DCIT, Circle-14(2), New Delhi V. Kissandhan Agri Financial Services Pvt. Ltd., Delhi

ITA 8734/DEL/2019

AI Insights

The case revolves around the dispute concerning the valuation method used for determining the fair market value (FMV) of equity shares issued by Kissandhan Agri Financial Services Pvt. Ltd. to its holding company, M/s. Sohan Lal Commodities Management Pvt. Ltd. The Assessing Officer rejected the DCF method used by the assessee and adopted the Net Asset Value (NAV) method, leading to a significant addition to the assessee's income under Section 56(2)(viib) of the Income Tax Act. The CIT(A) reversed this addition, finding merit in the assessee's arguments and the valuation report by the independent valuer. The Tribunal upheld the CIT(A)'s decision, emphasizing that the DCF method was a recognized and valid method for valuation under the prescribed rules.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 121576 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-03-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-12-2022
• Assessment Year: 2016-2017
• Appeal Filed On: 07-11-2019
• Other Referred Cases: M/s Agro Portfolio Pvt. Ltd. vs. ITO, M/s Cinestaan Entertainment Pvt. Ltd. vs. ITO, Intel ligrape Software Pvt. Ltd. vs. ITO, Pr. CIT vs. Cinestaan Entertainment Pvt. Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Fair market value; Valuation report
• Section: 56; 143(3); 56(2); 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “C” DELHI BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER & SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER I.T.A. No.8734/DEL/2019 Assessment Year 2016-17 DCIT, Circle-14(2), New Delhi. vs. M/s. Kissandhan Agri Financial Services Pvt. Ltd., 644, DLF Tower, Najafgarh Road, Delhi-1100015 TAN/PAN: AAACB3743Q (Appellant) (Respondent) Appellant by: Shri Atul Ninawat, CA Respondent by: Shri Javed Akhtar, CIT-DR Date of hearing: 20 12 2022 Date of pronouncement: 15 03 2023 O R D E R PER PRADIP KUMAR KEDIA, A.M.: The captioned appeal has been filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-V, New Delhi [ ‘CIT (A )’ i n shor t] dated 3 0. 08. 2019 aris i ng f rom the as sess me nt order da te d 18. 12.2018 passe d b y the A ssess i ng Office r under Secti on 143(3) of t he Inc ome Ta x A ct, 196 1 (the A ct ) co nce rning AY 2016-17. 2. The grounds of appeal raised by the Revenue read as under: “1. That on the facts and circumstances of the case and in law, the ld. CIT(A) has erred in deleting the addition of Rs.36,03,10,674/- made by Assessing Officer under Section 56(2)(viib) by holding that addition with respect to change in the method of valuation is not accordance with law. 2. That on the facts and circumstances of the case and in law, the Assessing Officer has rightly rejected the DCF methodology adopted by the appellant company for the purpose of arriving at the FMV of equity shares. I.T.A. No.8734/DEL/2019 2 3. That on the facts and circumstances of the case and in law, the Assessing Officer has rightly applied NAV methodology for determining the FMV of equity shares.” 3. Briefly stated, the assessee-company is engaged in the business of financing including financing against warehouse receipts primarily for agricultural commodities and advancing of loans etc. The assessee company filed its return of income for Assessment Year 2016-17 declaring total income at Rs.6,42,34,840/-. The return filed by the assessee was subjected to scrutiny assessment. In the course of assessment, the Assessing Officer has inter alia observed that the assessee-company has issued Rs.3,37,68,573/- shares to its holding company, M/s. Sohan Lal Commodities Management Pvt. Ltd. of Rs.22.21 per shares against the face value of Rs.10/- per share. The assessee company submitted valuation report of Chartered Accountant for determining fair market value per share at Rs.22.21/- adopting discounted cash flow (DCF) Method. The Assessing Officer disputed the fair market value determined on the basis of DCF Method which methodology is predominantly based on projected growth in the ensuing financial years over certain period of time. The Assessing Officer compared the projected growth/sales and other data for two financial years, i.e., 2016-17 and 2017-18 with the actual figures available at the time of