FIRST ADVANTAGE QUEST RESEARCH LTD, MUMBAI V. DCIT (IT)2(3)(1), MUMBAI

ITA 1546/MUM/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 0921 (ITAT-MUMBAI)
• Duration Of Justice: 9 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-01-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 06-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: PORUS KAKANISHANT THAKKAR
• Keywords: Transfer pricing; International transaction; Additional evidence; Fair market value; Valuation report

Judgement Text

, , , , INCOME-TAX APPELLATE TRIBUNAL KBENCH M UMBAI , , BEFORE S/SH. RAJENDRA,ACCOUNTANT MEMBER & R AVISH SOOD, JUDICIAL MEMBER ./I.T.A./1546/MUM/2017, /ASSESSMENT YEAR: 2012-13 FIRST ADVANTAGE QUEST RESEARCH LIMITED C/O., INTERFACE BUILDING NO.7 1 ST FLOOR, LINK ROAD, MALAD WEST MUMBAI-400 064. PAN:AABCF 9162 A VS. DCIT (INTL. TAXN.)-2(3)(1) AIR INDIA BUILDING, 17 TH FLOOR, ROOM NO.1702, NARIMAN POINT, MUMBAI-400 021 ( /APPELLANT ) ( / RESPONDENT ) ./I.T.A./1547/MUM/2017, /ASSESSMENT YEAR: 2012-13 FIRST ADVANTAGE INDIA HOLDINGS LLC C/O., INTERFACE BUILDING NO.7 1 ST FLOOR, LINK ROAD, MALAD WEST MUMBAI-400 064. PAN: VS. DCIT (INTL. TAXN.)-2(3)(1) AIR INDIA BUILDING, 17 TH FLOOR, ROOM NO.1702, NARIMAN POINT, MUMBAI-400 021 ( /APPELLANT ) ( / RESPONDENT ) REVENUE BY: S/SHRI V. JENARDHANAN, SAURABH DESHPANDE-DR ASSESSEE BY: S/SHRI PORUS KAKA/NISHANT THAKKAR AND JASMIN AMALS ADVALA / DATE OF HEARING: 09/10/2017 / DATE OF PRONOUNCEMENT: 05/01/2018 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) , / PER RAJENDRA, AM - TWO ENTITIES OF THE FIRST ADVANTAGE GROUP- FIRST AD VANTAGE QUEST RESEARCH LIMITED AND FIRST ADVANTAGE INDIA HOLDINGS LLC-HAVE FILED APPEALS FOR THE ABOVE MENTIONED ASSESSMENT YEAR (AY.)AS THE ISSUE IN BOTH THE APPEALS ARE SIMILAR,S O,WE ARE ADJUDICATING THEM TOGETHER. THE FIRST ADVANTAGE GROUP PROVIDES TALENT ACQUISITION S OLUTIONS FOR COMPANIES ACROSS THE GLOBE. ITA/1546/MUM/2017-AY.2012-13: CHALLENGING THE ORDER OF THE ASSESSING OFFICER (AO) ,DATED 30/01/2017,PASSED IN PURSUANCE OF DISPUTE RESOLUTION PANEL(DRP),MUMBAI DIRECTIONS,DAT ED 28/12/2016,THE ASSESSEE HAS FILED THE PRESENT APPEAL.THE FIRST ADVANTAGE GROUPS CUST OM TAILORED SOLUTIONS ADDRESS RECRUITING, APPLICANT-TRACKING,SCREENING AND ASSESSMENT,ON BOAR DING, HIRING TAX CREDIT AND RE-SCREENING. ASSESSEE IS ONE OF THE ENTITY OF THE GROUP.IT FILED ITS RETURN OF INCOME ON 29/12/ 2012, DECLARING TOTAL INCOME OF RS.86.44 CRORES.THE AO CO MPLETED THE ASSESSMENT U/S.143(3) R.W.S.144C OF THE ACT,DETERMINING ITS INCOME AT RS. 130.77 CRORES. 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 2 2. DURING THE COURSE OF HEARING BEFORE US THE AUTHORIS ED REPRESENTATIVE (AR) STATED THAT OUT OF THE 13 GROUNDS OF APPEAL,EFFECTIVE GROUND OF APP EAL WAS GROUND NO.3 READ WITH GROUND NO.6,THAT REST OF THE GROUNDS WERE NOT TO BE ADJUDI CATED.THEREFORE,WE WOULD NOT DECIDE OTHER GROUNDS OF APPEAL RAISED BY THE ASSESSEE. 3. GROUND NO.3 IS ABOUT DETERMINING THE PRICE OF SHARE S OF FIRST ADVANTAGE PVT.LTD.(FAPL)AT RS.12,285.92 AS AGAINST RS.8,158.01,AS SHOWN BY THE ASSESSEE.DURING THE ASSESSMENT PROCEED -INGS,THE AO FOUND THAT THE ASSESSEE HAD ENTERED IN TO INTERNATIONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISE(AE).HE MADE A REFERENCE TO TR ANSFER PRICING OFFICER(TPO)TO DETER- MINE THE ARMS LENGTH PRICE (ALP)OF THE TRANSACTION . 3.1. DURING THE TRANSFER PRICING(TP)PROCEEDINGS,THE TPO FOUND THAT THE ASSESSEE HAD SOLD SHARES OF FAPL TO ITS AE,NAMELY FIRST ADVANTAGE PTE LTD.(FADV),THAT FOR THE PURPOSE OF DETERMINING THE FMV OF THE SHARES SOLD IT HAD UNDER TAKEN AN EXERCISE OF VALUING THE SHARES OF FAPL,THAT IT HAD OBTAINED A VALUATION REPORT FROM A N INDEPENDENT THIRD PARTY I.E.A VALUATION EXPERT,M/S. SHRENIK & ASSOCIATES.THE TPO DIRECTED I T TO FILE FURTHER DETAILS IN THAT REGARD. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE,H E SUGGESTED AN UPWARD ADJUSTMENT OF RS.69.11 CRORES.ACCORDINGLY,THE AO ISSUED A DRAFT O RDER TO THE ASSESSEE . 