e e w a s e n t i t l e d t o ch a r g e p r e m i u m t o R s 2 . 2 7 l a k h s ( 3 2 . 7 6 ( - ) R s. 1 0 2 2 . 7 6 X 1 0 0 0 0 s h a r es ) a g a i n s t w h i c h t h e a s s es s e e c h a r g e d p r e m i u m o f R s . 8 4 l a kh s . Th u s , t h e e x c e s s p r e m i u m o f R s . 8 1 . 7 2 l a k h s r e c e i v e d b y t h e a s s e s s ee w a s n o t j u s t i f i e d a n d n o t i n a c c o r d a n c e w i t h t h e a m e n d e d p r o v i si o n s of s e ct i o n 5 6 ( 2 ) ( vi i b ) . C o n s e q u e n t l y , t h e e x c e ss p r em i u m b y t he a s s e s se e w a s co n s i d e r ed a s i n c o m e f r o m o t h e r s o u r ce s a n d w a s a d de d t o t h e t o t a l i n c o m e o f t h e a s s e s s e e . In a p p e a l , t h e C o m m i s s i o n er ( A p p e a l s ) p a rt l y c o n f i rm e d t h e a d d i t i o n b y re j e ct i n g t h e v a l u a t i o n d o n e a s p e r D S F m e t h o d . On a s s es s e e' s a p p ea l t o T ri b u n a l . ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 9 - HE LD F ro m t h e o r d er o f t h e C o m mi s s i o n er ( A p p e a l s ) i t e m erg es t h a t t h e p a r t i e s a p p ea re d a n d t h e m a t t e r w a s d i s c u s s e d w i t h t h e m a n d t h e y w er e a s k e d t o f u r n i s h t h e a ct u a l f i g u r e s i n r e s p e ct o f f i n a n c i a l y ea r s 2 0 1 3 - 1 4 , 2 0 1 4 - 1 5 a n d 2 0 1 5 - 1 6 . In co m p l i a n c e o f su ch d i r e ct i o n , t h e p a r t i e s a t t e n d ed b e f o r e t h e C o m m i s si o n e r ( A p p ea l s ) a n d f i l e d a n o t h e r va l u a t i o n r e p o r t w h e re i n t h e v a l u e o f t h e sh a r e w a s w o r k e d o u t a t t h e ra t e o f 6 5 . 3 1 p e r s h a r e . I t i s c l e a r f r o m t h e o r d e r o f t h e C o m m i ss i o n e r ( A p p e a l s) t h a t h e m a d e a c o m p a r i s o n o f t h e l a s t r e p o rt su b m i t t e d t o h i m b a s e d o n t h e a ct u a l f i g u r e s w i t h th e e a r l i e r re p o r t s su b m i t t e d a n d p r e p a r e d b y t h e C A a s p e r r u l e 1 1 U A ( 2) ( b ) o n D C F me t h o d , a n d t h e C o mm i s s i o n e r ( A p p ea l s ) f i n d i n g d i f fe r en c e b e t w e e n t h e f i g u r e o f t h e t w o , r e j e c t ed t h e r e p o r t s u b m i t t ed b y t h e a s s es s e e a s a b s o l u t e l y u n r el i a b l e a n d w i t h o u t a n y b a s i s . Th u s , t h e b a s i c d i s p u t e b e t w e e n t h e p a rt i e s i s w h e t h e r t h e a u t h o r i t i es b el ow c o u l d h a v e a p p l i e d t h e N et A s s e t V a l u e a s p r e s c r i b e d u n d e r r u le 1 1 U A ( 2 ) ( a ) o r w h e t h e r t h e a s s es s ee h a s g o t a r i g h t t o o p t f o r t h e m et h o d o f va l u a t i o n g i ve n u n d er ru l e 1 1 U A ( 2 ) ( b ) a n d s e c o n d l y , i f t h e a ss e ss e e i s e n t i t l e d t o t h e a d o p t t h e DC F m e t h o d t o e s t i m a t e t h e f a i r m a r k et va l u e , t h e v a l u a t i o n s u b m i t t e d b y t h e a s s es s ee w a s f a i r a n d re a s o n a b l e i n a c c o r d a n c e w i t h r u l e 1 1 U A ( 2 ) . Ho w ev e r , t h e re i s n o d i s p u t e b e t w e e n t h e p a r t i e s t ha t ru l e 1 1 U A ( 1 ) i s n o t a p p l i c a b l e o n t h e f a c t s a n d c i r c u m s t a n c e s o f t he p r e se n t c a s e w h i c h i s a p r o vi s i o n o f g e n e r a l n a t u r e w h e r e a s r u l e 1 1 U A ( 2 ) i s a sp e c i f i c p r o v i s i o n p r o v i d i n g f o r t h e va l u a t i o n o f th e u n q u o t e d e q u i t y sh a r e s. A f t e r g o i n g t h r o u g h t h e r el e va n t