ITO CORPORATE WARD 4(3), CHENNAI V. KAINO INFRA DEVELOPMENT PRIVATE LTD., CHENNAI

ITA 1491/CHNY/2019

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 1073 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 14-07-2022
• Assessment Year: 2015-2016
• Appeal Filed On: 12-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G. SEETHARAMAN
• Keywords: Fair market value; Corroborative evidences; Valuation report
• Section: 56(2)(vii)(b); 56(2); 250

Judgement Text

आयकर अपीलȣय अͬधकरण, ‘बी’ Ûयायपीठ, चेÛनई IN THE INCOME TAX APPELLATE TRIBUNAL , ‘B’ BENCH, CHENNAI Įी वी.द ु गा[ राव, ÛयाǓयक सदèय एवं Įी जी.मंज ु नाथ, लेखा सदèय के सम¢ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER आयकर अपीलसं./I.T.A.No.1491/Chny/2019 (Ǔनधा[रणवष[ / Assessment Year: 2015-16) The Income Tax Officer, Corporate Ward-4(3) Chennai-34. Vs M/s. Kaino Infra Development Pvt Ltd., 37, TTK Road, Alwarpet, Chennai-600 018. PAN: AADCR 5655E (अपीलाथȸ/Appellant) (Ĥ×यथȸ/Respondent) अपीलाथȸकȧओरसे/ Appellant by : Mr. AR V Sreenivasan, Addl.CIT for Mr. V.Vikekananthan, CIT Ĥ×यथȸकȧओरसे/Respondent by : Mr. G.Seetharaman, C.A. & Mr.S.Sundararaman, C.A स ु नवाईकȧतारȣख/Date of hearing : 15.07.2022 घोषणाकȧतारȣख /Date of Pronouncement : 12.10.2022 आदेश / O R D E R PER G. MANJUNATHA, AM: This appeal filed by the Revenue is directed against the order of the learned Commissioner of Income Tax (Appeals)-8, Chennai dated 31.01.2019 and pertains to assessment year 2015-16. 2. The Revenue has raised following grounds of appeal:- “1. The order of the ld.CIT(A) is contrary to law and facts of the case. 2. The ld.CIT(A) erred in allowing the assessee's appeal by stating that the assessee company has sufficiently and reasonably justified the share premium received of Rs.168.60 crores for the year. 2 ITA No.1491/Chny/2019 2.1 The Ld.CIT(A) failed to notice that share premium received by the assessee has not been utilized for the objective meant for and has been diverted for non specified purpose. Therefore, the Assessing Officer had correctly brought to tax the amount brought in the books of assessee in the form of share premium under the head "income from other sources" as per the provisions of section 56(2)(vii)(b) of the I.T. Act. 3. The Ld.CIT(A) erred in holding that M/s.Grande LLP has a net asset value of Rs.168.31 Crores as on 31.03.2014 and the net asset value of M/s.Grande LLP would assume the character of intrinsic value of shares of Assessee Company. 3.1 The Ld CIT failed to the appreciate; the fact that though the assessee company is having 99.97% shareholding in M/s.Grande LLP, the entire amount of Rs.168.63 Crores from the revaluation reserve had already been withdrawn by the partners i.e Shri Harbinder Singh, Gurbinder Singh and Harinder Singh of M/s.Grande LLP, who held 0.01 % of the share in the firm as on 31.03.2015. 4. The Ld.CIT erred in accepting the assessee company's claim of development of land acquired and receipt of 17,43,903 sq.ft. of saleable land multiplied by Rs.5000/- per sq.ft. to arrive consideration of Rs.872 crores. 4.1 The Ld.CIT(A) erred in adopting FMV of Rs.5000/- per sq.ft. from developed projects in the area while arriving the valuation of the shares. From the balance sheet filed, it is evident that neither M/s.Grande City Dev 3 ITA No.1491/Chny/2019 Co. LLP nor the assessee company have fund to develop the proposed project. 5. The Ld.CIT(A) erred in holding that the DCF valuation given by the assessee company cannot be completely rejected as imaginary or superfluous one . 5.1 The Ld. CIT(A) failed to notice that the share premium received by the assessee company and the valuation of shares were not or scientific basis and was not a genuine investment for the purpose o business, as the capital contribution by the assessee company has already been withdrawn by the 3 partners . 5.2 The Ld.CIT(A) failed to notice that the valuation adopted by the assessee is unrealistic and no weightage has been given to an reason assigned for non consideration of past or future performance of the company for the valuation. 6. For these and other grounds. that may be adduced at the time hearing, it is prayed that the order of the learned CIT(A) may be set aside and that of the Assessing Officer restored.” 