3.2. AGGRIEVED BY THE ORDER OF THE AO/TPO THE ASSESSEE F ILED OBJECTIONS BEFORE DRP AND MADE DETAILED SUBMISSIONS.IT ALSO FILED ADDITIONAL EVIDENCES AND MORE INDEPENDENT OPINION OF A VALUATION EXPERT,NAMELY DUFF AND PHELEPS(D&P).TO DETERMINE THE ALP OF THE SHARES,SOLD BY THE ASSESSEE,THE VALUER CONSIDERED APPROPRIATE P ERPETUITY GROWTH AND WEIGHTED AVERAGE COST (WAC) OF THE CAPITAL.THE DRP CALLED FOR COMMEN TS OF TPO ABOUT ADDITIONAL EVIDENCES, WHO FILED HIS REMAND REPORT ON 16/12/2016.VIDE ITS LETTER DT.23/12/2016,THE ASSESSEE SUBMITTED ARGUMENTS ABOUT THE REMAND REPORT OF THE TPO. AFTER CONSIDERING THE AVAILABLE MATERIAL,THE DRP H ELD THAT THE BASIC ISSUE TO BE DECIDED WAS AS TO WHETHER THE PRESUMPTION MADE BY THE VALUER, B ASED ON THE INFORMATION PROVIDED BY THE MANAGEMENT OF FAPL WAS JUSTIFIED.REFERRING TO THE R EPORT OF M/S. SHRENIK & ASSOCIATES,THE DRP OBSERVED THAT THE VALUER HAD CLEARLY MENTIONED THAT A VALUATION OF EQUITY SHARES OF FAPL WAS BASED ON METHODOLOGY PROVIDED IN THE FOREI GN EXCHANGE MANAGEMENT (TRANSFER OR ISSUE OF SECURITY BY A PERSON RESIDENT OUTSIDE INDI A) REGULATION 2000 AND FINANCIALS AND OTHER INFORMATION PROVIDED BY THE MANAGEMENT,THAT T HE VALUER HAD NOT CONDUCTED ANY INDEPENDENT AUDIT,DUE DILIGENCE REVIEW OR VALIDATIO N OF SUCH FINANCIAL OR OTHER INFORMATION, THAT ALL PROJECTIONS IN THE REPORT HAD BEEN PROVIDE D BY THE MANAGEMENT, THAT MOST OF THE 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 3 VALUES ADOPTED BY THE VALUER WERE BASED ON THE PROJ ECTIONS PROVIDED BY THE MANAGEMENT, THAT THE VALUE OF AUTHENTICITY OF INTRA-GROUP TRANSFER O F SHARES WAS NOT ABOVE BOARD,THAT THE ASSESSEE HAD NOT FILED ANY EVIDENCE BEFORE TPO/DRP TO SHOW THAT PROJECTIONS PROVIDED BY THE MANAGEMENT TO THE VALUER WERE JUSTIFIED,THAT VA LUATION WAS PRIMARILY BASED ON FUTURE PROJECTION OF GROWTH RATE. THE DRP DIRECTED THE ASSESSEE TO FILE THE RESULTS O F EARLIER YEARS (FROM THE DATE OF FILING OF VALUATION REPORT)TO THE YEAR UNDER CONSIDERATION.AS PER THE DRP THE SAME WERE NOT FURNISHED. THE DRP FURTHER HELD THAT FAPL WAS ENGAGED IN PROVI DING PRE EMPLOYMENT BACKGROUND SCREENING SERVICES IN INDIA,THAT BUSINESS SEGMENTS OF FAPL INCLUDED SCREENING,HR OUTSOURC- ING,VERIFICATION,LITIGATION, THAT ASSESSEE HAD FILE D VALUATION REPORTS ,THAT THE REPORTS MENTIONED THAT THE REAL GDP GROWTH OF INDIA DURING 2009-10 WA S 8%, THAT DURING 2010-11 IT WAS 8.5%, THAT LONG TERM COMPOUNDED ANNUAL GROWTH OF GDP WAS EXPECTED AT 5.2% FOR THE PERIOD 2040-50, THAT LONG TERM INFLATION WAS EXPECTED TO 4 .5% TO 4.9% FOR THE PERIOD 2015-2041, THAT LONG TERM GDP GROWTH RATE FOR INDIA COULD BE S AFELY TAKEN AT 10%, THAT AS PER THE REPORT OF THE NASSCOM NEAR TERM GROWTH IN IT AND BPO EXPOR T SECTOR WAS EXPECTED TO BE BETWEEN 11 TO 14%, THAT THE DOMESTIC SECTOR IT WAS EXPECTED TO BE 13-16%, THAT LONG TERM GDP RATE WAS EXPECTED TO BE 3% IN REAL TERM, THAT I N THE VALUATION REPORT SUBMITTED BY THE ASSESSEE IT HAS BEEN MENTIONED THAT REVENUE OF THE ASSESSEE HAD BEEN DECLINED FROM INR 469.5 MILLION TO INR 406.2 MILLION FOR THE PERIOD F Y.2007-2010, THAT IT WAS ALSO MENTIONED THAT THE DECLINE WAS BECAUSE OF GLOBAL SLOWDOWN, TH AT FAPL HAD IMPACTED HEAVILY ON ACCOUNT OF THE FACT THAT MORE THAN 52% OF REVENUE O F FAPL WERE ATTRIBUTABLE TO CLIENTS FROM FINANCIAL SERVICES AND IT SECTOR,THAT ANOTHER SUBSI DIARY OF GROUP HAVING SIMILAR BUSINESS AS OF FAPL WAS INTEGRATED INTO FAPL,THAT THE PROCESS OF R EVENUE INTEGRATION BEGAN IN 2008, THAT FAPL WITNESSED ITS INCREASE IN HEAD-COUNTS FROM 551 AS ON 31/3/2009 TO 1061 AS ON 31/3/ 2010,THAT AS PER THE MANAGEMENT OPERATIONAL INCOME OF THE COMPANY GREW FROM 406 MILLION (MARCH 2010) TO RS.713.2 MILLION IN MARCH 2011 AND TO 356.8MILLION IN SEPTEMBER 2011,THAT THERE AFTER IT WAS EXPECTED TO GROW AT A RATE 4% TI LL SEPT. 2016, THAT COMPOUNDED CAGR FOR REVENUE AFTER THIS PERIOD WAS EXPECTED TO BE 2%, TH AT ON THE ABOVE BASIS THE VALUER HAD ARRIVED AT A GROWTH RATE OF 2% PER ANNUM BASED ON S AME FIGURES THERE TERMINAL GROWTH RATE WAS ESTIMATED BETWEEN 3.5% - 4.5% BY D&P,THAT THE T PO HAD ADOPTED PERPETUAL GROWTH RATE (PGR) OF 7% BASED ON A REPORT PREPARED BY PWC,THAT AS PER THE PWC REPORT THE LONG TERM GROWTH RATE OF DEVELOPED ECONOMIES WAS 2%,THAT LONG TERM EXPECTED DEFLATOR BASED INFLATION RATE WAS 5.5% IN INDIA,THAT THE LONG TERM NOMINAL G ROWTH RATE FOR INDIA