ITO WARD - 23(1), New Delhi V. Sharp Eye Broadcasting Pvt Ltd, New Delhi

ITA 1105/DEL/2020

• Counselvise Citation: [2023] 100 COUNSELVISE.COM (IT) 5887 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 8 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-11-2023
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: G
• Next Hearing Date: 23-08-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 17-03-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Fair market value
• Section: 12; 143(3); 56(2); 201; 73; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “G” DELHI BEFORE SHRI SAKTIJIT DEY-VICE PRESIDENT & SHRI PRADIP KUMAR KEDIA-ACCOUNTANT MEMBER I.T.A. No.1105/DEL/2020 Assessment Year 2016-17 ITO Ward-23(1), New Delhi. Vs. Sharp Eye Broadcasting Pvt. Ltd. 38, Jhansi Road Jhandewalan New Delhi-110055 TAN/PAN: AAOCS8090D (Appellant) (Respondent) Appellant by: Shri Arun Kumar, Adv. Respondent by: Shri Anuj Garg, Sr.DR Date of hearing: 24 08 2023 Date of pronouncement: 20 11 2023 O R D E R PER PRADIP KUMAR KEDIA-A.M. : T he c apti oned a ppeal has be en filed by t he R evenue a gainst the or de r of t he Commissi on er o f Income T ax (Ap peals )-V I II, N ew D elhi ( ‘C IT (A )’ i n s hor t) da te d 28. 01. 2020 a rising fr om the assess me nt orde r dat ed 28. 12. 20 18 pass ed by th e Assessing O fficer (A O) unde r Sect ion 143(3) of t he Inc ome T ax A ct, 19 61 (t he Act ) co ncerning AY 2016-1 7. 2. T he grou nds of appea l ra ised b y the Revenue re ad as unde r: “ 1 . W h e t h e r 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 h e ca s e , t h e l d . C I T ( A ) w a s n o t j u s t i f i e d i n d e l e t i n g t h e a d d i t i o n o f R s . 4 , 1 5 ,6 1 , 8 0 0 / - o n a c c o u n t o f s h a r e p r e m i u m r e c e i v e d b y t h e a s s e s se e - c o m p a n y i n e x c e s s o f f a r e m a r k e t v a l u e u / s . 5 6 ( 2 ) ( v i i b ) o f t h e I n c o m e Ta x A c t , I.T.A. No.1105/Del/2020 2 1 9 6 1 . ” 3. Br ie fl y s tated, the assess ee-compa ny is e ngage d i n the bus iness of br oadcast ing and tel ecas t of T e le vi sion channel. The assessee fil ed return of i nco me dec laring tota l income at Rs. 2, 32, 560/ - for t he A ssess ment Y ear 201 6-17 i n questi on. T he re tu rn file d by the assess ee was subj ecte d t o sc ruti ny a ssess ment under Sect i on 143(3) of t he A ct. 3. 1 In the c ourse of t he assess me nt proceed ings, t he Assessing O fficer inter ali a obs er ve d that the assesse e has i ssue d 4, 90,0 00 no. fresh e qu it y s hares of Rs. 10/ - each t otal i ng t o Rs. 49 la kh at a pre mi um of R s. 4,50, 80, 00 0/- t he re on @ Rs. 92 pe r s hare. The equi ty share of the c ompan y w as t hus iss ued and s ubscr ib ed at Rs. 102/ - pe r share. The Assessing Office r fur ther observed t hat ‘Fa ir Ma rket Va lue’ (FMV ) of the e qu it y s ha res of the compan y sta nds a t Rs. 17. 18 per share a nd conse quentl y the excess consi derati on r eceive d on issue o f e quit y s ha res is s us cepti ble to tax un der Section 56(2)(vi i b) of the A ct. 3. 2 O n being confronted, t he as sesse e furnis hed a valu ati on re por t w ith ef fect ive date of valuat i on bei ng 01.0 3. 2016 wherei n the FMV per share was assi gned at R s. 102 per s ha re b y follow i ng D iscoun te d C ash Flow (D CF) Met ho d. T he A ssess i ng O ffice r how e ver cas t sha dow on the p ropr iet y of FMV dete rmined as pe r the val ua ti on a rri ved i n the val ua ti on r epo rt and hel d s uc h valuati on to be uns ust ai na ble. T he A ssessi ng O ff icer obs erve d that valuati on re por t did not assu me cor rect pa ra meters a nd t he F MV dete rmined are ba sed on p roj ected cash flow w hic h are hi ghl y exagg er at ed and di vorc ed of g round reali ti es. T he Assessing O fficer obse rve d tha t as pe r parameters taken in the valuati on I.T.A. No.1105/Del/2020 3 re por t, the bus iness of the assessee w as expe cte d to achieve certa in leve l of g row th i n re ve nue and po tent ial pro fits i n the ens ui ng yea rs but howe ve r on ac t ual fac ts, t he ass esse e-compan y has no t even ach ieved 1 % o f t he proj ecti ons ass umed i n th e valuati on report. The p roj ect io ns rel ied u pon the val ua tion re port w ere th us i l luso ry onl y to make i t s ui tab le enough to pl ough back ow n mone y o f as sessee in t he cof fers of the assess ee-compan y throu gh the me di um of s ubscri pti on at gross l y unr eas ona ble a nd exce ssive high p re mi um. 3. 3 T he Assess in g Of fi cer thus ques t ione d the a ut hentic it y of the projecte d figu res and the genuineness of t he valuati on arrived. H avi ng re ga rd t o inte nt a nd purp os e of Sec tion 56(2) (vii b), the A ssessi ng Of fice r hel d that t he assesse e has fa il ed i n the justi ficat ion of the FMV so de te rmined f or the pur poses of subs cri pt io n. In t he absence of any r atio nal basis for adopt i ng the projecte d fi gures, the Assess in g O ffice r di sca rded th e FMV re por ted b y the a ssessee and de te rmined the FMV p er s ha re at Rs. 17. 18 per share on the basis of N AV recognize d in Rule 11UA of the In come T ax Rule s, 196 2. T he excess pre mi um charge d over fa ir va lu at ion o f Rs. 17. 18 pe r sh are w as th us de t ermi ned at Rs. 4, 15, 61, 800/- o n the cont ours of dee mi ng fi ct ion of Sect ion 56( 2)(vii b) of th e A ct. The ta xable i ncome w as th us e nha nc ed b y the a for esa id amount. 3. 4 T he income w as t hus assesse d at Rs. 4, 17, 94, 360/-. 4. A gg rieve d, the ass essee c ontes te d t he add iti ons made before the C IT (A). T he a ssessee f ile d w ri tt en s ubmissions to justi f y th e Fai r Market Va lue ad opted by t he as sessee and contended that the A ssessi ng O fficer was not j us ti fie d i n dis regar di ng the repo rt of I.T.A. No.1105/Del/2020 4 the value r suppor ti ng FMV . T he assessee c onte nded tha t the valuati on re por t is base d on w ell establ ished guidelines a nd pe rmiss i ble met hods and hence the A ssessing O f fi cer is not enti tle d t o dis pute and dis regard such v al ua tion and con te mpla te some a rbi t ra ry and incorrec t val ua tio ns. It w as submit t ed tha t the projecti ons w ere based on rea sonable e xpectati ons af te r consi derin g macr o and mi cro ec onomi c fact ors a ff ecting the bus iness. T he as sessee-compan y w as plannin g to expand its foo tp rint i n broadc ast ing an d te le cas t of New s and cu rrent a ffai rs, TV chann els whic h w as vi sua lized t o ca rr y mass ive pote ntia l t o generat e ret urn for its s take holders. T he c ompan y ha d app lied f or the licens e in Ministr y of I nfo rmatio n an d Broa dc ast ing f or expandi ng its bus ine ss. The licen s e was how ever deni ed vide co mmu ni cat ion d ated 19. 