the assessment and found wide variance. The Assessing Officer rejected the valuation report provided on the basis of projected figures supplied by the management and consequently rejected the FMV determined as per the valuation report. The Assessing Officer discarded the FMV of Rs.22.21 per share determined in the valuation report of CA by applying DCF method holding the same to be devoid of substance. The Assessing Officer invoked NAV method as provided in Rule 11UA of the Income Tax Rules for the purposes of determination of FMV under Section 56(2)(viib) of the Act. The Assessing Officer worked out the fair market value as per NAV at Rs.11.54 per share and substituted the same with Rs.22.21 per share determined by Assessee under DCF method. The Assessing Officer thus I.T.A. No.8734/DEL/2019 3 invoked the provisions of Section 56(2)(viib) and made an addition of Rs.36,03,10,674/- by applying difference of Rs.10.67 per share [Rs. 22.21 (minus) 11.54] per share as excess premium received over the fair market value. 4. Aggrieved by the additions made under Section 56(2)(viib) of the Act, the assessee preferred appeal before the CIT(A). Before the CIT(A), the assessee filed detailed submission assailing the action of the Assessing Officer. On consideration of submissions made and material placed before him, the CIT(A) found merit in the case made out by the assessee and thus reversed the action of the Assessing Officer. The relevant operative paragraph of the order of the CIT(A) is reproduced hereunder: “Findings & determination: 6.1 I have gone through the assessment order, submission made by the appellant, facts and details brought on record and various case laws relied upon by the appellant. 6.2 Ground no. 1 is general in nature and subsumes with specific grounds of addition, hence no separate adjudication required. 7. In ground nos. 2 to 11, the appellant has challenged the addition made amounting to Rs. 36,03,10,674/- u/s 56(2)(viib). Since these grounds are interlinked, therefore taken together. As mentioned earlier, the appellant has issued 3,37,68,573 shares to its existing holding company M/s Shoan Lal Commodity Management Pvt. Ltd. (SLCMPL) for the face value of Rs. 10/- at a premium of Rs. 22.21/-. A valuation report by the auditor has also been submitted to substantiate its action regarding higher premium. However, the AO did not accept the DC method employed in the report of auditor and adopted the NAV method as per book value which comes to Rs. 11.54/- per share. Accordingly, the difference of two (22.21 - 11.54) i.e. Rs. 10.67/- per share has been added as income u/s 56(2)(viib) of the Act. 7.1 It has been vehemently argued, as reproduced earlier that the provisions of section 56(2)(vilb) are not applicable in the case of appellant. It is contended that the valuation report has been prepared by the expert valuer/auditor and in accordance with the provisions of section 56(2)(viib), where as per Rule 11UA(2), the appellant is entitled for the valuation of fare market value (FMV) as per the DC method. It is also stated that the total investment has been made by the existing holding company where the appellant is fully owned subsidiary company. It is also mentioned that these funds have been received from holding company through foreign investments I.T.A. No.8734/DEL/2019 4 and indirectly can be termed as FDI. It is argued that the intent of legislature is to curb the black money and there cannot be involvement of any such unaccounted money as the funds have been sourced from abroad through its holding company and has passed necessary test of foreign remittance and other exchange regulations. There is no proof or evidence that this money is actually appellant's funds and has been routed through the different entities. 7.2 It is further argued that the valuation has been done as per DCF method which is duly acceptable as per the prescribed Rules. It is further stated that as per explanation (a)(i) of the section 56(2)(viib), the fair market value of the share shall be the value, as may be determined in accordance with the prescribed method. In the present case, the appellant has gone by the prescribed method i.e. DC method which is supported by the report of independent auditor and is in accordance with law. Therefore, it is not open to the AO to change the method, adopted by the appellant. Further, no cogent reasoning has been submitted while rejecting the valuation adopted by the appellant. 