3P Technologies India Private Limited, Bangalore V. The Income Tax Officer, Ward- 7(1)(4), Bangalore

ITA 238/BANG/2020

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 6676 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-08-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 25-08-2021
• Assessment Year: 2016-2017
• Appeal Filed On: 24-02-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Fair market value; Valuation report; Onus to prove; Set aside
• Section: 56; 56(2); 13

Judgement Text

ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL ABENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K., JUDICIAL MEMBERAND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.238/BANG/2020 ASSESSMENT YEAR:2016-17 M/S. 3P TECHNOLOGIES INDIA PVT. LTD. NO.D-404, PURVA PARK COX TOWN BENGALURU 560 095 PAN NO :AAACZ3500F VS. INCOME TAX OFFICER WARD-7(1)(4) BENGALURU APPELLANT RESPONDENT APPELLANT BY : SMT. SUMAN LUNKAR, A.R. RESPONDENT BY : SHRI KANNAN NARAYANAN, D.R. DATE OF HEARING : 25.08.2021 DATE OF PRONOUNCEMENT : 25.08.2021 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE ASSESSEE HAS FILED THIS APPEAL CHALLENGING THE ORDER DATED 9.12.2019 PASSED BY LD. CIT(A)-7, BENGALURU AND IT RELATES TO THE ASSESSMENT YEAR 2016-17. THE ASSESSEE IS AGGRIEVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE ADDITION O F SHARE PREMIUM AMOUNT OF RS.67,09,738/- MADE BY THE A.O. U/S 56(2) (VIIB) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT]. 2. THE FACTS RELATING TO THE ISSUE ARE STATED IN BR IEF. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE HAS ALLOTTED 3,44,386 SHARES HAVING FACE VALUE OF RS.10/- AT A PREMIUM OF RS.32. 49, RS.15.75 & ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 2 OF 13 RS.18.21 PER SHARE TO RESIDENT PERSONS. THE ASSESS EE FURNISHED A VALUATION REPORT IN SUPPORT OF THE SHARE PREMIUM AM OUNT, WHEREIN SHARES HAD BEEN VALUED UNDER DISCOUNTED CASH FLOW M ETHOD (DCF). THE A.O. NOTICED THAT THE PROJECTIONS GIVEN IN THE VALUATION REPORT PREPARED UNDER DCF METHOD DO NOT TALLY WITH THE ACT UAL, AS PER THE RETURN OF INCOME. ACCORDINGLY, HE TOOK THE VIEW TH AT NET ASSET VALUE METHOD IS THE CORRECT METHOD TO DETERMINE TH E SHARE PREMIUM. ACCORDINGLY THE AO DETERMINED THE SHARE P REMIUM AT RS.7.72 PER SHARE UNDER NET ASSET VALUE METHOD. AC CORDINGLY, HE ASSESSED THE EXCESS SHARE PREMIUM AMOUNT OF RS.67,0 9,738/- U/S 56(2)(VIIB) OF THE ACT. THE LD. CIT(A) ALSO CONFIR MED THE SAME AND HENCE, THE ASSESSEE HAS FILED THIS APPEAL BEFORE US . 3. THE LD. A.R. SUBMITTED THAT THE DCF METHOD IS ON E OF THE RECOGNIZED METHODS PRESCRIBED U/S 11UA OF THE I.T. RULES. SHE SUBMITTED THAT THE AO DID NOT CHANGE THE METHODOLOG Y ADOPTED BY THE ASSESSEE TO DETERMINE THE SHARE PREMIUM. IN TH IS REGARD, SHE PLACED HER RELIANCE ON THE DECISIONS RENDERED BY TH E COORDINATE BENCH IN THE CASE OF FLUTURA BUSINESS SOLUTIONS PVT . LTD. VS. ITO (2020) 117 TAXMANN.COM 567 AND ALSO THE DECISION RE NDERED IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD. VS. IT O (2019) 102 TAXMANN.COM 59. THE LD. A.R. SUBMITTED THAT, IN TH E ABOVE SAID CASES, IT WAS HELD THAT THE A.O. SHOULD SCRUTINIZE THE VALUATION REPORT AND ADOPT OWN VALUATION IF HE IS NOT SATISFI ED WITH THE EXPLANATION OF THE ASSESSEE AND BASIS OF VALUATION. IT WAS FURTHER HELD THAT THE A.O. SHOULD NOT CHANGE METHOD OF VALU ATION OPTED BY THE ASSESSEE. ACCORDINGLY, SHE PRAYED THAT THE A.O . MAY BE DIRECTED TO EXAMINE THE VALUATION REPORT GIVEN UNDE R DCF METHOD. 