08. 20 20. The assess ee thus conte nded that the ge nu ineness of t he pre mi um cha rge d at t he time of subs cri pt io n co uld not be d ispu ted. 5. T he C IT (A) f ound j usti fica tion i n the assert ions ma de b y the assessee i n ju sti fic ati on of t he FMV . The CIT (A ) t hus reve rse d th e act io n o f t he A ssessing O ff ice r and reve rs ed t he a ddi tion made under Sec ti on 56(2)(viib) of the A ct. T he rele va nt ope ra t iv e pa ra graph of the order o f the C IT (A) is repr oduce d hereu nde r: “ 4 . D E C IS I O N : T h e c o n t e n t i o n o f t h e A p p e l l a n t h a s be e n c o n s i d e r e d a n d t h e o r d e r o f A O h a s a l s o b e e n p e r u s e d . 4 . 1 S e c t i o n 5 6 ( 2 ) (v i i b ) o f t h e A c t , r e a d s a s f o l l o ws : " ( v i i b ) W h e r e a c o m p a n y , n o t b e i n g a c o m p a n y i n w h ic h t h e p u b li c a r e s u b s t a n t i a l l y i n t e r e s t e d , r e c e i v e s , i n a n y p r e v i o u s y e a r , f r o m a n y p e r s o n b e i n g a r e s i d e n t , a n y c o n s i d e r a t i o n f o r i s s u e o f s ha r e s t h a t e x c e e d s t h e f a c e v a l u e o f s u c h s h a r e s , t h e a g g r e g a t e c o n s i d e r a ti o n r e c e i v e d f o r s u c h s h a r e s a s e x c e e d s t h e f a i r m a r k e t v a l u e o f t h e s h a re s : " S i m i l a r l y R u l e 1 1 U A ( 2 ) , r e a d s a s f o l l o w s : - I.T.A. No.1105/Del/2020 5 " ( 2 ) N o t w i t h s t a n d i n g a n y t h i n g c o n t a i n e d i n s u b - c l a us e ( b ) o f c l a u s e ( c ) o f s u b - ru l e ( 1 ) , t h e f a i r m a r k e t 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 e s f o r t h e p u r p o s e s o f s u b - c l a u s e ( i ) o f c l a u s e ( a ) o f E x p l a n at i o n t o c l a u s e (v i i b ) o f s u b - s e c t i o n (2 ) o f s e c t i o n 5 6 sh a l l b e t h e v a l u e, o n t h e v a l u a t i o n d a t e , o f s u c h u n q u o t e d e q u i t y s h a r e s a s d e t e r m i n e d i n t h e f o l l o w i n g m a n n e r u n d e r c l a u s e ( a ) o r c l a u s e ( b ) , a t t h e o p t i on o f t h e a s s e s s e e , n a m e l y : - (a ) t h e f a i r m a r k e t 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 e s = (A - L ) X ( P V ) , ( P E ) w h e r e , A = b o o k v a l u e o f t h e a s s e t s i n t h e b a l a n c e - s h e e t as r e d u c e d b y a n y a m o u n t o f t a x p a i d a s d e d u c t i o n o r c o l l e c t i o n a t s ou r c e o r a s a d v a n c e t a x p a y m e n t a s r e d u c e d b y t h e a m o u n t o f t a x c l a i m e d a s r e f u n d u n d e r t h e I n c o m e - t a x A c t a n d a n y a m o u n t s h o w n i n t h e b a l an c e - s h e e t a s a s s e t i n c l u d i n g t h e u n a m o r ti s e d a m o u n t o f d e f e r r e d e x p e n di t u r e w h i c h d o e s n o t r e p r e s e n t t h e v a l u e o f a n y a s s e t ; L = b o o k v a l u e o f l i a b i l i t i e s s h o w n i n t h e b a l a n c e -sh e e t , b u t n o t i n c l u d i n g t h e f o l l o w i n g a m o u n t s , n a m e l y : - ( i ) t h e p a i d - u p c a p i t a l i n r e s p e c t o f e q u i t y s h a r e s; ( i i ) t h e a m o u n t s e t a p a r t f o r p a y m e n t o f d i v i d e n d s o n p r e f e r e n c e s h a r e s a n d e q u i t y s h a r e s w h e r e s u c h d i v i d e n d s h a v e n o t b e en d e c l a r e d b e f o r e t h e d a t e o f t r a n s f e r a t a g e n e r a l b o d y m e e t i n g o f th e c o m p a n y ; ( i i i ) r e s e r v e s a n d s u r p l u s , b y w h a t e v e r n a m e c a l l e d, e v e n i f t h e r e s u l t i n g f i g u r e i s n e g a t i v e , o t h e r t h a n t h o s e s e t a p a r t t o w a r d s d e p r e c i a t i o n ; ( i v ) a n y a m o u n t r e p r e s e n t i n g p ro v i s i o n f o r t a x a t i o n, o th e r t h a n a m o u n t o f t a x p a i d a s d e d u c t i o n o r c o l l e c t i o n a t s o u r c e o r a s a d v a n c e t a x p a y m e n t a s r e d u c e d b y t h e a m o u n t o f t a x c l a i m e d a s r e f u n d u n d e r t h e I n c o m e - t a x A c t , t o t h e e x t e n t o f t h e e x c e s s o v e r t he t a x p a y a b l e w i t h r e f e r e n c e t o t h e b o o k p r o f i t s i n a c c o rd a n c e w i t h t he l a w a p p l i c a b l e t h e r e t o ; (v ) a n y a m o u n t r e p r e s e n t i n g p ro v i s i o n s m a d e f o r m e et i n g l i a b i l i t i e s , o t h e r t h a n a s c e r t a i n e d l i a b i l i t i e s ; (v i ) a n y a m o u n t r e p r e s e n t i n g c o n t i n g e n t l i a b i l i t i e s o t h e r t h a n a r re a r s o f d i v i d e n d s p a y a b l e i n r e s p e c t o f c u m u l a t i v e p r e f e r e nc e s h a r e s ; P E = t o t a l a m o u n t o f p a i d u p e q u i t y s h a r e c a p i t a l as s h o w n t h e b a l a n c e - s h e e t ; P V = t h e p a i d u p v a l u e o f s u c h e q u i t y s h a r e s ; o r I.T.A. No.1105/Del/2020 6 (b ) t h e 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 e d e q u i t y s ha r e d e t e r m i n e d b y a m e r c h a n t b a n k e r o r a n a c c o u n t a n t a s p e r t h e D i s c o u nt e d F r e e C a sh F l o w m e t h o d .] 4 . 