TSI Yatra Pvt. Ltd., Gurgaon V. Addl. CIT, Range-25, New Delhi

ITA 1068/DEL/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 1556 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 10 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-12-2020
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: G
• Assessment Year: 2014-2015
• Appeal Filed On: 11-02-2019
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S S RANA
• Keywords: Source of fund; Wholly owned subsidiary; Fair market value; Valuation report; Onus to prove; Set aside
• Section: 271(1)(c); 56(2)(vii)(b); 143(3); 56(2); 234B; 274; 207; 264; 192; 73; 13; 22; 131; 56; 263; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER I.T.A. NO.1068/DEL/2019 ASSESSMENT YEAR: 2014-2015 TSI YATRA PVT. LTD., UNITED CYBER PARK, IST FLOOR, SECTOR-39, GURGAON, HARYANA. VS. ACIT, RANGE-25, NEW DELHI. TAN/PAN: AABCT7696P (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI TARANDEEP SINGH, ADV. RESPONDENT BY: SHRI S.S. RANA, SR.D.R. DATE OF HEARING: 20 11 2020 DATE OF PRONOUNCEMENT: 14 12 2020 O R D E R PER AMIT SHUKLA, JM THE AFORESAID APPEAL HAS BEEN FILED BY THE ASSESSEE AGGRIEVED AGAINST IMPUGNED ORDER, DATED 21 ST DECEMBER 2018, PASSED BY LD. CIT (APPEALS)- IX, NEW DELHI FOR THE QUANTUM OF ASSESSMENT PASSED U/S. 143(3) FOR THE ASSESSMENT YE AR 2014- 15. THE APPELLANT-ASSESSEE HAS CHALLENGED THE IMPUG NED ORDER ON FOLLOWING GROUNDS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE COMMISSIONER OF INCOME-TAX (APPEALS)-9, NEW DEL HI [LD. CIT(A)] HAS ERRED IN CONFIRMING THE ORDER OF ADDITI ONAL COMMISSIONER OF INCOME-TAX RANGE 25, NEW DELHI (LD AO) ISSUED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 (THE I.T.A. NO.1068/DEL/2019 2 ACT) AT INCOME OF INR RS.23,69,90,961/- AS AGAINST THE RETURNED LOSS OF INR 1,05,08,901/-. 2. THAT THE ORDER OF LD. CIT (A) CONFIRMING ADDITIO NS OF INR 247,499,862 MADE BY LD. AO TO RETURNED INCOME OF TH E APPELLANT BY INVOKING PROVISIONS OF SECTION 56(2)(V IIB) OF THE ACT ON THE PREMISE THAT APPELLANT HAS RECEIVED CONS IDERATION IN EXCESS OF FAIR MARKET VALUE OF SHARES (ISSUED TO THE EXTENT OF INR 247,499,862, IS BAD IN LAW AS IT IS NOT A SPEAK ING ORDER AND IS THEREFORE AGAINST PRINCIPLES OF NATURAL JUST ICE. 3. THAT THE LD. CIT(A) HAS ERRED GRAVELY ON FACTS A S WELL AS IN LAW IN CONFIRMING ACTION OF THE LD. AO OF REJECT ING VALUATION REPORTS DATED 03.04.2013 AND 31.03.2014 DETERMINING FAIR MARKET VALUE OF SHARES OF THE APPELLANT AS PER DISC OUNTED CASH FLOW (DCF) METHOD AS PRESCRIBED UNDER RULE 11UA(2)(B) OF THE INCO0ME-TAX RULES (THE RULES) A T INR 192 PER SHARE AND INR 274 PER SHARE RESPECTIVELY. 3.1 THAT THE LD. CIT(A) HAS GRAVELY ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF LD. AO OF CARRYING OUT VALUATION OF SHARES OF THE APPELLANT AS PER NET ASSETS VALUE (N AV) METHOD. 3.2 IN DOING SO, THE LD. CIT(A) AS WELL AS LD. AO H AVE FAILED TO APPRECIATE PROVISIONS OF RULE 11UA(2)(B) OF THE RULES WHICH PROVIDE FOR AN OPTION TO THE APPELLANT TO CHOSE A M ETHOD OF HIS CHOICE FOR VALUATION OF ITS SHARES FOR THE PURPOSES OF SECTION 56(2)(VIIB) OF THE ACT. THE ACT OF REJECTION OF VAL UATION REPORTS AND CARRYING OUT VALUATION OF SHARES OF APPELLANT A S PER NAV METHOD IS THEREFORE ULTRA-VIRES THE ACT AND THE RUL ES AS WELL AS THE PRINCIPLE LAID DOWN BY HONBLE SUPREME COURT IN THE CASE OF BHARAT HARI SINGHANIA & OTHERS VS. COMMISSI ONER OF WEALTH TAX & OTHERS. (1994) 207 ITR 1 (SC) WHEREIN IT WAS HELD THAT IT IS NOT AN OPTION OF AN ASSESSING OFFIC ER TO EITHER FOLLOW OR NOT TO FOLLOW THE PRESCRIBED METHOD OF VA LUATION BUT THAT HE IS BOUND TO FOLLOW THE RULES OF VALUATION M ADE UNDER THE ACT. 4. WITHOUT PREJUDICE, THAT THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF LD. AO OF CARRYING OUT COMPARATIVE AN ALYSIS OF PROJECTED REVENUE FROM OPERATIONS AND ACTUAL REVENU E FROM I.T.A. NO.1068/DEL/2019 3 OPERATIONS AND IS AGAINST THE RULE OF HONBLE DELHI TRIBUNAL IN CASE OF M/S STRYTON EXIM INDIA PVT. LTD. (ITA NO.59 82/2018) WHEREIN THE HONBLE TRIBUNAL HAD HELD THAT IT WAS I NCORRECT TO ASSUME THAT THE PROJECTED CASH FLOWS SHOULD HAVE EQ UALED THE ACTUAL CASH FLOWS FOR THE PURPOSE OF VALUATION OF S HARES USING A DCF METHOD. 4.1 WITHOUT PREJUDICE, THAT THE LD. CIT (A) AND LD. AO GRAVELY ERRED IN HOLDING THAT YEAR-ON-YEAR GROWTH R ATE ESTIMATED BY APPELLANT IS ARBITRARY AND SELF-SERVIN G WITHOUT APPRECIATING CLOSE PROXIMITY BETWEEN PROJECTED CASH FLOWS CONSIDERED AS PER VALUATION REPORTS AND ACTUAL CASH FLOWS FROM OPERATIONS AND THE FACT THAT VARIATION BETWEEN THE TWO CASH FLOWS WERE SOMETIMES AS LOW AS 4%-6%. 5. THE LD. AO ERRED ON FACTS AND IN LAW IN LEVYING THE INTEREST UNDER SECTION 234A AND 234B OF THE ACT. 6. THE LD. AO ERRED ON FACTS AND IN LAW IN INITIATI NG PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT, WIT HOUT APPRECIATING THE FACT THAT THE APPELLANT HAS NEITHE R CONCEALED PARTICULARS OF INCOME NOR FURNISHED INACCURATE PART ICULARS. 2. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT TH AT APPELLANT IS ENGAGED IN THE BUSINESS OF PROVIDING TRAVEL RELA TED SERVICES BY WAY OF AIR TICKET BOOKING, HOTEL BOOKING, ETC TO TRAVEL AGENTS. IT PRIMARILY CATERS TO B2B SEGMENT OF YATRA GROUP WITH ITS MAIN CUSTOMERS BEING TOUR AND TRAVEL AGENTS. IT IS A WHOLLY OWNED SUBSIDIARY OF M/S YATRA ONLINE PRIVATE LIMITE D (YOPL) WHICH PROVIDES SIMILAR SERVICES TO DIRECT CUSTOMERS AND END USERS. M/S YOPL IS IN TURN OWNED BY M/S THCL TRAVEL HOLDING CYPRUS LIMITED AND M/S ASIA CONSOLIDATED DM C PTE LTD BOTH BEING FOREIGN COMPANIES. FOR THE YEAR UNDE R CONSIDERATION, APPELLANT FILED ITS RETURN OF INCOME DECLARING LOSS OF (-)RS. 1,05,08,901/-. HOWEVER, AS AGAINST T HE RETURNED LOSS, LD ASSESSING OFFICER HAS PASSED THE ASSESSMEN T VIDE I.T.A. NO.1068/DEL/2019 4 ORDER DATED 29 TH DECEMBER 2017, ASSESSING THE TOTAL INCOME AT RS. 23,69,90,961/-. THE ASSESSMENT HAS BEEN FRAM ED BY MAKING A CUMULATIVE ADDITION OF RS 24,74,99,862/- A FTER INVOKING THE DEEMING PROVISIONS OF SECTION 56(2)(VI I)(B). 3. THE GENESIS OF THE ISSUE OF ADDITION RS 24,74,99 ,862/ BY INVOKING THE PROVISIONS OF SECTION 56(2)(VII)(B) AR ISES FROM THE FACT THAT DURING THE YEAR UNDER CONSIDERATION APPEL LANT COMPANY HAD ISSUED 1,059,153 EQUITY SHARES TO ITS H OLDING COMPANY, THAT IS, TO M/S YOPL. THE SHARES WERE ISSU ED IN TWO LOTS, DETAILS OF WHICH HAVE BEEN NOTED BY LD. AO AL SO IN HIS ORDER WHICH IS AS UNDER: DATE OF ISSUE NO. OF SHARES ISSUED FACE VALUE PER SHARE (RS.) PREMIUM PER SHARE (RS.) ISSUE PRICE PER SHARE ( RS.) TOTAL FACE VALUE (RS.) TOTAL PREMIUM (RS.) TOTAL AMOUNT RECEIVED (RS.) 04.11.2013 5,20,830 10 182 192 52,08,300 9,47,91,060 9,99,99 ,360 31.03.2014 5,38,323 10 264 274 53,83,230 14,21,17,272 14,75,00,502 TOTAL 1,059,153 1,05,91,530 23,69,08,332 24,74,99,862 4. IN RESPONSE TO THE SHOW CAUSE NOTICE BY THE LD AO, IT WAS STATED BY APPELLANT THAT THE FAIR MARKET VALUE (FMV) OF ISSUANCE OF SHARES AS ABOVE WAS IN ACCORDANCE WITH PROVISIONS OF RULE 11UA AND THAT FMV WAS CERTIFIED BY VALUATION REPORTS DATED 03 RD APRIL 2013 AND 31 ST MARCH 2014 ISSUED BY A PRESCRIBED EXPERT, I.E. M/S SHIV SHATIS H & ASSOCIATES, CHARTERED ACCOUNTANTS. IT WAS STATED TH AT THE I.T.A. NO.1068/DEL/2019 5 VALUER HAS ESTIMATED THE FMV USING THE DISCOUNTED C ASH FLOW METHOD (DCF) WHICH IS ONE OF THE PRESCRIBED ME THOD UNDER SECTION 56(2)(VIIB) READ WITH RULE 11UA(2)(B) . 