7.3 The contention of the appellant has been examined. The fair market value as given by the appellant has been rejected which was based on the DC method of valuation without any cogent material on record. The AO has mentioned that the projected value does not commensurate with the actual performance of the company, later. The AO has taken the book value (NAV) as fair market value and also applied the ratio laid down by the Hon'ble ITAT in the case of M/s Agro Portfolio Pvt. Ltd. in ITA No. 2189/Del/2018. 7.4 On going through the contentions of the appellant, it is seen that the working has been made by an independent valuer, submitting the valuation of share as per discount cash flow method. Further, as per the provisions of law, the appellant can take higher of the amount between the working as per Rule 11UA (DC method) or on the basis of the value of shares considering the market value of assets, intangible assets and projected profit (NAV method). 7.5 In the present case, the working given by the appellant has been based on the value of the shares taking into account the projected business and other parameters as per auditor's report. 7.6 The working provided as per Rule 11UA(2) has 2 limbs either at FMV of unquoted equity share as per formula (A-L)*(P)/(PE) or as per the FMV worked out for the unquoted shares determined by a valuer/CA/merchant banker etc as per discount free cash flow method. It is at the option of assessee to choose between two whichever is higher. In the present case, the appellant has opted for the second option for working out the fair market value of shares duly supported by report of a Chartered Accountant. 7.7 On the other hand, AO has not provided any sound reasoning or not brought on record any material to counter the argument or to negate the submissions of the appellant. He has rejected the projection with the contention that this projection has not been turned out to be reality or actual performance and hence not regarded the DCF method and applied NAV I.T.A. No.8734/DEL/2019 5 method. It is pertinent to note that projections of future profits are only the estimates and not the exact working of future profits. This has also been held by Hon'ble ITAT Delhi Bench in the case of India Today Online Pvt. Ltd. (Supra) that DCF method is a recognized method where future projections of various factors by applying hindsight view and it cannot be matched with the actual performance. Further, the appellant has provided elaborate reasons for such projections not coming to the reality due to various factors, which was not envisaged at that point in time. 7.8 Therefore it is clear that as per the provisions of law, the appellant has worked out the FMV, taking into consideration the future projections, using DCF method duly supported with reason and accompanied by the report of CA, which is higher than the NAV, worked out by the AO. Therefore, the appellant is entitled to take higher amount, as provided in the law. 7.9 Section 56(2) (vii)(b) read with Explanation has specifically provided that the fair market value of the unquoted shares shall be determined as per the prescribed methods and shall be taken whichever is higher. 7.10 In the following case, the Hon'ble ITAT, Jaipur has held that AO cannot force the appellant to select a different method, especially when conditions are fulfilled for method of valuation. M/s Rameshwaram Strong Glass Put Ltd Vs ITO; 2018-TIOL- 1358-ITAT-JAIPUR Whether when in terms of Rule 11UA(2)(b), if the assessee is entitled to choose a particular method of valuation of his unquoted equity shares, the A can still force the assessee to select a different one - NO: ITAT. 7.11 The appellant has heavily relied upon the case of M/s Cinestaan Entertainment Pvt. Ltd. (Supra), where the Hon'ble ITAT, Delhi in the recent judgment held that: - 31........... Any businessman or entrepreneur, visualise the business based on certain future projection and undertakes all kind of risks. It is the risk factor alone which gives a higher return to a businessman and the income tax department or revenue official cannot guide a businessman in which manner risk has