s e c t i o n a nd t h e r u l e s , t h e ma t t e r o f v a l u a t i o n o f u n q u o t e d eq u i t y sh a r e s, h a s b e e n c o m p l e t e l y l ef t t o t h e d i s c r et i o n o f t h e a s s e s s e e a n d i t i s h is o p t i o n w h et h er t o ch o o s e N A V M et h o d ( B o o k V a l u e ) u n d e r c l a u s e ( a ) o r t o c h o o s e D C F Me t h o d u n d e r c l a u s e ( b ) a n d t h e A s s e s si n g O f f i c er ca n n o t a d o p t a me t h o d o f h i s o w n c h o i ce . Th e a u t h o r i t i e s c a n n o t c om p e l t h e a ss e ss e e t o c h o o s e N A V M e t h o d o n l y a s a g a i n s t DC F Me t h o d W h en t h e l eg i sl a t i o n h a s co n f e rr e d a n o p t i o n u p o n t h e a s s e s se e t o c h o o s e a p a r t i c u l a r m e t h o d , t h e v a l u a t i o n o f t h e s h a r e s h a s t o b e i n a c co r d a n c e w i t h su c h m e t h o d o n l y i . e. D C F m e t h o d i n t h e p r e s e n t ca s e u n d e r r u l e 1 1 U A ( 2 ) ( b ) r e a d w i t h s e c t i o n 5 6 ( 2 ) ( v i i b ) . It i s o b s er v e d t h a t i n t h e i n s t a n t c a s e , t h e a s s es se e - co m p a n y h a d ex er c i se d a n o p t i o n t o v a l u e t h e sh a r e b y DC F m e t h od . H o w ev er , t h e A ss e s si n g O f f i c e r h a d w o r k ed o u t t h e va l u e b a s e d o n N A V M e t h o d t h o u g h i n t h e b o d y o f a s s es s m en t o r d er h e h a s r e f err ed t o r u l e II U A ( 2 ) (b ) b u t i n s u b st a n c e , h e h a s v a l u e d t h e s h a re b a s e d o n t h e b o o k v a l u e f i g u r e s o n l y b y c o n s i d e r i n g t h e v a l u e o f t h e a ss e t s s h o w n i n t h e b a l a n ce s h e et a s o n 3 1 - 3 - 2 0 1 3 b ei n g t h e l a n d v a l u i n g R s . 3 . 2 7 l a k h s a n d t h e l i a b i l i t i e s . Th e C o m m i s s i o n e r (A p p e a ls ) a l s o , t h o u g h ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 10 - co n s i d e r ed t h e c a s e i n c o n t e x t o f r u l e 1 1 UA ( 2 ) (b ) y e t h o w e v e r , h i s a c t o f a s k i n g t h e a s s e ss e e & h i s C A t o p r e p a r e a n d s u b m i t a va l u a t i o n r e p o r t o n l y o n a ct u a l f i g u r e s , i s n o t h i n g b u t a v a l u a t i o n d o n e o n t h e b a s i s o f N A V M e t h o d u n d e r ru l e 1 1 U A ( 2 ) (a ) o n l y. F r o m t h e f a c t s i t i s c l e a r t h a t t h e a u t h o r i t i e s b e l o w w an t e d t o i m p o s e u p o n t h e me t h o d o f v a l u a t i o n o f t h ei r o w n ch o i c e , c o m p l et e l y d i s r e g a r d i n g t h e l e g i s l a t i ve i n t e n t w h i c h h a s g i v en a n o p t i o n t o t h e a ss e ss e e t o ch o o s e a n y o n e o f t h e t w o m et h o d s o f v a l u a t i o n o f hi s ch o i c e . Wh e n t h e l a w h a s sp ec i f i c a l l y p r o vi d ed a m e t h o d o f v a l u at i o n a n d t h e a s s e s s e e e x er c i s e d a n o p t i o n b y c h o o s i n g a p a r t i cu la r m et h o d ( D C F h e r e ) , c h a n g i n g t h e m et h o d o r a d o p t i n g a d i f f e r e n t m e t h o d w o u l d b e b e yo n d t h e p o w e r s o f t h e r e v e n u e a u t h o r i t i es . P e r m it t i n g t h e r e ve n u e t o d o so w i l l re n d er t h e cl a u s e (b ) o f r u l e 1 1 U A ( 2 ) a s n u g a t o r y a n d p u r p o s el e s s . T h u s , t o t h i s ex t e n t t h e a ct i o n o f t h e a u t h o ri t i es b e l o w i s n o t j u s t i f i ed a n d i t i s h el d t h a t t h e a s s e s s e e h a s g o t a l l t h e r i g h t t o ch o o s e a m e t h o d w h i c h , c a n n o t b e ch a n g e d b y t