Addition u/s 56(2)(viib) - AO rejected the valuation made by the valuer under DCF method and valued the share at Rs. 196 per share being book value of shares and thus made the addition of differential amount - CIT(A) limiting the investment to only the investment which yield dividend income AND allowing the interest expenses by observing that the assessee has its own fund


ITAT DELHI
ACIT, CIRCLE 15 (2) , NEW DELHI. VERSUS LIFESTYLE PROBUILD PVT. LTD.,.- ITA No. 3552/Del./2019
Dated.- October 9, 2023


HELD THAT:- We note that in this case, ld. CIT (A) has given a finding that actual performance of the assessee is even better than the forecast. Hence, any adverse inference on account of forecast is not appropriate and sustainable. Further, we note that ld. CIT (A) has passed a very reasonable and elaborate order.


As decided in M/S. KILITCH HEALTHCARE INDIA LTD. AND (VICE-VERSA) [2022 ITAT MUMBAI] Rule 11UA(1)(C)(c) which is the relevant here, provides that the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of which such valuation. Admittedly, this rule is applicable in the present case and as provided in the said rule the assessee had option to obtain fair market value on the basis of valuation done by the accountant.


Now the assessee has obtained valuation of accountant. Section 56(2)(vii)(b) provides fair market value of shares to be the one as may be determined in accordance with the method as may be prescribed or as may be substantiated to the satisfaction of Assessing Officer. Hence, if the method adopted by the assessee is not in accordance with the Rules contained in Explanation (a)(i) to section 56(2)(vii)(b), above any other method to the satisfaction of the AO can be adopted. The obvious corollary is that if the method adopted by the assessee is in accordance with the method contained in the Act read with Rules, the AO cannot disregard the same without cogent reasoning. Admittedly in this case the assessee has adopted a method which is in accordance with that prescribed in the Act read with the Rules.


Prescribed method for unquoted shares is not any specific method but it provides that assessee may obtain valuation report from merchant banker or accountant. In this case the assessee has obtained valuation report of the accountant. To this extent, valuation adopted by the assessee cannot be said to be not in accordance with law - 


Decided against revenue.


Also see-Delhi Bench of the ITAT in the case of Agro Portfolio (P.) Ltd. vs. ITO 94 taxmann.com 112 (Delhi-Trib.) for the proposition that valuation made on unrealistic forecast is not sustainable


Determine the FMV of the shares - Reliance on the report of Merchant banker with long list of disclaimer - Reference to Matter to the Income Tax Department Valuation Officer for a determination of price market value of such capital asset - Held that:- It is not possible even for the Departmental Valuation Officer to conduct any exercise of verification of the acceptability of the value determine by the merchant banker. This is more particularly in view of the long disclaimer appended by the merchant banker at page no. 16 & 17 of the paper book which clearly establishes that no independent enquiry is caused by merchant banker to verify the truth or otherwise the figures furnished by the assessee at least on test basis.


The merchant bankers solely relied upon an assumed without independent verification, the truthfulness accuracy and completeness 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 expertise, except mere applying the formula to the data provided by the assessee. We, therefore, are unable to brush aside the contention of the Revenue that the possibility of tailoring the data by applying the reverse engineering to the pre determined conclusions.


There has not been any possibility of verifying the correctness or otherwise of the data supplied by the assessee to the 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 serves no purpose even if the matter is referred to the Department’s Valuation Officer. We, therefore, do not find any illegality or irregularity in the approach of conclusions are by the authorities below. While confirming the same, we dismissed the appeal as devoid of merits. - Decided against assessee