WAS 7.5%,THAT THE VALUER SHRENIK & ASSOCIATES HAD IGNORED THE FACTOR OF INFLATION IN INDIA ECONOMY IN THE 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 4 CALCULATION, THAT D&P HAD FACTORED IT PARTLY IN ITS REPORT,THAT TERMINAL GROWTH RATE OF 2% WOULD MEAN THAT ACTUALLY REVENUE OF FAPL IN REAL TE RMS WOULD BE DECLINING AND THAT IT WOULD NOT KEEP PACE WITH INFLATION FACTOR,THAT THE INDIA ECONOMY WAS EXPECTED TO GROW AT A RATE OF 5.2% IN REAL TERMS,THAT SAME WOULD RESULT IN BETTER BUSINESS FOR FAPL, THAT THE PGR OF 7.5% APPLIED BY TPO DID NOT REQUIRE ANY MODIFICATION. REFERRING TO BETA FACTOR,THE DRP HELD THAT SHRENIK & ASSOCIATES ARRIVED AT AVERAGE BETA OF 0.65 AFTER MAKING ADJUSTMENT FOR CAPITAL STRUCTURE, THAT D&P ARRIVED AT AVERAGE BETA OF 1.1, THAT THE VALUERS CONSIDERED COMPANIES ENGAGED IN SE RVICES IN BPO AND IT SEGMENTS, THAT THE TPO CONSIDERED 3 OTHER COMPARABLES NAMELY CRISIL, U SG TAX SOLUTIONS AND SHREEJAL INFO,THAT HE ARRIVED AT AVERAGE BETA OF 0.57.THE DRP HELD THA T COMPARABLE SELECTED BY TPO WERE NOT GOOD COMPARABLES,THAT COMPARABLE COMPANIES IDENTIFI ED BY D&P WERE ALSO NOT VALID COMPARABLES,THAT D&P HAD SELECTED ONLY THOSE COMPAR ABLE WHICH HAD BETA GREATER THAN OR EQUAL TO 1,THAT MAJORITY OF CLIENTS WERE FROM IT AN D FINANCIAL SECTORS,THAT MOST OF THE COMPANIES FROM IT SECTOR WERE DEPENDENT ON US FOR B USINESS,THAT BETA OF MOST OF IT COMPANIES WERE NEAR TO 0.6,THAT IT DID NOT SHOW MUC H CO-RELATION WITH INDIAN ECONOMY THAT SUBSTANTIAL PORTION OF REVENUE WAS COMING FROM SIN GAPORE BASED CLIENTS,THAT SHARE PRICE OF FAPL,IF LISTED ON INDIAN STOCK EXCHANGE,WOULD BE LI NKED TO THE FACTORS OF THOSE GEOGRAPHIES, THAT SHARE PRICES OF MOST OF COMPANIES REGISTERED O N INDIAN STOCK EXCHANGES WOULD BE AFFECTED BY DEVELOPMENT IN INDIAN ECONOMY,THAT BETA OF FAPL SHOULD NECESSARILY BE LESS THAN 1.THE DRP ACCORDINGLY DIRECTED TO ADOPT BETA 0 .61 IN RESPECT OF FAPL.IT FURTHER HELD THAT SHRENIK & ASSOCIATES HAD TAKEN A SPECIFIC COMP ANY RISK PREMIUM (CSRP) AT 3% FOR ARRIVING AT WEIGHTED AVERAGE COST OF CAPITAL (WACC) OF ASSESSEE COMPANY,THAT D&P HAD ADOPTED RISK PREMIUM AT 0.5%. THE DRP HELD THAT SP ECIFIC COMPANY RISK PREMIUM SHOULD BE TAKEN AT 0.5%,THAT ASSESSEE WAS ALWAYS STARTING FRO M LOW BASE DUE TO SUB-PRIME PRICES. FINALLY,THE DRP CONFIRMED THE ORDER OF THE AO/TPO. 3.3.. BEFORE US,THE AR ARGUED THAT THE TPO HAD ERRONEOUSL Y TAKEN THE PGR OF 7% AS AGAINST THE PGR OF 2% INDICATED IN THE VALUATION REPORT,THA T THE AO/TPO HAD NOT PROVIDED ANY COGENT REASON FOR REJECTING THE PGR OF THE ASSESSEE ,THAT THE TPO DID NOT GIVE DUE CONSIDERATION TO THE PAST GROWTH TREND OF THE ASSES SEE IN DETERMINING THE PGR, THAT HE DID NOT APPRECIATE THE LONG TERM GROWTH RATE(LTGR)OF MATURE D MARKETS,THAT ESTIMATE OF LONG TERM ECONOMIC GROWTH RATE WOULD NECESSARILY BE A GROWTH RATE OF INDIAN ECONOMY AS A WHOLE AND WOULD UNLIKELY BE REPRESENTATIVE OF LTGR FOR INDIVI DUAL COMPANY,THAT IT WAS IMPORTANT TO CONSIDER THE INDUSTRY AND COMPANY SPECIFIC PARAMETE R AND NOT JUST ECONOMIC GROWTH RATE FOR 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 5 COUNTY AS A WHOLE TO DETERMINE THE PGR OF A COMPANY .HE REFERRED TO THE REPORT OF PWC AND ARGUED THAT IN THE REPORT IT WAS MENTIONED THAT CON SIDERING THE LTGR OF DEVELOPED ECONOMIES THE IT SUBSTANTIABLE REAL GDP GROWTH RATE HAD TO BE ESTIMATED AT 2%,THAT IN CONJUNCTION WITH INFLATION IT COULD BE ESTIMATED AT 7.5%,THAT IN THE REPORT IT WAS SPECIFICALLY MENTIONED THAT ESTIMATED LTGR FOR THE ECONOMY DID N OT REPRESENT THE LTGR OF INDIVIDUAL COMPANY.HE FURTHER ARGUED THAT THE COMPOUNDED ANNUA L GROWTH RATE(CAGR) OF THE EARNING AND FREE CASH FLOW OF FAPL FOR THE IMMEDIATELY PRE CEDING 5 YEARS WAS MINUS 16%, THAT IT WAS WHOLLY UNREASONABLE AT THE TIME OF VALUATION TO CONSIDER THE PGR OF 7% BASED ON GENERIC REPORT WHEN COMPANY HAD SHOWN CAGR OF MINUS 16%,THA T TPO HAD NOT BROUGHT ANY EVIDENCE ON RECORD THAT WOULD SUGGEST THAT THE ASSE SSEE WOULD BE ABLE TO ACHIEVE SUCH A HIGH GROWTH RATE IN PERPETUITY,THAT INITIALLY THE TPO HA D SUGGESTED PGR OF 4%,THAT LATER ON IT REVISED TO 7% RELYING ON A REPORT OF PWC,THAT HE HA D ADOPTED AN INFLATION BASED GROWTH RATE, THAT