3. Brief facts of the case are that the assessee company is engaged in the business of developing, leasing of service apartments, hotels, guest houses, health clubs and other hospitality services, filed its return of income for the assessment year 2015-16 on 23.09.2015 admitting Nil total income. The assessee company is subsidiary of M/s. Estra Enterprises P.Ltd. in which Mr.Gurubinder Pal Singh, Mr. Harinder Singh 4 ITA No.1491/Chny/2019 and Mr. Haribinder Singh are key management personnel. During the financial year relevant to the assessment year 2015-16, the assessee company has increased authorized share capital from Rs.1 lakh to Rs. 1,01,00,000/-. Further, the assessee company has allotted 10 lakh equity shares of face value of Rs.10/- with premium of Rs.1676/- per share to two group companies and out of 10 lakh equity shares 9,50,000 equity shares has been subscribed by M/s.Estra Enterprises P.Ltd for consideration of Rs.1,60,17,50,000/-. Similarly, M/s.Sakh Holding Co. LLP, a limited liability partnership firm, has subscribed 50,000 equity shares @ Rs.10/- per share at premium of Rs.1676 per share and paid total consideration of Rs.8,43,00,000/-. Thus, the assessee company has received share premium of Rs.1,68,60,00,000/- during the financial year relevant to assessment year 2015-16. The assessee company is one of the partners of M/s.Grande City Development Co. LLP, a limited liability partnership firm and holds 99.97% capital in LLP. M/s.Grande City Development Co. LLP is having three partners Mr.Gurubinder Pal Singh, Mr. Harinder Singh and Mr. Haribinder Singh. The assessee company is having 99.97% of capital in partnership firm and other three 5 ITA No.1491/Chny/2019 partners are having 0.01% of share capital in partnership firm as on 31.03.2015. During the financial year relevant to assessment year 2015-16, the assessee company has made capital contribution of Rs.1,68,13,22,096/- in M/s.Grande City Development Co. LLP and said capital contribution has been made out of proceeds received from allotment of equity shares to M/s.Estra Enterprises P.Ltd and M/s.Sakh Holding Co. LLP. 4. The case was selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that the assessee company has received huge share premium to the tune of Rs.168 crores for allotment of equity shares to two group companies and thus, called upon the assessee to produce and justify allotment of equity shares with huge premium of Rs.1676 per share. In response, the assessee submitted that the company has allotted 10 lakh equity shares with face value of Rs.10/- each at premium of Rs.1676 per share to two group companies and has received share premium of Rs.168 crores. The assessee further submitted that the company has justified allotment of shares with premium by valuation of company shares under DCF method as per Rule 11UA of Income tax Rules, 1962. The assessee has also 6 ITA No.1491/Chny/2019 justified allotment of shares at premium with the help of financial statements of partnership firm M/s. Grande City Development Co. LLP and argued that partnership firm is in the business of real estate development and aggregation of land and has aggregated land bank of about more than 50 acres near Perumbakkam, Chennai, which is adjacent to IT Corridor of OMR, Chennai. The assessee had also entered into MoU with M/s. Prestige Estates & Projects Ltd. for development of land out of land owned by the partnership firm and if you consider possible revenue generation from the project, cash flow projections considered by the assessee for valuation of shares under DCF method is much below intrinsic value of share capital held by the assessee in partnership firm. Therefore, submitted that allotment of equity shares with premium is in accordance with law and also justified with the help of valuation report issued by independent valuer. 5. The Assessing Officer however, was not convinced with the explanation furnished by the assessee and according to the Assessing Officer, method followed by the assessee for valuation of shares is not supported by financials of the company. The Assessing Officer further held that DCF method 7 ITA No.1491/Chny/2019 may be good method for determination of intrinsic value of shares in a case where enterprises is involved in business activity and generating day to day revenue from operations. However, said method is not applicable in a case where revenue of enterprise is depend upon activity carried out or performed by some third party. In this case, the assessee is not having any asset, except share capital contributed in partnership firm. The assessee has relied upon cash flows of partnership firm on the ground that partnership firm owns huge land bank, but fact remains that if you consider nature of land owned by partnership firm, said lands are marsh lands not suitable for development activity. Under these circumstances, it is difficult to accept cash flow projected by the assessee based on cash flow of partnership firm and thus opined that valuation arrived at by the assessee cannot be true and correct position of the assessee and therefore, rejected DCF method followed by the assessee and has adopted Net Asset Value method as prescribed under Rule 11UA of the I.T.Rules, 1962, and determined fair market value of shares as on 31.03.2015 as at Rs.-441 as against fair market value determined by the assessee under DCF method at Rs.1676/- per share. The 8 ITA No.1491/Chny/2019 Assessing Officer finally rejected arguments of the assessee and had made additions towards share premium received by the assessee for allotment of equity shares at Rs.1,67,60,00,000/- u/s.56(2)(viib) of the Income Tax Act, 1961. 