h e A s se s s i n g O f f i c e r . F u r t h e r , t h o u g h t h e A ss e s s i n g O f f i c e r c a n s cr u t i n i ze t h e v a l u a t i o n re p o rt o n l y i f s o m e a r i t h m e t i c a l mi s t a k e s a r e f o u n d, h e m a y m a k e n e c e s sa ry a d j u s t m e n t s . B u t i f h e f i n d s t h e w o r k i n g o f t h e C . A . o r t h e a s su m p t i o n s m a d e a s e r r o n e o u s o r c o n t r a d i ct o r y , h e m a y s u g g e st t h e n e c e s sa ry m o d i f i ca t i o n a n d a l t er a t i o n s t h er e i n p ro vi d ed t h e s a m e a r e b a s e d o n s o u n d r e a s o n i n g a n d r a t i o n a l b a s i s a n d f o r t h i s p u r p o s e t h e A ss e s si n g O f f i c er m a y c a l l f o r i n d e p e n d e n t e x p e r t va l u e r ' s r e p o rt o r ma y a l s o i n vi t e c o m m e n t o n t h e r e p o r t f u r n i s h e d b y t h e a s s e s s e e' s va l u e r a s t h e A s s e s s i n g O f f i c e r i s n o t a n e x p er t . It i s n o t o p e n f o r t h e A ss e s si n g O f f i c e r t o c h a l l e n g e o r c h a n g e t h e m et h o d o f v a l u a t i o n , o n c e o p t e d b y t h e a s s e ss e e a n d t o m o d i f y t h e f i g u r es a s p e r h i s o w n w h i m s a n d f a n ci e s . I n a n y c a s e , t h e r e ve n u e c o u l d no t a s k t o p r e p a r e t h e v a l u a t i o n r ep o r t b a s e d o n a c t u a l s w h i c h i s n o t c o n t e m p l a t e d i n ru l e 1 1 U A ( 2 ) (b ) . [ P a r a 4 . 5 ] N o w co m i n g t o t h e a s p e ct w h er e t h e a s s e s s e e h a s c o mp l i e d w i t h t h e co n d i t i o n s l a i d d o w n u n d e r ru l e 1 1 U A ( 2 ) ( b ) , i t i s cl e a r t h a t t o co mp l y w i t h t h i s r u l e t h e a s s e s s e e i s r e q u i re d t o ob t a i n a c e rt i f i c a t e o f a M er c h a n t B a n k e r o r C h a r t er e d A c co u n t a n t a n d s uc h a v a l u a t i o n mu s t b e b a s e d o n D i s c o u n t e d F r e e C a sh F l o w ( D C F ) M et h o d o n l y. To ex er c i se t h e o p t i o n u n d e r t h i s c l a u s e , t h e a s s e ss e e i s n o t s u b j ec t e d t o t h e f u l f i l l m e n t o f a n y o t h e r c o n d i t i o n e x c e p t t h es e t w o . I t i s n o t d e n i e d t h a t t h e u x s e s s e e d i d f i l e t h e v a l u a t i o n re po r t f i r s t o n e d a t e d 3 1 - 3 - 2 0 1 3 a n d t h e r e v i s ed r ep o r t d a t e d 2 3 - 8 - 2 0 1 6 v al u i n g t h e F M V o f t h e u n q u o t e d s h a r e s a t R s . 1 1 9 . 9 3 & 9 5 . 9 0 p e r e q u i ty s h a r e re s p e ct i v e l y p r e p a r e d b y a C A . o n l y . T h e r e a s o n f o r t h e d i f f er e n c e w a s e xp l a i n ed t h a t i n t h e ea rl i e r r e p o r t , t h e f i g u re o f ch a n g e i n n e t w o r ki n g ca p i t a l w a s l e f t o u t b y o v e rs i g h t , w h i c h h a s n o w b e e n t a k en c a r e a n d co rr e c t e d i n t h e r e vi s e d re p o r t . Th is co n t e n t i o n w a s su p p o r t ed b y t h e e a r l i er va l u a t i o n r e p o rt a n d t h e rev i s e d v a l u a t i o n ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 11 - re p o r t . T h e r e i s n o t h i n g w r o n g i f a b o n a f i d e m i s t ak e w a s c o rr e ct e d (P o r a 4 . 5 . 