4. WE HEARD LD. D.R. AND PERUSED THE RECORD. WE NOT ICE THAT AN IDENTICAL ISSUE WAS EXAMINED BY THE CO-ORDINATE BEN CH IN THE CASE ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 3 OF 13 OF M/S. VALENCIA NUTRITION LIMITED (ITA NO. 473 & 4 74/BANG/2020 DATED 09-10-2020) AND THE MATTER WAS RESTORED TO TH E FILE OF AO. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE R ELEVANT OBSERVATIONS MADE AND DECISION TAKEN BY THE CO-ORDI NATE BENCH IN THE ABOVE SAID CASE. 9 THE LD. A.R. SUBMITTED THAT THE A.O. DID NOT EX AMINE THE WORKINGS GIVEN IN THE VALUATION REPORT PREPARED U/S DCF METHOD. HE SUBMITTED THAT THE DCF METHOD IS ONE OF THE RECOGNIZED METHODS UNDER RULE 11UA OF I T RULES. ACCORDINGLY, HE SUBMITTED THAT THE A.O. WAS NOT JUS TIFIED IN REJECTING THE DCF METHOD WITHOUT EXAMINING THE VALU ATION REPORT FURNISHED BY THE ASSESSEE. HE SUBMITTED THAT AN IDENTICAL ISSUE WAS CONSIDERED BY THE COORDINATE BE NCH IN THE CASE OF M/S. INNOVITI PAYMENT SALES PVT. LTD. VS. I TO (ITA NO.1278/BANG/2018 DATED 9.1.2019) AND THE COORDINAT E BENCH HAS RESTORED THE ISSUE TO THE FILE OF THE A.O . WITH CERTAIN DIRECTIONS. ACCORDINGLY, THE LD. A.R. PRAYED THAT THIS ISSUE URGED IN BOTH THE YEARS MAY ALSO BE RESTORED TO THE FILE OF THE A.O. WITH A SIMILAR DIRECTIONS FOR EXAMINING THE VA LUATION REPORT FURNISHED BY THE ASSESSEE UNDER DCF METHOD. 10. THE LD. D.R., ON THE CONTRARY, SUPPORTED ORDE RS PASSED BY LD. CIT(A). HOWEVER, HE DID NOT OBJECT TO THE PROP OSAL THAT THE ASSESSEE TO RESTORE THE MATTER TO THE FILE OF THE A .O. FOLLOWING THE DECISION RENDERED BY COORDINATE BENCH OF THE TR IBUNAL. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE NOTICE THAT THE CO-ORDINATE BENCH HAS E XAMINED THE ISSUE OF VALUATION OF SHARES UNDER DCF METHOD IN TH E CASE OF INNOVITI PAYMENT SOLUTIONS P LTD (SUPRA) AND HAS FO LLOWED THE DECISION RENDERED BY HON'BLE BOMBAY HIGH COURT IN T HE CASE OF ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 4 OF 13 VODAFONE M PESA LTD VS. PCIT (164 DTR 257). ACCORD INGLY, IT WAS HELD THAT THE AO SHOULD SCRUTINIZE THE VALUATIO N REPORT PREPARED UNDER DCF METHOD AND IF NECESSARY, HE CAN CARRY OUT FRESH VALUATION EITHER BY HIMSELF OR BY CALLING A F INAL DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRON T THE ASSESSEE. THE AO CANNOT CHANGE THE METHOD OF VALUA TION AND HE HAS FOLLOW DCF METHOD ONLY. THE DECISION RENDER ED IN THE CASE OF INNOVITI PAYMENT SOLUTIONS P LTD (SUPRA) WA S FOLLOWED BY ANOTHER CO-ORDINATE BENCH IN THE CASE OF FUTURA BUSINESS SOLUTIONS P LTD (ITA NO.3404 (BANG) 2018. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OBSERVATIONS MADE BY THE CO-ORDINATE BENCH IN THE CASE OF FUTURE BUSINESS SO LUTIONS P LTD (SUPRA):- 17. WITH REGARD TO THE CORRECTNESS OF DCF METHOD A DOPTED BY THE ASSESSEE FOR VALUING SHARES AND THE PROCEDURE TO BE FOLLOWED WHEN SUCH METHOD OF VALUATION IS NOT ACCEPTED BY THE AO, THE LD. COUNSEL FOR THE ASSESSEE HAS DRAWN OUR ATTENTION OF THE ITA T, BANGALORE BENCH IN THE CASE OF VBHC VALUE HOMES IN ITA NO.2541/BANG/2019 ORDER DATED 12-06-2020. THE TRIBU NAL, 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 A ND DECISION OF THE ITAT, BANGALORE BENCH IN THE CASE OF INNOVIT PAYMENT SOLUTIONS PVT.LTD., VS ITO(2019) 102 TAXMANN.COM 59 . HELD AS FOLLOWS: 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST 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: '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 SAM E AND ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 5 OF 13 ADOPT OTHER METHOD I.E. NAV METHOD OF VALUING SHARE S. IN THE CASE OF M/S. RAMESHWARAM STRONG GLASS (P) LTD. VS. THE ITO (SUPRA), THE TRIBUNAL HAS REPRODUCED RELEVANT P ORTION 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 T HAT IF THE ASSESSEE HAS OPTED FOR DCF METHOD, THE AO CANNOT CHALLENGE THE SAME BUT THE AO IS WELL WITHIN HIS RI GHTS TO EXAMINE THE METHODOLOGY ADOPTED BY THE ASSESSEE AND /OR UNDERLYING ASSUMPTIONS AND IF HE IS NOT SATISFIED, HE CAN CHALLENGE THE SAME AND SUGGEST NECESSARY MODIFICATIONS/ALTERATIONS PROVIDED THE SAME ARE BAS ED ON SOUND REASONING AND RATIONALE BASIS. IN THE SAME TR IBUNAL ORDER, A JUDGMENT OF HON'BLE BOMBAY HIGH COURT IS A LSO TAKEN NOTE OF HAVING BEEN RENDERED IN THE CASE OF V ODAFONE M-PESA LTD. VS. PCIT AS REPORTED IN 164 DTR 257. TH E 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 RESULT ED IN THE DEMAND. THERE IS CERTAINLY NO IMMUNITY FROM SCRUTINY OF THE VALUATION REPORT SUBMITTED BY THE ASSESSEE. THEREFORE, THE ASSESSING OFFICER IS UNDOUBTEDLY ENTITLED TO SCRUTINISE THE VALUATION RE PORT AND DETERMINE A FRESH VALUATION EITHER BY HIMSELF O R BY CALLING FOR A FINAL DETERMINATION FROM AN INDEPENDE NT VALUER TO CONFRONT THE PETITIONER. HOWEVER, THE BAS IS HAS TO BE THE DCF METHOD AND IT IS NOT OPEN TO HIM TO CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED FOR BY THE ASSESSEE. IF MR. MOHANTY IS CORRECT IN H IS 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. THERE FORE, THE DEMAND IN THE FACTS NEED TO BE STAYED.' ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 6 OF 13 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 DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRONT THE ASSESSEE. BUT TH E BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHO D OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. HEN CE, IN OUR CONSIDERED OPINION, IN THE PRESENT CASE, WHEN T HE GUIDANCE OF HON'BLE BOMBAY HIGH COURT IS AVAILABLE, WE SHOULD FOLLOW THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN PREFERENCE TO VARIOUS TRIBUNAL ORDERS CITED BY BOTH SIDES AND THEREFORE, WE ARE NOT REQUIRED TO EXAMINE AND CONSI DER THESE TRIBUNAL ORDERS. RESPECTFULLY FOLLOWING THIS JUDGME NT OF