THERE WAS NO DIRECT LINKAGE RATE BETWEEN INFLA TION RATE IN INDIA AND COMPANYS PERFORM - ANCE,THAT FAPL HAD SHOWN NEGATIVE GROWTH IN SOME YE ARS WHERE INFLATION CONTINUED TO EXIST, THAT THERE WAS HEAVY COMPETITION AND CONSTANT PRICI NG PRESSURE IN THE INDUSTRY IN WHICH FAPL OPERATED,THAT CUSTOMER PRICING WAS NOT SUBJECT TO I NFLATIONARY GROWTH,THAT REVENUE OF THE COMPANY HAD GROWN AT AVERAGE CAGR OF MINUS 8.4% F OR THE PERIOD FROM AY 2011-12 TO 2014-15,THAT IT WAS INAPPROPRIATE ON PART OF TPO TO CONSIDER PGR OF 7% OF FAPL WHEN THE OTHER COMPANIES-CONSIDERED AS COMPARABLE-HAD SHOWN CAGR OF MINUS 8.4%, THAT THE TPO/ DRP DID NOT DEAL WITH THE SAID OBJECTION OF THE AS SESSEE THOUGH THE SAME WAS SPECIFICALLY RAISED,THAT THERE WAS NO JUSTIFICATION TO COMPARE T HE SERVICE SECTOR COMPANY FAPL TO GENERIC REPORT OF PWC.REFERRING TO THE FINDING OF IBIS WORL D,AN INDEPENDENT THIRD PARTY RESEARCHER, HE STATED THAT THE ANNUAL INDUSTRY GROWTH RATE OF C OMPANIES OPERATING IN THE BACKGROUND- SERVICE-INDUSTRY IN THE US WAS 2.2%,THAT PGR SHOWN BY THE ASSESSEE WAS REASONABLE AND WAS IN LINE WITH HOW INDUSTRY WAS EXPECTED TO GROW IN L ONG TERM PERIOD,THAT TPO HAD NOT PROVIDED ANY REASON FOR NOT ACCEPTING THE REASON FO R FINDING THE IBIS WORLD REPORT,THAT CRISIL HAD CONSIDERED THE PGR IN ONE OF THE REPORTS PREPARED FOR AN IT COMPANY AND THAT THE ASSESSEE HAD FILED THAT REPORT,THAT DURING THE YEAR UNDER APPEAL TWO TRANSACTIONS OF SALE OF SHARES OF INDIAN SUBSIDIARIES WITHIN THE GROUP HAD TAKEN PLACE,THAT THE FIRST TRANSACTION WAS OF SALE OF SHARES BY ASSESSEE TO THE PARENT COMPANY AN D THE SECOND TRANSACTION WAS ABOUT SALE OF SHARES OF FIRST ADVANTAGE OFFSHORE SERVICES LTD.(FA OSL)BY FIRST ADVANTAGE INDIA HOLDING LLC TO THE SINGAPORE PARENT COMPANY,THAT THE BUSINE SS ACTIVITIES UNDERTAKEN BY FAPL AND FAOSL WERE NOT SIMILAR IN NATURE,THAT THE FAPL WAS ENGAGED IN BUSINESS OF PRE-EMPLOYMENT SCREENING SERVICES TO THIRD PARTY CUSTOMERS IN INDI A,THAT FAOSL WOULD PROVIDE A RANGE OF 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 6 INFORMATION TECHNOLOGY ENABLED SERVICES(ITES) TO FE LLOW GROUP COMPANIES ACROSS THE WORLD, THAT THE TPO HAD IGNORED THE BASIC PRINCIPLES OF CO MPUTATION OF BETA,THAT HE HAD NOT CONSIDERED THE LENGTH OF ESTIMATION PERIOD,RETURN I NTERVAL AND MARKET INDEX,THAT A WIDE SET OF COMPANIES ENGAGED IN IT ENABLED SERVICES WERE CONSI DERED AS COMPARABLES FOR THE PURPOSE OF BETA COMPUTATION,THAT THE TPO REJECTED THE COMPARAB LES BY OBSERVING THAT THEY WERE ENGAGED IN LOW-END-IT-ENABLED SERVICES,THAT THE COMPARABLES SELECTED BY THE ASSESSEE WERE NOT ENGAGED IN SUCH SERVICES,THAT THE TPO WITHOUT GIVIN G ANY COGENT REASONS HAD CONSIDERED COMPANIES ENGAGED IN SOFTWARE-DEVELOPMENT-SERVICES AS COMPARED TO FAPL FOR DETERMINING THE BETA FOR THE VALUATION-WORKING,THAT THE TPO HAD CONSIDERED THE COST OF EQUITY FOR FAPL AT 12.57% BY ADJUSTING THE BETA FACTOR AND THE RISK PREMIUM,THAT APPROXIMATE COST OF THAT DURING THE YEAR WAS 14.75% WHICH WAS SUBSTANTIALLY HIGHER THAN COST OF EQUITY CONSIDERED BY THE TPO IN VALUATION MODEL,THAT A HIGH PGR WARRANTE D PROPORTIONATELY HIGHER COST OF EQUITY,THAT HE DID NOT FACTOR IN INCREASED UNCERTAI NTIES OVER ACHIEVING CASH FLOW WHICH WOULD WARRANT A CASH FLOW IN COST OF EQUITY,THAT EACH OF FACTORS CONSIDERED IN VALUATION EXERCISE WERE DEPENDENT ON EACH OTHER, THAT LOOKING AT THEM IN ISOLATION WITHOUT CONSIDERING AN IMPACT OF AN INCREASE/REDUCTION IN ONE OF THE VARIABLE ON OTHERS WAS AGAINST THE PRINCIPLES OF VALUATION EXERCISE,THAT WHERE THE PGR OF 7% WAS CON SIDERED THE COST OF EQUITY SHOULD HAVE ALSO BEEN INCREASED PROPORTION -ATELY,THAT COST OF EQUITY WOULD BE AT MINIMUM OF 17.57% FOR 7% PGR,THAT IF COST OF EQUITY WAS TAKEN AT 17.57% T HE VALUE OF A SHARE OF FAPL WOULD BE OF RS.7648.5 WHICH WAS LOWER THAN VALUE DETERMINED BY THE INDEPENDENT VALUER.HE REFERRED TO PAGES 46,49,79, 117 AND 99 OF THE PB.HE RELIED UPON THE CASES OF ANUP KUMAR SHETH(ITA NOS.463-68 OF 2009) AND TITAN TIME PRODUCTS LIMITED (273 CTR 479). THE DR CONTENDED THAT SHARES WERE SOLD BY ONE ENTIT Y OF GROUP TO ANOTHER ENTITY, THAT THE FIRST VALUER SHRENIK & ASSOCIATES DID NOT DO THEIR HOME WORK