6. Being aggrieved by the assessment order, the assessee preferred an appeal before the learned CIT(A). Before the learned CIT(A), the assessee justified allotment of shares with premium of Rs.1676/- per share along with valuation report issued by the independent valuer and submitted that once the assessee follows a particular method prescribed under Rule 11UA, then there is no scope for the Assessing Officer to change method adopted by the assessee for valuation of method. If at all the Assessing Officer is not satisfied with the method followed by the assessee, then the Assessing Officer can very well examine projections considered by the assessee for the purpose of DCF method, however, the Assessing Officer cannot change method of valuation from DCF to Net Asset Value method. The assessee further contended that the Assessing Officer failed to consider relevant facts, including value of shares held by the assessee in partnership firm. The 9 ITA No.1491/Chny/2019 Assessing Officer has only gone on the basis of nature of land held by the partnership firm and observed that land held by the partnership firm is marsh land. But, fact remains that partnership firm has already entered into MoU with famous builder for development of land. If you consider possible revenue generation from the project, valuation arrived at by the assessee for allotment of shares is much below value of shares held by the assessee in partnership firm. 7. The learned CIT(A), after considering relevant submissions of the assessee and also taken note of various facts opined that the Assessing Officer has erred in making additions towards share premium received by the assessee u/s.56(2)(viib) of the Income Tax Act, 1961, without appreciating fact that the assessee company has justified allotment of shares with premium at Rs.1676/- per share along with independent valuer report, where the independent valuer has determined value of shares held by the assessee in partnership firm, which is much more than the amount of capital contributed by the assessee in the partnership firm. The learned CIT(A) has discussed the issue at length in light of financials of M/s.Grande LLP, a partnership firm and land bank held by the partnership firm. 10 ITA No.1491/Chny/2019 M/s. Grande LLP has acquired total land bank of about 36.85 acres. Further, net asset value of partnership firm as per audited financial statement works out to Rs.168.34 crores. If you consider net asset value of partnership firm, it has more than the amount of share premium collected by the assessee for allotment of equity shares and which assumes character of intrinsic value of shares of the assessee company. The learned CIT(A) further held that the assessee company has considered free cash flows of partnership firm which is involved in the business of real estate development. The partnership firm had also entered into MoU with builder for development of land and if said development activity happens, the assessee would receive 17,45,903 sq.ft of saleable residential space. The saleable space is having prevailing market value rate of Rs.5,000/- per sq.ft. If you consider possible saleable area comes to the share of the assessee with prevailing market rate, the assessee would get total consideration of Rs.872 crores from the project. If you consider share of the assessee, then the assessee may get about Rs.207.66 crores, which is much higher than share premium received by the assessee company. Therefore, opined that the assessee has justified allotment of 11 ITA No.1491/Chny/2019 equity shares with premium and thus, question of making additions towards share premium u/s.56(2)(viib) of the Act does not arise and accordingly, deleted additions made by the Assessing Officer. The relevant findings of the learned CIT(A) are as under:- “11. The contents of the assessment as well as the submissions of the assessee are considered. The assessee company has owned 99.82% of shares in M/s. Grande LLP. TO this extent, the value of shares of the assessee company is determined by the value of assets and liabilities in the balance sheet of M/ s. Grande LLP. The balance sheet of M/ s. Grande LLP as on 31.03.2014 and as on 31.03.2015 is verified. M/s. Grande LLP has been in various stages of acquiring 5 I .61 acres of land in the proposed 50 acre plot of development. M / s. Grande LL P incurred a total amount of Rs l 72.97 crores for acquiring these properties. M/ s. Grande LLP has also entered into agreement to purchase 36.85 acres of land. The assessee company has apparently invested substantial amount towards acquisition of land. Considering the same, the assessee company had been asked to file the net worth of M/ s. Grande LLP as on 