5. LD. ASSESSING OFFICER HOWEVER, WAS UNIMPRESSED B Y THE VALUATION TECHNIQUE ADOPTED BY THE VALUER AND HELD THAT THE VALUER HAS PREPARED THE VALUATION REPORT BASED ON P ROJECTIONS PROVIDED BY THE MANAGEMENT. TO INVESTIGATE THE MATT ER FURTHER LD AO HAS: (A) RECORDED STATEMENT UNDER OATH OF THE VALUER ON 17 TH DECEMBER 2017. (B) DOUBTED THE BASIS OF PROJECTED REVENUES ESTIMAT ED BY THE APPELLANT BY COMPARING PROJECTED REVENUE FIGU RES (AS STATED IN VALUATION REPORTS) WITH THE ACTUAL RE VENUE RECORDED IN AUDITED BOOKS OF ACCOUNT AND BY COMPARI NG PROJECTED REVENUE FIGURES OF THE TWO VALUATION REPO RTS DATED 03 RD APRIL 2013 AND 31 ST MARCH 2014. (C) CONDUCTED INDEPENDENT SEARCH TO IDENTIFY REASONABLE GROWTH IN THE INDUSTRY IN WHICH APPELLAN T IS WORKING. IN THIS REGARD LD AO CULLED OUT DETAILS FR OM ICAO WEBSITE AND CONCLUDED THAT PERCENTAGE GROWTH I N TRAFFIC OF DOMESTIC AND INTERNATIONAL TRAVEL BETWEE N 2006-07 TO 2015-16 IS AT 16.58%. LD AO ALSO RELIED UPON A REPORT IN SUNDAY GUARDIAN LIVE BY ONE SHRI ANUPAM PARSSEERA DATED 25 TH SEPTEMBER 2016 AND CONCLUDED THAT PERCENTAGE GROWTH IN TRAFFIC OF DOME STIC I.T.A. NO.1068/DEL/2019 6 TRAVEL FINANCIAL YEARS 2017, 2018 IS EXPECTED TO BE 20%. BY RELYING UPON ABOVE MATERIAL, IT WAS CONCLUDED BY THE LD AO THAT THE APPELLANT HAS WRONGLY ESTIMATED THE PERCENTAGE GROWTH (IN ITS VALUATION REPORTS) AT THE RATE OF 25%. 6. AFTER INVESTIGATING THE MATTER AS ABOVE, LD. AO HAS REJECTED USE OF DCF METHOD BY CONCLUDING AS UNDER: 4.27 ON GOING THROUGH VALUATION REPORTS AND STATEMENT GIVEN BY MR. SHIV BANSAL, CHARTERED ACCOUNTANT, AND ANALYSIS OF PROJECTED VS. ACTUAL FI GURES ACHIEVED BY THE COMPANY IT IS SEEN THAT ACCOUNTANT HAS TAKEN PROJECTED REVENUE, FUTURE CASH FLOW AND OTHER INFORMATION AS CERTIFIED BY THE MANAGEMENT. NO VERIFICATION WHATSOEVER OF PROJECTIONS AND ASSUMPTI ONS ADOPTED BY MANAGEMENT WAS DONE BY CA, THEREBY MAKING THE REPORT AS PER THE CONVENIENCE AND REQUIR EMENT OF THE MANAGEMENT. THE ABOVE FACT WAS ACCEPTED BY M R. SHIV BANSAL CHARTERED ACCOUNTANT WHILE RECORDING HI S STATEMENT ON 17 TH DECEMBER, 2017. 4.28 THE CHARTERED ACCOUNTANT CONSIDERED 25% GROWTH RATE IN THE REVENUE, HE DIDNT EVEN CONSIDERED THE AVERAGE GROWTH RATE OF INDUSTRY WHICH IS APPROXIMATELY 16% AVAILABLE ON VARIOUS SOURCES ON INTERNET. EVEN WHIL E ISSUING THE REPORT ON 31 ST MARCH, 2014, GROWTH RATES OF YEAR ENDING 31 ST MARCH 2013 WAS NOT CONSIDERED. I.T.A. NO.1068/DEL/2019 7 4.29 SUCH EXORBITANT ESTIMATED OF SALES AND FREE CA SH FLOW WAS USED IN VALUING SHARES BY DCF METHOD. THEREFORE, IT IS CLEAR THAT VALUATION MADE ON THE B ASIS OF UNVERIFIED EXORBITANT DCF GIVEN BY MANAGEMENT HAS GIVEN INFLATED VALUE OF SHARE RS.192/- ON 31.3.2013 AND RS.274/- ON 31.3.2014 RESPECTIVELY. FROM THE STATEM ENT OF SH. SHIV BANSAL IT IS APPARENT THAT HE HAS USED THE PROJECTION FIGURES AND ALSO THE DIFFERENT DISCOUNT RATES FOR THE PURPOSE OF VALUATION OF THE SHARE SOLELY ON THE INPUT OF THE ASESSEE COMPANY WHO IS THE BENEFICIARY OF THE VALUATION REPORT. HE HAS NO WHERE APPLIED HIS MIND WHETHER THESE PROJECTIONS CAN BE CORRECT/REASONABLE OR NOT. THIS IS MORE SO WHEN THERE IS HUGE AMOUNT OF D ATA IN RESPECT OF EVERY SECTOR IS AVAILABLE IN PUBLIC DOMA IN. 4.30 THE TECHNICAL GUIDE ON SHARES VALUATION PUBLI SHED BY THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA (ICAI) WHEREIN THREE KEY FACTORS VIZ., CASH FLOW PROJECTIO NS, DISCOUNT RATE AND TERMINAL VALUE FOR COMPUTING DCF WERE DISCUSSED, IT IS OBSERVED THAT NONE OF THE ABOVE FA CTORS AS MANDATED BY ICAI HAS BEEN CONSIDERED BY THE SAID CA ISSUING VALUATION REPORT WHILE COMPUTING FAIR VALUE OF THE UNQUOTED EQUITY SHARES OF THE ASSESSEE COMPANY. AS PER TECHNICAL GUIDE ON SHARES VALUATION ISSUED BY ICAI WHEREIN IT IS STATED THAT THE DCF METHOD IS AS GOOD AS INPUT ASSUMPTIONS USED FOR COMPUTING FUTURE CASH FLOWS. IT WAS OBSERVED THAT THE CA ISSUING VALUATIO N REPORT DATED 04 TH APRIL, 2013 & 31 ST MARCH, 2014 HAS I.T.A. NO.1068/DEL/2019 8 MERELY ADOPTED THE VALUES PROVIDED BY THE MANAGEMEN T CLEARLY IGNORING PAST PERFORMANCE WHICH IS SELF SER VING AS SEVERAL FACTORS SUCH AS PERFORMANCE, GROWTH PROSPEC TS, EARNINGS CAPACITY, EXPANSION AND AVERAGE GROWTH RAT E OF INDUSTRY ETC. WERE NOT CONSIDERED BY THE SAID CA IS SUING THE SAID VALUATION REPORTS. 7. LD. ASSESSING OFFICER HAS THEREAFTER TAKEN R ECOURSE OF PROVISIONS OF RULE 11UA AND ESTIMATED VALUE OF SHAR ES ALLOTTED BY THE APPELLANT ON 04 TH NOVEMBER 2013 IN NEGATIVE BY ADOPTING NAV METHOD AS UNDER: FOR THIS ALLOTMENT THE BALANCE SHEET OF YEAR ENDIN G 31.03.2013 SHALL BE TAKEN FOR DETERMINATION OF FAIR MARKET VALUE OF THE UNQUOTED EQUITY SHARE OF THE ASSESSEE AS PER PROVISIONS OF RULE 11U OF THE IT RU LES. A= TOTAL ASSET : RS.153,27,31,143/- LESS ADVANCE TAX RS. 3,29,26,728/- LESS DEFERRED TAX RS. 21,13,490/- A= RS.1,49,76,90,925/- L= TOTAL LIABILITY RS.1,53,27,31,143/- AS REDUCED BY (A) PAIDUP CAPITAL RS.1,83,30,600/- (B) RESERVE RS.-6,28,11,610/- L= RS.157,72,12,153/- (A) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARE S: = (A-L) X (PV) PE (149,76,90,925 157,72,12,153)* 18,33,060 1833060 I.T.A. NO.1068/DEL/2019 9 = RS.-7,95,21,228/- THEREFORE, THE FAIR MARKET VALUE OF EACH EQUITY SHARE IS: RS.-7,95,21,228/- 18,33,060/- = RS.-43.38/- PER SHARE THEREFORE, THE FAIR MARKET VALUE OF THE EQUITY SHAR E IS DETERMINED AT RS.-43.38/- PER EQUITY SHARE. 8. APPLYING SAME METHODOLOGY, LD. AO ALSO ESTIMA TED THE VALUE OF SHARES ALLOTTED BY THE APPELLANT ON 31 ST MARCH 2014 IN NEGATIVE AS UNDER: 7. VALUATION OF 5,38,323 SHARES ALLOTTED ON 31.03. 2014 @ RS.274 : 7.1 FOR THIS ALLOTMENT THE BALANCE SHEET OF YEAR EN DING 31.3.2014 AS ON THE VALUATION DATE SHALL BE TAKEN F OR DETERMINATION OF FAIR MARKET VALUE OF THE UNQUOTED EQUITY SHARE OF THE ASSESSEE AS PER PROVISIONS OF RULE 11U OF THE IT RULES. IN THIS FIGURE THE ASSESSEE HAS ALSO INCL UDED THE PROCEEDS OF THE ALLOTMENT OF SHARES ON 31.03.2014. THEREFORE, IN COMUTATION THE PAID UP CAPITAL AND GE NERAL RESERVES AND SURPLUS ARE MODIFIED TO THE EXTENT OF REDUCING FROM IT THE AMOUNT OF PAID UP CAPITAL RECE IVED AND SHARE PREMIUM RECEIVED. A= TOTAL ASSET : RS.108,84,60,324/- LESS ADVANCE TAX : RS. 5,88,91,631/- LESS DEFERRED TAX : RS. 21,13,490/- A= RS.102,74,55,203/- L= TOTAL LIABILITY: RS.108,84,60,324/- AS REDUCED BY: (A) PAID UP CAPITAL: RS.2,35,38,900 (2,89,22,130 53,83,230) I.T.A. NO.1068/DEL/2019 10 (B) RESERVE: RS.-79,94,481 (13,41,21,691 14,21,17,272) = RS.107,29,17,005/- (B) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES = (A-L) X (PV) (PE) (102,74,55,203- 108,84,60,324)*23,53,890 23,53,890 = RS. 6,10,05,121/- THEREFORE, THE FAIR MARKET VALUE OF EACH EQUIT Y SHARE IS: RS. 6,10,05,121 2353890 = RS.-25.92/- PER SHARE . THEREFORE, THE FAIR MARKET VALUE OF 5,38,323 EQUITY SHARE ALLOTTED ON 31.03.2014 IS DETERMINED AT RS.-25.92/- PER EQUITY SHARE. 