2 R e f e r e n c e i s a l s o d r a w n t o t h e r e l e v a n t e x t r a c t o f T e c h n i c a l g u i d e o m a r e v a l u a t i o n ( i s s u e d i n 2 0 0 9 ) b y r e s e a r c h c o m m i t te e o f t h e I n s t 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 ( I C A I ) w h i c h f u r th e r c l a r i f i e s t h e c o n c e p t r i v i n g a t v a l u a t i o n s , w h i c h h a s b e e n r e p r o du c e d a s u n d e r : " 1 .1 T h e v a l u a t i o n o f t h e s h a r e s o f a c o m p a n y i n v o lv e s u s e o f j u d g e m e n t , e x p e r i e n c e a n d k n o w l e d g e . T h e a c c o u n t a n t u n d e r t a k i n g t h i s w o r k sh o u l d p o s s e s s k n o w l e d g e t h e a n a l y s i s a n d i n t er p r e t a t i o n o f f i n a n c i a l s t a t e m e n t s b a c k e d b y a p r a c t i c e a p p r e c i a ti o n o f b u s i n e s s a f f a i r s a n d i n v e s t m e n t s . A v a l u a t i o n b a s e d o n q u a n ti t a t i v e i n f o r m a t i o n a l o n e w i l l n o t b e a d e q u a t e f o r a r e a l v a l u a t i o n . I t s h o u l d a l s o r e c o g n i z e d t h a t t h e m e t h o d o f v a l u a t i o n o f s h a r e s wo u l d v a r y , d e p e n d i n g o n p u rp o s e f o r w h i c h i t i s t o b e u se d . 1 . 2 A c l e a r u n d e r s t a n d i n g o f t h e p u r p o s e o f v a l u a t io n i s u n d o u b t e d l y i m p o r t a n t , a n e q u a l l y i m p o r t a n t i m p e r a t i v e i s t o h av e a f u l l a p p r e c i a t i o n o f t h e ' v a l u e ” e m a n a t i n g f r o m c o m m o n pr i n c i p l e s . T h i s ' g e n e r a l p u r p o s e v a l u e ’ m a y b e su i t a b l y m o d i f i e d t he s p e c i a l p u r p o s e f o r w h i c h t h e v a l u a t i o n i s d o n e . T h e f a c t o r s a f f e c ti n g t h a t v a l u e w i t h r e f e r e n c e t o t h e s p e c i a l p u rp o s e m u s t b e j u d g e d a n d b r o u g h t i n t o a s s e s s m e n t i n a s o u n d a r i d r e a so n a b l e m a n n e r . 1 . 4 V a l u a t i o n , b e i n g a c o m p l e x s u b j e c t , i s l i m i t e d t o e x p e r t s a n d i s s u r r o u n d e d b y a n u m b e r o f m y t h s . S o m e o f t h e v e r y co m m o n g e n e r a l i t i e s a b o u t v a l u a t i o n a r e d i s c u s s e d b e l o w : (b ) V a l u a t i o n i s r i d d l e d w i t h a c o m m o n p l a c e n o t i o n t h a t a d e t a i l e d v a l u a t i o n e x e r c i s e w i l l p r o v i d e a p r e c i s e e s t i m a t e o f v a l u e . T h e t r u t h i s t h a t a n y v a l u a t i o n i s a s g o o d a s i t s u n d e r l y i n g a s su m p t i o n s , w h i c h , i n t u r n , a r e t h e f u n c t i o n o f a n u m b e r o f p r e s e n t a r i d f o r w a r d - l o o k i n g f a c t o r s . A c a r e f u l v a l u a t i o n e x e r c i s e , a t b e s t , c a n g i v e a n i n d i c a t i v e r a n g e o f v a l u e s u b j e c t t o t h e r e a s o n a b l e n e s s o f t h e a s s u m p t i o n s . (c ) V a l u a t i o n i s p e r t i n e n t t o a p a r t i c u l a r p o i n t o f t i m e a n d v a r i e s w i t h c h a n g e s i n b u s i n e s s , i n d u s t r y a n d m a c r o e c o n o m i c e n vi r o n m e n t . E . g . , t h e m o v e m e n t o f U S D o l l a r a g a i n s t I n d i a n Ru p e e h a s l e d t o a su b s t a n t i a l c h a n g e i n t h e v a l u a t i o n o f I T a n d o t h e r e x p o r t - d r i ve n c o m p a n i e s . 2 . 1 T h e p o t e n t i a l e a r n i n g p o w e r o f a c o m p a n y i s g e ne ra l l y a p a ra m o u n t f a c t o r f o r v a l u a t i o n o f s h a r e b u t t h e r e m a y b e o c c as i o n s , e sp e c i a l l y i n v a l u a t i o n s f o r c o m p e n sa t i o n , w h e r e o th e r c o n s i d e r a ti o n s b e c o m e r e l a t i v e l y m o r e i m p o rt a n t . I n t h e a b s e n c e o f a n y o th e r s p e c i a l m o t i v e , a n i n v e s t o r i s p r i n c i p a l l y i n t e r e s t e d i n a c o m p a n y 's a b i l i t y t o c o n t i n u e e a rn i n g p ro f i t s 2 . 4 T h e I n c o m e A p p r o a c h i n d i c a t e s t h e v a l u e o f a b us i n e s s b a s e d o n t h e v a l u e o f t h e c a sh f l o w s t h a t a b u s i n e s s i s e x p e c t e d t o g e n e r a t e i n f u t u r e . T h i s a p p r o a c h i s a p p r o p r i a t e i n m o s t g o i n g c o n c e rn s i t u a t i o n s a s t h e w o r t h o f a b u s i n e s s i s g e n e r a l l y a f u n c t i o n o f i t s a b i l i t y t o e a rn f l o w a n d t o p r o v i d e a n a p p r o p r i a t e r e t u r n o n i n v e s t m e n t . I.T.A. No.1105/Del/2020 7 2 . 5 T h e In c o m e a p p r o a c h i n c l u d e s a n u m b e r o f m o d e l s/ t e c h n i q u e s , s u c h a s D i s c o u n t e d C a s h F l o w , M a i n t a i n a b l e P r o f i t s B a s i s, D i v i d e n d D i s c o u n t M o d e l , a n d o t h e r s , w h i c h a r e d i s c u s s e d i n d e t a i l i n t h e f o l l o w i n g p a ra g r a p h s . 2 . 6 D i s c o u n t e d C a s h F l o w m o d e l i n d i c a t e s t h e f a i r ma r k e t v a l u e o f a b u s i n e s s b a s e d o n t h e v a l u e o f c a sh f l o w s t h a t t h e b u s i n e s s i s e x p e c t e d t o g e n e r a t e i n f u t u r e . T h i s m e t h o d i n v o l v e s t h e e s ti m a t i o n o f p o s t - t a x c a sh f l o w s f o r t h e p ro j e c t e d p e r i o d , a f t e r t a k i n g in t o a c c o u n t t h e b u s i n e s s ' s r e q u i r e m e n t o f r e i n v e s t m e n t i n t e r m s o f c a p i t a l e x p e n d i t u r e a n d i n c r e m e n t a l w o r k in g c a p i t a l . T h e s e c a sh f l o w s ar e t h e n d i s c o u n t e d a t a c o s t o f c a p i t a l t h a t r e f l e c t s t h e r i s k s o f t h e b u s i n e s s a n d t h e c a p i t a l s t r u c t u r e o f t h e e n t i t y . 2 . 