31.3.2014 as per net assets value. This has been submitted by the assessee company as under: 12 ITA No.1491/Chny/2019 12. As above, it is seen that M/ s. Grande LLP has a net asset value of Rs. 168.31 crores as on 31.03.2014 as per financials filed. The net asset value of M/s. Grande LLP would assume character of intrinsic value of shares of M/s.Kaino Infra Development P.Ltd To this extent, even as per net asset value method, the assessee company is able to establish value of Rs.168 crores as on 31.3.2014 itself. The assessee company has further claimed appreciation in the value of land as well as enhancement in the value of land on account of aggregation and consolidation. The assessee company has further justified the revenues as per a discounted cash flow method basis claiming development of the land acquired into residential housing project. The assessee company has claimed to received 17,43,903/- sq.ft of saleable residential space. This saleable space is multiplied by a value of Rs.5000/- per sq.ft to arrive at total consideration received at Rs.872 crores. After allowing for cost of construction and other expenses, the assessee claims an enterprise value of Rs.423.79 crores as per DCF method. After discounting developers' share to the extent of 51 %, the assessee company claims the balance 49% enterprise value at Rs.207.66 crores. This valuation arrived as per DCF method is higher than share premium received of Rs.168.60 crores. 13. The assessee company can be easily questioned on the basis of developments subsequent to 31.3.2015 and the inability of the assessee company to realise the projected profits. However, this cannot be the sole ground for rejecting the DCF method adopted by the assessee. As per the valuation submitted, the assessee company has had certain fundamental strength of asset value in its subsidiary company. Even though these strengths have not been fully 13 ITA No.1491/Chny/2019 realised, the net asset value of the subsidiary company is itself available and evident at Rs.168 crores as on 31.3.2014. To this extent, it appears that the valuation arrived at by the assessee adopting DCF method cannot be said as being far- fetched or fictitious one. The DCF valuation given by the assessee can also not be completely rejected as imaginary or superfluous one. In view of the combined reasons as above, I am of the considered opinion that the assessee company has sufficiently and reasonably justified the share premium received of 168.60 crores for the year. Addition of share premium amount u/s 56(2) is not called for. The grounds of appeal of the assessee are accepted.” 8. The learned DR submitted that the learned CIT(A) erred in deleting additions made by the Assessing Officer towards share premium u/s.56(2)(viib) of the Act, without appreciating fact that share premium received by the assessee has not been utilized for the objective meant for and has been diverted for non-specified purpose. The learned DR further submitted that the learned CIT(A) erred in holding that Grande LLP had net asset value of Rs.168.31 crores as on 31.03.2014 and net asset value of M/s.Grande LLP would assume character of intrinsic value of shares of the assessee company, without appreciating fact that although, the assessee company is having 99.97% capital in M/s.Grande LLP, but entire amount of Rs.168.63 crores from revaluation reserve has already been 14 ITA No.1491/Chny/2019 withdrawn by the partners who held 0.01% of the capital in partnership firm as on 31.03.2015. The learned DR further referring to the assessment order submitted that the learned CIT(A) has gone on the basis of free cash flows of partnership firm and land bank held by LLP, without appreciating fact that said land is marsh land which is not suitable for any kind of development activity. Further, the assessee could not justify free cash flows considered under DCF method to arrive at share price of Rs.1676/- per share. The Assessing Officer has given various reasons to come to a conclusion that share premium received by the assessee is nothing but income of the assessee. However, the learned CIT(A) without appreciating facts has simply deleted additions made by the Assessing Officer. 