HON'BLE BOMBAY HIGH COURT, WE SET ASIDE THE ORDER O F CIT (A) AND RESTORE THE MATTER TO AO FOR A FRESH DECISION I N THE LIGHT OF THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT. THE AO SHOULD 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 DCF M ETHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. IN OUR CONSIDERED OPINI ON AND AS PER REPORT OF RESEARCH COMMITTEE OF (ICAI) AS RE PRODUCED ABOVE, MOST CRITICAL INPUT OF DCF MODEL IS THE CASH FLOW PROJECTIONS. HENCE, THE ASSESSEE SHOULD BE ASKED TO ESTABLISH THAT SUCH PROJECTIONS BY THE ASSESSEE BAS ED ON WHICH, THE VALUATION REPORT IS PREPARED BY THE CHAR TERED ACCOUNTANT IS ESTIMATED WITH REASONABLE CERTAINTY B Y SHOWING THAT THIS IS A RELIABLE ESTIMATE ACHIEVABLE WITH RE ASONABLE CERTAINTY ON THE BASIS OF FACTS AVAILABLE ON THE DA TE OF VALUATION AND ACTUAL RESULT OF FUTURE CANNOT BE A B ASIS 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 RELIABLE FUTUR E ESTIMATE SHOULD NOT BE INSISTED UPON BECAUSE IN THOSE CASES, THE PROJECTIONS MAY BE ON THE BASIS OF EXPECTATIONS AND IN SUCH CASES, IT SHOULD BE SHOWN THAT SUCH EXPECTATIONS AR E REASONABLE AFTER CONSIDERING VARIOUS MACRO AND MICR O ECONOMIC FACTORS AFFECTING THE BUSINESS. 14. IN NUTSHELL, OUR CONCLUSIONS ARE AS UNDER:- ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 7 OF 13 (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 METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (2) FOR SCRUTINIZING THE VALUATION REPORT, THE FACT S AND DATA AVAILABLE ON THE DATE OF VALUATION ONLY HAS TO BE 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 HA S TO SATISFY ABOUT THE CORRECTNESS OF THE PROJECTIONS, DISCOUNTING FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMPIRICAL DATA OR INDUSTRY NORM IF ANY AND/OR SC IENTIFIC DATA, SCIENTIFIC METHOD, SCIENTIFIC STUDY AND APPLI CABLE GUIDELINES REGARDING DCF METHOD OF VALUATION.' 10. FROM THE PARAS REPRODUCED ABOVE, IT IS SEEN THA T IN THIS CASE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON'BLE 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 SCRUTINI ZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUATION EITHE R BY HIMSELF OR BY CALLING A DETERMINATION 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 ASSESSEE. THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT AND DISREGARDED VARIOUS OTHER TRI BUNAL ORDERS AGAINST THE ASSESSEE WHICH WERE AVAILABLE AT THAT P OINT OF TIME. IN THE PRESENT CASE ALSO, WE PREFER TO FOLLOW THE JUDG MENT OF HON'BLE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA) IN PREFERENCE TO THE JUDGMENT O F THE HON'BLE KERALA HIGH COURT CITED BY DR OF THE REVENUE RENDER ED IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES (INDIA) (P.) LTD. VS. ITO (SUPRA) BECAUSE THIS IS SETTLED 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 TRIBUNAL ORDE RS CITED BY LEARNED DR OF THE REVENUE WHICH ARE AGAINST THE ASS ESSEE WE HOLD THAT BECAUSE WE ARE FOLLOWING A JUDGMENT OF HON'BLE BOMBAY HIGH ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 8 OF 13 COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA), THESE TRIBUNAL ORDERS ARE NOT RELEVANT. IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS. ITO (SUPRA), THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT WAS FOLLOWED AND THE MATT ER WAS RESTORED BACK TO THE FILE OF AO FOR A FRESH DECISIO N WITH A DIRECTION THAT AO SHOULD FOLLOW DCF METHOD ONLY AND HE CANNOT CHANGE THE METHOD OPTED BY THE ASSESSEE AS HAS BEEN HELD BY TH E HON'BLE BOMBAY HIGH COURT. THE RELEVANT PARAS OF THIS TRIBU NAL ORDER ARE ALREADY REPRODUCED ABOVE WHICH CONTAIN THE DIRECTIO NS GIVEN BY THE TRIBUNAL TO THE AO IN THAT CASE. IN THE PRESENT CAS E ALSO, WE DECIDE THIS ISSUE ON SIMILAR LINE AND RESTORE THE MATTER B ACK TO THE FILE OF AO FOR A FRESH DECISION WITH SIMILAR DIRECTIONS. ACCOR DINGLY, GROUND NO.3 OF THE ASSESSEE'S APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. 18. 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 SHARES ARE ISSUED AT A PREMIUM AND AT A VALUE H IGHER THAN THE FAIR MARKET VALUE. THE FAIR MARKET VALUE CONTEMPLAT ED IN THE PROVISIONS 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 ME THOD AS MAY BE PRESCRIBED; OR (II) ANY OTHER VALUE TO THE SATISFACTION OF THE ASS ESSING OFFICER.. THE LAW PROVIDES THAT, THE FAIR MARKET VALUE MAY 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 ADOPT ING EITHER NAV METHOD OR DCF METHOD. IF THE ASSESSEE DETERMINES TH E FAIR MARKET VALUE IN A METHOD AS PRESCRIBED, THE ASSESSING OFFI CER DOES NOT HAVE A CHOICE TO DISPUTE THE JUSTIFICATION. THE MET HODS OF VALUATION ARE PRESCRIBED IN RULE 11UA(2) OF THE RULES. THE PR OVISIONS OF RULE 11UA(2) READS AS UNDER:- (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB-CLAU SE (B) OF CLAUSE (C) OF SUB-RULE (1), THE FAIR MARKET VALUE OF UNQUO TED EQUITY SHARES FOR THE PURPOSES OF SUB-CLAUSE (I) OF CLAUSE (A) OF EXPLANATION TO ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 9 OF 13 CLAUSE (VIIB) OF SUB-SECTION (2) OF SECTION 56 SHAL L BE THE VALUE, ON THE VALUATION DATE, OF SUCH UNQUOTED EQUITY SHARES AS DETERMINED IN THE FOLLOWING MANNER UNDER CLAUSE (A) OR CLAUSE (B) , AT THE OPTION OF THE ASSESSEE, NAMELY: (A) THE FAIR MARKET VALUE OF UNQUOTED EQUITY SHARES = WHERE, (AL) (PV), (PE) A = BOOK VALUE OF THE ASSETS IN THE BALANCE-SHEET A S REDUCED BY ANY AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SO URCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT AND ANY AMOUNT SHOW N IN THE BALANCE-SHEET AS ASSET INCLUDING THE UNAMORTISED AM OUNT OF DEFERRED EXPENDITURE WHICH DOES NOT REPRESENT THE V ALUE OF ANY ASSET; L = BOOK VALUE OF LIABILITIES SHOWN IN THE BALANCES HEET, BUT NOT INCLUDING THE FOLLOWING AMOUNTS, NAMELY: (I) THE PAID-UP CAPITAL IN RESPECT OF EQUITY SHARES ; (II) THE AMOUNT SET APART FOR PAYMENT OF DIVIDENDS ON PREFERENCE SHARES AND EQUITY SHARES WHERE SUCH DIVI DENDS HAVE NOT BEEN DECLARED BEFORE THE DATE OF TRANSFER AT A GENERAL BODY MEETING OF THE COMPANY; (III) RESERVES AND SURPLUS, BY WHATEVER NAME CALLED , EVEN IF THE RESULTING FIGURE IS NEGATIVE, OTHER THAN THOSE SET APART TOWARDS DEPRECIATION; (IV) ANY