7 D i s c o u n t e d C a sh F l o w i s t h e m o s t c o m m o n l y u s e d v a l u a t i o n t e c h n i q u e , a n d i s w i d e l y a c c e p t e d b y v a l u e r s b e c a u se o f i t s i n t r i n s i c m e r i t s , s o m e o f w h i c h a r e g i v e n b e l o w : ( a ) T h e o r e t i c a l l y , i t i s a v e r y s o u n d m o d e l b e c a u s e i t i s b a s e d u p o n e x p e c t e d f u t u r e c a s h f l o w s o f a c o m p a n y t h a t w i l l de t e r m i n e a n i n v e s t o r ' s a c t u a l r e t u r n . ( b ) I t i s b a s e d o n e x p e c t a t i o n s o f p e r f o r m a n c e s p e ci f i c t o t h e b u s i n e s s , a n d i s n o t i n f l u e n c e d b y sh o r t - t e r m m a r k et c o n d i t i o n s o r n o n e c o n o m i c i n d i c a t o r s . ( c ) I t i s n o t a s v u l n e r a b l e t o a c c o u n t i n g c o n v e n t i on s l i k e d e p r e c i a t i o n , i n v e n t o r y v a l u a t i o n i n c o m p a r i s o n w i th t h e o t h e r t e c h n i q u e s / a p p r o a c h e s s i n c e i t i s b a s e d o n c a s h f l ow s r a t h e r t h a n a c c o u n t i n g p ro f i t s . ( d ) I t i s a p p ro p r i a t e f o r v a l u i n g g r e e n - f i e l d o r s ta r t - u p p r o j e c t s , a s t h e s e p r o j e c t s h a v e l i t t l e o r n o a s s e t b a s e o r e a r ni n g s w h i c h r e n d e r t h e n e t a s s e t o r m u l t i p l e a p p ro a c h e s i n a p p r o p r i a t e . H o w e v e r , i t i s i m p o r t a n t t h a t v a l u a t i o n m u s t r e c o g n i s e t h e a d d i t i on a l r i s k s i n s u c h a c a s e (e . g . p r o j e c t e x e c u t i o n r i s k , l a c k o f p a s t tr a c k r e c o r d , e t c . ) b y u s i n g a n a p p ro p r i a t e d i s c o u n t r a t e . 2 . 8 T h o u g h t h e D i s c o u n t e d C a s h F l o w m o d e l i s o n e o f t h e w i d e l y u s e d m o d e l s f o r v a l u a t i o n b e c a u s e o f i t s i n h e r e n t b e n e f it s , i t s t i l l h a s i t s s h a r e o f d r a w b a c k s M a j o r s h o r t c o m i n g s o f t h i s m o d e l a r e a s f o l l o w s : ( a ) I t i s o n l y a s g o o d a s i t s i n p u t a s su m p t i o n s . F ol l o w i n g t h e " g a r b a g e i n , g a r b a g e o u t " p r i n c i p l e , i f t h e i n p u t s -C a s h F l o w P r o j e c t i o n s , D i s c o u n t R a t e , a n d T e r m i n a l V a l u e - a r e w i d e o f f t h e m a r k , t h e n t h e v a l u e g e n e r a t e d b y u s i n g t h i s m o d e l d o e s n o t r e f l e c t t h e f a i r v a l u e . ( b ) I t d o e s n o t t a k e i n t o a c c o u n t s e v e r a l o t h e r f a ct o r s , s u c h a s i n v e s t m e n t r i s k a s s o c i a t e d w i t h o p p o r t u n i t y c o s t , i. e . i n v e s t m e n t s t h a t c o u l d r e t u r n g r e a t e r c a s h f l o w y i e l d s w o u l d a dd a n u n r e a l i s e d e l e m e n t o f r i s k , u n f o r e s e e n v a r i a t i o n s i n f u t u r e c ash f l o w , a n d o t h e r n o n - f i n a n c i a l f a c t o r s . I.T.A. No.1105/Del/2020 8 4 . 3 T h u s , f r o m r e a d i n g o f t h e s a i d p r o v i s i o n , r u l e s a n d t h e t e c h n i c a l g u i d e , t i s c l e a r t h a t t h e A O h a s w o r k e d o u t t h e v al u e b a s e d o n N A V m e t h o d a n d w a n t e d t o i m p o s e u p o n t h e m e t h o d o f v a l ua t i o n o f t h e i r o w n c h o i c e , c o m p l e t 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 v e i n te n t w h i c h h a s g i v e n a n o p t i o n t o t h e a s s e s s e e t o a n y o n e o f t h e t w o m e th o d s o f v a l u a t i o n o f h i s C h o i c e . W h e n t h e l a w h a s s p e c i f i c a l l y p r o v i d e d a m e t h o d o f v a l u a t i o n a n d t h e a s s e s s e e e x e r c i s e d a n o p t i o n b y 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 t h e m e 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 a s n o t j u s t i f i e d . T h a t w o u l d m a k e t h e c l a u s e ( b ) of R u l e 1 1 U A ( 2 ) a s n u g a t o r y a n d p u rp o s e l e s s , w h i c h i s n o t t h e i n t e n t of t h e l e g i s l a t u r e s . F u r t h e r , t h o u g h t h e A O c a n s c ru t i n i z e t h e v a l u a t i o n r e p o r t , h e m a y m a k e n e c e s s a r y a d j u s t m e n t s . B u t w h e n a n o p t i o n h a s b e e n e x e rc i s e d , t h e n s a m e c a n n o t b e d i s c a r d e d t o i m p o s e o t h e r o p t i on . T h e A O m a y a l s o s u g g e s t s o m e m o d i f i c a t i o n s a n d a l t e r a t i o n s p ro v i d e d 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 so n i n g a n d r a t i o n a l b a s i s . 4 . 4 B e f o r e e x a m i n i n g t h e f a i r n e s s o r r e a s o n a b l e n e s s o f v a l u a t i o n r e p o r t s u b m i t t e d b y t h e a s s e s s e e , i t h a s t o b e k e p t i n m i nd t h a t t h e D C F M e t h o d i s e s s e n t i a l l y b a s e d o n t h e p r o j e c t i o n s (e s ti 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 ro j e c t i o n s c a n n o t b e c o m p a r e d w i t h t h e a c t u a l t o e x p e c t 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 . T h e v a l u e r h a s t o m a k e fo r e c a s t s o n t h e b a s i s o f so u n d r e a so n s a n d p r e v a i l i n g m i c r o a n d m a c r o fa c t o r s a f f e c t i n g t h e b u s i n e s s . I n p r e s e n t c a s e , t h e M a n a g em e n t h a d a p p li e d f o r p e r m i s s i o n t o u p l i n k " P o p c o r n T V " C h a n n e l ( N o n -N e w s & C u r r e n t A f f a i r s C a t e g o r y ) o n 2 0 t h J a n u a r y 2 0 1 6 . T h e b u s i n e ss s e c t o r i n w h i c h t h e C o m p a n y w a s p l a n n i n g t o e x p a n d i s a g ro w i n g s e ct o r e v e n i n t h e p r e s e n t d a t e a n d h a v e a m a s s i v e p o t e n t i a l t o g e n e r at e r e t u r n s f o r i t s s t a k e h o l d e r s . A s c i t e d a b o v e , t h a t t h e C o m p a n y h a d a p p l i e d f o r t h e l i c e n s e a n d b a s e d o n t h e v i e w t h a t t h e l i c e n s e w i l l b e a l l o t t e d , p r o j e c t i o n s w e r e e s t i m a t e d a n d v a l u a t i o n o f s h a r e s w e r e u n d e r t a k e n in t h e v a l u a t i o n r e p o r t . 4 . 5 In c o u r s e o f a p p e l l a t e p ro c e e d i n g s , v a r i o u s a r gu m e n t s w e r e m a d e b y t h e l e a r n e d A R o f t h e a p p e l l a n t . S h e w a s a s k e d t o ex p l a i n t h a t a s p e r t h e d e t a i l s a v a i l a b l e o n p a g e 2 o f t h e p a p e r b o o k , d u r i n g F . Y . 2 0 1 6 - 1 7 & F . Y . 2 0 1 7 - 1 8 , t h e p ro j e c t e d r e v e n u e w a s R s 3 5 0 L ak h s a n d R s 6 5 0 L a k h s r e s p e c t i v e l y w h e r e a s t h e a c t u a l r e v e n u e w a s ob s e r v e d a s a t R s 1 . 