M/s. Taaq Music Private Limited, Bangalore V. Income Tax Officer, Ward- 7(1)(1), Bangalore

ITA 161/BANG/2020

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 5871 (ITAT-BANGALORE)
• Duration Of Justice: 7 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 03-09-2020
• Assessment Year: 2013-2014
• Appeal Filed On: 04-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Capital asset; Fair market value; Valuation report; Onus to prove; Set aside
• Section: 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER ITA NO. 161/ BANG / 2020 ASSESSMENT YEAR : 2013 - 14 TAAQ MUSIC PVT. LTD., # 912, GKR TOWERS, 80 FEET ROAD, 6 TH BLOCK, KORAMANGALA, BANGALORE 560 095. PAN: AADCT 1127F VS. THE INCOME TAX OFFICER, WARD 7(1)(1), BANGALORE. APPELLANT RESPONDENT APPELLA NT BY : SHRI BALRAM R. RAO, ADVO CATE RESPONDENT BY : SHRI PRIYADARSHI MISHRA, JT.C IT(DR)(ITAT), BEN GALURU. DATE OF HEARING : 03 .0 9 .2020 DATE OF PRONOUNCEMENT : 28 .0 9 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)7, BANGALORE, DATED 10-12-2019 IN RELATION TO ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE INVOLVED IN THE APPEAL IS AS TO W HETHER THE REVENUE AUTHORITIES WERE JUSTIFIED IN INVOKING PROVISIONS O F SECTION 56(2)(VIIB) OF THE INCOME TAX ACT, 1961 (THE ACT) AND BRINGING TO TAX THE DIFFERENCE BETWEEN THE FAIR MARKET VALUE AND THE ISSUE PRICE OF SHARES AT A PREMIUM AS INCOME OF THE ASSESSEE. SECTION 21 CLAUSE (B) OF FINANCE A CT, 2012 INTRODUCED SEC.56(2)(VIIB) OF THE ACT WITH EFFECT FROM THE 1S T DAY OF APRIL, 2013, AND THE SAID PROVISIONS READS THUS:- ITA NO.161/BANG/2020 PAGE 2 OF 14 INCOME FROM OTHER SOURCES. 56. (1) INCOME OF EVERY KIND WHICH IS NOT TO BE EXC LUDED FROM THE TOTAL INCOME UNDER THIS ACT SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FROM OTHER SOURCES', IF IT I S NOT CHARGEABLE TO INCOME-TAX UNDER ANY OF THE HEADS SPE CIFIED IN SECTION 14, ITEMS A TO E. (2) IN PARTICULAR, AND WITHOUT PREJUDICE TO THE GEN ERALITY OF THE PROVISIONS OF SUB-SECTION (1), THE FOLLOWING INCOME S, SHALL BE CHARGEABLE TO INCOME-TAX UNDER THE HEAD 'INCOME FRO M OTHER SOURCES', NAMELY : (I) .. (VIIA) (VIIB) WHERE A COMPANY, NOT BEING A COMPANY IN WHIC H THE PUBLIC ARE SUBSTANTIALLY INTERESTED, RECEIVES, IN ANY PREV IOUS YEAR, FROM ANY PERSON BEING A RESIDENT, ANY CONSIDERATION FOR ISSUE OF SHARES THAT EXCEEDS THE FACE VALUE OF SUCH SHARES, THE AGG REGATE CONSIDERATION RECEIVED FOR SUCH SHARES AS EXCEEDS T HE FAIR MARKET VALUE OF THE SHARES: PROVIDED THAT THIS CLAUSE SHALL NOT APPLY WHERE THE CONSIDERATION FOR ISSUE OF SHARES IS RECEIVED (I) BY A VENTURE CAPITAL UNDERTAKING FROM A VENTURE CAPITAL COMPANY OR A VENTURE CAPITAL FUND; OR (II) BY A COMPANY FROM A CLASS OR CLASSES OF PERSON S AS MAY BE NOTIFIED BY THE CENTRAL GOVERNMENT IN THIS BEHALF. EXPLANATION.FOR THE PURPOSES OF THIS CLAUSE, (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE TH E VALUE (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH M ETHOD AS MAY BE PRESCRIBED, OR (II) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE OF SHARES, OF ITS ASSET S, INCLUDING INTANGIBLE ASSETS BEING GOODWILL, KNOW-HO W, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHIS ES OR ITA NO.161/BANG/2020 PAGE 3 OF 14 ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, WHICHEVER IS HIGHER; (B) 'VENTURE CAPITAL COMPANY', 'VENTURE CAPITAL FUN D' AND 'VENTURE CAPITAL UNDERTAKING' SHALL HAVE THE MEANIN GS RESPECTIVELY ASSIGNED TO THEM IN CLAUSE (A), CLAUSE (B) AND CLAUSE (C) OF EXPLANATION TO CLAUSE (23FB) OF SECTION 10; 3. SECTION 56(2)(VIIB) OF THE ACT WAS INTRODUCED BY THE FINANCE ACT 2012 WITH EFFECT FROM THE 1ST DAY OF APRIL, 2013, W HICH REQUIRES A COMPANY (ISSUER), NOT BEING A COMPANY IN WHICH THE PUBLIC A RE SUBSTANTIALLY INTERESTED, TO ISSUE SHARES AT FAIR MARKET VALUE (F MV). ANY CONSIDERATION RECEIVED BY SUCH ISSUING COMPANY IN EXCESS OF THE F MV, TO THE EXTENT IT EXCEEDS THE FACE VALUE OF SUCH SHALL BE LIABLE TO T AX. FOR THE PURPOSE OF THIS SECTION, FMV SHALL BE THE VALUE, HIGHER OF THE FOLL OWING:- (A) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH METHODS AS MAY BE PRESCRIBED( METHODS PRESCRIBED UNDER RULE 11 UA ARE BOOK VALUE METHOD (NAV) AND DISCOUNTED CASH FLO W METHOD); OR (B) AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON TH E DATE OF ISSUE OF SHARES, OF ITS ASSETS, INCLUDING INTANGIBL E ASSETS BEING GOODWILL, KNOW-HOW, PATENTS, COPYRIGHTS, TRAD EMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMME RCIAL RIGHTS OF SIMILAR NATURE, 4. THE ASSESSEE IS IN THE BUSINESS OF PROVIDING EDU CATION IN MUSIC. THE ASSESSEE ENTERED INTO A SHARE SUBSCRIPTION AND SHAREHOLDERS AGREEMENT DATED 11.12.2011 FOR ISSUE OF SHARES. THE ASSESSEE RECEIVED A SUM OF RS.82 LACS BY 31.3.2012 TOWARDS SHARE APPLIC ATION MONEY. DURING THE PREVIOUS YEAR I.E., ON 21.11.2012, THE ASSESSEE ISSUED AND ALLOTTED 146 SHARES OF RS.100 EACH AT A PREMIUM OF RS.92,47,480/ - (PREMIUM OF RS.63,338.90). ITA NO.161/BANG/2020 PAGE 4 OF 14 5. THE FIRST PLEA OF THE ASSESSEE WAS THAT CONSIDER ATION FOR ISSUE OF SHARES WAS RECEIVED IN THE PREVIOUS YEAR RELEVANT T O AY 2012-13. THE ASSESSEE TOOK A PLEA THAT THE PROVISIONS OF SEC.56( 2)(VIIB) OF THE ACT WERE INTRODUCED BY THE FINANCE ACT, 2012 W.E.F. 1.4.2013 AND THEREFORE THOSE PROVISIONS WERE NOT APPLICABLE. THIS PLEA WAS REJE CTED BY THE AO BY OBSERVING THAT THOUGH THE ASSESSEE RECEIVED OF MAJO R PORTION OF CONSIDERATION FOR SHARES IN THE PREVIOUS YEAR RELEV ANT TO AY 2012-13, THE SUM SO RECEIVED WAS IN THE NATURE OF SHARE APPLICAT ION MONEY PENDING ALLOTMENT AND THE ISSUE OF SHARES WAS THE RELEVANT POINT OF TIME FOR APPLICATION OF THE PROVISIONS OF SEC.56(2)(VIIB) OF THE ACT. THE SHARES WERE ALLOTTED IN THE PREVIOUS YEAR RELEVANT TO AY 2013-1 4 AND THEREFORE THE PROVISIONS OF SEC.56(2)(VIIB) WERE APPLICABLE TO TH E CASE OF THE ASSESSEE. THE CIT(A) CONCURRED WITH THE VIEW OF THE AO. WE A RE IN AGREEMENT WITH THE VIEW OF THE REVENUE AUTHORITIES ON THIS ASPECT. WE FIND THAT THOUGH THE EXPRESSION USED IN SEC.56(2)(VIIB) OF THE ACT IS WHERE A COMPANY, NOT BEING A COMPANY IN WHICH THE PUBLIC ARE SUBSTANTIAL LY INTERESTED, RECEIVES, IN ANY PREVIOUS YEAR, FROM ANY PERSON BEING A RESID ENT, ANY CONSIDERATION , THOSE WORDS ARE FOLLOWED BY THE WORDS FOR ISSUE OF SHARES . THE RELEVANT POINT OF TIME AT WHICH CONSIDERATION RECEIVED AS SHARE APPLICATION MONEY PENDING ALLOTMENT BECOMES CONSIDERATION FOR ISSUE OF SHARES , WHEN SHARES ARE ALLOTTED/ISSUED TO THE SHARE APPLICANT. IT IS ONLY ON SUCH ACT OF ALLOTMENT THAT