9. BEING AGGRIEVED, APPELLANT FILED AN APPEAL BEFOR E THE LD. FIRST APPELLATE AUTHORITY. LD CIT (A) IN HIS IMPUGN ED ORDER DATED 21 ST DECEMBER 2018 HAS UPHELD THE ADDITIONS MADE BY THE LD. AO AND DISMISSED THE APPEAL SUMMARILY AFTER CONCLUDING AS UNDER: 4.4 I HAVE GONE THROUGH THE FACTS OF THE CASE, THE GROUNDS OF APPEAL, THE ORDER OF THE AO AND THE SUBMISSIONS OF THE APPELLANT. THE ISSUE IN THIS APP EAL, IS WITH RESPECT TO THE VALUATION OF SHARES AND THE ADD ITION UNDER SEC 56(2)(VIIB) OF THE ACT. 4.5 THE APPELLANT HAS CONTENDED THAT THE AO ERRED I N APPLYING THE FMV METHOD AND THAT HE ALSO OUGHT TO H AVE I.T.A. NO.1068/DEL/2019 11 USED THE DCF METHOD, AS THE OPTION OF USING THE MET HODS RESTED WITH THE APPELLANT. IT IS ALSO CONTENTED THA T THE PROVISIONS OF SEC 56(2)(VIIB) CANNOT BE APPLIED, SI NCE THE SHARES ARE ISSUED TO ITS 100% SHAREHOLDER WHICH IS ITS HOLDING COMPANY AND THAT IT HAD NOT USED THE PROJEC TION OF PROFIT TO BE 25% EACH YEAR AND HAD REDUCED THE PROJECTIONS BASED ON THE FAIRLY AVAILABLE BASIS AND ESTIMATIONS. THE APPELLANT ALSO CONTENDED THAT THE PROJECTIONS ARE NOT DISTORTED, BUT SPILL OUT A DIFF ERENCE OF ONLY 4-6%, WHICH THE APPELLANT HAS CONTENDED TO BE A REASONABLE LIMIT. 4.6 ON CONSIDERING THE REPLY OF THE APPELLANT, I DO NOT FIND ANY MERIT IN THE CONTENTIONS SO RAISED. THE AO IN THE ASSESSMENT ORDER HAS BEEN RIGHT IN CARING OUT THE UNREASONABLENESS IN THE ESTIMATES OF THE APPELLANT. THE APPELLANT HAS BEEN COMPLETELY UNJUSTIFIED IN ADOPTI NG A GROWTH RATE OF 25%, WHILE THE AO HAS BEEN ABLE TO D ULY PROVE AND SUPPORT THE STARK CONTRAST IN THE ACTUAL FIGURES VIS--VIS ITS ESTIMATION. 4.7 WHILE IT IS TRUE THAT NOT EVERY ESTIMATE IS REQ UIRED TO BE CORRECT OR THAT IT MAY BE ACCURATE, HOWEVER, IT ALSO REMAINS A CRUCIAL ASPECT THAT SUCH ESTIMATIONS NEED TO BE CONGRUENCE WITH THE ACTUAL FIGURES, I.E., THE ESTIM ATION OUGHT TO BE AS CLOSELY ACCURATE AS POSSIBLE. A HUGE DIFFERENCE ARISING OUT ON ACCOUNT OF SOME HAYWIRE COMPUTATIONS IS NOT AT ALL ACCEPTABLE. FURTHER, AN ESTIMATION IS NOT SOMETHING ARISING OUT OF SOME I.T.A. NO.1068/DEL/2019 12 CALCULATION IN THIN AIR. THIS CALCULATION NEEDS TO BE SUPPORTED AND SUBSTANTIATED BY SOME BASIS OR SOME EVIDENCE, WHICH THE APPELLANT HAS OUTRIGHTLY FAILED TO PROVIDE. 4.8 IT IS NOTED THAT THE AO HAS CLEARLY HIGHLIGHTED THE DISCREPANCIES IN THE COMPUTATION OF THE APPELLANT A ND HAS MORE THAN EVIDENTLY PROVIDED EVIDENCE AS TO THE DIFFERENCE BETWEEN THE ESTIMATION AND THE ACTUAL FI GURES. THE APPELLANT HAS NOT BEEN ABLE TO THROW LIGHT ON T HE ESTIMATION OF 25% THAT HAS BEEN USED BY IT, VISI-A- VIS, THE ACTUAL FIGURES. IN FACT, THE REPORT OF THE MEDIA AN D OTHER EXPERTS, CLEARLY INDICATE THAT THE ESTIMATION USED BY THE APPELLANT IS NOWHERE CLOSE TO THE REALITY FROM THE VERY BEGINNING. THIS IN TURN MEANS THAT THE APPELLANT HA S SIMPLY OVERSTATED ITS VALUES, WITH THE INTENT OF IN FLATING THE SHARE VALUE. HOWEVER, SUCH INFLATION HAS BEEN R IGHTLY SHOWN TO BE UNSUSTAINABLE. 4.9 NOW, SINCE THE AO HAS RIGHTLY HIGHLIGHTED THE INFIRMITIES IN THE CALCULATION OF THE APPELLANT, IN AS MUCH AS IN HIS STATEMENT, SH. SHIVA BANSAL OF M/S SHIV B ANSAL & ASSOCIATES HAS CLEARLY ADMITTED TO HAVE FAILED TO CARRY OUT ANY DUE DILIGENCE W.R. TO PROJECTION FOR FUTUR E GROWTH AND EARNINGS PROVIDED BY THE APPELLANT THE AO IS EL IGIBLE TO REJECT THE METHOD OF COMPUTATION, AS USED BY THE APPELLANT AND HENCE, APPLY ANOTHER METHOD, AS HAS B EEN PRESCRIBED BY THE PROVISIONS OF LAW. UNDER THE I.T.A. NO.1068/DEL/2019 13 CIRCUMSTANCES, I DO NOT FIND ANY INFIRMITY IN THE APPLICATION OF FMV METHOD BY THE AO. EXTENDING ABOVE DELIBERATION, THE AO HAS RIGHTLY US ED AND CALCULATED THE FMV AND HENCE, I DO NOT FIND ANY MISCALCULATION THEREIN. THEREFORE, IN RESULT OF THE ABOVE, THE ADDITION IS SUSTAINED AND THE GROUND OF APPEAL IS DISMISSED. 4.10 IN VIEW OF MY DETAILED DISCUSSION, I AM INCLIN ED TO UPHOLD THE IMPUGNED ADDITION MADE BY THE AO IN THE ASSESSMENT ORDER. APPELLANT FAILS IN THESE GROUNDS OF APPEAL. AS FAR AS ALTERNATIVE PLEA OF THE APPELLANT THAT NO DISALLOWANCE OF FACE VAULE AMOUNTING TO RS.10591530 /- IS CONCERNED, IT IS NOTED THAT THE PROVISION OF S. 56(2)(VIIB) CLEARLY STIPULATES THAT CONSIDERATION RECEIVED OVER AND ABOVE, THE FMV IS DEEMED TO BE INCOME AS THERE IS N O EXCEPTION FOR FACE VALUE IS MENTIONED THEREIN. IN T HE CASE OF APPELLANT FMV BEING COMPUTED BY THE AO TO BE IN NEGATIVE AT RS.(-) 43.38/- SHARE ON 04.11.2013 AND RS.- 25.52/ SHARES, COMPUTATION AND ADDITION OF TOTAL CONSIDERATION INCLUDING ALLEGED FACE VALUE IS FOUND TO BE JUSTIFIED. HENCE, ALTERNATIVE PLEA IS DISMISSED. 10. BEFORE US LD. COUNSEL FOR THE APPELLANT, CHALLE NGING THE ADDITIONS MADE IT WAS SUBMITTED THAT THE AUTHORITIE S BELOW HAVE NOT PROPERLY CONSIDERED THE FACTS OF THE CASE AND HAVE ALSO INCORRECTLY APPLIED THE RELEVANT LEGAL PROVISI ONS. AT THE OUTSET IT WAS SUBMITTED THAT THE AUTHORITIES BELOW HAVE I.T.A. NO.1068/DEL/2019 14 ERRONEOUSLY INVOKED THE PROVISIONS OF SECTION 56(2) (VIIB) TO THE FACTS OF THE PRESENT CASE. IN THIS REGARD IT WAS SU BMITTED THAT THE LEGISLATIVE INTENT BEHIND INSERTION OF PROVISIO NS OF SECTION 56(2)(VIIB) AND ALIKE PROVISIONS WAS TO TACKLE THE MENACE OF BLACK MONEY. IT WAS SUBMITTED THAT THE ACTION OF LO WER AUTHORITIES IN INTERPRETING THE PROVISIONS OF THIS SECTION BY APPLYING RULE OF LITERAL INTERPRETATION IS AGAINST THE PURPOSE OF INTRODUCTION OF THIS SECTION. IT WAS SUBMITTED THAT THE PROVISIONS OF SECTION 56(2)(VIIB) BE INTERPRETED AP PLYING OF PURPOSIVE CONSTRUCTION. IN SUPPORT LD. AR CITED SEV ERAL JUDICIAL PRECEDENTS. IT WAS ALSO SUBMITTED BY LD. AR THAT THIS OBJECTION WAS SPECIFICALLY RAISED BEFORE LD. CIT (A ) IN GROUND NO 4. LD CIT (A) THOUGH RECORDS SUBMISSION OF APPEL LANT ON THIS ISSUE (BRIEFLY AT INTERNAL PAGE 11), HOWEVER, THEREAFTER HE HAS FAILED TO RECORD ANY CONCLUSIONS. 11. LD. AR ALSO CHALLENGED THE IMPUGNED ADDITION S MADE ON MERITS. IN THIS REGARD LD. AR NARRATED THE FACTS OF THE CASE SEQUENTIALLY AND SUBMITTED THAT BOTH THE AUTHORITIE S HAVE NOT PROPERLY APPRECIATED THE SAME. WRITTEN SYNOPSIS HAS ALSO BEEN FILED WHERE IN IT HAS BEEN SUBMITTED AS UNDER: II) SUBMISSIONS ON MERITS OF THE CASE IT IS SUBMITTED THAT IN THE ASSESSMENT ORDER PASSED BY THE AO HE HAS RELIED ON SEVERAL ERRONEOUS, EXTRANEOUS AND IRRELEVANT FACTS IN REJECTING CASH FLOW PROJECTIONS OF THE APP ELLANT IN THE TWO VALUATION REPORTS, DETAILS OF WHICH HAVE BEEN S PECIFIED BELOW: I.T.A. NO.1068/DEL/2019 15 (A)AT PAGE 3, PARA 4.12 AO HAS ERRED IN COMPARING THE TWO VALUATION REPORTS INTER SE. THE FIRST VALUA TION REPORT DATED 03 RD APRIL 2013 WAS PREPARED AT THE VERY BEGINNING OF THE RELEVANT FINANCIAL YEAR AS SUCH EVEN THE FINANC IAL DATA FOR THE YEAR UNDER CONSIDERATION I.E. 2014 WAS ADOPTED ON AN ESTIMATE BASIS (REFER PAGE 39-40 OF THE PB). THE SE COND VALUATION REPORT IS DATED 31 ST MARCH 2014 WHICH HAS BEEN PREPARED ON THE LAST DAY OF RELEVANT FINANCIAL YEAR BUT BEFORE FINALIZATION OF ANNUAL ACCOUNTS. ACTUAL REVENUE FIG URES WERE BY AND LARGE KNOWN BY THEN AND THEREFORE THE SECOND VA LUATION REPORT ADOPTED NEARLY ACTUAL REVENUE FIGURES FOR TH E YEAR UNDER CONSIDERATION I.E. 2014 (REFER PAGES 43-44 OF PB). THE AO THEREFORE HAS ERRED IN NOT CONSIDERING THE SECOND V ALUATION REPORT WHICH PROVIDED A MORE ACCURATE RESULT OF THE SHARE VALUATION. (B) THE BASIC THRUST OF AOS CASE IS THAT HE HAS VENTURED TO COMPARE PROJECTED REVENUE FIGURES WITH ACTUAL REVENUE FIGURES. IN THIS REGARD AT PAGE 2-3, PARA 4 .8 AO HAS ALLEGED THAT IF REVENUES AS PER PROVISIONAL BALANCE SHEETS ARE COMPARED ACTUAL AUDITED REVENUES FOR YEAR ENDING 31 ST MARCH 2013 AND 31 ST MARCH 2014 THEN THERE IS A DIFFERENCE OF 7.3% AND 13.8% RESPECTIVELY. IN THIS REGARD IT IS SUBMIT TED THAT ENTIRE APPROACH TO COMPARE PROJECTED REVENUE