9 L a k h s . a n d R s 1 8 4 L a k h s a n d u n d e r t h i s f a c t u a l p o s i t i o n , h o w t h e p r o j e c t i o n s o f 8 5 % & 3 0 % i n c r e a s e i n t u rn o v e r c a n be a c c e p t e d . I n r e p l y , l e a r n e d A R o f t h e a s s e s s e e m a d e v a r i o u s a r g um e n t s t h a t t h e p r o j e c t i o n s a s su m e d i n t h e v a l u a t i o n r e p o r t w e r e b as e d o n t h e a s su m p t i o n t h a t t h e " P o p c o r n T V " c h a n n e l w i l l b e a ll o t t e d . U n f o r t u n a t e l y , t h e l i c e n s e w a s r e j e c t e d a n d t h e r e f or e t h e a c t u a l s a r e n o t i n l i n e w i t h t h e p r o j e c t i o n s . T h e A R o f t h e a s se s s e e h i g h l i g h t e d N o t e n o 6 o f t h e a u d i t e d f i n a n c i a l s o f F . Y . 2 0 1 5 - 1 6 t h a t t h e a s s e s s e e h a d i n v e s t e d R s 2 0 0 L a k h s i n r e c o r d i n g s t u d i o o u t o f t he p ro c e e d s o f t h e i s s u e o f s h a r e s . T h e AR a l s o r e p r e s e n t e d t h a t t h e as s e s s e e a t t h e p r e s e n t d a t e h a s a g a i n a p p l i e d f o r a f r e s h l i c e n s e b e f o r e th e a u t h o r i t i e s . T h e A R o f t h e a s s e s s e e r e p r e s e n t e d t h a t h a d i t b e e n t h e c as e o f a m a l a f i d e t r a n sa c t i o n , t h e a s s e ss e e w o u l d n o t h a v e a p p l i e d a ga i n o r h a v e u se d t h e p r o c e e d s t o w a r d s o t h e r b u s i n e s s a c t i v i t i e s . 4 . 6 T h e L d . A R o f t h e a p p e l l a n t r e f e r r e d t o t h e I T AT D e l h i d e c i s i o n i n I.T.A. No.1105/Del/2020 9 t h e c a s e o f I n d i a T o d a y O n l i n e P v t . L t d v s . I n c o m e T a x O f f i c e r i n I T A N o s . 6 4 5 3 & 6 4 5 4 D e l 2 0 1 8 d a t e d 1 5 - 0 3 - 2 0 1 9 r e p o r t e d i n [2 0 1 9 ] 1 0 4 t a x m a n n . c o m 3 8 5 ( D e l h i T r i b . ) / [ 2 0 1 9 ] 1 7 6 I T D 4 5 9 ( De l h i T r i b . ) w h e r e i n i t w a s h e l d - t h a t - " 3 . 1 O n e o f t h e c a r d i n a l p r i n c i p l e s o f i n t e r p r e t a t io n o f f i s c a l s t a t u t e i s t h a t t h e y s h o u l d b e s t r i c t l y c o n s t r u e d a n d s o l on g a s t h e p r o v i s i o n i s f r e e f r o m a n y a m b i g u i t y , t h e r e s h o u l d b e n o n e e d t o d ra w a n y a n a lo g y . A d e e m i n g p ro v i s i o n o n t h e o t h e r h a n d i s in t e n d e d t o e n l a r g e t h e m e a n i n g o f a p a r t i c u l a r w o rd w h i c h i n c lu d e s m a t t e r s w h i c h o t h e r w i s e m a y o r m a y n o t f a l l w i t h i n t h e n o r ma l p r o v i s i o n , t h e r e f o r e , i t s h o u l d b e e x t e n d e d t o t h e c o n s e q u e n c es a n d i n c i d e n t s w h i c h h a s b e e n i n t e n d e d b y t h e L e g i s l a t u re f o r a d ef i n i t e p u r p o s e a n d sh o u l d n o t b e e x t e n d e d b e y o n d t h e m a n d a t e o f t he s t a t u t e . T h u s , d e e m i n g p r o v i s i o n s r e q u i r e t o b e c o n s t r u e d s tr i c t l y . H e r e i n t h i s c a s e t h e a s s e s s e e h a s f o l l o w e d o n e o f t h e o p t io n s p ro v i d e d u n d e r s u c h d e e m i n g p r o v i s i o n a n d wh e n s u c h a n o p t i on h a s b e e n e x e r c i s e d , t h e n s a m e c a n n o t b e d i s c a r d e d t o i m p o s e o t h e r o p t i o n . T h e a s s e s s e e ' s o p t i o n h a s b e e n r e j e c t e d b y t h e L d . C I T ( A ) o n t h e g r o u n d i t d o e s n o t s t a n d t h e t e s t o f o n e o f o p t i o n , w h i c h h e d e e m s f i t . N o t o n l y t h a t v a l u a t i o n m e t h o d a d o p t e d b y t h e a s s e s s e e t o v a l u e i t s u n d e r l y i n g a s s e t , t h a t i s , M a i l T o d a y sh a r e s h as b e e n r e j e c t e d o n t h e g ro u n d t h a t D C F m e t h o d a p p l i e d i s n o t c o r r e c t . D C F m e t h o d i s a r e c o g n i s e d m e t h o d w h e r e f u t u r e p r o j e c t i o n s o f v a ri o u s f a c t o r s b y a p p l y i n g h i n d s i g h t v i e w a n d i t c a n n o t b e m a t c h e d w it h a c t u a l p e r f o r m a n c e , a n d w h a t L d . C I T ( A ) i s t r y i n g t o d o i s t o e v a l u a t e f r o m t h e a c t u a l t o sh o w t h a t t h e C o m p a n y w a s r u n n i n g i n to l o s s e s , t h e r e f o r e , D C F i s n o t c o r r e c t . V a l u a t i o n u n d e r D C F i s n o t e x a c t s c i e n c e a n d c a n n e v e r b e d o n e w i t h a r i t h m e t i c p r e c is i o n , h e n c e t h e v a l u a t i o n b y a Va l u e r h a s t o b e a c c e p t e d u n l e s s , s pe c i f i c d i s c r e p a n c y i n t h e f i g u r e s a n d f a c t o r s ta k e n a r e f ou n d . T h e n A O o r C I T (A ) m a y r e f e r t o t h e V a l u e r t o e x a m i n e t h e s a m e. " 4 . 7 T h e L d . A R o f t h e a p p e l l a n t a l s o r e p r e s e n t e d t ha t t h e m o s t c r i t i c a l i n p u t D C F m o d e l i s t h e C a s h F l o w P r o j e c t i on s a n d i f t h e v a l u a t i o n r e p o r t i s p r e p a r e d w i t h r e a s o n a b l e c e r t a in t y b y s h o w i n g t h a t t h e r e l i a b l e e s t i m a t e s a r e a c h i e v a b l e w i t h r e a so n a bl e c e r t a i n t y o n t h e b a s i s o f f a c t s a v a i l a b l e o n t h e d a t e o f v a l u a t i o n an d a c t u a l r e s u l t o f f u t u r e c a n n o t b e a b a si s o f s a y i n g t h a t e s t i m a t e s of t h e m a n a g e m e n t a r e n o t r e a so n a b l e a n d r e l i a b l e . T h e l e a r n e d A R o f t h e a s s e s s e e a l s o r e p r e s e n t e d t h a t t h e e s t i m a t e s a r e c l e a r l y w i t h i n th e i n d u s t r y n o rm s a n d a r e p ra c t i c a l l y a c h i e v a b l e a n d t h e r e f o r e , t h e p r o j ec t i o n o f g r o w t h o f 8 5 % a n d 3 0 % i s j u s t i f i e d . T h e c a s h f l o w p r o j e c t i o n s c e r t i f i e d b y t h e m a n a g e m e n t w e r e m e r e p r o j e c t i o n s / e s t i m a t i o n s d e p e n di n g o n v a r i o u s f a c t o r s w h i c h n o b o d y c o u l d h a v e a n t i c i p a t e d o r f o r es e e n o n t h e w h e n s u c h v a l u a t i o n s w e r e m a d e . T h e r e f o r e , t h e r e w a s n o j u s t i f i c a t i o n t o m a k e a c o m p a r i s o n o f t h e e s 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 c o m p a r i s o n i s o t h e rw 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 R u l e 1 1 U A ( b ) . 