Canvera Digital Technologies Pvt. Ltd Vs DCIT (ITAT Bangalore)
From the details filed, Ld.AO observed that, assessee had computed the value as per DCF method and that there was nothing to suggest that DCF method was an appropriate method to value the shares. Ld.AO rejected DCF method adopted by assessee for the reasons that cash flow from operations were not positive, the growth rate was taken at 50% is unrealistically high and far from reality and assessee was suffering loss year by year. Ld.AO also noted that assessee is a company in which public is not substantially interested and therefore as per explanation to section 56(2)(viib) the method adopted should be net asset value for determining the fair market value rather than discounted cash flow method which is as per Rule 11UA(1)(c)(b) of Income tax Rules.
AO thus computed value of share premium at Rs.51.32 per share and disallowed excess share premium of Rs.9,71,73,320/-and treated as excess fair market value under section 56(2)(viib) of the Act.
Under Rule 11UA assessee has option to determine fair market value being NAV method or DCF method. As per observation of Hon’ble Bombay High Court in case of Vodafone M-Pesa (Supra). If assessee determines the fair market value in any one method as prescribed under Rule 11UA, the assessing officer can not dispute the method so adopted. In the present case, we note that assessing officer has not rejected the DCF method followed by assessee based on any discrepancy found in the valuation, but is based on the reasoning that, the valuation is based on estimates.
We therefore, remand this issue back to Ld. AO for scrutinising valuation report filed by assessee by following DCF method either by himself or by calling a determination from an independent valuer and to confront the same with assessee. Ld.AO shall not reject the DCF method as it is the appropriate method prescribed under Rule 11UA. Assessee is also directed to establish the correctness of the valuation report based on documents/evidences. Assessee has to satisfy the correctness of the projection of discounting factor with the help of empirical data or industry norm.