AMOUNT REPRESENTING PROVISION FOR TAXATION , OTHER THAN AMOUNT OF TAX PAID AS DEDUCTION OR COLLECTION AT SO URCE OR AS ADVANCE TAX PAYMENT AS REDUCED BY THE AMOUNT OF TAX CLAIMED AS REFUND UNDER THE INCOME-TAX ACT, TO THE EXTENT OF THE EXCESS OVER THE TAX PAYABLE WITH REFERENCE TO T HE BOOK PROFITS IN ACCORDANCE WITH THE LAW APPLICABLE THERE TO; (V) ANY AMOUNT REPRESENTING PROVISIONS MADE FOR MEE TING LIABILITIES, OTHER THAN ASCERTAINED LIABILITIES; ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 10 OF 13 (VI) ANY AMOUNT REPRESENTING CONTINGENT LIABILITIES OTHER THAN ARREARS OF DIVIDENDS PAYABLE IN RESPECT OF CUMULATI VE PREFERENCE SHARES; P E = TOTAL AMOUNT OF PAID UP EQUITY SHARE CAPITAL AS SHOWN IN THE BALANCE-SHEET; P V = THE PAID UP VALUE OF SUCH EQUITY SHARES; OR (B) THE FAIR MARKET VALUE OF THE UNQUOTED EQUITY SH ARES DETERMINED BY A MERCHANT BANKER OR AN ACCOUNTANT AS PER THE DISCOUNTED FREE CASH FLOW METHOD. 19. THE PROVISIONS OF RULE 11UA(2)(B) OF THE RULES PROVIDES THAT, THE ASSESSEE CAN ADOPT THE FAIR MARKET VALUE AS PER THE ABOVE TWO METHODS AND THE CHOICE OF METHOD IS THAT OF THE ASS ESSEE. THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HON'BLE BOMBA Y HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. P R. CIT (SUPRA) AND HAS TAKEN THE VIEW THAT THE AO CAN SCRUTINIZE T HE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUATION EITHE R BY HIMSELF OR BY CALLING A DETERMINATION 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 ASSESSEE. THE DECISION OF ITAT, DELHI IN THE CASE O F AGRO PORTFOLIO LTD. 171 ITD 74 HAS ALSO BEEN CONSIDERED BY THE ITA T, BANGALORE IN THE CASE OF VBHC VALUE HOMES PVT.LTD.(SUPRA). 20. THE GIST OF THE FINDINGS OF THE ASSESSING OFFIC ER AND THE LD. CIT(A) ON THE ALLEGED DISCREPANCIES IN THE VALUATIO N REPORT IS AS UNDER: 1. GROWTH RATE IS TAKEN AT 12% YEAR AFTER YEAR 2. WACC HAS BEEN FORECASTED AT 30% 3. THE SALES HAVE BEEN PROJECTED AT RS.2,36,54,400/ - FOR THE F.Y.2012-13, RS.7,88,74,080/- FOR THE F.Y.2013-14 A ND RS.14,00,00,000/- FOR THE F.Y.2014-15, WHEREAS THE ACTUALS AS PER THE RETURNS FILED ARE RS.17,67,146/-, RS.4,50,06,47 7/- AND ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 11 OF 13 RS.4,26,45,399/- ONLY. IN VIEW OF THIS, THE GROWTH RATE OF 12% IS STATED TO BE NOT ACCEPTABLE. 4. THE NET PROFIT HAS BEEN PROJECTED AT RS.30,94,76 9/- FOR THE F.Y.2012-13, RS.1,29,86,330/- FOR THE F.Y.2013-14 A ND RS.2,16,06,523/- FOR THE F.Y.2014-15, WHEREAS THE A CTUALS AS PER THE RETURNS FILED ARE (-) RS.5,40,078/-, (-) RS.1,2 5,58,421/- AND (-) RS.2,70,00,184/- ONLY. 21. WE ARE OF THE VIEW THAT, THE ASSESSING OFFICER HAS ERRED IN CONSIDERING THE ACTUALS OF REVENUE AND PROFITS DECL ARED IN THE FUTURE YEARS AS A BASIS TO DISPUTE THE PROJECTIONS. AT THE TIME OF VALUING THE SHARES AS ON 16.04.2012, THE ACTUAL RESULTS OF THE LATER YEARS WOULD NOT BE AVAILABLE. WHAT IS REQUIRED FOR ARRIVING AT THE FAIR MARKET VALUE BY FOLLOWING THE DCF METHOD ARE THE EXPECTED AND PR OJECTED REVENUES. ACCORDINGLY THE VALUATION IS ON THE BASIS OF ESTIMATES OF FUTURE