WITH ACTUAL R EVENUE IS NOT IN ACCORDANCE WITH LAW {REFERENCE: RAMESHWARAN STRONG GLASS PVT LTD REPORTED IN 172 ITD 571(JAI) COPY ENC LOSED AT PAGES 13 TO 33 OF CASE LAW PB-II RELEVANT AT PAGES 30-31, PARA 4.5.2 AND 4.5.3} WITHOUT PREJUDICE, IT IS SUBMITTED THAT THE AO HAS ERRONEOUSLY CONCLUDED THAT APPELLANTS REVENUE PROJECTIONS ARE WITHOUT ANY I.T.A. NO.1068/DEL/2019 16 RATIONALE AND SCIENTIFIC BASIS. IN THIS REGARD, THE ASSESSEE WOULD LIKE TO SUBMIT BELOW COMPARISON OF ACTUAL REVENUES VIS--VIS REVENUE PROJECTIONS AS PER THE SECOND VALUATION REP ORT: IT IS AMPLY CLEAR FROM THE AFORESAID TABLE THAT THE PROJECTED REVENUES OF THE APPELLANT CLOSELY APPROXIMATE TO TH E ACTUAL REVENUES WITH VARIANCE OF JUST 4-6% (EXCEPT FOR FY 2017-18 WHICH WAS PRIMARILY ON ACCOUNT OF AN EXTRAORDINARY MACRO- INDUSTRY FACTOR I.E. - THE ANNOUNCEMENT OF MERGER O F TWO BIGGEST COMPETITORS OF THE APPELLANT NAMELY MAKE MY TRIP AND GOIBIBO, ESSENTIALLY CREATING THE LARGEST ON-LI NE TRAVEL PORTAL IN INDIA WITH A COMPREHENSIVE SET OF DEEP DISCOUNTED TRAVEL OFFERINGS). HENCE, GROWTH PROJECT ION PARTICULARS FY 2013-14 FY 2014-15 FY 2015-16 FY 2016-17 FY 2017-18 REVENUES AS PER AUDITED FINANCIAL STATEMENTS 775,214,407 870,364,711 1,041,082,532 1,249,146,922 1,381,61 5,024 PAPER BOOK PAGE REFERENCE PAGE 52 PAGE 80 PAGE 80 PAGE 107 PAG E 133 REVENUES AS PER VALUATION REPORT DATED 31.03.2014 810,500,000 927,300,000 1,105,300,000 1,314,200,000 1,642, 700,000 % AGE VARIATION COMPARED TO ACTUAL REVENUES 4.35% 6.14% 5.81% 4.95% 15.89% I.T.A. NO.1068/DEL/2019 17 PERCENTAGE ADOPTED BY THE APPELLANT CANNOT BE SAID TO BE ARBITRARY AND SELF-SERVING IN NATURE BY ANY STRETCH OF IMAGINATION. (C) THE LD. AO ERRONEOUSLY ALLEGED THAT GROWTH PR OJECTION IN REVENUE FROM OPERATION TAKEN AT 25% IS ARBITRARY AN D SELF- SERVING IT IS SUBMITTED THAT THAT LD. AO HAS TOTA LLY ERRED IN ALLEGING THAT APPELLANT HAS ASSUMED GROWTH PROJE CTIONS IN REVENUES AT 25%. THE APPELLANT IS ENGAGED IN THE BUSINESS OF TRAVEL AND HOTEL RESERVATIONS AND EARNS REVENUES IN THE FORM OF COMMISSION ON THESE RESERVA TIONS. THE APPELLANT HAD CONSIDERED A GROWTH RATE OF 25% I N TOTAL TRANSACTION VALUE (TTV) OF RESERVATIONS TO BE HANDLED BY IT AND NOT ON REVENUES. THE CORRESPONDIN G GROWTH ON REVENUES AS PER THE FIRST AND SECOND VALU ATION REPORTS WAS IN THE RANGE OF 16-25% AND 14-25% RESPECTIVELY. THE AFORESAID GROWTH PROJECTION IN TT V WAS BASED ON, AMONGST SEVERAL OTHER FACTORS, A TRAVEL R EPORT ISSUED IN THE YEAR 2012 (COPY AT PAGES 236 TO 257 O F PB) BY A TRAVEL INDUSTRY RESEARCH AUTHORITY, ACCORDING TO WHICH YEAR-ON-YEAR GROWTH FOR ONLINE AIR SEGMENT WAS 23%- 38% IN THE YEAR 2009-2013. SIMILARLY, THE YEAR-ON-YEAR GROWTH FOR ONLINE HOTEL SEGMENT IN THE SAME PERIOD WAS 14% -37%. THE OVERALL ONLINE MARKET GREW YEAR-ON-YEAR AT 22-3 5%. ACCORDINGLY, IT IS EVIDENT THAT THE APPELLANT HAD R ATIONAL BASIS IN THE FORM OF PAST TRENDS TO PROJECT ITS GRO WTH PROJECTIONS. I.T.A. NO.1068/DEL/2019 18 WITHOUT PREJUDICE, TO THE ABOVE, IT IS SUBMITTED TH AT DURING ASSESSMENT THE AO HIMSELF CONDUCTED AN INDEPENDENT SEARCH AND IN THE ORDER OF ASSESSMENT HE HAS TAKEN INTO CONSIDERATION A REPORT OF THE SUNDAY GUARDIAN LIVE BY SH ANUBHAV PARSEERA DATED 25.09.2016. EVEN AS PER AOS SEARCH THE ESTIMATED AVERAGE GROWTH RATE OF INDUSTR Y FOR THE YEAR UNDER CONSIDERATION WAS APPROXIMATELY 16% (REFER PARA 4.28 ON PAGE 8 OF FINAL ASSESSMENT ORDER). AS THE AO HIMSELF HAS CONSIDERED THAT THE INDUSTRY GROWTH TO BE APPROXIMATELY 16%, IT IS SUBMITTED THAT THE DCF MET HOD AT THE GROWTH RATE OF 25% IN TTV COULD NOT HAVE BEEN F URTHER QUESTIONED BY THE AO, ESPECIALLY GIVEN THE FACT THA T GROWTH RATE OF 16% IS FOR THE WHOLE INDUSTRY WHERE APPELLA NT IS THE SECOND LARGEST PLAYER. AT THE MOST, THE AO COUL D REFER THE VALUATION TO AN EXPERT OR TO VALUATION OFFICER AS THE AO IS HIMSELF NOT AN EXPERT. (D)APPLYING NET ASSET METHOD, THE AO HAS COMPUTED A NEGATIVE SHARE PRICE. AFTER HAVING ACCEPTED INDUSTR IAL GROWTH RATE OF 16%, VALUING SHARES AT A NEGATIVE PR ICE ITSELF SHOWS ABSURDITY VALUATION METHOD ADOPTED BY AO. (E)IT IS HUMBLY SUBMITTED THAT ORDER PASSED BY LD. AO IS WITHOUT JURISDICTION AND IS LIABLE TO BE QUASHED AS THE AO DOES NOT HAVE THE POWER TO REJECT APPLICANTS CH OSEN METHOD IN VIEW OF LANGUAGE EMPLOYED IN SECTION 56(2 )(VIIB) AND RULE 11UA. LAW PROVIDES AN OPTION TO THE ASSESS EE AND ONCE THAT OPTION IS EXERCISED THEN THE AO CANNO T CHANGE THE METHOD. AT THE MOST, THE AO COULD REFER THE I.T.A. NO.1068/DEL/2019 19 MATTER TO A VALUATION AN EXPERT OR TO VALUATION OFF ICER. REFERENCES: HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE M - PESA LTD V. PRINCIPAL COMMISSIONER OF INCOME TAX (2 018) 92 TAXMANN.COM 73 COPY ENCLOSED AT PAGES 67 TO 71 OF C ASE LAW PB-II RELEVANT AT PAGE 70, PARA 9. RAMESHWARAN STRONG GLASS PVT LTD REPORTED IN 172 IT D 571(JAI) COPY ENCLOSED AT PAGES 13 TO 33 OF CASE LA W PB-II RELEVANT AT PAGE 29 OZONELAND AGRO PVT LIMITED ITA NO. 4854/MUM/2016 ORDER DATED 02 ND MAY 2018 COPY ENCLOSED AT PAGES 34 TO 46 OF CASE LAW PB-II RELEVANT AT PAGE 432 ND PARA TOP. INNOVITI PAYMENT SOLUTIONS (P) LIMITED REPORTED IN (2019) 102 TAXMANN.COM 59(BANG) COPY ENCLOSED AT PAGES 47 TO 66 OF CASE LAW PB-II, RELEVANT AT PAGE 65-66, PARAS 11 TO 14 AS SUBMITTED ABOVE, THE FINANCIAL DATA PROVIDED BY MANAGEMENT TO THE VALUER WAS ACCURATE AND THE AO HA S ERRONEOUSLY DOUBTED THE SAME. SPECIFIC REFERENCE IN THIS REGARD IS INVITED TO FOLLOWING OBSERVATIONS OF HON BLE JAIPUR ITAT IN CASE OF RAMESHWARAN STRONG GLASS (SU PRA) AS UNDER: ..FURTHER, THOUGH THE AO CAN SCRUTINIZE THE VAL UATION REPORT ONLY IF SOME ARITHMETICAL MISTAKES ARE FOUND , HE MAY MAKE NECESSARY ADJUSTMENTS. BUT IF HE FINDS THE WORKING OF THE C.A. OR THE ASSUMPTIONS MADE AS ERRO NEOUS OR CONTRADICTORY, HE MAY SUGGEST THE NECESSARY I.T.A. NO.1068/DEL/2019 20 MODIFICATION AND ALTERATIONS THEREIN PROVIDED THE S AME ARE BASED ON SOUND REASONING AND RATIONAL BASIS AND FOR THIS PURPOSE THE AO MAY CALL FOR INDEPENDENT EXPERT VALU ER'S REPORT OR MAY ALSO INVITE COMMENT ON THE REPORT FUR NISHED BY THE ASSESSEE'S VALUER AS THE AO IS NOT AN EXPERT . IT IS NOT OPEN FOR THE AO TO CHALLENGE OR CHANGE THE METH OD OF VALUATION, ONCE OPTED BY THE ASSESSEE AND TO MODIFY THE FIGURES AS PER HIS OWN WHIMS AND FANCIES. IN ANY CA SE, THE REVENUE COULD NOT ASK TO PREPARE THE VALUATION REPO RT BASED ON ACTUALS WHICH IS NOT CONTEMPLATED IN RULE 11UA (2)(B). (F) APPELLANT HAD DULLY NARRATED THE ABOVE SUBMIS SIONS IN DETAIL BEFORE CIT(A) REFER PAGES 27 TO 37 OF CIT (A) ORDER WHEREIN SUBMISSIONS MADE BY APPELLANT HAVE BEEN REPRODUCED. IT WAS SPECIFICALLY PLEADED BY APPELLAN T BEFORE CIT(A) AS TO WHY THAT BUSINESS CARRIED ON BY APPELL ANT IS VERY LUCRATIVE (REFER PAGE 16 OF CIT(A) ORDER). IT IS SUBMITTED THAT THERE IS NO CONSIDERATION BY CIT(A) TO THE ABO VE LEGAL AND FACTUAL SUBMISSIONS. (G) MOREOVER, IT IS SUBMITTED THAT PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT APPLY ONLY IN CASES WHERE MO NEY HAVE BEEN INVESTED BY A RESIDENT. IT MAY BE NOTED THAT I N THE INSTANT CASE, EVEN THOUGH SHARES WERE ISSUED BY THE APPELLANT TO YATRA ONLINE PRIVATE LIMITED (YATRA O NLINE), AN INDIAN RESIDENT, PURCHASE OF SHARES WERE FUNDED BY YATRA ONLINE THROUGH INFLOW OF FUNDS IN IT BY WAY O F FOREIGN DIRECT INVESTMENT (FDI). YATRA ONLINE REC EIVED A I.T.A. NO.1068/DEL/2019 21 SUM OF RS 82.34 CRORES BY WAY OF SHARE ALLOTMENT TO YATRA ONLINE CYPRUS LIMITED, A COMPANY REGISTERED OUTSIDE INDIA, ON JULY 12, 2012, ALLOTTING 329,385 SHARES A T VALUE OF RS 2,500 (INCLUDING SHARE PREMIUM OF RS 2,490). COPIES OF ANNUAL ACCOUNTS OF M/S YATRA ONLINE LIMITED FOR YEAR ENDED 31 ST MARCH 2014 WERE FILED DURING COURSE OF HEARING ON 26 TH AUGUST 2019. GENUINENESS OF SHARE CAPITAL RECEIVED BY M/S YATRA ONLINE LIMITED HAS BEEN ACCEP TED BY TAX DEPARTMENT AND THERE IS ALSO NO DISPUTE ON S HARE PREMIUM OF RS 2,490/- ACCEPTED BY M/S YATRA ONLINE LIMITED. THE AFORESAID MONEY RECEIVED BY THE YATRA ONLINE WAS THEN INVESTED IN APPELLANT IN NOVEMBER 2013 AND MARCH 2014 RESPECTIVELY. ACCORDINGLY, IN THE INSTAN T CASE, AS SHARE ALLOTMENT MONEY HAS BEEN INFUSED IN THE APPELLANT BY A COMPANY REGISTERED OUTSIDE INDIA AND SOURCE OF FUNDS INVESTED IS EFFECTIVELY FDI, PROVIS IONS OF SECTION 56(2)(VIIB) SHOULD NOT BE ATTRACTED. 