1 ] B ef o r e e x a mi n i n g t h e f a i r n e s s o r r ea s o n a b l e n e s s o f va l u a t i o n r e p o rt su b m i t t e d b y t h e a s s es s e e , o n e h a s t o b e a r i n m i n d t h a t t h e D C F Me t h o d , a n d i s es s en t i a l l y b a s ed o n t h e p r o j e c t i o n s ( e s t i m a t i o n s ) o n l y a n d h e n c e t h e s e p r o j e c t i o n c a n n o t b e c o m p a r ed w i t h t h e a ct u a l s t o ex p e ct t h e s a m e f i g u r e s a s w e r e p r o j e c t e d . Th e v a l u e r h a s t o m a k e f o r e c a s t o n t h e b a s i s o f s o me m a t e r i a l b u t t o es t i m a t e t h e e xa ct f i g u r e s i s b ey o n d i t s c o n t ro l . At t h e t i m e o f m a ki n g a v a l u a t i o n f o r t h e p u r p o s e o f d e t er m i n a t i o n o f t h e f a i r m a r k e t v a l u e, t h e p a s t h i s t o r y m a y o r m a y n o t b e a v a i l a b l e i n a gi v e n c a s e a n d t h e r e f o r e , t h e o t h e r r el e va n t f a c t o r s m a y b e c o n s i de r e d . T h e p r o j e c t i o n s a r e a f f e c t e d b y va ri o u s f a c t o rs h e n c e in t h e c a s e o f co mp a n y w h e r e, t h e r e a n o c o m m e n c e m e n t o f p r o d u c t i on o r o f t h e b u s i n es s , d o e s n o t m ea n t h a t i t s sh a r e c a n n o t c o m m an d a n y p r e m i u m F o r s u c h c a s e s , t h e c o n c e p t o f st a r t u p i s a g o o d e xa m p l e a n d a s su b m i t t e d , t h e In co m e- t a x A ct h a s a l s o r e c o g n i z ed an d i s e n c o u r a g i n g t h e s t a r t u p s f o r w h i ch , a s e p a ra t e d e d u ct i o n u n d e r s e c t i o n S O LA C h a s b e e n p r o v i d ed I n t h i s c o n t e s t , a C B D T I n s t ru c t io n ( F i l e N o . 1 7 3 / 1 4 / 2 0 1 8 - I T A ) o n d a t e d 6 - 2 - 2 0 1 8 g i v e n i n t h e c a se o f s t a rt u p co mp a n i e s u s e f u l i n t h e c o n t e x t o f d et e r mi n a t i o n o f f a i r m a r k e t v a l u e o f t h e u n q u o t ed eq u i t y s h a r e s u n d e r s e ct i o n 5 6 ( 2 ) ( vi i b ) re a d w i t h ru l e 1 1 U A ( 2 ) , w h i c h s t a t e s t h a t t o u g h st a rt u p c o m p a n i e s i n v a r i a b l y su b m i t s v a l u a t i o n r e p o r t i n a c c o r d a n c e w i t h r u l e 1 10 A ( 2 ) ( b ) b u t i n t h e a s s e ss m en t s s u c h re p o r t s a r e n o t b ei n g a c c e p t e d a n d re j e ct e d mo d i f i e d b y t h e A ss e ss i n g O f f i c e r ' s c o n s i d er i n g t h e s a m e a s b a se d o n a b n o r m a l v a l u a t i o n s w h i c h r es u l t s i n a d d i t i o n s T h e C B D T h a s a c co r d i n g l y d i r ec t ed n o t t o t a ke c o e r c i v e m e a s u r es i n s u ch c o m e s f o r re co v e r y o f d e m a n d r es u l t i n g i n a d d i t i o n s a n d t h e Co m m i ss i o n e r (A p p e a l s ) h a ve b e en d i r e c t e d t o d i sp o s e s u c h a p p e a ls e xp ed i t i o u s l y. (P a r a 4 . 5 . 2 ) C o m i n g t o t h e b a s i s o f t h e p r o j e ct i o n s , i t i s s u b m it t e d t h a t t h e p l a n t ca p a c i t y w a s t a k en a s a b a s i s t o m a k e p ro j e ct i o n s of t h e p ro d u c t i o n . It i s f u r t h e r s u b m i t t e d t h a t a s t h e a s s es s e e i s d eal i n g i n t o u g h e n e d g l a s s w h i c h i s r e l a t e d t o r ea l e s t a t e ( c o n st r u ct i o n) i n d u s t r y a n d a t t h e r e l e v a n t p o i n t o f t i m e , t h e r e a l es t a t e s e c t o r w a s i n b o o m a n d t h e r e ex i s t ed f a v o u r a b l e co n d i t i o n s i n t h e i n d u s t r y. T h e D i r e c t o r s o f t h e a s s e s s e e c o m p a n y w er e h a v i n g e x p e r i en c e a n d kn ow l e d g e o f t h e f i el d . T h e o t h er t h r e e c o m p a n i e s t o w h o m s h a r es w ere a l l o t t e d w e r e a l s o i n t h e re a l e st a t e s ec t o r , a s t h e i r n a m e s u g g est T h e B o a r d o f Di r e ct o r s w e r e e x p e ct i n g g o o d r es u l t s i n t h e f u t u r e. E x c e p t t h e i n i t i a l ye a r s w h er e t h e p r o d u c t i o n c o u l d n o t b e c o m m e n c ed be c a u s e o f t h e ci r c u m s t a n c e s b e y o n d t h e c o n t r o l b u t a s p e r t h e a ctu a l f i g u r e s a v a i l a b l e n o w f o r t h e p r e v i o u s y ea r e n d ed o n 3 1 - 3 - 20 1 7 , t h e v a l u e ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 12 - p e r s h a r e c o m e s t o R s . 