to be undertaken. Such an approach of the revenue has been judicially frowned by the Hon'ble Apex Court on several occasions...Commercial expediency has to be seen from the point of view of businessman. Here in this case if the investment has made keeping assessee's own business objective of projection of films and media entertainment, then such commercial wisdom cannot be questioned. Even the prescribed Rule 11UA(2) does not give any power to the Assessing Officer to examine or substitute his own value in place of the value determined or requires any satisfaction on the part of the Assessing Officer to tinker with such valuation. I.T.A. No.8734/DEL/2019 6 32. Section 56(2) (viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If the statute provides that the valuation has to be done as per the prescribed method and if one of the prescribed methods has been adopted by the assessee, then Assessing Officer has to accept the same and in case he is not satisfied, then we do not we find any express provision under the Act or rules, where Assessing Officer can adopt his own valuation in DCF method or get it valued by some different Valuer. There has to be some enabling provision under the Rule or the Act where Assessing Officer has been given a power to tinker with the valuation report obtained by an independent valuer as per the qualification given in the Rule 110. Here, in this case, Assessing Officer has tinkered with DC methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets-based NAV method which is based on actual numbers as per latest audited financials of the assessee company. ... These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time... 33.In any case, if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. 7.12 It is clear from the above judgment by the Hon'ble Jurisdictional ITAT that neither AO has any power or expertise to change the method of valuation nor it can reject a valid valuation by a competent person say a CA in this case. The law has to be followed in later and spirit. The facts and ratio laid down by the Hon'ble ITAT in the above referred case are squarely applicable to the appellant and hence respectfully foliowing the same, it is held that the addition with respect to change in the method of valuation is not in accordance with law. 7.13 It is also seen that AO has relied upon the case law of Agro Portfolio Pvt. Ltd. (Supra). The Hon'ble Delhi ITAT in the said case has held the change of method as valid, which is adopted by AO as per NAV method/book I.T.A. No.8734/DEL/2019 7 value, rejecting the projections by a CA for DCF method. The appellant has elaborately disputed and distinguished the facts of the said case from that of the case of appellant. In the said case, the Hon'ble ITAT allowed the AO's working of NAV value on the ground that no cogent reasoning was provided in the report and the veracity of the data supplied was also not justified. In the case of appellant as well as in the case of M/s Cinestaan Entertainment Pvt. Ltd. the valuation report is duly supported by the facts and figures and during appellate proceedings, the appellant has provided elaborate justification of the projections, showing positive results and cogent reasons for deviation. It is trite law that the projections cannot be equated with 100% actual performance which is also confirmed by Hon'ble ITAT Delhi in the case of India Today Online Pvt. Ltd (Supra). 7.14 Therefore, looking to the facts and circumstances of this case, considering appellant's submissions and in law, which is further supported by the judgment of Hon'ble ITAT Delhi in the case of Cinestaan Entertainment Pvt. Ltd (Supra) and other case laws and as discussed in detail in foregoing paragraphs, it cannot be said that the value adopted by the appellant is liable to be rejected or subjected to tax u/s 56(2) (vilb) of the Act, enforcing the change of method of valuation of FMV of shares. Accordingly, the valuation done by appellant is found to be in accordance with law. Therefore in view of above discussions and considering the extant law, this addition is directed to be deleted. Thus the appellant gets a relief of Rs. 36,03,10,674/-. These grounds of appeal are allowed.” 5. Aggrieved by the relief granted by the CIT(A), the Revenue is in appeal before the Tribunal. 