4 . 8 A s p e r v a r i o u s t r i b u n a l o r d e r s c i t e d b y A R o f as s e s s e e , i t w a s h e l d t h a t p e r R u l e 1 1 U A ( 2 ) , a s s e s s e e c o u l d o p t f o r D C F me t h o d a n d i f I.T.A. No.1105/Del/2020 10 a s s e s s e e h a d o p t e d f o r D C F m e t h o d , A O c o u l d n o t d i sc a r d t h e s a m e a n d a d o p t o t h e r m e t h o d i . e . N A V m e t h o d o f v a l u i n g s h a r es . I n c a s e o f M / s . R a m e s h w a r a m S t r o n g G l a s s (P ) L t d . v s . T h e I T O [2 0 1 8] 1 7 2 I T D 5 7 1 (J a i p u r – T r i b . ) , t h e t r i b u n a l h a d r e p r o d u c e d r e l e va n t p o r t i o n o f a n o th e r t r i b u n a l o r d e r o rd e r e d i n c a s e o f I T O v s . M/ s U n i v e r s a l P o l y p a c k ( I n d i a ) P v t . L t d . I n s u c h c a s e , t r i b u n a l he l d t h a t i f a s s e s s e e h a d o p t e d f o r D C F m e t h o d , A O c o u l d n o t c h a l l e n g e t he s a m e b u t A O w a s w e l l w i t h i n h i s r i g h t s t o e x a m i n e m e t h o d o l o g y ad o p t e d b y a s s e s s e e a n d u n d e r l y i n g a s s u m p t i o n s a n d i f h e w a s n o t s a t i s fi e d , h e c o u l d c h a l l e n g e t h e s a m e a n d su g g e s t n e c e s s a r y m o d i f i c a t io n s / a l t e r a t i o n s p r o v i d e d s a m e w e r e b a s e d o n s o u n d r e a so n i n g a n d ra ti o n a l e b a s i s . I n s a m e t r i b u n a l o rd e r , a j u d g m e n t o f B o m b a y H i g h C o u rt w a s a l s o t a k e n n o t e o f h a v i n g b e e n r e n d e r e d i n c a s e o f V o d a f o n e M -P e s a L t d v s . P C I T . T h e p r o j e c t i o n s s h o u l d b e b a s e d o n r e a s o n a b l e e x p e ct a t i o n s a f t e r c o n s i d e r i n g m a c ro a n d m i c r o e c o n o m i c f a c t o r s a f f e c ti n g t h e b u si n e s s a n d t h e s a m e p r i n c i p l e w a s f o l l o w e d b y t h e m a n a g e m en t o f t h e C o m p a n y R e l i a n c e w a s a l s o p l a c e d i n c a s e o f M / s . I N N O V I T I PA Y M E N T S O L U T I O N S P V T . L T D v s . T h e I T O , [ 2 0 1 9 ] 1 0 2 t a x m a n n . co m 5 9 (B a n g a l o r e T r i b . ) , t h e t r i b u n a l i n p a ra 1 2 h a s h e l d t h a t " t h e A O c a n s c r u t i n i z e t h e v a l u a t i o n r e p o r t a n d t h e i f t h e A O i s n o s a t i s f i e d w i t h t h e e x p l a n a t i o n o f t h e a s s e s s e e , h e h a s t o r e c o r d t h e r e a so n s a n d b a s i s f o r n o t a c c e p t i n g t h e 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 t h e a s s e s s e e a n d o n l y t h e r e a f t e r , h e c a n g o f o r o w n v a l u a t i o n o r t o o b t a in t h e f r e s h v a l u a t i o n r e p o r t f r o m a n i n d e p en d e n t v a l u e r a n d c o n f r o n t t h e sa m e t o t h e a s s e s s e e . B u t t h e b a s i s h as t o b e D C F m e t h o d a n d h e c a n n o t c h a n g e t h e m e t h o d o f v a l u a t i o n w h i c h h a s b e e n o p t e d b y t h e a s s e s s e e . F o r s c r u t i n i z i n g t h e v al u a t i o n r e p o r t , t h e f a c t s a n d d a t a a v a i l a b l e o n t h e d a t e o f v a l u a t io n o n l y h a s t o b e c o n s i d e r e d a n d a c t u a l r e s u l t o f f u t u r e c a n n o t b e a b a s i s t o d e c i d e a b o u t r e l i a b i l i t y o f t h e p r o j e c t i o n s . " 4 . 9 T h e A O t h o u g h o b s e r v e d t h a t t h e v a l u a t i o n r e p o rt i s s u b m i t t e d w i t h a d i s c l a i m e r b u t i t i s n o t a v a l i d r e a so n w h i c h w i ll a f f e c t t h e c o r r e c t n e s s o f t h e v a l u a t i o n s o c o n s i d e r e d . T h e r e f or e , s u c h o b s e r v a t i o n s a r e n o t r e l e v a n t a n d a m e r e su s p i c i o n . I t a p p e a r s th a t t h e A O h a s i g n o r e d t h e E x p l a n a t i o n (a ) b e l o w S . 5 6 ( 2 ) (v i i b ) . Th e s a i d e x p l a n a t i o n p r o v i d e s t h a t t h e f a i r m a r k e t v a l u e o f t h e s h a r e s sh a l l b e t h e v a l u e - ( i ) a s m a y b e d e t e r m i n e d i n a c c o rd 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 c r i b e d i . e . u / r 1 1 U A ; o r ( i i ) a s m a y b e s u b s t a nt i a t e d b y t h e c o m p a n y t o t h e s a t i s f a c t i o n o f t h e A s s e s s i 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 s s u e o f s h a r e s , o f i t s a s s e t s , i n c l u d i n g in t a n g i b l e a s s e t b e i n g g o o d w i l l , k n o w -h o w , p a t e n t s , c o p y r i g h t s , t r a d e m a r k s, l i c e n s e s f r a n c h i s e s o r a n y o t h e r b u s i n e s s o r c o m m e r c i a l r i g ht s o f s i m i l a r n a t u r e w h i c h e v e r i s h i g h e r . M o r e o v e r , i t i s o n l y t h e E x p l an a t i o n (a ) ( i i ) s p e a k s o t h e sa t i s f a c t i o n o f t h e A O b u t t h e r e a p p e a r s n o su c h c o n d i t i o n i n t h e E x p l a n a t i o n ( a ) (i ) w h i c h t h e r e f o r e AO s h o u ld n ' t i n te r f e r e i n t h e v a l u a t i o n o n c e 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 pr e s c r i b e d i n t h e R u l e 1 1 U A (2 ) . 4 . 