8 4 6 7 b a s e d o n t h e a u d i t e d acc o u n t s w h i c h i s a l m o s t i n a c co rd a n c e w i t h t h e va l u e o f R s . 9 5 . 9 0 e st i m a t e d b y t h e C A Mo r e o v e r, s u c h r e p o rt w a s a l s o s u b m i t t e d t o t h e b a nk a s p e r a n o t e s f o r o b t a i n i n g h y p o t h e ca t i o n l i m i t o f R s . 4 cr o r e s wh i ch w a s sa n c t i o n e d b a s e d o n s u c h va l u a t i o n r e p o r t a l o n g w i th t h e h y p o t h e ca t i o n o f t h e p r o p e r t i e s o f t h e d i r e ct o r s . He n c e, i t c a n n o t b e sa i d t h a t t h e p ro j e c t i o n s m a d e b y t h e C A i n t h e v a li a t i o n r e p o rt w e r e i ma g i n a r y f i g u r e s, c o m p l et e l y w i t h o u t a n y b a si s . T he r e i s s u b s t a n c e i n t h e c o n t e n t i o n s I t i s n o t t h e c a s e o f t h e C o m m i ss i o n er ( A p p e a l s ) t h a t t h e p r o j e c t i o n m a d e i n t h e C A ' s r e p o r t a r e i n c o n t r a d i ct i o n o f t h e f i g u r e s o f t h e i n s t a l l e d p r o d u c t i o n ca p a c i t y w hi c h b e i n g l es s er y et t h e p r o d u c t i o n w a s s h o w n d i s p ro p o rt i o n a t el y h i g h e r . A l s o t h e r e i s n o w h i s p e r i n t h e o r d e rs o f t h e C o m m i s s i o n e r ( A p p e a l s ) a s t o w h i c h f i g u r e w a s f o u n d i n c o r r e c t a n d w h a t s h o u l d b e t h e co r r e ct f i g u r es . E x c ep t m a k i n g c o m p a ri s o n w i t h t h e a c t u a l s t h e r e i s n o t h i n g o n re co r d t o d o u b t t h e v e r a c i t y o f t h e C A ' s r e p o rt o r t o su p p o r t t h e o b s e r v a t i o n s o f t h e C o m m i s s i o n er ( A p p e a l s) . H e f u r th e r d o u b t s t h a t t h e f i g u re s o f t h e s a l e s h o w n i n t h e v a l u a t i o n r e p or t a n d t h o s e s h o w n t h e i n t h e b a l a n ce s h e et o f f i n a n c i a l y e a r 2 0 1 4 - 1 5 a n d f i n a n ci a l y ea r 2 0 1 5 - 1 6 . H o w e v e r s u ch a n o b j e c t i o n c a n n o t b e g i v en w e i g h t a g e f o r t h e r e a s o n t h a t f i r s t l y n o e x p l a n a t i o n w a s ca l l e d fo r b y t h e C o m m i ss i o n e r ( A p p e a l s ) o n t h i s a s p e ct b u t h e a s s u m ed o n h i s o w n a n d t h e r e a p a r t t h e a s s es s e e h a s a l r ea d y st a t ed t h at d u e t o t h e n o n - a v a i l a b i l i t y o f t h e p o w e r c o n n e ct i o n , i t co u l d n o t c o m m e n c e t h e p r o d u c t i o n i n t h e i n i t i a l y e a r s t h er e f o r e , t h e r e w as n o p r o d u ct i o n , w h i c h f a ct i s a d m i t t e d b y t h e A s s es s i n g O f f i c er a l so a n d h e n c e, co mp a r i s o n o f t h e p r o j e c t e d s a l e s f i g u r e w i t h t h e ac t u a l s w a s n o t j u s t i f i e d A s a l r e a d y st a t ed t h a t t h e f i g u r e s g i v e n b y t h e C A . w e r e me r e p r o j e c t i o n e st i m a t i o n s d e p e n d i n g u p o n v a ri o u s f a c t o r s w h i c h n o b o d y co u l d h a v e a n t i ci p a t e d o r f o r e s ee n o n t h e d ay w h en s u c h va l u a t i o n w er