Flutura Business Solutions Pvt. Ltd. Vs ITO (ITAT Bangalore)
We are of the view that, the Assessing Officer has erred in considering the actuals of revenue and profits declared 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 projected revenues. Accordingly the valuation is on the basis of estimates of future income contemplated at the point of time when the valuation was made. It has been clarified by the Assessee that the product which was being developed by the Assessee has substantial value and the Assessee was able to raise funds to the tune of Rs.50.13 crores from international market
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 either 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. (ii) For scrutinizing the valuation report, the facts 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. The primary onus to prove the correctness of the valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Hence, he has 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 Scientific 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 Assessee.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Assessee is against the order of the Commissioner of Income Tax (Appeals)–3, Bangalore in ITA No.23/CIT(A)-3/Bng/201 6-1 7, dated 13.11.2018 for the A.Y.2013-14. The only issue involved in the appeal is the action of the Assessing Officer in invoking provisions of section 56(2)(viib) of the Income Tax Act, 1961 (Act) and taxing the share premium received during the previous year as income of the Assessee. The ld. CIT(A) partly confirmed the additions and hence this appeal.
2. The Assessee is in the business of providing specialist solutions in the areas of Decisions Science & Analytics. The Assessee filed return of income for the A.Y.2013-14 on 18.09.2013 declaring loss of Rs.14,38,104/-. During the previous year the Assessee had issued equity shares of face value of Rs.10/- each at a premium of Rs.146.17 per share and the premium collected during the previous year is Rs.2,29,31 ,200/-. The Assessing Officer concluded the assessment taxing the amount of Rs.2,29,31 ,200/- as income of the company invoking the provisions of section 56(2)(viib) of the Act. The computation of the Assessing Officer is as under: –