1 0 Fo r t h e s e r e a so n s , I f i n d n o j u s t i f i c a t i o n s b eh i n d t h e o b j e c t i o n o f t h e A s s e s s i n g O f f i c e r t h a t t h e v a l u a t i o n su b m i t t e d b y t h e a s s e s s e e w a s a b s o l u t e l y b a s e l e s s a n d e x a g g e r a t e d o r w i t h o u t a n y b a s i s . T h e v a l u e r a t I.T.A. No.1105/Del/2020 11 t h e t i m e o f v a l u a t i o n i n a l l a s p e c t s c o n s i d e r e d t h e e c o n o m i c b e n e f i t a r i s i n g o u t o f t h e a p p l i c a t i o n a n d a l l o t m e n t o f T V c h a n n e l a n d i n c o r p o r a t e d t h e s a m e i n h i s r e p o r t . ” 6. A gg rieve d, the Re venue is i n appeal be fore the Tribunal. The ld. DR f or t he R evenu e rel ie d upon t he obs erva ti ons made in assess me nt order and s ubmi tted in furtherance that mer e pro duc tion of a valuati on re port by i tsel f is no t suf ficie nt t o justi f y the FMV a nd seek im munit y fr om the deemin g ficti on. It w as submitt ed t ha t the FMV has been de te rmined b y the val ue r based on the proje cte d data made ava ila ble t o him by th e assessee. The basi s for a rri ving at such s tagger in g p roj ect ions a nd meteori c ri se i n re ve nue proj ections is not avai lable on reco rd. The A ssessi ng O ffice r has obs er ved a ve ry p oor s ta te of current fi na ncia l affairs at the ti me of s ubsc ri ption. T he valuation re port has b een a rrive d at a ver y exaggerated revenue project ions wi thout an y foundat io n. T he C IT (A ) h as ignore d t he fac tu al anal ysis carr ie d b y the A ssessi ng O ffic er t ha t suc h as the pr ojec ted fi gures are a f r y c r y and the assess ee has f ai led t o ac hieve e ven 1 % of the projecti ons in the ens ui ng ye ars. Suc h huge pre mi um is cla imed to have been c ollect e d bas ed on s ome appl icati on f or obtaining TV chann el l icens e alone. A me re a ppli cat io n f or o btaini ng li cense is unli kel y t o f etc h such large pre mi um. T he a ppl ica tion has been summar il y rej ec ted by the Minis tr y due to no n co-ope ra tion b y the assessee s how in g the i r lack of se riousn ess and interes t. T he l d. D R thu s cont en ded t hat the p roj ect ed f igu res a re i magi na ry a nd carr ie d no rat ionale basis. The l d. D R cont ende d that the valuati on re por t has been rightl y dis carded w hic h w as sta te d to ha ve bee n prepared merel y on the b asis of i nf ormat ion s uppl ied b y the assessee as a mat he ma tic al e xercise . T he ld. D R thus conte nde d that t he onus p la ced upon the ass essee to j us tif y such la rge I.T.A. No.1105/Del/2020 12 pre mi um has not been d isc ha rged at all and c ons e quentl y the A ssessi ng O fficer w as corr ect in ad opti ng NA V me th od bein g a ra ti on al me thod unde r t he circu ms tan ces. T he l d. DR thus asser ted that C IT (A ) was w hol l y unjusti fi ed in me re l y ac cepti ng a theo reti cal and a bst ra ct expl an at ion o ffe re d on be half of the assessee. The ld. D R thus urge d for re ve rsa l of t he ac tion of the CIT (A ) and res torati on of t he a ddi t io n made in t he assess ment order. 7. T he l d. counse l fo r the a ssesse e, on the o ther ha nd, suppo rted t he fi rs t app el late orde r a nd submit ted tha t the valuati on re por t cor rob orate s the s hare p re mi um an d t hus A ssess ing Of fice r w as not just i fi ed in dis lodgi ng suc h val ua tions. T he l d. cou nsel re fe rre d to the ju dgme nt de li ve re d by the H on’ ble Delh i H igh Cour t in the cas e of P r. C IT vs. Ci nest aa n E nt ert ainm e nt P vt. Ltd. , (20 21) 433 ITR 82 (D el) to co ntend t hat proj ec tions of revenue cash fl ow do involve e sti mat i ons a nd cannot be compare d wit h subs eque nt actual res ults unknow n a t t he t i me of valuatio ns. The act ua l res ults ma y often var y due t o occ urr ence o r non occurrence of even ts an d e xpe cta tions. T he l d. c ounsel further contended t hat the onus is on re ve nue t o de monstrate tha t the motive for i ssuance of s ha re at high pre mium for a ny tax abuse. T he A ssess ing O f fice r has fail ed in d oing so. T he ld. counsel a lso pointed o ut t hat the A ssessi ng O fficer canno t be pe rmi t ted to a rbi tr arily chang e the valuati on method f rom D CF me thod to N A V method a s obse rved in the case of V odafo ne M-P es a Ltd. vs. P r.C IT, (20 18) 92 taxm an n. com 73 ( Bom). The ld. couns el thus submi tt ed t ha t no inte rference wit h the order of t he C IT (A ) is ca lled for. 8. We have he ar d the pa rties i n l eng th and peruse d the I.T.A. No.1105/Del/2020 13 assess me nt or de r as w ell as the fi rst app el late order. The doc uments re fe rre d and rel ied upon have bee n taken co gniza nce i n terms of R ule 1 8(6) of the I ncome Ta x (A ppe lla te T ribunal) R ul es, 1963. 8. 1 In the case in hand, t he s ol it a ry que st ion presented f or dete rminat i on is w heth er the c onsi de ra tion rece ived b y the assessee c o. tow a rds p remi um o n iss ue of equ it y s hare rep resents the fair ma rke t valu e or e xcee ds the fai r mar ke t value, and w het he r dee mi ng provis ions of Sec tion 56(2 )(v ii b) of the A ct are att ract ed in the fa cts of the ca se. 8. 2 T he legal fict io n inse rt ed b y Sect ion 56(2)(viib), at the re le vant t ime, seeks to dee m pre mi um recei ved by pri va te cos. fro m s ubs cri be rs i n excess of Fai r M arket Val ue as the cha rgea bl e inco me in the ha nds suc h cl ose ly held co mpa n y iss uing s uch s hare at pr emiu m i n e xc ess of its Fair Mark et V alue. Rule 11U A (2) of the I ncome T a x Ru les, 1962 provides method olog y f or dete rminat i on of fai r ma rket value. T he a foresa id R ule essentiall y reco gnizes ne t as set value (N A V ) method a nd als o discounte d cas h fl ow (D CF ) me th od f or ascerta in in g FMV. T he as sessee h erei n opte d DCF met hod of val uati on. T he A O disca rded the c orrectness of F MV by DC F val uati on and subst it ute d t he FM V b y N AV me thod ow in g t o i nf ir mi ties i n valua tion yie lded by DC F me thod. The A ssessee seek s to assail the acti on of t he A O. 8. 3 A s noted, the as sessi ng offi ce r, on a nal ys is of fac ts & sta tis ti cs giving ri se t o proj ected ca sh flow , found fa llac y in the qua ntif ica ti on of FMV so det ermined under D CF m ethod a nd obs erve d tha t the FMV det ermi ned a s per D CF me thod is wi thout an y so und fact ua l bas is. For hol ding so, it was i nter al i a obse rved I.T.A. No.1105/Del/2020 14 that the projected cash flow o f the ensuin g years are i ma gina r y and do not even remote l y matc h wit h the ac tual f ig ures coming to surf ace and availa ble a t the ti me of a ssess men t. 8. 