9. The learned A.R. for the assessee, on the other hand, supporting order of the learned CIT(A) submitted that the assessee company has justified allotment of equity shares with premium of Rs.1676/- per share with the help of DCF method of share valuation. Further, the assessee has also justified share premium received for allotment of shares with the help of asset value of shares held by the company in M/.s Grande 15 ITA No.1491/Chny/2019 LLP, which is evident from fact that LLP is already aggregated more than 36 acres of land in prime location of Chennai. Further, partnership firm is also in the process of buying additional 30 acres of land for the project. Further, LLP has also entered into MoU with M/s. Prestige Estates & Projects Ltd for joint development of land bank held by the partnership firm. If you consider value of land held by the partnership firm and possible revenue generation from joint development of said land, then partnership firm would get anywhere amount between Rs.200 to Rs.300/- crores from the project. The assesseee is having 99.97% capital in partnership firm, which means the assessee is eligible for 99.97% free cash flow of partnership firm. If you consider possible revenue generation from partnership firm and free cash flows along with percentage of capital held by the assessee in the partnership firm, then the assessee would get more than Rs.200 to 250 crores from the project. If you consider above cash flows, for the purpose of valuation of shares, the assessee has considered real cash flow from the operations which is according to the industries standard. Therefore, the learned A.R. submitted that the learned CIT(A), after considering 16 ITA No.1491/Chny/2019 relevant facts has rightly deleted additions made by the Assessing Officer and their orders should be upheld. 10. We have heard both the parties, perused material available on record and gone through orders of the authorities below. The factual matrix of the impugned dispute are that during the financial year relevant to the assessment year 2015- 16, the assessee company has received share premium of Rs.168.60 crores from allotment of equity shares to two group companies. The assessee has allotted 10 lakhs equity shares of Rs.10/- face value with premium of Rs.1676/- per equity share and has collected Rs.168.63 crores share premium from two subscribers. The assessee has justified allotment of equity shares with the help of DCF method of valuation of shares. The assessee had considered free cash flow from operation on the basis of its capital contribution in a limited liability partnership firm M/s. Grande LLP, where the assessee owns 99.97% capital in the partnership firm and has contributed Rs.168.13 crores as capital contribution in the partnership firm. The Assessing Officer has made addition to share premium received by the assessee for allotment of equity shares on the ground that the assessee has not utilized share premium 17 ITA No.1491/Chny/2019 received from allotment of equity shares for the stated purpose and further, entire amount of share premium has been diverted to sister concern, where the Director of the assessee company are common partners. The Assessing Officer further observed that DCF method followed by the assessee is having lacuna, because the assessee is dependent upon free cash flows of partnership firm, where it is having 99.97% capital contribution. Its free cash flow is solely depend upon cash flow of partnership firm. The assessee does not have any say in business activity of partnership firm and its cash flow. Therefore, valuation of shares on the basis of free cash flow of third party is not suitable to determine correct value of shares for the purpose of provisions of section 56(2)(viib) of the Income Tax Act, 1961. The Assessing Officer had given various reasons to doubt share premium collected by the assessee for allotment of equity shares, right from diversion of funds to sister concern, drawing of said funds from partnership firm by three partners for their personal purposes. According to the Assessing Officer, the assessee has deviced a tool to take out money from company through multiple layers of transactions and ultimately amount has been transferred to Director’s 18 ITA No.1491/Chny/2019 account. Therefore, the Assessing Officer opined that share premium collected by the assessee for allotment of equity shares is taxable u/s.56(2)(viib) of the Income Tax Act, 1961. 11. The assessee has issued shares at premium and such shares has been issued on the basis of valuation report as on the date of issue of shares by following discounted cash flow method as prescribed under Rule 11UA of Income Tax Rules, 1962. The assessee has arrived at value of shares at Rs. 1676/- per equity share. According to the assesse, value arrived at by DCF method is correct value of shares as on the date of issue, because even if it is considered on net asset value method, the value for equity shares works out to Rs.168,60,00,000/-, if stock in trade held by the assessee is valued at market value or value as per stamp duty purposes. Therefore, it is incorrect on the part of the Assessing Officer to come to the conclusion that value arrived at by the assessee under DCF method is not showing correct value of shares as on the date of issue of shares. 