6. The ld. DR for the Revenue reiterated the observations made by the Assessing Officer and contended that the Assessing Officer has found on facts that the FMV determined by the assessee based on untenable projection is prima facie incorrect and consequently left with no option but to advert to more reliable NAV Method for determination of FMV. The ld. DR thus contended that CIT(A) has misdirected himself on law and on facts in brushing aside the action of the Assessing Officer without appreciating the factual nuances. The ld. DR thus urged for reversal of the order of the CIT(A) and restoration of the action of the Assessing Officer. 7. The ld. counsel for the assessee, on the other hand, supported the action I.T.A. No.8734/DEL/2019 8 of the CIT(A) and reiterated the detailed submissions made before the CIT(A) in this regard to justify the action. 8. We have he ar d the pa rties i n l eng th and peruse d the assess me nt or de r as w ell as the fi rst app el late order. The doc uments r ef err ed t o a nd r el ied upon has be en taken cogniza nce in t er ms of R ul e 18( 6) of the Inc ome Ta x (Ap pellat e T ri bunal ) Rules, 19 63. 8. 1 In the case in hand, t he s ol it a ry que st ion presented f or dete rminat i on is w heth er the c onsi de ra tion rece ived b y the assessee t ow ards p re mi um on i ssue of equit y sha re represen ts the fa ir ma rket val ue or exce eds t he f ai r market va lue, an d whet he r deemin g p rovis ions of Secti on 56( 2)( vi ib ) of t he A ct a re attrac ted in the facts of the case. 8. 2 T he lega l fict ion ins erte d b y Secti on 56(2 )(v iib) see ks to deem pre mi um received fro m subscri be rs being I ndia n enti ties in exce ss of Fair Ma rket V alue as t he chargea bl e income in the ha nds closel y hel d c omp any iss uin g such s hare a t premium i n excess of its Fair Ma rke t V alue. 8. 3 T o set the context, the ass esse e comp any in th e insta nt case, recei ved cons iderati on of Rs. 10/- towa rd s face val ue of eac h equi ty s hare a t a pre mi um o f Rs. 12. 21 as pre mi um the re on tow a rds issu ance of 33 7, 68, 573/- eq ui ty shares t o M /s. Sohan L al Com modi t ies Manage me nt P vt. Lt d. (SL C MPL ) w ho ha ppens to be holdi ng c ompan y of t he ass essee. The ass essee- co mpany adop te d D CF me thod f or deter mi na ti on of Fai r Market V a lue as per valuati on repo rt of t he inde penden t va luer file d to s uppo rt a nd vi ndicate t he sh are pre mi um o n issue of equit y s hare. T he A ssessi ng O fficer how e ver found fal lac y in t he qua nt i fica tion of I.T.A. No.8734/DEL/2019 9 FMV so det er mi ned b y D CF me th od and obse rved t ha t the FMV dete rmined as pe r D CF meth od is wit hout an y sound factual basis and the projected fi gur es of t he ens ui ng yea rs wi del y var y w ith the a ctual fi gures repo rted and presentl y a va il able a t the t ime of assess me nt for Fi nanc ia l Y ears 2016 -17 and 2017-1 8. 8. 4 T he A ssess i ng O ff ice r e ssent iall y a ll ege d that the valu ati on de ri ved b y the val ue r is u nconnecte d to the ground r ealit ies a nd canno t be re li ed up on. T he A ssess i ng Of fice r thus rej ecte d the valuati on of Rs. 22. 21/ - p er s hare det er mi ne d as per D CF me th od to be FMV of t he equi t y s ha res in ter ms of Sec tion 56(2) (vi i b) r. w . Rule 11U A . The A ssess in g O ffi cer compu te d t he FMV by appl ying NA V met ho d for the pur pos es of Se ct ion 56(2 )(v ii b) a nd fou nd the FMV at Rs. 11. 5 4/- pe r sha re, i.e. , face va lue of Rs. 10/- pe r sha re at a pre mium of Rs. 1. 54/- pe r share. T he dif fe re nce betw e en the FMV as per D CF method qua N A V me th od w as t hus consi dered a char gea bl e income of the assess ee under Secti on 56( 2)(vii b) of the A ct. T he e xcess c ons ide rati on recei ved b y wa y of pre mi um w as t hus de te rmine d at Rs. 36, 03, 10, 674/ - ar ise n on issu e of equ it y sha res on the touchs tone of Sect ion 56(2)(viib ). 8. 