4 T he ass esse e con tends that t he Revenue is not enti tl ed t o que st ion t he proj ecti ons de te rmined on a reas onab le basis as suc h projecti ons are in the na ture of est i ma ti ons w hic h ma y na tu ral l y va ry wi th the ac tu al f ig ures repo rt ed in the subsequen t ye ars. The assessee has a dop ted D CF met hod of va luati on w hic h i n tu rn de ri ves its va lu at ion base d on proj ected cas h flow s. T he ass essee has arrived at opti mi stic proj ections based on plausibil it y of issu ance of li cense under consider at ion of M in ist r y of broadcas ting f or set up of stu di o / c ha nnel i n the li ne o f it s bus iness a nd s uch lic ens e had t he potent ial to i mprove t he reve nue ma ni fol d. T he R evenue on t he ot her contends t hat the proj ecti ons ma de a re i ma gi nar y a nd w holl y unrealist ic. The potent ial r eve nue and cas h flow hav e been ass umed w ithout sh ow in g a ny r ealis tic bas is fo r arri vi ng on s uch exa gge ra ted pr oj ecti ons w hi ch in turn has le ad t o lof ty v alua tions. 9. A t t hi s ju ncture, it ma y be pe rt inen t t o note t hat the H on’ ble Bombay Hi gh C ourt in the case of V odaf one M-P esa (s upr a) has obs erve d t ha t t he A ssessing Of fice r i s en ti tled to s cr utiniz e a fres h valuati on ei th er by hi mse lf or b y cal l ing f or a fina l de terminat ion fro m i ndepe nde nt val ue r a nd t here is no i mmunit y from scr uti ny of valuati on re por t pe r se. 10. T he c o- ordina te be nc h of Tr ibu nal i n Ci nes ta an Entertainment (P) Ltd. Vs. ITO 106 taxm an n. com 300 obse rve d that t he ass ess ing officer ha d not dis pute d deta i ls o f proje cts, re ve nue, cost incu rred and t he ma nner in w hich i t was I.T.A. No.1105/Del/2020 15 subs tantia te d b y a ctual re venue. The assesse e, f rom the fa cts and ma teri al plac ed on rec ord, ha d po in te d out t ha t th e basis of projecti on adop te d b y t he va luer w as based o n ve ry s cienti fic anal ys is a nd met hod for arrivi ng a t projecti ons. On these facts, in appea l b y re ve nue , the H on’b le D el hi H igh C ourt in the c ase of Ci nes taan (supra) appro ved t he findi ngs o f ITA T and obse rve d that the revenue authorities w ere unabl e to sh ow t ha t t he assessee adopted a demons trabl y w ron g a pproac h or that t he me thod of valuati on w as made on a whol l y e rr oneous ba sis. 11. T he iss ue is t hus essen tia ll y fact ual in nat ure an d its dete rminat i on de pends on t he fact ua l ma tr ix of a given ca se. O n pe rus al o f t he fi rs t appell at e orde r, it is n otic ed th at CIT (A ) has adju dicated th e is sue in favo ur of the assess ee based on the valuati on re por t and on the bas is of certain ju di cial pro noun ce me nts in an abs tr ac t manner. T he C IT (A ) has not dea lt w ith th e fact ua l obj ec tio ns of t he A ssessing O ffi cer t hat the projecti ons/c ash fl ow assume d i n the val ua tion report are wi thout an y demons trable bas is of r eas ona ble nat ure. T he CIT (A) h as simpl y p rocee de d to ret ur n its findi ngs on an ab strac t law . No doubt, t he val uati on is not a n exact scie nce and the re fo re ca nnot be done w ith ari thmeti c prec isi on. H ow ever, in t he sa me v ai n, the A O is enti tl ed to s crut inise th e bas is of proj ec tions which resulted in s uc h he ft y va lu ati ons, more so, in the a bse nce an y signi ficant earn ing capabili tie s in the pas t. 12. N eedless to sa y, the s ta tute ha s not on ly vest ed t he CIT (A ) w ith appe llate pow er bu t al so co -t er mi nus powe r of Assessi ng O fficer of dis pos a ble nat ure. The C I T(A) i s no t ex pec t ed t o come to a c onclusion ba sed on abst rac t position of law . N o i nquir y has I.T.A. No.1105/Del/2020 16 been s how n to be ma de t ow ar ds the bas is for determinati on of projecte d fi gur es a ssu me d w hile applyin g DCF Met hod. T he report of the val uer is also based on dis cla imer. T he val uer has dete rmined t he proje cte d cash f lo w solel y on the basis of est i mations pro vi ded by th e ass esse e. The b asi s fo r arri ving at suc h est i ma ti ons a nt icipa ted have not bee vouc hed by the e xpert valuer. The C IT ( A) ha s no t examine d s uch i mpor tant f ac tual ingredient a nd has also n ot exa mi ne d as to w hy an inves tor w ill pa y such a hi gh pre mium me re l y on t he basi s of s ome app li cat i on ma de b y the ass es see fo r obtai nin g l ice nse. T he cash flow a t the dis posal of t he ass essee i n the financ ial yea r w hen appl ica tion for lic ens e has be en made d o not appear to suppor t t he ens ui ng bus iness modu le of the compa ny. 13. In s uch a s it ua t ion , the C IT (A ), in ou r view , was expec t ed t o sat isf y a ll s uc h perti nent factual questions. While it is true t hat the proj ec te d fi gures a re i n the rea lm o f es t imat i ons and thus a co mparis on o f s uc h esti ma t io ns w it h act ua l fi gures w oul d no t be just a nd prop er but how eve r i n t he same toke n, t he Assessi ng O fficer i s enti t led to seek reas ons f or s uc h w ide vari ance to see the qual it y of t he esti mat ions used f or de te rmining FM V of sh ares under D CF Method else the whole process w i ll be reduced t o a fa rce exercise. The C IT (A ) w as expe cted to enqui re into the fact ual as pects be for e adj udi cat ing th e issue. 14. We, thus, w i thout expressing o ur opi ni on on t he p ropriet y of the F MV det er mi ned by the asses s ee o r b y t he A O , are of the opini on t ha t the C IT (A ) has n ot a cte d in t he ma nne r ordai ne d in law . We thus se t asi de t he or der o f the C IT (A ) and r est ore the ma tter bac k t o h is file fo r re -d et er mina tion of the iss ue afres h i n I.T.A. No.1105/Del/2020 17 accorda nce w ith law after gi vi ng pro per oppor tunit y to the assessee. 15. In the resu lt, the app eal of t he R eve nue is allow ed f or sta tis ti ca l purpos es . Order pronounced in the open Court on 20/11/2023 Sd/- Sd/- [SAKTIJIT DEY] [PRADIP KUMAR KEDIA] VICE PRESIDENT ACCOUNTANT MEMBER DATED: /11/2023 Prabhat