PROPERLY,THAT THEY BLINDLY FOLLOWED THE FIGURES PROVIDED BY THE MANAGEMENT,THAT D&P REP ORT PROJECTED GROWTH AT 16%,THAT FOR DETERMINING PGR GENERAL GDP WAS CONSIDERED BY PWC,T HAT THERE WAS ONLY ONE TRANSACTION OF SHARE TRANSFER AND NOT TWO,AS CLAIMED BY THE ASS ESSEE,THAT THE TPO HAD GIVEN DISCOUNT OF 15%,THAT THE DISCOUNT HAD TAKEN CARE OF ALL POSSIBL E ADJUSTMENTS. IN HIS REJOINDER,THE AR STATED THAT GLOBAL ECONOMY CRASHED IN 2011,THAT HIRING OF PERSONNEL STARTED ONE YEAR LATER,THAT RESULTED IN ABNORMAL GR OWTH, THAT IF THE PERIOD OF 5-10 YEARS WAS TAKEN A CLEAR PICTURE WOULD EMERGE,THAT THE DISCOU NT ARGUMENT WAS NOT RELEVANT FOR DETERMIN -ING THE ALP OF THE SHARES SOLD. 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 7 3.4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD.WE FIND THAT THE ASSESSEE HAD SOLD 1,07,290 SHARES OF FAPL TO ITS AE,THAT IT HAD OBTAINED A VALUATION REPORT FROM SHRENIK ASSOCIATES TO PROVE THAT PRICE PAID BY THE AE TO IT WAS AT ARMS LENGTH,THAT THE TPO DID NOT AGREE WITH THE VALUATION MADE BY THE AS SESSEE,THAT ADOPTING PGR OF 4%,HE SUGGESTED UPWARD ADJUSTMENT TO THE VALUE OF SHARES SOLD BY THE ASSESSEE,THAT BEFORE THE DRP IT FILED ANOTHER VALUATION REPORT AND CERTAIN OTHER DOCUMENTS,THAT A REMAND REPORT WAS CALLED FOR BY THE DRP,THAT THE TPO RELIED UPON A REPORT OF PWC AND ADOPTED PGR OF 7%,THAT THE ASSESSEE,IN ITS OBJECTIONS,BEFORE THE DRP,HAD FURTH ER REFERRED TO REPORTS OF IBIS WORLD AND CIRISL,THAT THE DRP UPHELD THE ORDER OF THE AO/TPO HOLDING THAT THE VALUERS HAD NOT FACTORED THE RATE OF INFLATION WHILE VALUING THE SH ARE PRICE. 3.4.1. BEFORE PROCEEDING FURTHER,WE WOULD LIKE TO REFER TO THE CASE OF MAHADEO JALAN (86 ITR 621),WHEREIN THE HON'BLE SUPREME COURT LAID DOWN CE RTAIN BASIC PRINCIPLES TO DETERMINE THE VALUE OF SHARES AND THE SAME READ AS UNDER : (1) WHERE THE SHARES IN A PUBLIC LIMITED COMPANY AR E QUOTED ON THE STOCK EXCHANGE AND THERE ARE DEALINGS IN THEM, THE PRICE PREVAILING ON THE VALUA TION DATE IS THE VALUE OF THE SHARES. (2) WHERE THE SHARES ARE OF A PUBLIC LIMITED COMPAN Y WHICH ARE NOT QUOTED ON A STOCK EXCHANGE OR OF A PRIVATE LIMITED COMPANY THE VALUE IS DETERM INED BY REFERENCE TO THE DIVIDENDS, IF ANY, REFLECTING THE PROFIT-EARNING CAPACITY ON A REASONA BLE COMMERCIAL BASIS. BUT, WHERE THEY DO NOT, THEN THE AMOUNT OF YIELD ON THAT BASIS WILL DETERMI NE THE VALUE OF THE SHARES. IN OTHER WORDS, THE PROFITS WHICH THE COMPANY HAS BEEN MAKING AND SHOUL D BE MAKING WILL ORDINARILY DETERMINE THE VALUE. THE DIVIDEND AND EARNING METHOD OR YIELD MET HOD ARE NOT MUTUALLY EXCLUSIVE; BOTH SHOULD HELP IN ASCERTAINING THE PROFIT EARNING CAPACITY AS INDICATED ABOVE. IF THE RESULTS OF THE TWO METHODS DIFFER, AN INTERMEDIATE FIGURE MAY HAVE TO BE COMPUTED BY ADJUSTMENT OF UNREASONABLE EXPENSES AND ADOPTING A REASONABLE PROPORTION OF PR OFITS. (3) IN THE CASE OF A PRIVATE LIMITED COMPANY ALSO W HERE THE EXPENSES ARE INCURRED OUT OF ALL PROPORTION TO THE COMMERCIAL VENTURE, THEY WILL BE ADDED BACK TO THE PROFITS OF THE COMPANY IN COMPUTING THE YIELD. IN SUCH COMPANIES THE RESTRICT ION ON SHARE TRANSFERS WILL ALSO BE TAKEN INTO CONSIDERATION AS EARLIER INDICATED IN ARRIVING AT A VALUATION. (4) WHERE THE DIVIDEND YIELD AND EARNING METHOD BRE AK DOWN BY REASON OF THE COMPANY'S INABILITY TO EARN PROFITS AND DECLARE DIVIDENDS,IF THE SET-BA CK IS TEMPORARY THEN IT IS PERHAPS POSSIBLE TO TAKE THE ESTIMATE OF THE VALUE OF THE SHARES BEFORE SET-BACK AND DISCOUNT IT BY A PERCENTAGE CORRESPONDING TO THE PROPORTIONATE FALL IN THE PRIC E OF QUOTED SHARES OF COMPANIES WHICH HAVE SUFFERED SIMILAR REVERSES. (5) WHERE THE COMPANY IS RIPE FOR WINDING UP THEN T HE BREAK-UP VALUE METHOD DETERMINES WHAT WOULD BE REALISED BY THAT PROCESS. (6) AS IN ATTORNEY-GENERAL OF CEYLON V. MACKIE [195 2] 2 ALL ER 775 (PC) A VALUATION BY REFERENCE TO THE ASSETS WOULD BE JUSTIFIED WHEREAS IN THAT CASE THE FLUCTUATIONS OF PROFITS AND UNCERTAINTY OF THE CONDITIONS AT THE DATE OF THE VA LUATION PREVENTED ANY REASONABLE ESTIMATION OF PROSPECTIVE PROFITS AND DIVIDENDS. 