12. The provisions of section 56(2)(viib) of the Act, deals with issue of shares at premium. As per said provisions, if a 19 ITA No.1491/Chny/2019 company issues share at premium and fair market value of shares as on the date of issue is less than the issue price, then difference may be treated as income to be taxed under section 56(2)(viib) of the Act. As per Explanation provided to section 56(2)(viib) of the Act, fair market value of shares has been defined, as per which value of shares shall be valued as may be determined in accordance with such method as may be prescribed or 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, including intangible assets being good will, knowhow etc. whichever is higher. Similarly, Rule 11UA prescribed method for valuation of shares of listed and non-listed companies. As per Rule 11UA, unquoted equity shares can be valued on net asset value method or as per discounted free cash flow method determined by the Accountant or merchant banker. As per the said provisions, once assessee chooses a particular method, Assessing Officer has no role to change method selected by the assesse, but he can very well verify the method selected by the assessee with relevant supporting documents. In this case, assessee has selected DCF method as prescribed under Rule 11UA for 20 ITA No.1491/Chny/2019 valuation of shares and such valuation has been arrived at on the basis of future earning capacity of the company as per which, value of shares has been worked out at Rs. 1,676/- per share. The assessee justifies value of shares arrived at by DCF method on the basis of assets owned by the company including stock in trade being immovable property and value of such asset as on the date of valuation. Accordingly, the assessee has worked out Rs.1676/- per share which is almost equal to value arrived at under DCF method. The Assessing Officer has rejected DFC method selected by the assessee and adopted net asset value method and for this purpose, the Assessing Officer has taken book value of asset as on the date of value of shares and worked out difference of Rs.1676/- per equity shares. According to the Assessing Officer, the method selected by the assessee is not a correct method in the given facts and circumstances of the case, because DCF method is suitable only if companies which are in total control of the business being in a position to project income on the basis of asset and intangibles. Since, the assessee is not carrying any intangibles, A.O., was of the opinion that DCF method followed by the assessee does not give correct value of shares. 21 ITA No.1491/Chny/2019 13. We have given our thoughtful consideration to the arguments of both sides, in light of facts brought out by the authorities including valuation report submitted by the assessee under DCF method. DCF method is one of the trusted methods for valuation of shares and said method is prescribed under Rule 11UA of Income Tax Rules, 1962. Therefore, the Assessing Officer cannot brush aside DCF method for simple reason that assessee does not carry any tangible or intangibles in its business. Further, once assessee chooses a particular method and said method is approved method for valuation of shares, then Assessing Officer cannot change the method adopted by the assessee for valuing market value of shares from discounted cash flow method to net asset value method, because the statue does not permit the Assessing Officer to choose a method other than the method selected by the assessee. If at all the Assessing Officer was not satisfied with the value arrived at by the assessee, then he can very well examine valuation of shares and in case any difference in value of shares, he can rework the share price for the purpose of valuation, but at no time, he can adopt different method from 22 ITA No.1491/Chny/2019 the method adopted by the assessee for valuation of shares. In this case, on perusal of facts, we find that assessee has adopted DCF method, which is one of the prescribed method under Rule 11UA . No doubt, there may be a difference in projections considered by the assessee for valuation of shares when compared to actual financial for relevant financial year, but that itself is not a ground for rejection of DCF method, because primarily DCF method follows projected financial of the company for future years which may not be equal to actual financial of the company for the relevant financial years. But what is relevant to see is whether the projection worked out by the assessee is based on some degree of estimation or not. In this case, the Assessing Officer has not pointed out any discrepancy or inconsistency in the projections adopted by the assessee for discounted cash flow method. Therefore, we are of the considered view that Assessing Officer has erred in rejection of DCF method and adopting net asset value method for the purpose of valuation of shares. This view is fortified by the decision of Hon’ble Bombay High Court in the case of Vodafone Mpesa Ltd., vs. PCIT, (2018) (256 Taxman 240), where the Hon’ble Court held that Assessing