INCOME CONTEMPLATED AT THE POINT OF TIME WHE N THE VALUATION WAS MADE. IT HAS BEEN CLARIFIED BY THE ASSESSEE THA T THE PRODUCT WHICH WAS BEING DEVELOPED BY THE ASSESSEE HAS SUBST ANTIAL VALUE AND THE ASSESSEE WAS ABLE TO RAISE FUNDS TO THE TUN E OF RS.50.13 CRORES FROM INTERNATIONAL MARKET 22. IN VIEW OF THE ABOVE LEGAL POSITION, WE ARE OF VIEW THAT THE ISSUE WITH REGARD TO VALUATION HAS TO BE DECIDED AFRESH B Y 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 EITHER BY HIMSELF OR BY CALLING A D ETERMINATION FROM AN INDEPENDENT VALUER TO CONFRONT THE ASSESSEE BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VA LUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (II) FOR SCRUTINIZING THE VALUATION REPORT, THE FAC TS 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 RELIABI LITY OF THE PROJECTIONS. THE PRIMARY ONUS TO PROVE THE CORRECTN ESS OF THE ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 12 OF 13 VALUATION REPORT IS ON THE ASSESSEE AS HE HAS SPECI AL KNOWLEDGE AND HE IS PRIVY TO THE FACTS OF THE COMPANY AND ONL Y HE HAS OPTED FOR THIS METHOD. HENCE, HE HAS TO SATISFY ABOUT THE COR RECTNESS OF THE PROJECTIONS, DISCOUNTING FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMPIRICAL DATA OR INDUSTRY NORM IF ANY AND/OR SC IENTIFIC DATA, SCIENTIFIC METHOD, SCIENTIFIC STUDY AND APPLICABLE GUIDELINES REGARDING DCF METHOD OF VALUATION. THE ORDER OF LD.CIT(A) IS ACCORDINGLY SET ASIDE FOR DECIDING THE ISSUE AFRESH AFTER DUE OPPORTUNITY OF HEARING TO THE ASSE SSEE. 23. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATIS TICAL PURPOSE. 12. THE FACTS ARE IDENTICAL IN THE INSTANT CASES , I.E., THE AO HAS PROCEEDED TO DETERMINE THE VALUE OF SHARES IN B OTH THE YEARS BY ADOPTING DIFFERENT METHOD WITHOUT SCRUTINI ZING THE VALUATION REPORT FURNISHED BY THE ASSESSEE UNDER DC F METHOD. ACCORDINGLY, FOLLOWING THE DECISIONS RENDERED BY TH E CO- ORDINATE BENCHES, WE SET ASIDE THE ORDERS PASSED BY LD CIT(A) IN BOTH THE YEARS AND RESTORE THE IMPUGNED ISSUE IN BOTH THE YEARS TO THE FILE OF THE AO WITH THE DIRECTION TO E XAMINE THIS AFRESH AS PER THE DIRECTIONS GIVEN BY THE CO-ORDINA TE BENCH IN THE CASE OF INNOVITI PAYMENT SOLUTIONS P LTD (SUPRA ). 5. IN THE INSTANT CASE ALSO, THE FACTS ARE IDENT ICAL, I.E., THE AO HAS PROCEEDED TO DETERMINE THE VALUE OF SHARES BY ADOPT ING DIFFERENT METHOD WITHOUT SCRUTINIZING THE VALUATION REPORT FU RNISHED BY THE ASSESSEE UNDER DCF METHOD. ACCORDINGLY, FOLLOWING THE DECISIONS RENDERED BY THE CO-ORDINATE BENCHES, WE SET ASIDE T HE ORDERS PASSED BY LD CIT(A) AND RESTORE THE IMPUGNED ISSUE TO THE FILE OF THE AO WITH THE DIRECTION TO EXAMINE THIS AFRESH AS PER THE DIRECTIONS GIVEN BY THE CO-ORDINATE BENCH IN THE CA SE OF INNOVITI PAYMENT SOLUTIONS P LTD (SUPRA). ITA NO.238/BANG/2020 M/S. 3P TECHNOLOGIES INDIA PVT. LTD., BANGALORE PAGE 13 OF 13 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH AUG, 2021 SD/- (GEORGE GEORGE K.) JUDICIAL MEMBER SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 25 TH AUG, 2021. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.