12. ON THE OTHER HAND, LD. CIT (DR) VEHEMENTLY CHAL LENGED THE SUBMISSIONS MADE BY APPELLANT. IT WAS SUBMITTED BY THE LD CIT(DR) THAT BOTH THE LOWER AUTHORITIES HAVE FOR JUST REASONS MADE / UPHELD THE ADDITIONS. LD CIT (DR) AL SO OPPOSED THE ARGUMENTS ADVANCED BY THE LD AR OBJECTI NG TO APPLICATION OF PROVISIONS OF SECTION 56(2)(VIIB) TO THE FACTS OF THE CASE. IT WAS SUBMITTED BY HIM THAT THE LD AO WA S JUSTIFIED IN REJECTING DCF METHOD FOLLOWED BY THE AS SESSEE IN VIEW OF FOLLOWING FACTS: I.T.A. NO.1068/DEL/2019 22 (I) (PARA 4.5) BOTH VALUATION REPORTS ARE BASED ON PROJECTION PROVIDED BY THE MANAGEMENT (II) AS PER LAW, VALUATION REPORTS ARE REQUIRED TO BE BASED ON CONSOLIDATED FINANCIAL STATEMENTS. THE VAL UER COULD NOT HAVE TAKEN PROVISIONAL FIGURES. THE ASSES SEE ISSUED FIRST LOT OF SHARES ON 04.11.2013, WHEN FINA NCIAL STATEMENT OF THE YEAR ENDING WAS CRYSTALIZED AND AU DITED BUT ASSESSEE STILL CHOSE TO USE VALUATION CERTIFICA TE DATED 03.04.2013 'THAT WAS BASED ON PROVISIONAL FINANCIAL STATEMENTS. (III) IN STATEMENT ON OATH OF SHRI SHIV BANSAL RECO RDED U/S 131 ON 17.12.2017, HE WAS ASKED TO FURNISH SUPPORTI NG EVIDENCES ON THE BASIS OF WHICH VALUATION REPORTS W ERE PREPARED. HE SUBMITTED PROJECTION GIVEN BY ASSESSEE AND PROVISIONAL FINANCIAL STATEMENTS ON 31.03.2013 AND 31.03.2014. A HUGE DIFFERENCE WAS FOUND IN THE FIGU RES SHOWN IN PROVISIONAL FINANCIAL STATEMENTS AND ACTUA L FINANCIAL STATEMENTS (PARA 4.8 & 4.9) (IV) VIDE ORDER SHEET ENTRY DATED 21.11.2017, ASSES SEE WAS ASKED TO PROVIDE BASIS OF PROJECTIONS FOR VALUA TION OF FMV OF SHARES. HOWEVER, ASSESSEE DID NOT STATE ANYT HING REGARDING BASIS OR DOCUMENTS ON THE BASIS OF WHICH PROJECTIONS WERE MADE. (V) FROM PERUSAL OF TWO VALUATION REPORTS, IT IS SE EN THAT THERE IS HUGE VARIATION IN FIGURES OF PROJECTE D REVENUE TAKEN FOR DIFFERENT FINANCIAL YEARS. (PARA 4.12) I.T.A. NO.1068/DEL/2019 23 (VI) ASSESSEE HAS TAKEN PROJECTION SUMMARILY A GROW TH PERCENTAGE AT 25% YEAR ON YEAR WHICH IS VERY HIGH. VIDE LETTER DATED 27.12.2017 SOME DATA WAS SUBMITTED BUT IT SHOWED GROWTH RATE OF ONLY 9. 70% AGAINST PROJECTED 25% (VII) THE FACT THAT VALUATION OF SHARES AS PER RULE 11UA COMES TO A NEGATIVE FIGURE ITSELF INDICATES THAT VA LUATION AS PER DISCOUNTED CASH FLOW METHOD WAS DEFECTIVE (VIII) VIDE LETTER DATED 27.12.2017 SOME DATA WAS SUBMITTED BUT IT SHOWED GROWTH RATE OF ONLY 9. 70% AGAINST PROJECTED 25% (IX) DURING THE YEAR, ASSESSEE HAS DECLARED LOSS OF RS. 1,05,08,901 IN ITS RETURN OF INCOME. A LOSS MAKING COMPANY COULD NOT POSSIBLY HAVE SUCH HIGH VALUATION . (X) AS PER VALUATION REPORT DATED 03.04.2013, FMV W AS COMPUTED AT RS. 192 PER SHARE. AS PER VALUATION REP ORT DATED 31.03.2014, FMV WAS COMPUTED AT RS. 274 PER SHARE. IT IS DIFFICULT TO BELIEVE THAT THE VALUATIO N INCREASED BY SO MUCH WHEN THERE WAS NO SUBSTANTIAL CHANGE IN PERFORMANCE OF THE COMPANY. IT IS SURPRISING THAT S HARES WERE ISSUED @RS. 192 ON 04.11.2013 AND @RS. 274 ON 31.03.2014. NO POSSIBLE EXPLANATION HAS BEEN FURNIS HED FOR INCREASE IN SHARE PRICE BY RS. 82 WITHIN A SHOR T SPAN OF 4 MONTHS. (XI) AS PER RULE 11UA, ONUS HAS BEEN CASTE UPON MERCHANT BANKER TO COMPUTE FMV AS PER DCF METHOD. THIS ONUS HAS NOT TRULY BEEN DISCHARGE BY THE MERCH ANT I.T.A. NO.1068/DEL/2019 24 BANKER IN PRESENT CASE SINCE INSTEAD OF MAKING INDEPENDENT AND COMPARABLE INQUIRIES, HE HAS SIMPLY RELIED UPON FIGURES FURNISHED BY MANAGEMENT OF THE ASSESSEE COMPANY. HE HAS NOT BEEN ABLE TO SUBSTANTI ATE REASON FOR TAKING GROWTH RATE OF 25% (XII) DETAILED ANALYSIS HAS BEEN PROVIDED BY AO IN PARA 4.18 TO 4.21. IN PARA 4.24, AO HAS ANALYSED HOW THE RE IS NO CORRELATION BETWEEN PROJECTIONS AND ACTUAL FIGUR ES OF THE ASSESSEE. 13. IN SUPPORT LD CIT (DR) ALSO RELIED UPON FOLLOW ING JUDICIAL PRONOUNCEMENTS: AGRO PORTFOLIO (P) LTD REPORTED IN 171 ITD 74(DEL) SUNRISE ACADEMY OF MEDICAL SPECIALTIES REPORTED IN 257 TAXMAN 373(KER) SUNRISE ACADEMY OF MEDICAL SPECIALTIES REPORTED IN (2018) 94 TAXMANN.COM 181(KER) MADHURIMA INTERNATIONAL PRIVATE LIMITED, ITA 421/MUM/2017 ORDER DATED 28 TH APRIL 2017. 14. WE HAVE HEARD BOTH THE PARTIES, GONE THROUGH THE ORDERS AND HAVE ALSO CONSIDERED FACTS OF THE CASE A ND THE MATERIAL REFERRED TO BEFORE US. SOLE ISSUE IN DISPU TE RELATES TO THE ADDITION OF RS. 24,74,99,862/- MADE BY THE ASSE SSING OFFICER BY INVOKING THE DEEMING PROVISIONS OF SECTI ON 56(2)(VIIB) OF THE ACT. RELEVANT FACTS QUA THE ISSU E HAVE ALREADY BEEN CULLED OUT ABOVE. FOR EASE OF REFERENC E, PROVISIONS OF SECTION 56 ARE REPRODUCED HEREUNDER: I.T.A. NO.1068/DEL/2019 25 'INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXC LUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARG EABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCE S', IF IT IS NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPECIFIED IN SECTION 14, ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING IN COMES, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'I NCOME FROM OTHER SOURCES', NAMELY : (VIIB) 'WHERE A COMPANY, NOT BEING A COMPANY IN WHI CH THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESIDENT, AN Y CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGGREGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS THE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED (I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTUR E CAPITAL COMPANY OR A VENTURE CAPITAL FUND 9[OR A SPECIFIED FUND]; OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSON S AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS B EHALF: [PROVIDED FURTHER THAT WHERE THE PROVISIONS OF THIS CLAUSE HAVE NOT BEEN APPLIED TO A COMPANY ON ACCOUNT OF I.T.A. NO.1068/DEL/2019 26 FULFILMENT OF CONDITIONS SPECIFIED IN THE NOTIFICAT ION ISSUED UNDER CLAUSE (II) OF THE FIRST PROVISO AND SUCH COM PANY FAILS TO COMPLY WITH ANY OF THOSE CONDITIONS, THEN, ANY CONSIDERATION RECEIVED FOR ISSUE OF SHARE THAT EXCE EDS THE FAIR MARKET VALUE OF SUCH SHARE SHALL BE DEEMED TO BE THE INCOME OF THAT COMPANY CHARGEABLE TO INCOME-TAX FOR THE PREVIOUS YEAR IN WHICH SUCH FAILURE HAS TAKEN PLACE AND, IT SHALL ALSO BE DEEMED THAT THE COMPANY HAS UNDER REPORTED THE SAID INCOME IN CONSEQUENCE OF THE MISREPORTING REFERRED TO IN SUB-SECTION (8) AND SUB -SECTION (9) OF SECTION 270A FOR THE SAID PREVIOUS YEAR.] EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE T HE VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH M ETHOD AS MAY BE PRESCRIBED; OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCL UDING INTANGIBLE ASSETS BEING GOODWILL, KNOW-HOW, PATENTS , COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, WHICHEVER IS HIGHER. 