3.4.2. WE WOULD ALSO LIKE TO REFER TO THE CASE OF SWADESHI MINING & MANUFACTURING CO. LTD., (116 ITR 259),DECIDED BY THE HONBLE CALCUTTA HIGH COURT.IN THAT MATTER THE ASSESSEE SOLD A LOT OF 7,500 ORDINARY SHARES OF JAIPURIA KAJORA COL LIERIES LTD. TO ONE SWADESHI COTTON MILLS 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 8 LTD.AT THE RATE OF RS.9.50 PER SHARE,THE FACE VALUE THEREOF BEING RS.10 PER SHARE.DURING THE ASSESSMENT PROCEEDINGS,THE AO PROCEEDED TO COMPUTE CAPITAL GAINS ARISING OUT OF THE SAID TRANSACTION.HE WAS OF THE VIEW THAT SAID SHARES HAD BEEN SOLD AT AN UNUSUALLY LOW PRICE TO A GREAT ADVANTAGE TO THE VENDEE AND, THEREFORE, HE PR OCEEDED TO ASCERTAIN THE BREAK-UP VALUE OF THE SAID SHARES WHICH WORKED OUT TO RS.23.85 PER SH ARE. THE SURPLUS WAS SOUGHT TO BE TAXED AS CAPITAL GAINS.BEING AGGRIEVED BY THE ORDER OF AS SESSMENT, THE ASSESSEE WENT UP IN APPEAL BEFORE THE FAA,WHO HELD THAT NEITHER THE BREAK-UP V ALUE NOR THE MAINTAINABLE PROFITS METHOD CAN BE ADOPTED AS THE SOLE GUIDE FOR DETERMINING TH E PRICE OF THE SAID SHARES. TAKING THE MEAN OF THE BREAK-UP VALUE OF THE SAID SHARES COMPUTED O N THE BASIS OF THE BALANCE-SHEET OF THE COMPANY AND THE MARKET PRICE OF THE SHARES, HE DETE RMINED THE VALUE OF THE SAID SHARES AT RS.15 PER SHARE.FROM THE ORDER OF THE FAA,A FURTHER APPEAL WAS PREFERRED BY THE ASSESSEE BEFORE THE TRIBUNAL. IT WAS CONTENDED IN THE APPEAL THAT THE BREAK-UP VALUE COULD NEVER INDICATE THE CORRECT MARKET PRICE OF SHARES OF A RU NNING COMPANY AS A BUYER WOULD BE ALWAYS INFLUENCED BY THE PROSPECT OF RETURN TO HIS CAPITAL OUTLAY, I.E., EXPECTED DIVIDEND FROM YEAR TO YEAR.THE COMPANY IN QUESTION HAD DECLARED ONLY 2.5% DIVIDEND ON ITS EQUITY SHARES IN THE CALENDAR YEARS 1952 AND 1956 AND DURING THE INTERVE NING YEARS NO DIVIDEND WHATSOEVER WAS DECLARED. ONLY AFTER THE SALE OF THE SHARES IN QUES TION THE COMPANY HAD DECLARED DIVIDEND OF 5% OUT OF PROFITS OF THE CALENDAR YEAR 1957.THIS WO ULD, HOWEVER, NOT BE KNOWN TO THE BUYERS. THE TRIBUNAL HELD THAT THE BREAK-UP VALUE OF THE SA ID SHARES DID NOT INDICATE THEIR MARKET VALUE ON THE DATE OF SALE ON ACCOUNT OF THE LOW RET URN ON THE BASIS OF AVERAGE MAINTAINABLE COMMERCIAL PROFITS. THE TRIBUNAL HELD FURTHER THAT THE VALUE AT WHICH THE SAID SHARES HAD BEEN SOLD, THAT IS, AT LITTLE LESS THAN THE PAR VALUE, W AS VERY REASONABLE. THE ASSESSEE DID NOT MAKE ANY CAPITAL GAIN BUT SUFFERED A LOSS.DECIDING THE M ATTER THE HONBLE HIGH COURT HELD AS UNDER: ON A CAREFUL CONSIDERATION OF THE FACTS AND CIRCUM STANCES WE CANNOT SAY THAT THE TRIBUNAL FELL INTO ANY ERROR WHEN IT UPHELD THE VALUATION OF THE SAID SHARES ON THE BASIS OF AVERAGE MAINTAINABLE PROFIT COMPUTED ON THE BASIS OF PAST D IVIDENDS DECLARED. THIS IS DEFINITELY ONE OF THE METHODS ACCEPTED.. WE ARE OF THE OPINION THAT IT IS ONLY IN VERY EXCEPTIONAL CASES THAT THE SHARES OF A COMPANY WOULD BE VALUED BY THE BREA K-UP METHOD AND THE FACT THAT THE PURCHASER AND VENDOR ARE ASSOCIATED WITH EACH OTHER IN BUSINESS IS NOT A FACT WHICH WOULD BRING THE TRANSACTION WITHIN SUCH SPECIAL CIRCUMSTA NCES. IN THE CASE OF GRINDLAYS BANK LTD.,THE HONBLE CALC UTTA HIGH COURT(158 ITR 799)HAS HELD THAT IN THE CASE OF A COMPANY WHICH IS A GOING CONC ERN AND WHOSE SHARES ARE NOT QUOTED ON THE STOCK EXCHANGE,THE PROFITS WHICH THE COMPANY HA S BEEN MAKING AND SHOULD BE CAPABLE OF MAKING OR, IN OTHER WORDS, THE PROFIT-EARNING CAPAC ITY OF THE COMPANY WOULD ORDINARILY DETERMINE THE VALUE OF ITS SHARES.THE BREAK-UP VALU E WILL NOT BE APPROPRIATE FOR VALUATION OF SHARES OF SUCH A COMPANY.SIMILARLY,IN THE MATTER OF SHARDABEN B MAFATLAL(177 ITR 463),THE 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 9 HONBLE BOMBAY HAS HELD THAT,IN THE CASE OF A COMPA NY SHARES OF WHICH WERE NOT QUOTED AT ANY STOCK EXCHANGE,THE SHARES WERE NOT REQUIRED TO BE VALUED ON THE BREAK-UP METHOD AND THAT THE PROFIT-EARNING METHOD WAS THE ONLY METHOD WHICH COULD BE PROPERLY APPLIED FOR ARRIVING AT THE VALUATION OF SHARES IN SUCH A CASE. 3.5. FROM THE ABOVE,IT IS CLEAR THAT FOR FAIR VALUATION OF UNQUOTED SHARES OF A CORPORATE ENTITY ONLY ONE FACTORS SHOULD NOT BE CONSIDERED.IN OTHER WORDS SHARE PRICE DEPENDS UPON MANY A FACTORS.IT IS SAID THAT THE MERE CAPITALIZATION OF ACTUAL PAST EARNINGS WOULD NOT PRODUCE A REASONABLE RESULT IN SUCH CASES AND THAT THE EMPHAS IS HAS TO BE ON PROSPECTIVE EARNING CAPACITY RATHER THAN ACTUAL PAST EARNINGS-ALTHOUGH NATURALLY THE LATTER HAS TO BE USED AS A STARTING POINT TO CALCULATE THE FORMER. 