THE CONSIDERATION RECEIVED AS SHARE APPLICATION MONEY BECOMES CONSIDERATION FOR ISSUE OF SHARES. ADMITTE DLY, SHARES WERE ISSUED IN THE PREVIOUS YEAR RELEVANT TO AY 2013-14 AND THE REFORE THE PROVISIONS OF SEC.56(2)(VIIB) STOOD ATTRACTED IN THE PRESENT CASE . THE ABOVE CONCLUSION IS ALSO FORTIFIED BY THE DEFINITION OF FAIR MARKE T VALUE FOR THE PURPOSE OF SEC.56(2)(VIIB) GIVEN IN EXPLANATION (A)(II) TO SEC .56(2)((VIIB) WHICH PROVIDES THAT THE FAIR MARKET VALUE OF THE SHARES S HALL BE THE VALUE AS MAY BE SUBSTANTIATED BY THE COMPANY TO THE SATISFACTION OF THE ASSESSING OFFICER, BASED ON THE VALUE, ON THE DATE OF ISSUE O F SHARES, OF ITS ASSETS, ITA NO.161/BANG/2020 PAGE 5 OF 14 INCLUDING INTANGIBLE ASSETS BEING GOODWILL, KNOW-HO W, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSIN ESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE. WE, THEREFORE, UPHOLD THE ORDER OF THE REVENUE AUTHORITIES ON THIS ASPECT OF APPLICABILITY OF SEC.56(2)(VIIB) TO AY 2013-14 IN THE FACTS AND CIRCUMSTANCES OF THE CASE. WE MAY ALSO ADD THAT THE LAW IS WELL SETTLED THAT IN THE MATTER OF DETERMINATION OF TOTAL INCOME , THE LAW AS IT EXISTS ON THE 1ST DAY OF THE PREVIOUS YEAR IS APPLICABLE AND THEREFORE THE PROVISIONS OF SEC.56(2)(VIIB) OF THE ACT APPLIES TO AY 2013-14 . 6. THE NEXT PLEA OF THE ASSESSEE WAS THAT THE VALUA TION OF SHARES AT A PREMIUM WAS BASED ON A VALUATION REPORT OF ONE SHRI T. RAMACHANDRAN, CHARTERED ACCOUNTANT, WHO HAPPENED TO BE THE AUTHOR IZED REPRESENTATIVE OF THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS. THE AO WAS OF THE VIEW THAT THE VALUATION REPORT WAS NOT INDEPENDENT AS IT WAS GIVEN BY THE CA WHO ALSO ACTED AS AUTHORIZED REPRESENTATIVE OF THE ASSESSEE IN THE PROCEEDINGS BEFORE THE AO. BESIDES THE ABOVE, THE AO ALSO NOTICED THAT THE CA IN VALUING THE SHARES HAD ADOPTED DISCOUNTED CASH FLOW (DCF) METHOD. ACCORDING TO THE ASSESSEE THE DCF METHOD W AS A PERMITTED METHOD OF VALUATION IN TERMS OF RULE 11UA(2)(B) OF THE INCOME TAX RULES, 1962 (RULES) READ WITH SEC.56(2)(VIIB) OF THE ACT. THE ASSESSING OFFICER DID NOT ACCEPT THE EXPLANATIONS OF THE ASSESSEE AND HE WAS OF THE VIEW THAT THE PROJECTION MADE IN THE WORKING AS PER THE DCF M ETHOD WAS PROVIDED BY THE ASSESSEE COMPANY AND NOT BASED ON ANY INDEPENDE NT ANALYSIS. THE PROJECTION WAS IRRATIONAL AND DID NOT HAVE ANY RELE VANCE TO THE FACTUAL FINANCIAL RESULTS OF THE ASSESSEE. THE AO HELD THA T THE BASIS OF WORKING OF THE VALUE OF SHARES UNDER THE DCF METHOD WAS DETAIL S AND WORKINGS PROVIDED BY THE ASSESSEE AS PER THE WHIMS AND FANCY OF THE MANAGEMENT TO ARRIVE AT HIGHER VALUE TO ISSUE SHARES AT A HUGE PREMIUM. FOR THESE REASONS, THE AO REJECTED THE VALUATION REPORT PREPA RED AS PER DCT METHOD AND PROCEEDED TO VALUE SHARES AS PER THE BOOK VALUE METHOD AND ITA NO.161/BANG/2020 PAGE 6 OF 14 ULTIMATELY HELD THAT A SUM OF RS.86,09,018 WAS CONS IDERATION RECEIVED IN EXCESS OF FMV OF SHARES AND BROUGHT THE SAID SUM TO TAX U/S.56(2)(VIIB) OF THE ACT. 7. ON APPEAL BY THE ASSESSEE, THE FIRST APPELLATE A UTHORITY VIZ., THE LD.CIT(A) HELD THAT THE ASSESSING OFFICER IS WELL WITHIN HIS POWERS TO DISTURB THE VALUATION OF THE CHARTERED ACCOUNTANT FURNISHED BY THE ASSESSEE SUBSTANTIATING THE FAIR MARKET VALUE. THE LD. CIT (A) ALSO RELIED