15. AS PER CLAUSE (I) OF THE EXPLANATION (A), THE FMV OF SHARES ISSUED IS TO BE DETERMINED IN ACCORDANCE WIT H SUCH METHOD AS MAY BE PRESCRIBED. METHOD TO DETERMINE TH IS FMV I.T.A. NO.1068/DEL/2019 27 IS FURTHER PROVIDED IN RULE 11UA (2). THE RELEVANT EXTRACT OF THE APPLICABLE RULES IS REPRODUCED BELOW: '11UA. [(1)] FOR THE PURPOSES OF SECTION 56 OF THE ACT, THE FAIR MARKET VALUE OF A PROPERTY, OTHER THAN IMMOVAB LE PROPERTY, SHALL BE DETERMINED IN THE FOLLOWING MANN ER, NAMELY, (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-CLAUS E (B) OF CLAUSE (C) OF SUB-RULE (1), THE FAIR MARKET VALU E OF UNQUOTED EQUITY SHARES FOR THE PURPOSES OF SUB-CLAU SE (I) OF CLAUSE (A) OF EXPLANATION TO CLAUSE (VIIB) OF SU B-SECTION (2) OF SECTION 56 SHALL BE THE VALUE, ON THE VALUAT ION DATE. OF SUCH UNQUOTED EQUITY SHARES AS DETERMINED IN THE FOLLOWING MANNER UNDER CLAUSE (A) OR CLAUSE (B), AT THE OPTION OF THE ASSESSEE, NAMELY: (A) (NET ASSET METHOD), OR (B) THE FAIR MARKET VALUE OF THE UNQUOTED EQUITY S HARES DETERMINED BY A MERCHANT BANKER OR AN ACCOUNTANT AS PER THE DISCOUNTED FREE CASH FLOW METHOD.' 16. ONE OF THE ARGUMENTS OF THE LD. COUNSEL BEFORE US WHILE CHALLENGING THE ADDITION WAS THAT THE AUTHORITIES B ELOW HAVE WRONGLY INVOKED THE PROVISION OF SECTION 56(2)(VII) (B). IT HAS BEEN STATED THAT THE LEGISLATIVE INTENT BEHIND THE INSERTION OF SUCH PROVISION WAS TO TACKLE A MENACE OF THE BLACK MONEY AND LITERAL INTERPRETATION SHOULD NOT BE APPLIED AN D ONE HAS TO SEE THE PURPOSE OF INTRODUCTION OF THIS SECTION THAT IS, PURPOSIVE CONSTRUCTION SHOULD BE GIVEN WHILE INTERP RETING THE I.T.A. NO.1068/DEL/2019 28 SAID SECTION. IT WAS SUBMITTED THAT THE AFORESAID DEEMING PROVISION WAS BROUGHT IN THE STATUTE AS AN ANTI-ABU SE PROVISION WHERE A COMPANY RECEIVES ANY CONSIDERATIO N FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SHAR ES, THEN EXCESS VALUE IS DEEMED TO BE INCOME OF THAT COMPANY . 17. FROM A PLAIN READING OF THE SECTION, IT IS SEEN THAT THE LANGUAGE OF THE STATUTE IS ABSOLUTELY CLEAR AND THE RE IS NO AMBIGUITY IN SUCH PROVISION. NO EXCEPTION HAS BEEN CARVED OUT THAT IT SHALL NOT BE APPLICABLE ON CERTAIN KIND OF TRANSACTION LOOKING TO THE HARDSHIPS OR THERE WAS N O INTENTION OF ANY EVASION OF TAXES IN SUCH KIND OF TRANSFERS O R RECEIVING OF SHARES. IT IS TRITE AND WELL SETTLED LAW THAT TH E CONSTRUCTION OF THE STATUTE MUST BE TAKEN FROM THE BARE WORDS OF THE ACT. ONE SHOULD NOT LOOK WHAT COULD HAVE BEEN THE INTENT ION OF THE LEGISLATURE BEHIND THE LEGISLATING SECTION AND IF A LEGISLATURE DID INTEND IN THIS WAY, THEN IT HAS TO BE EXPRESSED CLEARLY IN THE LANGUAGE OF THE SECTION. THE COURTS CANNOT INVENT SOMETHING WHICH IS NOT THERE IN THE STATUTE NOR SHOULD TRY TO GAUGE THE INTENTION OF THE LEGISLATURE. IT I S ONLY WHERE THE LANGUAGE OF THE STATUTE IN ITS ORDINARY MEANING AND GRAMMATICAL CONSTRUCTION, LEADS TO A MANIFEST CONTR ADICTION OF THE APPARENT PURPOSE OF THE ENACTMENT, OR TO SOME INCONVENIENCE OR ABSURDITY, HARDSHIP OR INJUSTICE, P RESUMABLY NOT INTENDED, THEN A CONSTRUCTION MAY BE GIVEN WHIC H MODIFIES THE MEANING OF THE WORDS AND EVEN THE STRU CTURE OF THE SENTENCE. IN SUCH CIRCUMSTANCES, THE COURTS WHI LE INTERPRETING THE PROVISION PROBABLE CAN GO WHAT WAS THE I.T.A. NO.1068/DEL/2019 29 PURPOSE OF BRINGING THAT LEGISLATION. OTHERWISE A L ITERAL CONSTRUCTION HAS TO BE GIVEN AND THE DEEMING PROVIS ION HAS TO BE GIVEN STRICT INTERPRETATION, ESPECIALLY WHERE WO RDS OF THE STATUTE ARE CLEAR AND UNAMBIGUOUS THEN RECOURSE CAN NOT BE TAKEN TO PRINCIPLES OF PURPOSIVE INTERPRETATION, EV EN IF THE LITERAL INTERPRETATION RESULTS IN HARDSHIP AND INCO NVENIENCE TO THE TAX PAYER. THE PURPOSIVE CONSTRUCTION CAN ONLY BE RESORTED TO WHEN THERE IS AMBIGUITY OR THE CONTRADI CTION IN TWO PROVISIONS FOR THE SAME STATUTE. HERE, NO SUCH AMBIGUITY OR CONTRADICTION IS THERE NOR HAS BEEN POINTED OUT BEFORE US. A COURT OF LAW HAS NOTHING TO DO WITH REASONABLE OR UNREASONABLENESS OF A PROVISION OF A STATUTE EXCEPT AS IT MAY HOLD IN INTERPRETING WHAT THE LEGISLATURE HAS CLEAR LY STATED. IF THE LANGUAGE OF THE STATUTE ENVISAGES ONLY ONE MEAN ING THEN IT MUST BE CONTINUED TO MEAN AND INTENDED WHAT IT H AS BEEN CLEARLY EXPRESSED. ACCORDINGLY, THE CONTENTION RAIS ED BY THE LD. COUNSEL IS REJECTED. 18. COMING TO THE METHOD OF VALUATION, FROM THE PL AIN READING OF RULE 11UA IT IS CLEAR THAT IT PROVIDES A N OPTION TO THE ASSESSEE TO ESTIMATE THE FMV BY APPLYING EITHER NET ASSETS VALUE (NAV) METHOD OR DISCOUNTED CASH FLOW (DCF) METHOD. IN THE PRESENT CASE APPELLANT EXERCISING TH IS OPTION HAS CHOSEN DCF METHOD. UNDER DCF THE VALUATION OF S HARES IS BASICALLY ESTIMATED TAKING INTO CONSIDERATION TH E FUTURE ANTICIPATED REVENUES AND PROFITS. THESE PROJECTIONS ARE THEN DISCOUNTED TO ARRIVE AT THE PRESENT VALUE OF THE BU SINESS. SECTION 56(2)(VIIB) IS A DEEMING PROVISION AND ONE CANNOT I.T.A. NO.1068/DEL/2019 30 EXPAND THE MEANING OF SCOPE OF ANY WORD WHILE INTER PRETING SUCH DEEMING PROVISION. IF THE STATUTE PROVIDES THA T THE VALUATION HAS TO BE DONE AS PER THE PRESCRIBED METH OD AND IF ONE OF THE PRESCRIBED METHODS HAS BEEN ADOPTED BY T HE ASSESSEE, THEN AO HAS TO CONFINE TO THE CHOICE MADE BY THE ASSESSEE. THE METHOD ONCE ADOPTED THUS CANNOT BE CH ANGED. IN CASE, THE AO IS NOT SATISFIED WITH ANY OF THE PA RAMETERS ADOPTED IN ESTIMATING THE VALUE, THEN SUBJECT TO MA TERIAL BEING AVAILABLE ON RECORD, THE LD. AO CAN ADOPT HIS OWN VALUATION IN DCF METHOD OR GET IT VALUED BY SOME DI FFERENT VALUER. THERE HAS TO BE SOME ENABLING PROVISION UND ER THE RULE OR THE ACT WHERE ASSESSING OFFICER HAS BEEN GI VEN A POWER TO TINKER WITH THE VALUATION REPORT OBTAINED BY AN INDEPENDENT VALUER AS PER THE QUALIFICATION GIVEN I N THE RULE 11U. HERE, IN THIS CASE, ASSESSING OFFICER HAS TINK ERED WITH DCF METHODOLOGY AND REJECTED BY COMPARING THE PROJE CTIONS WITH ACTUAL FIGURES. THE RULES PROVIDE FOR TWO VALU ATION METHODOLOGIES, ONE IS ASSETS BASED NAV METHOD WHICH IS BASED ON ACTUAL NUMBERS AS PER LATEST AUDITED FINAN CIALS OF THE ASSESSEE COMPANY. WHEREAS IN A DCF METHOD, THE VALUE IS BASED ON ESTIMATED FUTURE PROJECTION. THESE PROJ ECTIONS ARE BASED ON VARIOUS FACTORS AND PROJECTIONS MADE BY TH E MANAGEMENT AND THE VALUER, LIKE GROWTH OF THE COMPA NY, ECONOMIC/MARKET CONDITIONS, BUSINESS CONDITIONS, EX PECTED DEMAND AND SUPPLY, COST OF CAPITAL AND HOST OF OTHE R FACTORS. THESE FACTORS ARE CONSIDERED BASED ON SOME REASONAB LE APPROACH AND THEY CANNOT BE EVALUATED PURELY BASED ON I.T.A. NO.1068/DEL/2019 31 ARITHMETICAL PRECISION AS VALUE IS ALWAYS WORKED OU T BASED ON APPROXIMATION AND CATENA OF UNDERLINE FACTS AND ASSUMPTIONS. NEVERTHELESS, AT THE TIME WHEN VALUATI ON IS MADE, IT IS BASED ON REFLECTIONS OF THE POTENTIAL V ALUE OF BUSINESS AT THAT PARTICULAR TIME AND ALSO KEEPING I N MIND UNDERLINE FACTORS THAT MAY CHANGE OVER THE PERIOD O F TIME AND THUS, THE VALUE WHICH IS RELEVANT TODAY MAY NOT BE RELEVANT AFTER CERTAIN PERIOD OF TIME. IN OUR CONSIDERED OPI NION IN ABSENCE OF THERE BEING SOME ENABLING PROVISION ALLO WING AO TO CHANGE THE METHOD OF VALUATION THE CHOICE OF