e m a d e. Th er e f o r e, t h e r e w a s n o j u s t i fi c a t i o n y et t o ma ke a co m p a r i s o n o f t h e es t i m a t i o n s w i t h t h e a c t u al s . S u c h a co mp a r i s o n i s o t h e r w i s e p r i n c i p a l l y a g a i n s t t h e c o nt e m p l a t i o n o f ru l e 1 1 U A ( 2 ) ( b ) w h i ch r eq u i r e d t h e C A . t o p r e p a r e a r e p or t o n D C F Me t h o d o n l y i . e . b a se d o n m e r e p ro j e c t i o n s a n d n o t a c t u a l s a s a g a i n s t t h e N A V M et h o d p r e sc r i b e d u n d e r ru l e 1 1 U A ( 2) ( a ) F o r t h e s e re a s o n t h e r e i s n o j u s t i f i ca t i o n s b e h i n d t h e o b j e c ti o n o f t h e C o m m i ss i o n e r ( A p p ea l s ) t h a t t h e v a l u a t i o n d o n e b y th e C . A w a s b a s e d a b s o l u t e l y i m a g i n a r y a n d i n co rr e c t f i g u r e s o r w i t h o u t a n y b a s i s . Th e C A . h a d c o n s i d e re d t h e p l a n t c a p a c i t y , in d u s t ry a n d ma r k e t c o n d i t i o n s a s p r e v a i l e d i n t h e s t a t e , t h e san c t i o n i n g o f t h e l o a n b y t h e b a n k a r e t h e f a ct o rs w h i c h f o r m e d a re aso n a b l e b a s i s o f p r o j e c t i o n s . M o r eo v e r i t i s n o t d en i ed a n d t h a t t h e va l u a t i o n re p o r t s w er e p r e p a r ed a s p e r t h e g u i d el i n es g i v e n b y t h e I ns t i t u t e o f C h a r t e r ed A c co u n t a n t s o f I n d i a a n d t h e A s s es s i n g O ff i c e r h a s n o t f o u n d a n y f a u l t . Th u s , t h e r e i s n o r a t i o n a l o r so u nd b a s i s i n t h e o r d e r o f t h e a u t h o r i t i e s b e l o w , A s s e ss i n g Of f i c e r w a s u n ju s t i f i e d i n ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 13 - re j e c t i n g t h e v a l u a t i o n r e p o rt su b m i t t e d b y t h e a s ses s e e b a s e d o n DC F M e t h o d . ( P a r a 4 . 5 . 3 ) In a n y c a s e , i t i s a l s o n o t i c e d t h a t e v e n a s p e r t he v a l u a t i o n g o t d o n e b y t h e C o m mi s s i o n e r ( A p p e a l s ) b a s e d o n t h e a c t u a l s, t h e F M V ca m e t o R s . 6 5 . 3 1 p e r s h a r e a s a g a i n s t w h i c h , t h e a s s e sse e h a d c h a r g e d a p r e m i u m o f R s . 6 0 o n l y p e r sh a r e . Th e r e f o r e , e v e n as s u m i n g t h a t t h e va l u a t i o n r e p o r t s s u b m i t t e d b y t h e a s s es s e e a r e n o t r el i a b l e f o r a n y re a s o n t h a n t o o t h e r e w a s n o j u st i f i c a t i o n t o r e l y u p o n t h e v a l u a t i o n o f t h e s h a r e s d o n e b y t h e A s s e ss i n g O f f i c e r b a s e d on b o o k v a l u e a t R s. 3 2 . 7 6 p e r s h a re o r p r e m i u m a t R s. 2 7 . 7 6 p e r s h are . R e d u ci n g t h e f a c e v a l u e o f R s . 1 0 f r o m t h e F M V o f R s . 6 5 . 3 1 , t h e a m o u n t o f p r e m i u m co m e s t o R s. 5 5 . 3 1 p er s h a r e a s a g a i n s t t h e p r e m i u m cl a i m e d b y t h e a s s e s s e e a t R s . 6 0 . Th u s t h er e i s a sm a l l d i f f e r en c e o f a r o u n d R s . 5 w h i ch w a s l e s s e v e n t h a n 1 0 p e r c en t of t h e p r e m i u m cl a i m e d b y t h e a s s e s s e e a t t h e ra t e o f R s . 6 0 p e r sh a r e . T h e v a r i a t i o n t o t h i s e x t e n t i s p o ss i b l e i n t h e m a t t er s o f e s t i m at i o n s . [ P a r a 4 . 5 . 