ON THE DECISION OF ITAT, DELHI IN THE CASE OF AGRO PORTFOLIO (P) LTD VS INCOME TAX OFFICER, WARD-1(4), NEW DELHI (2018) 94 TAXMANN.COM 112 (DELHI-TRIB) , WHEREIN IT WAS HELD AS FOLLOWS:- 15. IN THESE CIRCUMSTANCES, WE ARE UNABLE TO ACCE PT THE CONTENTIONS OF THE ASSESSEE THAT IN VIEW OF THE PRO VISIONS UNDER SECTION 56(2)(VIIB) OF THE ACT READ WITH RULE 11UA( 2) OF THE RULES THE LD. AO HAD NO JURISDICTION TO ADOPT A DIF FERENT METHOD THAN THE ONE ADOPTED BY THE ASSESSEE, AND IF FOR AN Y REASON THE AO HAS ANY DOUBT RECORDING SUCH VALUATION REPORT AN D DOES NOT AGREE WITH THE SAME IS BOUND TO MAKE A REFERENCE TO THE INCOME TAX DEPARTMENT VALUATION OFFICER TO DETERMINE THE F AIR MARKET VALUE OF SUCH CAPITAL ASSET. THIS IS SO BECAUSE UNL ESS AND UNTIL THE ASSESSEE PRODUCES THE EVIDENCES TO SUBSTANTIATE THE BASIS OF PROJECTIONS IN CASH FLOW AND PROVIDES REASONABLE CO NNECTIVITY BETWEEN THOSE PROJECTIONS IN CASH FLOW WITH THE REA LITY EVIDENCES BY THE MATERIAL, IT IS NOT POSSIBLE EVEN FOR THE DE PARTMENTAL VALUATION OFFICER TO CONDUCT ANY EXERCISE OF VERIFI CATION OF THE ACCEPTABILITY OF THE VALUE DETERMINE BY THE MERCHAN T BANKER. THIS IS MORE PARTICULARLY IN VIEW OF THE LONG DISCLAIMER APPENDED BY THE MERCHANT BANKER AT PAGE NO. 16 & 17 OF THE PAPE R BOOK WHICH CLEARLY ESTABLISHES THAT NO INDEPENDENT ENQUIRY IS CAUSED BY MERCHANT BANKER TO VERIFY THE TRUTH OR OTHERWISE TH E FIGURES FURNISHED BY THE ASSESSEE AT LEAST ON TEST BASIS. T HE MERCHANT BANKERS SOLELY RELIED UPON AN ASSUMED WITHOUT INDEP ENDENT VERIFICATION, THE TRUTHFULNESS ACCURACY AND COMPLET ENESS OF THE INFORMATION AND THE FINANCIAL DATA PROVIDED BY THE COMPANY. A PERUSAL OF THIS LONG DISCLAIMER CLEARLY SHOWS THAT THE MERCHANT BANKER DID NOT DO ANYTHING REFLECTING THEIR EXPERTI SE, EXCEPT MERE ITA NO.161/BANG/2020 PAGE 7 OF 14 APPLYING THE FORMULA TO THE DATA PROVIDED BY THE AS SESSEE. WE, THEREFORE, ARE UNABLE TO BRUSH ASIDE THE CONTENTION OF THE REVENUE THAT THE POSSIBILITY OF TAILORING THE DATA BY APPLY ING THE REVERSE ENGINEERING TO THE PRE DETERMINED CONCLUSIONS. 16. FOR ALL THESE REASONS, WE ARE OF THE CONSIDERED OPINION THAT THERE HAS NOT BEEN ANY POSSIBILITY OF VERIFYING THE CORRECTNESS OR OTHERWISE OF THE DATA SUPPLIED BY THE ASSESSEE TO T HE MERCHANT BANKER, IN THE ABSENCE OF WHICH THE CORRECTNESS OF THE RESULT OF DCF METHOD CANNOT BE VERIFIED. THIS LEFT NO OPTION TO THE AO BUT TO REJECT THE DCF METHOD AND TO GO BY NAV METHOD TO DETERMINE THE FMV OF THE SHARES. WITHOUT SUCH EVIDENCE, IT SE RVES NO PURPOSE EVEN IF THE MATTER IS REFERRED TO THE DEPAR TMENT'S VALUATION OFFICER. WE, THEREFORE, DO NOT FIND ANY I LLEGALITY OR IRREGULARITY IN THE APPROACH OF CONCLUSIONS ARE BY THE AUTHORITIES BELOW. WHILE CONFIRMING THE SAME, WE DISMISSED THE APPEAL AS DEVOID OF MERITS. 8. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE THE TRIBUNAL. 9. WITH REGARD TO THE CORRECTNESS OF DCF METHOD AD OPTED BY THE ASSESSEE FOR VALUING SHARES AND THE PROCEDURE TO BE FOLLOWED WHEN SUCH METHOD OF VALUATION IS NOT ACCEPTED BY THE AO THE L D. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION OF THE ITAT, BANGA LORE BENCH IN THE CASE OF VBHC VALUE HOMES PVT. LTD., VS ITO IN ITA NO.2541/ BANG/2019 ORDER DATED 12-06-2020 , THE TRIBUNAL AFTER RELYING ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF VODAFONE M-PESA LTD VS PR.CIT 164 DTR 257 AND DECISION OF THE ITAT, BANGALORE BENCH IN THE C ASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS ITO(2019) 102 TAXMANN.COM 59 HELD AS FOLLOWS:- 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE PARAS 11 TO 14 FROM THE TRIBUNAL ORDER CI TED BY LEARNED AR OF THE ASSESSEE HAVING BEEN RENDERED IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS. ITO (SUPRA). THESE PARAS ARE AS FOLLOWS: ITA NO.161/BANG/2020 PAGE 8 OF 14 '11. AS PER VARIOUS TRIBUNAL ORDERS CITED BY THE LE ARNED AR OF THE ASSESSEE, IT WAS HELD THAT AS PER RULE 11UA (2), THE ASSESSEE CAN OPT FOR DCF METHOD AND IF THE ASSESSEE HAS SO OPTED FOR DCF METHOD, THE AO CANNOT DISCARD THE SAME AND ADOPT OTHER METHOD I.E. NAV METHOD OF VALUING SHARES. IN THE CASE OF M/S. RAMESHWARAM STRONG GLAS S (P) LTD. VS. THE ITO (SUPRA), THE TRIBUNAL HAS REPR ODUCED RELEVANT PORTION OF ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. M/S UNIVERSAL POLYPACK (INDIA) PVT. LTD. IN ITA NO. 609/JP/2017 DATED 31.01.2018. IN THIS CASE, THE TRIBUNAL HELD THAT IF THE ASSESSEE HAS OPTED FOR DC F METHOD, THE AO CANNOT CHALLENGE THE SAME BUT THE AO IS WELL WITHIN HIS RIGHTS TO EXAMINE THE METHODOLOGY ADOPTED BY THE ASSESSEE AND/OR UNDERLYING ASSUMPTIO NS AND IF HE IS NOT SATISFIED, HE CAN CHALLENGE THE SA ME AND SUGGEST NECESSARY MODIFICATIONS/ALTERATIONS PROVIDE D ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. NOS. 29 AND 59/BANG/2020 THE SAME ARE BASED ON SOUND REASONING AND RATIONALE BASIS. IN THE SAME TRIBUNAL ORDER, A JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS ALSO TAK EN NOTE OF HAVING BEEN RENDERED IN THE CASE OF VODAFON E M- PESA LTD. VS. PCIT AS REPORTED IN 164 DTR 257. THE TRIBUNAL HAS REPRODUCED PART OF PARA 9 OF THIS JUDG MENT BUT WE REPRODUCE HEREIN BELOW FULL PARA 9 OF THIS JUDGMENT. '9. WE NOTE THAT, THE COMMISSIONER OF INCOME-TAX IN THE IMPUGNED ORDER DATED 23RD FEBRUARY, 2018 DOES NOT DEAL WITH THE PRIMARY GRIEVANCE OF THE PETITION ER. THIS, EVEN AFTER HE CONCEDES WITH THE METHOD OF VALUATION NAMELY, NAV METHOD OR THE DCF METHOD TO DETERMINE THE FAIR MARKET VALUE OF SHARES HAS TO BE DONE/ADOPTED AT THE ASSESSEE'S OPTION. NEVERTHELESS, HE DOES NOT DEAL WITH THE CHANGE IN THE METHOD OF VALUATION BY THE ASSESSING OFFICER WHICH HAS RESULTED IN THE DEMAND. THERE IS CERTAINL Y NO IMMUNITY FROM SCRUTINY OF THE VALUATION REPORT SUBMITTED BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER IS UNDOUBTEDLY ENTITLED TO SCRUTINISE THE VALUATION REPORT AND DETERMINE A FRESH VALUATION EITHER BY HIMSELF OR BY CALLING FOR A FINAL DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRONT THE PETITIONER. HOWEVER, THE BASIS HAS TO BE THE DCF METHOD AND IT IS NOT OPEN TO HIM TO CHANGE ITA NO.161/BANG/2020 PAGE 9 OF 14 THE METHOD OF VALUATION WHICH HAS BEEN OPTED FOR BY THE ASSESSEE. IF MR. MOHANTY IS CORRECT IN HIS SUBMISSION THAT A PART OF DEMAND ARISING OUT OF THE ASSESSMENT ORDER DATED 21ST DECEMBER, 2017 WOULD ON ADOPTION OF DCF METHOD WILL BE SUSTAINED IN PART , THE SAME IS WITHOUT WORKING OUT THE FIGURES. THIS W AS AN EXERCISE WHICH OUGHT TO HAVE BEEN DONE BY THE ASSESSING OFFICER AND THAT HAS NOT BEEN DONE BY HIM . IN FACT, HE HAS COMPLETELY DISREGARDED THE DCF METHOD FOR ARRIVING AT THE FAIR MARKET VALUE. THEREFORE, THE DEMAND IN THE FACTS NEED TO BE STAYED.' 