METHOD ADOPTED BY THE ASSESSEE CANNOT BE DISTURBED. PRECISELY, THE SE FACTORS HAVE BEEN JUDICIALLY APPRECIATED IN VARIOUS JUDGMENT S SOME OF WHICH ARE AS UNDER: - 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 AN EXACT SCI ENCE AND CAN NEVER BE DONE WITH ARITHMETIC PRECISION. THE AT TEMPT ON THE PART OF SEBI TO CHALLENGE THE VALUATION WHICH I S BU ITS VERY NATURE BASED ON PROJECTIONS BY APPLYING WHAT I S ESSENTIALLY A HINDSIGHT VIEW THAT THE PERFORMANCE DID NOT MATCH THE PROJECTION IS UNKNOWN TO THE LAW ON VALUA TIONS. VALUATION BEING AN EXERCISE REQUIRED TO BE CONDUCTE D AT A PARTICULAR POINT OF TIME HAS OF NECESSITY TO BE CAR RIED OUT ON THE I.T.A. NO.1068/DEL/2019 32 BASIS OF WHATEVER INFORMATION IS AVAILABLE ON THE D ATE OF THE VALUATION AND A PROJECTION OF FUTURE REVENUE THAT V ALUER MAY FAIRLY MAKE ON THE BASIS OF SUCH INFORMATION. II) RAMESHWARAM STRONG GLASS PVT. LTD. V. ITO [2018 - TIOL-1358-ITAT- JAIPUR] '4.5.2. BEFORE EXAMINING THE FAIRNESS OR REASONABLE NESS 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 PROJEC TIONS CANNOT BE COMPARED WITH THE ACTUALS TO EXPECT THE S AME FIGURES AS WERE PROJECTED. THE VALUER HAS TO MAKE F ORECAST ON THE BASIS OF SOME MATERIAL BUT TO ESTIMATE THE E XACT FIGURE IS BEYOND ITS CONTROL. AT THE TIME OF MAKING A VALUATION FOR THE PURPOSE OF DETERMINATION OF THE F AIR MARKET VALUE, THE PAST HISTORY MAY OR MAY NOT BE AVAILABLE IN A GIVEN CASE AND THEREFORE, THE OTHER RELEVANT FACTOR S 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 EXAMP LE 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 OF AN INTANGIBLE ASSET, I.T.A. NO.1068/DEL/2019 33 ONLY THE FUTURE PROJECTIONS ALONG CAN BE ADOPTED AN D SUCH VALUATION CANNOT BE REVIEWED WITH ACTUALS AFTER 3 O R 4 YEARS DOWN THE LINE. ACCORDINGLY, THE GROUNDS RAISED BY T HE ASSESSEE ARE ALLOWED. THE AFORESAID RATIOS CLEARLY ENDORSED OUR VIEW AS ABOVE. 19. WE FURTHER FIND FURTHER FROM THE DECISION OF CO ORDINATE BENCH DECISION OF TRIBUNAL AS RELIED UPON BY THE LD . COUNSEL IN CASE OF VBHC VALUE HOMES PVT. LIMITED IN ITA NO. 2541 & 37/BANG/2019, WHEREIN VIDE ORDER DATED 12 TH JUNE 2020 IT WAS HELD AS UNDER: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARAS 11 TO 14 FROM THE TRIBUNAL ORDER CITED BY LEARNED AR OF THE ASSESSEE HAVING BEEN RENDERED IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS. I TO (SUPRA). THESE PARAS ARE AS FOLLOWS: '11. AS PER VARIOUS TRIBUNAL ORDERS CITED BY THE LEARNED AR OF THE ASSESSEE, IT WAS HELD THAT AS PER RULE 11UA (2), THE ASSESSEE CAN OPT FOR DCF METHOD AND IF THE ASSESSEE HAS SO OPTED FOR DCF METHOD, TH E AO CANNOT DISCARD THE SAME AND ADOPT OTHER METHOD I.E. NAV METHOD OF VALUING SHARES. IN THE CASE OF M /S. RAMESHWARAM STRONG GLASS (P) LTD. VS. THE ITO (SUPRA), THE TRIBUNAL HAS REPRODUCED RELEVANT PORTI ON OF ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF I TO VS. M/S UNIVERSAL POLYPACK (INDIA) PVT. LTD . IN ITA NO. 609/JP/2017 DATED 31.01.2018. IN THIS CASE, THE I.T.A. NO.1068/DEL/2019 34 TRIBUNAL HELD THAT IF THE ASSESSEE HAS OPTED FOR DC F METHOD, THE AO CANNOT CHALLENGE THE SAME BUT THE AO IS WELL WITHIN HIS RIGHTS TO EXAMINE THE METHODOLOG Y ADOPTED BY THE ASSESSEE AND/OR UNDERLYING ASSUMPTIONS AND IF HE IS NOT SATISFIED, HE CAN CHALLENGE THE SAME AND SUGGEST NECESSARY MODIFICATIONS/ALTERATIONS PROVIDED ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. NOS. 29 AND 59/BANG/2020THE SAME ARE BASED ON SOUND REASONING AND RATIONALE BASIS. IN THE SAME TRIBUNAL ORDER, A JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS ALSO TAKEN NOTE OF HAVING BEEN RENDERED IN THE CASE OF VODAFONE M-PESA LTD. VS. PCIT AS REPORTED IN 164 DT R 257. THE TRIBUNAL HAS REPRODUCED PART OF PARA 9 OF THIS JUDGMENT BUT WE REPRODUCE HEREIN BELOW FULL PARA 9 OF THIS JUDGMENT. '9. WE NOTE THAT, THE COMMISSIONER OF INCOME- TAX IN THE 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 I.T.A. NO.1068/DEL/2019 35 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 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. IN FACT, HE HAS COMPLETELY DISREGARDED THE DCF METHOD FOR ARRIVING AT THE FAIR MARKET VALUE. THEREFORE, THE DEMAND IN THE FACTS NEED TO BE STAYED.' 12. AS PER ABOVE PARA OF THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT, IT WAS HELD THAT THE AO CAN SCRUTINIZE THE VALUATION REPORT AND HE CAN DETERMIN E A FRESH VALUATION EITHER BY HIMSELF OR BY CALLING A F INAL DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRON T THE ASSESSEE. BUT THE BASIS HAS TO BE DCF METHOD AN D HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. HENCE, IN OUR CONSIDERE D OPINION, IN THE PRESENT CASE, WHEN THE GUIDANCE OF I.T.A. NO.1068/DEL/2019 36 HON'BLE BOMBAY HIGH COURT IS AVAILABLE, WE SHOULD FOLLOW THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT I N PREFERENCE TO VARIOUS TRIBUNAL ORDERS CITED BY BOTH SIDES AND THEREFORE, WE ARE NOT REQUIRED TO EXAMINE AND CONSIDER THESE TRIBUNAL ORDERS. RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE BOMBAY HIGH COUR T, WE SET ASIDE THE ORDER OF CIT (A) AND RESTORE THE MATTER TO AO FOR A FRESH DECISION IN THE LIGHT OF T HIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT. THE AO SHOULD SCRUTINIZE THE VALUATION REPORT AND HE SHOUL D DETERMINE A FRESH VALUATION EITHER BY HIMSELF OR BY CALLING A FINAL DETERMINATION FROM AN INDEPENDENT VALUER AND CONFRONT THE SAME TO THE ASSESSEE. BUT T HE BASIS HAS TO BE DCF METHOD AND HE CANNOT ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. NOS. 29 AND 59/BANG/2020 CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. IN OUR CONSIDERED OPINION AND AS PER REPORT OF RESEARC H COMMITTEE OF (ICAI) AS REPRODUCED ABOVE, MOST CRITI CAL INPUT OF DCF MODEL IS THE CASH FLOW PROJECTIONS. HENCE, THE ASSESSEE SHOULD BE ASKED TO ESTABLISH TH AT SUCH PROJECTIONS BY THE ASSESSEE BASED ON WHICH, TH E VALUATION REPORT IS PREPARED BY THE CHARTERED ACCOUNTANT IS ESTIMATED WITH REASONABLE CERTAINTY B Y SHOWING THAT THIS IS A RELIABLE ESTIMATE ACHIEVABLE WITH REASONABLE CERTAINTY ON THE BASIS OF FACTS AVAILABLE ON THE DATE OF VALUATION AND ACTUAL RESUL T OF I.T.A. NO.1068/DEL/2019 37 FUTURE CANNOT BE A BASIS OF SAYING THAT THE ESTIMAT ES OF THE MANAGEMENT ARE NOT REASONABLE AND RELIABLE. 13. BEFORE PARTING, WE WANT TO OBSERVE THAT IN THE PRESENT CASE, PAST DATA ARE AVAILABLE AND HENCE, TH E SAME CAN BE USED TO MAKE A RELIABLE FUTURE ESTIMATE BUT IN CASE OF A START UP WHERE NO PAST DATA IS AVAILABLE, THIS VIEW OF US THAT THE PROJECTION SHOU LD BE ON THE BASIS OF RELIABLE FUTURE ESTIMATE SHOULD NOT BE INSISTED UPON BECAUSE IN THOSE CASES, THE PROJECTIO NS MAY BE ON THE BASIS OF EXPECTATIONS AND IN SUCH CASES, IT SHOULD BE SHOWN THAT SUCH EXPECTATIONS AR E REASONABLE AFTER CONSIDERING VARIOUS MACRO AND MICR O ECONOMIC FACTORS AFFECTING THE BUSINESS. 