4 ) Th e A s s e s s i n g O f f i c e r t h o u g h o b s e r ve d t h a t t h e a s s es s e e r a i s e d l o a n s f ro m t h e a b o v e a s s o c i a t e c o n c er n s a n d h a s co n v er t e d t h em i n t o sh a r e s a p p l i c a t i o n / p r e m i u m m o n e y . H o w e v e r , i t h a s no t s h o w n h o w i t w i l l a f f e ct t h e c o rr e ct n es s o f t h e v a l u a t i o n c l a i m ed . I t i s n o t t h e c a s e o f t h e A s s es s i n g O f f i ce r t h a t t h e s h a r e s w e r e a l l o tt e d t o t h e o u t s i d e r s n o n - r el a t ed p er s o n s b u t t h e e x i s t i n g a m o u n t o f t h e l o a n s f ro m t h e re l a t e d p er s o n s w er e c o n v e r t e d i n t o s h a re s . H e n c e th er e c a n n o t b e a n y s co p e o f i n t r o d u c t i o n o f a s s es s e e' s u n a c co u n t ed i n c o m e t h r o u g h a l l o t me n t o f s h a r e s a t u n r e a s o n a b l y h i g h p r i c e d s h ar es . T h e r ef o r e, su c h o b s e r v a t i o n s i s n o t re l e va n t a n d a m er e s u s p i ci o n . I t a p p ea r s t h a t t h e a u t h o ri t i e s b e l o w h a v e i g n o r e d E x p l a n a t i o n (a ) b e l o w s e ct i o n 5 6 ( 2 ) ( vi i b ) . Th e s a i d E xp l a n a t i o n p r o vi d es t h a t t h e f a i r m a r k et v a l u e o f t h e s h a re s sh a l l b e t h e v a l u e a s m a y b e d e t e rm i ned i n a c c o r d a n c e w i t h s u c h m e t h o d a s m a y b e p r e s cr i b e d i e u n d e r r u l e I I U A ; o r ( i i ) a s ma y b e s u b s t a n t i a t e d b y t h e c o m p a n y t o t h e sa t i s f a ct i o n o f t h e A ss e s si n g O f f i c e r , b a s e d o n t h e v a l u e , o n t h e d a t e o f i ss u e o f sh a r e s , o f i t s a s s e t s , i n cl u d i n g i n t a n g i b l e a s s et s b e i n g g oo d w i l l , k n o w - h o w , p a t e n t s , co p y r i g h t s , t ra d e m a r k s, l i c e n c e s, f ra n c h i se s o r a n y o t h e r b u s i n es s o r c o m m e r c i a l r i g h t s o f s i m i l a r n a t u r e , w hi c h e v e r i s h i g h e r . A c c o r d i n g l y , t h e v a l u e c o m p u t e d u n d e r t h e r u l e a t Rs . 9 5 . 9 0 p e r sh a r e i s h i g h e r t h a n R s . 6 5 . 3 1 o r R s . 3 2 . 7 6 p er s h ar e a n d t h e r ef o r e, t h e h i g h e r v a l u a t i o n h a s t o b e a d o p t e d . Mo r e o v e r, it i s o n l y t h e E xp l a n a t i o n ( a ) ( i i ) s p e a k s o f t h e s a t i sf a c t i o n o f th e A s s e s s i n g O f f i c e r b u t t h er e a p p e a r s n o s u c h c o n d i t i o n i n t h e E xp l a n a ti o n ( a ) ( i ) w h i c h t h e r e f o r e A s se s si n g O f f i c er i s n o t p e r mi t t ed t o i n te r f e r e i n t h e va l u a t i o n , o n ce d o n e i n a c c o r d a n c e w i t h t h e m e t h o d p re s c r i b e d i n t h e ru l e 1 1 U A ( 2 ) . F o r t h e r e a s o n s st a t ed a b o v e, t h er e is n o j u s t i f i c a t i o n b e h i n d r e j e c t i n g t h e d e c l a re d va l u a t i o n o f t h e s h a re s a n d i n t h e ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 14 - i mp u g n e d a d d i t i o n m a d e b y t h e A ss e ss i n g O f f i c er b u t p a r t l y s u st a i n e d b y t h e C o m m i s s i o n e r ( A p p ea l s ) , w h i c h i s h er e b y d e l et e d . ( P a r a 4 . 5 . 6] In t h e r es u l t , t h e a p p e a l o f t h e a s se s s e e i s p a r t l y a l l o w ed a s i n d i c a t e d a b o ve . [ P a r a 5 . 