12. AS PER ABOVE PARA OF THIS JUDGMENT OF HON'BLE B OMBAY HIGH COURT, IT WAS HELD THAT THE AO CAN SCRUTINIZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUA TION EITHER BY HIMSELF OR BY CALLING A FINAL DETERMINATI ON FROM AN INDEPENDENT VALUER TO CONFRONT THE ASSESSEE. BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASS ESSEE. HENCE, IN OUR CONSIDERED OPINION, IN THE PRESENT CA SE, WHEN THE GUIDANCE OF HON'BLE BOMBAY HIGH COURT IS AVAILABLE, WE SHOULD FOLLOW THIS JUDGMENT OF HON'BL E BOMBAY HIGH COURT IN PREFERENCE TO VARIOUS TRIBUNAL ORDERS CITED BY BOTH SIDES AND THEREFORE, WE ARE NO T REQUIRED TO EXAMINE AND CONSIDER THESE TRIBUNAL ORD ERS. RESPECTFULLY FOLLOWING THIS JUDGMENT OF HON'BLE BOM BAY HIGH COURT, WE SET ASIDE THE ORDER OF CIT (A) AND R ESTORE THE MATTER TO AO FOR A FRESH DECISION IN THE LIGHT OF THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT. THE AO SHOUL D SCRUTINIZE THE VALUATION REPORT AND HE SHOULD DETER MINE A FRESH VALUATION EITHER BY HIMSELF OR BY CALLING A F INAL DETERMINATION FROM AN INDEPENDENT VALUER AND CONFRO NT THE SAME TO THE ASSESSEE. BUT THE BASIS HAS TO BE D CF METHOD AND HE CANNOT ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. NOS. 29 AND 59/BANG/2020 CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. IN OUR CONSIDERED OPINION AND AS PER REPO RT OF RESEARCH COMMITTEE OF (ICAI) AS REPRODUCED ABOVE, M OST CRITICAL INPUT OF DCF MODEL IS THE CASH FLOW PROJEC TIONS. HENCE, THE ASSESSEE SHOULD BE ASKED TO ESTABLISH TH AT SUCH PROJECTIONS BY THE ASSESSEE BASED ON WHICH, THE VAL UATION REPORT IS PREPARED BY THE CHARTERED ACCOUNTANT IS ESTIMATED WITH REASONABLE CERTAINTY BY SHOWING THAT THIS ITA NO.161/BANG/2020 PAGE 10 OF 14 IS A RELIABLE ESTIMATE ACHIEVABLE WITH REASONABLE C ERTAINTY ON THE BASIS OF FACTS AVAILABLE ON THE DATE OF VALU ATION AND ACTUAL RESULT OF FUTURE CANNOT BE A BASIS OF SAYING THAT THE ESTIMATES OF THE MANAGEMENT ARE NOT REASONABLE AND RELIABLE. 13. BEFORE PARTING, WE WANT TO OBSERVE THAT IN THE PRESENT CASE, PAST DATA ARE AVAILABLE AND HENCE, THE SAME C AN BE USED TO MAKE A RELIABLE FUTURE ESTIMATE BUT IN CASE OF A START UP WHERE NO PAST DATA IS AVAILABLE, THIS VIEW OF US THAT THE PROJECTION SHOULD BE ON THE BASIS OF RELIA BLE FUTURE ESTIMATE SHOULD NOT BE INSISTED UPON BECAUSE IN THO SE CASES, THE PROJECTIONS MAY BE ON THE BASIS OF EXPEC TATIONS AND IN SUCH CASES, IT SHOULD BE SHOWN THAT SUCH EXPECTATIONS ARE REASONABLE AFTER CONSIDERING VARIO US MACRO AND MICRO ECONOMIC FACTORS AFFECTING THE BUSI NESS. 14. IN NUTSHELL, OUR CONCLUSIONS ARE AS UNDER:- (1) THE AO CAN SCRUTINIZE THE VALUATION REPORT AND THE IF THE AO IS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE HAS TO RECORD THE REASONS AND BASIS FO R NOT ACCEPTING THE VALUATION REPORT SUBMITTED BY THE ASS ESSEE AND ONLY THEREAFTER, HE CAN GO FOR OWN VALUATION OR TO OBTAIN THE FRESH VALUATION REPORT FROM AN INDEPENDE NT VALUER AND CONFRONT THE SAME TO THE ASSESSEE. BUT T HE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHO D OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (2) FOR SCRUTINIZING THE VALUATION