14. IN NUTSHELL, OUR CONCLUSIONS ARE AS UNDER:- (1) THE AO CAN SCRUTINIZE THE VALUATION REPORT AND THE IF THE AO IS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE HAS TO RECORD THE REASONS AND BASIS FO R NOT ACCEPTING THE VALUATION REPORT SUBMITTED BY THE ASSESSEE AND ONLY THEREAFTER, HE CAN GO FOR OWN VALUATION OR TO OBTAIN THE FRESH VALUATION REPORT F ROM AN INDEPENDENT VALUER AND CONFRONT THE SAME TO THE ASSESSEE. BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (2) FOR SCRUTINIZING THE VALUATION REPORT, THE FACT S AND DATA AVAILABLE ON THE DATE OF VALUATION ONLY HAS TO BE I.T.A. NO.1068/DEL/2019 38 CONSIDERED AND ACTUAL RESULT OF FUTURE CANNOT BE A BASIS TO DECIDE ABOUT RELIABILITY OF THE PROJECTION S. (3) THE PRIMARY ONUS TO PROVE THE CORRECTNESS OF TH E VALUATION REPORT IS ON THE ASSESSEE AS HE HAS SPECI AL KNOWLEDGE AND HE IS PRIVY TO THE FACTS OF THE COMPA NY AND ONLY HE HAS OPTED FOR THIS METHOD. HENCE, HE HA S TO SATISFY ABOUT THE CORRECTNESS OF THE PROJECTIONS , DISCOUNTING FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMPIRICAL DATA OR INDUSTRY NORM IF ANY AND/ OR SCIENTIFIC DATA, SCIENTIFIC METHOD, SCIENTIFIC STUD Y AND APPLICABLE GUIDELINES REGARDING DCF METHOD OF VALUATION.' 10. FROM THE PARAS REPRODUCED ABOVE, IT IS SEEN THA T IN THIS CASE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON 'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M- PESA LTD., VS. PR. CIT (SUPRA). THE TRIBUNAL HAS NO TED THAT AS PER THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT, I T WAS HELD THAT AO CAN SCRUTINIZE THE VALUATION REPORT AN D HE CAN DETERMINE A FRESH VALUATION EITHER BY HIMSELF OR BY CALLING A DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRON T THE ASSESSEE BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEE N OPTED BY THE ASSESSEE. THE TRIBUNAL HAS FOLLOWED TH E JUDGMENT OF HON'BLE BOMBAY HIGH COURT AND DISREGARD ED VARIOUS OTHER TRIBUNAL ORDERS AGAINST THE ASSESSEE WHICH WERE AVAILABLE AT THAT POINT OF TIME. IN THE PRESEN T CASE ALSO, WE PREFER TO FOLLOW THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. I.T.A. NO.1068/DEL/2019 39 CIT (SUPRA) IN PREFERENCE TO THE JUDGMENT OF THE HO N'BLE KERALA HIGH COURT CITED BY DR OF THE REVENUE RENDER ED IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES (INDIA) (P.) LTD. VS. ITO (SUPRA) BECAUSE THIS IS SETTLED P OSITION OF LAW BY NOW THAT IF TWO VIEWS ARE POSSIBLE THEN THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED AND WI TH REGARD TO VARIOUS TRIBUNAL ORDERS CITED BY LEARNED DR OF THE REVENUE WHICH ARE AGAINST THE ASSESSEE WE HOLD THAT BECAUSE WE ARE FOLLOWING A JUDGMENT OF HON'BLE BOMB AY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA), THESE TRIBUNAL ORDERS ARE NOT RELEVANT. IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., V S. ITO (SUPRA), THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT WAS FOLLOWED AND THE MATTER WAS RESTORED BACK TO THE FI LE OF AO FOR A FRESH DECISION WITH A DIRECTION THAT AO SHOUL D FOLLOW DCF METHOD ONLY AND HE CANNOT CHANGE THE METHOD OPT ED BY THE ASSESSEE AS HAS BEEN HELD BY THE HON'BLE BOM BAY HIGH COURT. THE RELEVANT PARAS OF THIS TRIBUNAL ORD ER ARE ALREADY REPRODUCED ABOVE WHICH CONTAIN THE DIRECTIO NS GIVEN BY THE TRIBUNAL TO THE AO IN THAT CASE. IN TH E PRESENT CASE ALSO, WE DECIDE THIS ISSUE ON SIMILAR LINE AND RESTORE THE MATTER BACK TO THE FILE OF AO FOR A FRESH DECIS ION WITH SIMILAR DIRECTIONS. ACCORDINGLY, GROUND NO.3 OF THE ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOS ES. 20. RESPECTFULLY FOLLOWING THE ABOVE COORDINATE BEN CH DECISION WE ARE OF THE OPINION THAT THE ACTION OF L D. AO IN REJECTING USE OF DCF METHOD IS NOT PROPER. I.T.A. NO.1068/DEL/2019 40 21. WE ALSO FIND CONSIDERABLE MERIT IN THE ARGUMENT ADVANCED BY LD. AR THAT THE UNDER DCF, THE INFORMAT ION TO BE CONSIDERED SHOULD BE AS ON DATE OF VALUATION. IN THE INSTANT CASE, LD. AO HAS ERRED IN COMPARING ESTIMAT ED PROJECTIONS WITH THE ACTUAL AUDITED REVENUES. THIS ISSUE HAS ALSO BEEN CONSIDERED BY TRIBUNAL IN CASE OF INNOVIT I PAYMENT SOLUTIONS (SUPRA) AND VBHC VALUE HOMES (SUPRA) . 22. WE FURTHER FIND MERIT IN SUBMISSIONS OF THE LD AR THAT THE LOWER AUTHORITIES HAVE NOT PROPERLY ADJUDICATED UPON THE CONTENTIONS RAISED BY THE APPELLANT. BEFORE LD CIT (A) APPELLANT NARRATED THE REASONS FOR VARIATION IN EST IMATED PROJECTIONS IN VALUATIONS REPORTS DATED 03 RD APRIL 2013 AND 31 ST MARCH 2014. IT WAS ALSO SUBMITTED BY THE APPELLANT THAT ESTIMATED PROJECTIONS AS PER VALUATION REPORT DATED 31 ST MARCH 2014 ARE WITH A RANGE OF 4% TO 6% OF THE ACTU AL AUDITED REVENUES AND THEREFORE THERE IS NO MATERIAL VARIANCE. APPELLANT FURTHER ELABORATED THAT IT HAD CONSIDERED A GROWTH RATE OF 25% IN TOTAL TRANSACTION VALUE (TTV) OF R ESERVATIONS TO BE HANDLED BY IT AND NOT ON REVENUES AND THAT CORRESPONDING GROWTH ON REVENUES AS PER THE FIRST A ND SECOND VALUATION REPORTS WAS IN THE RANGE OF 16-25% AND 14 -25% RESPECTIVELY WHICH IS REASONABLE EVEN AS PER THE IN DEPENDENT SEARCH CONDUCTED BY THE LD AO HIMSELF, WHEREIN AFTE R TAKEN INTO CONSIDERATION A REPORT OF THE SUNDAY GUARDIAN LIVE BY SH ANUBHAV PARSEERA DATED 25.09.2016, LD AOS HAS ESTIMATED AVERAGE GROWTH RATE OF INDUSTRY FOR THE Y EAR UNDER CONSIDERATION AT APPROXIMATELY 16%. ABOVE CRUCIAL I SSUES I.T.A. NO.1068/DEL/2019 41 HIGHLIGHTED BEFORE US WERE SPECIFICALLY PLACED BEFO RE THE LD. CIT(A) {REFER PAGES 7 TO 17 OF IMPUGNED ORDER}, HOW EVER, THERE IS NO OBJECTIVE CONSIDERATION OF THESE ISSUES BY HI M. LD CIT(A) HAS IN A LACONIC MANNER UPHELD THE ADDITION MADE WI THOUT CONSIDERING THE ABOVE FACTUAL ISSUES. THESE ARE CRU CIAL FACTUAL ISSUES WHICH HAVE TO BE CONSIDERED BY THE AUTHORITI ES BELOW AND IN ABSENCE OF A DEFINITE FINDING BEING EXPRESSE D IN THIS REGARD IT IS DIFFICULT FOR US TO RENDER A DEFINITE FINAL CONCLUSION. 23. UNDER THESE FACTS AND CIRCUMSTANCES OF THE CAS E, WE DO NOT APPROVE THE APPROACH AND THE FINDINGS OF EITHER LD AO OR LD CIT(A). THE DECISIONS RELIED UPON BY LD CIT(DR) ARE ALSO NOT RELEVANT. IN CASE OF AGRO PORTFOLIO (SUPRA) IT WAS A CASE OF EX-PARTE ASSESSMENT. AO DIRECTED THE APPELLANT TO F URNISH MATERIAL IN SUPPORT OF IS VALUATION APPLYING DCF. I N REPLY THERE WAS NO COMPLIANCE BY THE ASSESSEE AND THEREFO RE LEFT WITH NO OTHER ALTERNATIVE AO COMPLETED ASSESSMENT U /S 144 APPLYING NAV METHOD. HOWEVER, IN THE PRESENT CASE, AS NOTED BY US ABOVE, THE APPELLANT HAS NOT ONLY PARTICIPATE D DURING ASSESSMENT BUT ALSO CATEGORICALLY HIGHLIGHTED THE E RRORS IN FACTUAL FINDINGS OF THE LD AO. DECISION OF MUMBAI I TAT IN CASE OF MADHURIMA INTERNATIONAL PRIVATE LIMITED (SU PRA) IS AGAIN NOT RELEVANT. IN THIS CASE ISSUE WAS CONCERNI NG PROCEEDINGS U/S 263. ITAT UPHELD THE CASE OF REVENU E IN INVOKING JURISDICTION U/S 263 AS THERE WAS LACK OF E NQUIRY DURING COURSE OF ORIGINAL ASSESSMENT. THE DECISION OF HONBLE KERALA HIGH COURT IN CASE OF SUNRISE ACADEMY OF MED ICAL SPECIALTIES (SUPRA) IS AGAIN DISTINGUISHABLE. IN TH IS CASE THE I.T.A. NO.1068/DEL/2019 42 ASSESSEE FILED A WRIT BEFORE HONBLE HIGH COURT CHA LLENGING JURISDICTION OF AO. DECISION OF HONBLE KERALA HIGH COURT HAS ALSO BEEN CONSIDERED IN CASE OF VBHC VALUE (SUPRA). 24. WE ACCORDINGLY REITERATE THE CONCLUSIONS RECOR DED BY DIVISION BENCHES IN PARA 14 OF M/S. INNOVITI PAYMEN T SOLUTIONS (SUPRA) WHICH HAVE ALSO BEEN FOLLOWED IN CASE OF M/S VBHC VALUE (SUPRA) AND SET ASIDE THE MATTER BAC K TO THE RECORDS OF LD AO FOR A DE NOVO EXAMINATION OF DCF V ALUATION ADOPTED BY THE APPELLANT AS PER LAW. THE LD. AO IS DIRECTED TO RE-EXAMINE THE MATTER AFRESH CONSIDERING OUR FINDIN GS ABOVE AND AFTER GIVING DUE AND EFFECTIVE OPPORTUNITY OF H EARING TO THE ASSESSEE TO SUBSTANTIATE THE CASE. 25 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 14 TH DECEMBER, 2020 SD/- SD/- [B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 14/12/2020 PRABHAT