3.5.1. THE PURPOSE BEHIND INTRODUCING THE TP PROVISIONS IN THE ACT WAS TO ENSURE THAT GOODS/ SERVICES PURCHASED/SOLD OR RENDERED/AVAILED BY THE GROUP ENTITIES SHOULD BE AT MARKET RATE. IT WAS FOUND THAT TO AVOID TAXES THE AE.S WERE NOT SHO WING THE MARKET PRICE OF IT.S.SO,TO CURB THE MISUSE OF PROXIMITY OF GROUP CONCERNS LOCATED I N INDIA AND OUTSIDE INDIA PROVISIONS OF CHAPTER X WERE INCLUDED IN THE STATUTE.WHAT THE LEG ISLATURE WANTED WAS THAT THE PRICE OF IT.S WITH AE SHOULD BE AT ARMS LENGTH I.E.,THAT AN INDE PENDENT PERSON IN THE MARKET WOULD PAY/RECEIVE THE SAME PRICE AS PAID/RECEIVED BY THE GROUP ENTITY FOR THE GOOD/SERVICES.IF THE SURROUNDING CIRCUMSTANCES LEAD TO THE CONCLUSION TH AT PRICE CHARGED BY THE AE.S IS NOT THE NORMAL FAIR MARKET VALUE,THE DEPARTMENTAL AUTHORITI ES CAN MAKE ADJUSTMENT TO THE PRICE SHOWN BY THE ASSESSEE.BUT,THE ADJUSTMENTS CANNOT BE MADE WITHOUT ANY BASIS.IN SHORT,THE BASIS OF TP ADJUSTMENT IS DETERMINING FAIR MARKET V ALUE OF IT.S ENTERED IN TO BY THE ASSESSEES. 3.6. NOW,COMING BACK TO THE FACT OF THE CASE,WE FIND THA T THE TPO/DRP HAVE HEAVILY RELIED UPON THE REPORT OF PWC,ISSUED IN JUNE,2013,TO ADOPT 7% PGR AND TO MAKE UPWARD ADJUST - MENT.WE FIND THAT IN ITS REPORT PWC HAD MENTIONED T HAT THE ESTIMATE OF LONG TERM GROWTH RATE WAS FOR THE ECONOMY AS A WHOLE AND WAS NOT LIK ELY TO BE REPRESENTATIVE OF LONG TERM GROWTH RATES FOR INDIVIDUAL COMPANIES,WHICH WOULD D EPEND ON THE INDUSTRY PROGNOSIS AND COMPANY SPECIFIC PLAN. IN OUR OPINION,THE REPORT OF PWC IS A GENERIC REPO RT AND SHOULD NOT HAVE BEEN APPLIED TO DECIDE THE PGR.SECONDLY IT WAS ISSUED IN JUNE,2013,AS STATED EARLIER, SO, IT DID NOT RELATE TO THE AY.UNDER APPEAL.IF THE DRP HAD NOT CALLED FOR THE REMAND REPORT THE TPO WOULD HAVE STUCK TO 4% PGR-IT WAS DURING THE RE MAND PROCEEDINGS THE TPO INCREASED THE RATE OF PERPETUITY GROWTH TO 7%.IN HIS SHOWCASE NOTICE DTD.19.01.2016 THE TPO PROPOSED VALUE OF THE SHARES OF FAPL AT RS.10,963.2 PER SHAR E.BUT ON 27.01.2016,HE HELD THAT THE FAIR 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 10 MARKET VALUE SHOULD BE TAKEN AT RS.14,597/- PER SHA RE.WITHIN A SPAN OF 8 DAYS HE INCREASED THE RATE OF SHARE BY RS.4,000/-(APPROXIMATELY).NOTH ING,EXCEPT THE REPORT OF THE PWC,IS ON RECORD TO JUSTIFY THE CHANGE IN THE RATE.THE REPORT OF PWC IS VERY GENERAL AND IS NOT SPECIFIC ABOUT THE BUSINESS CARRIED OUT BY THE ASSESSEE.THE TRANSFER OF SHARES HAD ALREADY TAKEN PLACE BEFORE THE REPORT OF THE PWC.THE TPO AND DRP SHOULD NOT HAVE BASED THEIR ORDERS ON SUCH A GENERAL REPORT TO DETERMINE THE ALP OF THE SHARES S OLD. 3.7. IT IS TRUE THAT ONLY HISTORICAL PERFORMANCES CANNOT BE GUIDING FACTOR FOR DECIDING THE VALUATION OF SHARES,BUT,THE PGR SHOULD HAVE SOME BA SE.IT WAS SPECIFICALLY BROUGHT TO THE NOTICE OF THE DRP THAT THE CAGR OF THE EARNING AND FREE CASH FLOW OF FAPL FOR THE IMMEDIATELY PRECEDING 5 YEARS WAS (-)16% AND THAT THE OTHER COMPANIES-CONSIDERED AS COMPARABLE-HAD SHOWN CAGR OF (-)8.4%.IT IS FOUND TH AT THE DRP DID NOT DEAL WITH THIS BASIC AND FUNDAMENTAL OBJECTION.CONSIDERING THESE FACTS W E HOLD THAT IT WAS NOT REASONABLE TO ASSUME THAT SUCH A COMPANY WOULD SUDDENLY GROW AT T HE ESTIMATED GROWTH RATE OF THE ECONOMY IN PERPETUITY. 3.8. IF PGR WAS TO BE ADOPTED AT 7% THEN SOMETHING,OTHER THAN ALLOWING A 15% ADJUSTMENT, MORE HAD TO BE BROUGHT ON RECORD.AGAINST THE PROPOS ED ADJUSTMENT,THE ASSESSEE HAD FURNISHED FOUR REPORTS.SHERNIK AND ASSOCIATES,FOR VALUATION P URPOSES,USED THE METHOD SUGGESTED IN FEMA RULES.WHETHER SUCH A VALUATION CAN BE CONSIDER ED A PERFECT VALUATION FOR INCOME TAX PURPOSES OR NOT IS A SEPARATE ISSUE.BUT,AT LEAST TH E VALUATION WAS BASED ON SOME RECOGNISED METHOD.IT WAS DEFINITELY BETTER THAN A GENERAL REPO RT OF PWC.NO PART OF THE PWC REPORT TALKS ABOUT THE FACTORS/PARAMETERS TO BE CONSIDERED FOR E STIMATING PGR OF ANY PARTICULAR INDUSTRY OR COMPANY.BUT,IN THE D&P REPORT THE VALUER HAS DEA LT WITH PGR AS WELL AS WEIGHTED AVERAGE COST OF