5 T o co ntrad ic t t he act io n of t he A ssessi ng O ff ice r, the assessee broadl y s ubmi ts t ha t; (i) the prov isi ons of Secti on 56 (2) (vi ib) introduced b y Fina nce A ct, 2012 ar e ant i-abus e pro vi sions w it h a sacr osa nct objec t t o c ur b the pra ct ice of pl oughing ba ck its unacc ount ed mo ney b y iss uing shares at a pric e w hich is high er t ha n its FMV . T hus, provis ions o f Sec ti on 5 6(2) (vi ib) cannot be appl ie d mechanic al ly to a genui ne t ra nsa cti on w hic h als o has th e backi ng of t he report of independent I.T.A. No.8734/DEL/2019 10 val ue r i n ac co rda nce wi th R ules 1 1U and 11U A of the Inco me Ta x Rules. (ii ) the Assessin g O f fi ce r has dis pute d the app li cat i on of D CF met ho d i n t he i nst ant case by ta king a hi ndsi ght b y compar ing the pro jecti ons made at t he ti me of issuan ce of shares w it h the subs eque nt events and ac tual f inanci al res ul ts des pi te the legal propo siti on that val uati on c an not be j udg ed in t he ligh t of t he subsequen t events or hinds ight. A reference w as mad e to the dec isi on of H on’ble D e lhi H igh Co urt in the cas e of P r. C IT vs. C inest aa n Enter tainm ent P vt. Ltd. (ITA N o. 1007/2019 ) & C M A pplicati on N o. 54134/ 20 19 judgme nt dated 01. 03.2 021. (ii i) the asse ssee f urt he r contends that t he D CF meth od adop ted b y i ndependent val ue r se eks t o value the e quit y shares of a c ompany b y dis co unt in g i ts free cas h f low s f or expl ici t forecas t perio d a nd t he pe rp et ua ti ng va lue the reafte r. T he fre e cash fl ow re pres ents the cash a va ilable for dis tribution t o the owner of t he busi ness. Such f ree cash flows a re d isc ounted b y appro pri at e cos t of capit al. The prese nt value of the free cash fl ow s duri ng t he discre te peri od a nd the pe rpet uit y va lue indicate t he fai r val ue of the bus in ess. The D C F me th od t hus atte mpts to est imate th e FMV fut ur e cash flows base d on p roj ect io n of how much mone y t ha t the pr opose d i nvest me nt is li ke l y to generate i n fut ure. The assess ee thus c onte nds tha t FMV as pe r D CF method is de ter mi ned o n t he bas is of proj ec te d fi gur es of cash fl ow in t he future yea rs w hich is boun d t o be at vari anc e w i th the ac tual reve nue and cash fl ow of the subs eq uent yea rs as the proj ec te d f igu res cannot be gauged I.T.A. No.8734/DEL/2019 11 w ith an y arithmet i cal pr ec ision. T he valuati on of the cash flow i n futu re years cann ot b e vis ual iz ed at t he t ime of proj ec tions havi ng regard to t he ma ny i mponde ra bl es w hic h ma y e nt er w it h th e passage o f ti me. T he va luat i on det er mi ned u nder D CF is onl y an esti ma te o f potent ial of establ is hment and any comparis on of such p roj ec tions with actua l figures a t a lat er s ta ge t o reject the va luat ion w oul d totall y frus t ra te t he i nte nded outcome fr om D CF method of val ua ti on rec ogn iz ed by the s tatute. (iv ) the Asse ssing O ff icer has fai le d t o take not e of the most s ignificant fact exist in g in the prese nt case t ha t the assesse e is a w hol l y ow ned s ubsi dia r y compan y of the hold ing compa ny, na me ly, SL C MPL . T he shar es have bee n issued a t pre mi um to i ts hol di ng compan y w ho owns th e assesse e. T he hol ding compa ny raised the re quis i te fun d wit h intent t o mak e fur ther i nves tmen t into i ts downst rea m ent itie s by me an s of foreign di rec t inves tment after compli ance of al l fo rma lit ies wi th Rese rve B ank of In dia. T he holding c ompan y submit ted the group proj ect ions inc luding proj ect i ons r ela te d to t he assessee -c ompan y t o the fore ign inves tors are base d on t he sa me, t he i nves tmen t was proc ured b y t he h oldin g c ompan y f rom t he fo re ign inve stors w hic h w e re f urt he r inves ted into its su bsi di arie s inc lu di ng the ass essee -comp an y. (v) Since hol ding co mpan y i nves ted fu nds ra ise d t hrou gh fore ign di rect i nvestment in t he as sessee c ompan y, unde r such c ir cu ms tance s, the i nvest me nt b y hol di ng co mpany t o the assessee-company a nd conse qu ent i ssuance of shares b y the asse ssee-c ompany t o holdi ng compa ny is simi la r to I.T.A. No.8734/DEL/2019 12 issuance o f share t o its elf an d t he re fore, in such a case, the ant i -abus e provis ion of Sec t io n 56(2)(vi i b) cannot be vis ua lized. 