REPORT, THE FACT S AND DATA AVAILABLE ON THE DATE OF VALUATION ONLY HAS TO BE CONSIDERED AND ACTUAL RESULT OF FUTURE CANNOT BE A BASIS TO DECIDE ABOUT RELIABILITY OF THE PROJECTIONS. (3) THE PRIMARY ONUS TO PROVE THE CORRECTNESS OF TH E VALUATION REPORT IS ON THE ASSESSEE AS HE HAS SPECI AL KNOWLEDGE AND HE IS PRIVY TO THE FACTS OF THE COMPA NY AND ONLY HE HAS OPTED FOR THIS METHOD. HENCE, HE HAS TO SATISFY ABOUT THE CORRECTNESS OF THE PROJECTIONS, DISCOUNTI NG FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMP IRICAL DATA OR INDUSTRY NORM IF ANY AND/OR SCIENTIFIC DATA , SCIENTIFIC METHOD, SCIENTIFIC STUDY AND APPLICABLE GUIDELINES REGARDING DCF METHOD OF VALUATION.' ITA NO.161/BANG/2020 PAGE 11 OF 14 10. FROM THE PARAS REPRODUCED ABOVE, IT IS SEEN THA T IN THIS CASE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON'BLE B OMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA). THE TRIBUNAL HAS NOTED THAT AS PER THE JUD GMENT OF HON'BLE BOMBAY HIGH COURT, IT WAS HELD THAT AO CAN SCRUTINIZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH V ALUATION EITHER BY HIMSELF OR BY CALLING A DETERMINATION FROM AN IN DEPENDENT VALUER TO CONFRONT THE ASSESSEE BUT THE BASIS HAS T O BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. THE TRIBUNAL HAS FOLLOW ED THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT AND DISREGARD ED VARIOUS OTHER TRIBUNAL ORDERS AGAINST THE ASSESSEE WHICH WERE AVAILABLE AT THAT POINT OF TIME. IN THE PRESENT CAS E ALSO, WE PREFER TO FOLLOW THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (S UPRA) IN PREFERENCE TO THE JUDGMENT OF THE HON'BLE KERALA HI GH COURT CITED BY DR OF THE REVENUE RENDERED IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES (INDIA) (P.) LTD. V S. ITO (SUPRA) BECAUSE THIS IS SETTLED POSITION OF LAW BY NOW THAT IF TWO VIEWS ARE POSSIBLE THEN THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED AND WITH REGARD TO VARIOUS TRIBUN AL ORDERS CITED BY LEARNED DR OF THE REVENUE WHICH ARE AGAINS T THE ASSESSEE WE HOLD THAT BECAUSE WE ARE FOLLOWING A JU DGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF V ODAFONE M-PESA LTD., VS. PR. CIT (SUPRA), THESE TRIBUNAL OR DERS ARE NOT RELEVANT. IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS. ITO (SUPRA), THIS JUDGMENT OF HON'BLE BOMBAY HIGH C OURT WAS FOLLOWED AND THE MATTER WAS RESTORED BACK TO THE FI LE OF AO FOR A FRESH DECISION WITH A DIRECTION THAT AO SHOULD FOLL OW DCF METHOD ONLY AND HE CANNOT CHANGE THE METHOD OPTED B Y THE ASSESSEE AS HAS BEEN HELD BY THE HON'BLE BOMBAY HIG H COURT. THE RELEVANT PARAS OF THIS TRIBUNAL ORDER ARE ALREA DY REPRODUCED ABOVE WHICH CONTAIN THE DIRECTIONS GIVEN BY THE TRI BUNAL TO THE AO IN THAT CASE. IN THE PRESENT CASE ALSO, WE DECID E THIS ISSUE ON SIMILAR LINE AND RESTORE THE MATTER BACK TO THE FIL E OF AO FOR A FRESH DECISION WITH SIMILAR DIRECTIONS. ACCORDINGLY , GROUND NO.3 OF THE ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 10. THE GIST OF THE CONCLUSION IS THAT THE LAW CONT EMPLATES INVOKING PROVISIONS OF SECTION 56(2)(VIIB) OF THE ACT ONLY I N SITUATIONS WHERE THE ITA NO.161/BANG/2020 PAGE 12 OF 14 SHARES ARE ISSUED AT A PREMIUM AND AT A VALUE HIGHE R THAN THE FAIR MARKET VALUE. THE FAIR MARKET VALUE CONTEMPLATED IN THE P ROVISIONS ABOVE IS AS UNDER: - (A) THE FAIR MARKET VALUE OF THE SHARES SHALL BE THE VALUE: (I) AS MAY BE DETERMINED IN ACCORDANCE WITH SUCH METHOD AS MAY BE PRESCRIBED; OR (II) ANY OTHER VALUE TO THE SATISFACTION OF THE ASS ESSING OFFICER.. 