CAPITAL THAT SHOULD BE USED FOR VALUATION O F SHARES SOLD.BESIDES, A REPORT OF AN INDEPENDENT RESEARCH ORGANIZATION,IBIS WORLD WAS AL SO FILED BY THE ASSESSEE.IN ITS REPORT,IBIS HAD DEALT WITH BACKGROUND-SCREENING-IND USTRY.CRISIL HAD ALSO PREPARED A VALUATION REPORT FOR AN ASSESSEE THAT WAS CARRYING OUT SAME BUSINESS AS OF THE ASSESSEE AND HAD ESTIMATED PGR OF 3%.IT IS FOUND THAT D&P HAD FA CTORED INFLATION FACTOR WHILE ESTIMATING THE PGR.THUS,THERE ARE DEFINITE AND POSITIVE DOCUME NTARY EVIDENCES IN SUPPORT OF THE ARGUMENT THAT PGR ADOPTED BY THE TPO AND THE DRP WE RE NOT BASED ON ANY JUSTIFIABLE FOUNDATION AND THAT THE ESTIMATED PGR INDICATED BY THE INDEPENDENT VALUERS HAVE BETTER BOTTOM LINE.IT IS A CASE OF NO EVIDENCE VERSUS SOME EVIDENCE.TAX LIABILITY CANNOT BE DETERMINED IN AIR-THERE HAS TO BE SOME BASE TO DEMA ND TAXES BY THE STATE FROM ITS SUBJECTS.IN THE CASE UNDER APPEAL,ESTIMATE MADE BY THE ASSESSE FOR DETERMINING PGR AND THE VALUATION OF 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 11 THE SHARES IS BETTER AND MORE CONVINCING THAN THE E STIMATION MADE BY THE DEPARTMENTAL AUTHORITIES.THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF TITAN TIME PRODUCTS LIMITED (SUPRA),HAS HELD THAT VALUATION REPORTS OF EXPERTS SHOULD NOT BE REJECTED BY THE DEPARTMENTAL AUTHORITIES UNLESS THE ASSUMPTION CONSIDERED IN THE REPORT ARE PROVED TO GROSSLY ERRONEOUS OR ANOTHER EXPERT-OPINION IS OBTAINED CONTRADICTING TH E EARLIER REPORT.IN THE PRESENT MATTER THE DRP HAS NOT GIVEN ANY COGENT OR VALID REASON FOR RE JECTING THE FOUR REPORTS SUBMITTED BY THE ASSESSEE. 3.9. WE FIND THAT DURING THE YEAR UNDER CONSIDERATION TH ERE WAS BUY BACK OF SHARES OF FAPL FROM FADV,SINGAPORE,THAT THE SHARES OF FAPL WERE SO LD BY THE SINGAPORE ENTITY AT THE SAME RATE AT WHICH THEY WERE SOLD BY THE ASSESSEE TO THE SINGAPORE AE,THAT THE TPO HAD EXAMINED THE BUYBACK AGREEMENT OF THE SHARES(I.E.SALE OF SHA RES BY SINGAPORE ENTITY TO FAPL)AND HELD THAT THE TRANSACTION WAS AT ARMS LENGTH.IF THE SUB SEQUENT TRANSACTION WAS FOUND TO BE AT FAIR MARKET VALUE THEN WHAT WAS THE JUSTIFICATION FOR NO T TREATING THE FIRST TRANSACTION AT ARMS LENGTH,IS NOT COMING OUT OF THE ORDER OF THE TPO/DR P. 3.10. IT IS ONE OF THE RECOGNISED PRINCIPLE OF VALUATION THAT A HIGH PGR WOULD REQUIRE A PROPORTIONATE HIGHER COST OF EQUITY.IF THE SAID THE ORY IS APPLIED TO THE FACTS OF THE CASE UNDER CONSIDERATION,THE COST OF EQUITY WILL HAVE TO BE TA KEN AT MINIMUM OF 17.57% (FOR 7% PGR). THEREFORE, WE AGREE WITH THE ARGUMENT ADVANCED BY T HE ASSESSEE THAT IF COST OF EQUITY WAS TAKEN AT 17.57%,THEN THE VALUE OF A SHARE OF FAPL W OULD BE LOWER THAN VALUE DETERMINED BY THE INDEPENDENT VALUER.IN SHORT THE TRANSACTION I.E . VALUATION OF SHARES OF FAPL,WAS AT ARMS LENGTH. CONSIDERING THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE AND THE ABOVE DISCUSSION WE DECIDE GS.AO 3 AND SIX IN FAVOUR OF THE ASSESSEE. ITA/1547/MUM/2017: 4. FACTS AND CIRCUMSTANCES OF THE INSTANT CASE ARE SIM ILAR TO THE FACT OF EARLIER CASE-THE ONLY DIFFERENCE IS OF VALUATION OF THE SHARES SOLD.DURIN G THE YEAR UNDER APPEAL THE ASSESSEE SOLD SHARES OF FASOL TO A GROUP ENTITY LOCATED IN SINGAP ORE.SHRENIK AND ASSOCIATES VALUED THE FARE MARKET PRICE OF THE SHARES OF AT RS.54.1 PER S HARE.THE TPO FIRST DETERMINED THE SHARE PRICE AT RS.68.9 PER SHARE AND AFTER CONSIDERING T HE PWC REPORT HE ESTIMATED THE SHARES PRICE OF ONE SHARE AT RS.88.8.THE NEW ESTIMATE WAS BASED ON THE ASSUMPTION THAT PGR WOULD BE 7%. 1546 & 1547/M/17-FIRST ADVANTAGE QUEST RESEARCH LTD . AND FIRST ADVANTAGE INDIAN HOLDINGS LLC. 12 FOLLOWING OUR ORDER IN THE CASE OF FIRST ADVANTAGE QUEST RESEARCH LIMITED(PARAGRAPHS 3 TO 3.7 OF OUR ORDER),WE DECIDE EFFECTIVE GROUND OF APP EAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEALS FILED BY BOT H THE ASSESSEES STAND ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 05 TH JANUARY ,2018. 05 , 2018 SD/- SD/- ( (( ( /RAVISH SOOD) ( / RAJENDRA) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; /DATED :05.01.2018. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR BENCH, ITAT, MUMBAI / , , . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.