Officer cannot 23 ITA No.1491/Chny/2019 change the method adopted by the assessee for valuing market value of shares from DCF to net asset value method. The ITAT., Mumbai Benches in the case of Karmic Labs Pvt. Ltd. vs. ITO in ITA No.3955/Mum/2018 has taken similar view and held that Assessing Officer has no power to change the method adopted by the assessee from one method to another method provided under Rule 11UA. In our considered view fair market value of shares considered by the assessee under DCF method is one of the accepted method of valuation of shares under Rule 11UA and such value of shares is supported by necessary supporting evidences including valuation report as on the date of issue of shares. The value adopted by the Assessing Officer under net asset value method, even though a prescribed method does not give correct value of shares in the given facts and circumstances of the case, because amended provisions of Rule 11UA by the Finance Act, 2017 w.e.f 01.04.2018 has permitted valuation of immovable property as per guidance value for the purpose of valuation of shares. In this case, if shares held by the assessee in the form of immovable property has been valued as per guidance value, then value of one equity share works out to more than Rs.1676/-, which is almost 24 ITA No.1491/Chny/2019 equal or nearer to value arrived at by the assessee under DCF method. 14. In this case, on perusal of details available on record, we find that the Assessing Officer could not make out any discrepancy in DCF method followed by the assessee for valuation of shares. But, the Assessing Officer has questioned method followed by the assessee and relevant ratios considered in light of industrial standards to arrive at different valuation for rejection of DCF method followed by the assessee. In our considered view, the Assessing Officer has completely erred in rejecting DCF method followed by the assessee, because DCF method is one of the permissible method for valuation of shares. Further, DCF method of valuation or any other method of valuation by experts can be done only on the basis of information available on the date of valuation and also future business prospects of the company and its cash flows. In this case, independent valuer has considered future cash flows of the assessee, which is once again based on capital contribution held by the assessee in partnership firm, where the partnership firm is in the business of land aggregation and 25 ITA No.1491/Chny/2019 development of housing projects. Further, from the details filed by the assessee what we could noticed is that M/s.Grande City Development Co. LLP, partnership firm, owns about 50 acres of land in prime location of Chennai, where lot of IT Parks and IT enabled companies are functioning. As per the assessee, land held by the partnership firm may get roughly about Rs.850/- crores revenue if said land is put into development. If you consider fair amount of sharing between the developer and assessee, the assessee may get anywhere between Rs.200 to 300 crores from the projects. Since, the assessee company is having 99.97% share in partnership firm and its free cash flows, the cash flow considered by the assessee on the basis of project of partnership firm is in accordance with law. In our considered view, the assessee has justified allotment of equity shares with premium of Rs.1676/- per share with the help of multiple documents, including DCF method of valuation of shares. Further, the assessee had also justified share premium with the help of independent valuer report, as per which capital held by the assessee in the partnership firm is roughly valued about Rs.367.96 crores. The assessee has also justified cash flows with the help of MoU with M/s.Prestige Estates & Projects 26 ITA No.1491/Chny/2019 Pvt. Ltd. Therefore, we are of the considered view that there is no error or lacuna in the method followed by the assessee for determination of value of shares. The Assessing Officer without appreciating above facts has simply made additions towards share premium on flimsy grounds by assigning grounds which are not relevant to consider share premium for the purpose of provisions of section 56(2)(viib) of the Income Tax Act, 1961. The learned CIT(A) after considering relevant facts has rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold findings of the learned CIT(A) and dismiss appeal filed by the Revenue. 15. In the result, appeal filed by the Revenue is dismissed. Order pronounced in the open court on 12 th October, 2022 Sd/- Sd/- (वी. द ु गा[ राव) (जी. मंज ु नाथ) (V.Durga Rao) (G.Manjunatha) ÛयाǓयक सदèय /Judicial Member लेखा सदèय / Accountant Member चेÛनई/Chennai, Ǒदनांक/Dated : 12 th October,2022 DS आदेश कȧ ĤǓतͧलͪप अĒेͪषत/Copy to: 1. Appellant 2. Respondent 3. आयकर आय ु Èत (अपील)/CIT(A) 4. आयकर आय ु Èत/CIT 5. ͪवभागीय ĤǓतǓनͬध/DR 6. गाड[ फाईल/GF.