0 ] ” 8. It app ears that the adop tio n of NAV method b y the Ld . AO again st that of the DCF method app lied by th e asse ss ee was not fo und permi ssible by the Jaip ur Ben ch in view of the strict in terpretation of Rule 11UA o f th e IT Rules, since, no serio us lacun a in the data apply ing in the valu ation repo rt was n oticed or confronted to th e as sessee. In fact, the as sessee in that p articular case except citing the actual figure wh ich were av ailable at the ti me o f finalizin g the asses sment and inco rporating the sa me by adop tin g th e NAV method, no verification into the correctness o f th e projected figures ha s been made b y the Ld. AO. Thus, relying on that ratio, the addition in the instant case made by the Ld. AO was not fou nd to be tenable by the Ld. CIT(A). 9. We have further consid ered the judg ment relied upo n by the asses see pa ssed by th e Ho n’b le Delhi High Court in the matter o f PCIT vs. M/s. C inestaan Entertain ment Pv t. Ltd., in ITA No. 1007/2 019 & CM Appl. 54134 /2019 where identical issue wa s also fu rther discussed as under: “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: ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 15 - 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/- 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 ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 16 - 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 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 ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 17 - 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 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-TIOL1358-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". ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 18 - 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 ofthe 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 invested around Rs.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 Rs.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 ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 19 - 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 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. 15. For the foregoing reasons, the appeal is dismissed along with pending application.” 10. It app ears fro m the o rd er p as sed by the Ho n’ble Delh i High Cou rt that when the as se ssee re sp ondent has adop ted a recognized metho d of v aluatio n and further Revenue was unab le to sho w that th e asse ssee adopted a demon strab ly wrong app ro ach, or that the metho d of valu ation was mad e on a who lly erroneo us b asis, or that it committed a mistake which goes to the roo t of the valu ation ITA No. 1032/Ahd/2019 (DCIT vs. M/s. Phenix Procon Pvt. Ltd.) A.Y.– 2015-16 - 20 - pro cess, inter ferin g with the find ing of the valuer by the Ld . AO, is found to be no t p er mi ssible. S imi larly, as we find in the instant case th at the assessee determined th e fair market value of the unquo ted equity shares followin g the mann er and metho d laid down u nder Clause (b) of Rule 1 1UA(2) and particularly when no verification into the correctn es s o f th e projected figures had been mad e by the Ld. AO, the o rd er impug ned passed by the Ld. CIT(A) deleting th e add ition made by the L d. AO i s fo und to be just and pro per so a s to warrant interferen ce. The Revenue’s ap peal is fo und to be devoid of an y merit, therefore, dis mi s sed. 10. In th e result, the appeal of the Rev enu e is dismi ssed. This Order pronounced on 25/01/2024 Sd/- Sd/- (WASEEM AHMED) (MADHUMITA ROY) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 25/01/2024 S. K. SINHA True Copy आदेश क त ल प अ े षत/Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं%धत आयकर आय ु 'त / Concerned CIT 4. आयकर आय ु 'त(अपील) / The CIT(A)- 5. *वभागीय -त-न%ध, आयकर अपील य अ%धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड3 फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt. Registrar) आयकर अपील$य अ%धकरण, अहमदाबाद / ITAT, Ahmedabad