9. O n cons pec tus of the pl ea ra ised on beha lf of t he ass essee, w e find s ubs ta nt ial fo rce and pl aus ibi lit y therei n. T he assessee co mpan y in the instant case has pr oceeded t o issue equit y sh ar es at a pre mi um to none ot he r t ha n its w ho ll y ow n ed hol di ng co mpan y a nd that to o on the basis of i ndepe ndent value r re port w her e FMV was determi ned as per D CF met hod w hic h is one of the presc ribe d met hod f or de ter mi na tion o f va luation under R ule 11U A r. w . Secti on 56(2)(viib) of t he Act. The A ssessi ng Of fice r has dispu ted the DC F met hod on account of va ria ti on i n the projecte d fi gu re s used by t he va luer w it h the act ual fi gures avail able su bseque ntl y a t the ti me of a ssess me nt. The Assessi ng O fficer disca rde d the FMV method as p er DC F metho d and re pl aced t he sa me w ith the NA V met ho d w hi ch acti on runs tota ll y cont rar y to the rat io la id dow n i n Ci nest aan Ent ertainm ent (supr a) 10. In C inestaan (supra), the H on’ bl e D elhi H i gh C ou rt took cogniza nce of t he i dent ica l s ituat ion, i. e. , the A ssess in g O fficer had dis re ga rded t he valuati on report of t he assessee p ri ma ril y on the gr ound t ha t t he p roj ecti ons of re ve nue cons ide red for the pur pos e o f va luat ion do not match w ith the ac t ual re ve nue ar ose in the s ubsequent ye ars. T he H on’ble D elhi H ig h Court in the fact sit ua tio n obs erve d tha t the assess ee compa n y has adopted a reco gnize d me thod of v al ua ti on a nd the reven ue c ould not s how that asse ssee has adop ted de mons t ra bl y w rong ap proach. It w as obs erve d t hat va luat ion is not an exact sc ience a nd the re for e canno t be done w it h ari th me ti c pre cis ion. It is a tec hnica l and co mple x issue w hich sh oul d bes t be appro pri ate l y l eft t o the I.T.A. No.8734/DEL/2019 13 consi derati on an d w isdom o f e xperts in the f ie l d, havi ng r egard to the imponderables w hich enter the process of va luati on of shares. The H on’ble H igh Co urt thus uphel d t he ac tion of the IT A T a nd conseq uentl y th e a dd it i ons mad e under t he de e mi ng provisi ons of Sect ion 56(2 )(vii b) made b y the Asse ssing O ffi cer w ere reversed. 11. Si mi lar view has been taken by t he H on’ble Co-ordi na te Bench in Intel li grape Softwa re Pvt. Ltd. vs. ITO , ITA No. 3925/De l/2 018 Assessment Ye ar 2014-15 or der dated 30. 09.2020 w he re in i t w as obser ved tha t the val uat ion based on fut ur e projec ti ons at the t ime of issue o f s hares cann ot be in fe rre d as the act ua l f ig ures ma y var y depending on the ma rket conditi ons and hos t of ot he r facto rs. 12. T his apart, as poi nted out on behal f of t he assessee, the sha res have b ee n subscri be d b y th e hol ding comp any, i. e. , the exist ing s hareho ld ers onl y. Pe rt i nen t to sa y, se ct ion 56(2) (vi i b) creates a le ga l fict ion wh ereb y the scope and a mbit of e xpress i on ‘i nc ome ’ has bee n e nl ar ged to arti fi cial ly tax a c ap ita l receipt earned b y w a y of premiu m as taxable revenue r eceipt. Hence, s uch a deeming fic ti on ordinaril y r equir es to be read to mee t i ts pur pos e o f ta xi ng unaccount ed mone y an d thus nee ds t o be se en i n context o f peculia r fac ts of prese nt case. T he le gal f ict ion has been created f or definit e purpos e a nd its ap plic at ion need not be extende d b eyond the purpose for w hic h i t has be en crea te d. Bringing the prem iu m recei ved from holding compa ny to tax net under these dee ming fi ct ions w oul d t anta mo unt t o stret ching pro vision to an i llogi cal length and w ill l ead t o some ki nd o f abs urdit y i n taxi ng own mone y of s hareh olders w i thout a ny co rrespondin g be nef it. I.T.A. No.8734/DEL/2019 14 13. In totali t y, gove rned by t he view tak en by t he H on ’bl e D elhi H igh Co urt as w ell as t he C o -ord inate Bench in s i mila r fact sit ua tio n coupled w ith the fac t o f th e iss ue of shares t o its holding co mpan y, we a re u nab le t o s ee a n y infi rmi t y in the fi rs t a ppel la te order on the poi nt under d et er mi nati on. We thus decline t o inte rfere w ith the order o f the CI T(A ). 14. In the res ul t, the appeal of t he R eve nue i s d i s mi ss e d. Order was pronounced in the open Court on 15.03.2023. Sd/- Sd/- . [KUL BHARAT] [PRADIP KUMAR KEDIA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: .03.2023 Prabhat