11. THE LAW PROVIDES THAT, THE FAIR MARKET VALUE MA Y BE DETERMINED WITH SUCH METHOD AS MAY BE PRESCRIBED OR THE FAIR MARKET VALUE CAN BE DETERMINED TO THE SATISFACTION OF THE ASSESSING OFF ICER. THE PROVISION PROVIDES AN ASSESSEE TWO CHOICES OF ADOPTING EITHER NAV METHOD OR DCF METHOD. IF THE ASSESSEE DETERMINES THE FAIR MARKET VALUE IN A METHOD AS PRESCRIBED THE ASSESSING OFFICER DOES NOT HAVE A CH OICE TO DISPUTE THE JUSTIFICATION. THE METHODS OF VALUATION ARE PRESCR IBED IN RULE 11UA(2) OF THE RULES. THE PROVISIONS OF RULE 11UA(2)(B) OF TH E RULES PROVIDES THAT, THE ASSESSEE CAN ADOPT THE FAIR MARKET VALUE AS PER THE ABOVE TWO METHODS I.E., EITHER DCF METHOD OR FAIR MARKET VALU E OF THE UNQUOTED EQUITY SHARES DETERMINED BY A MERCHANT BANKER. THE CHOICE OF METHOD IS THAT OF THE ASSESSEE. THE TRIBUNAL HAS FOLLOWED TH E JUDGMENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA) AND HAS TAKEN THE VIEW THAT THE AO CAN SCRUTINIZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUATION EITHE R BY HIMSELF OR BY CALLING A DETERMINATION FROM AN INDEPENDENT VALUER TO CONFR ONT THE ASSESSEE BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. THE DECISION OF ITAT, DELHI IN THE CASE OF AGRO PORTFOLIO LTD. 171 ITD 74 HAS ALSO BEEN CONSIDERED BY THE ITAT, BANGALORE IN THE CASE OF VBHC VALUE HOMES PVT. LTD.(SUPRA) . ITA NO.161/BANG/2020 PAGE 13 OF 14 12. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF VIEW THAT THE ISSUE WITH REGARD TO VALUATION HAS TO BE DECIDED AFRESH BY THE AO ON THE LINES INDICATED IN THE DECISION OF ITAT, BANGALORE IN THE CASE OF VBHC VALUE HOMES PVT. LTD., VS ITO (SUPRA) I.E., (I) THE AO CAN SCRUTINIZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUATION EITHE R BY HIMSELF OR BY CALLING A DETERMINATION FROM AN INDEPENDENT VALUER TO CONFR ONT THE ASSESSEE BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (II ) FOR SCRUTINIZING THE VALUATION REPORT, THE FACTS AND DATA AVAILABLE ON T HE DATE OF VALUATION ONLY HAS TO BE CONSIDERED AND ACTUAL RESULT OF FUTURE CA NNOT BE A BASIS TO DECIDE ABOUT RELIABILITY OF THE PROJECTIONS. THE PRIMARY O NUS TO PROVE THE CORRECTNESS OF THE VALUATION REPORT IS ON THE ASSES SEE AS HE HAS SPECIAL KNOWLEDGE AND HE IS PRIVY TO THE FACTS OF THE COMPA NY AND ONLY HE HAS OPTED FOR THIS METHOD. HENCE, HE HAS TO SATISFY ABO UT THE CORRECTNESS OF THE PROJECTIONS, DISCOUNTING FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMPIRICAL DATA OR INDUSTRY NORM IF ANY AND/OR SCIEN TIFIC DATA, SCIENTIFIC METHOD, SCIENTIFIC STUDY AND APPLICABLE GUIDELINES REGARDING DCF METHOD OF VALUATION. THE ORDER OF LD.CIT(A) IS ACCORDINGL Y SET ASIDE AND THIS ISSUE IS REMANDED TO THE AO FOR DECISION AFRESH, AFTER DU E OPPORTUNITY OF HEARING TO THE ASSESSEE. 13. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 28 TH DAY OF SEPTEMBER, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 28 TH SEPTEMBER, 2020. / DESAI S MURTHY / ITA NO.161/BANG/2020 PAGE 14 OF 14 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.