Hero Fincorp Limited Vs DCIT (ITAT Delhi)
DCF Valuation Cannot Be Judged with Hindsight: Delhi ITAT Deletes ₹168.31 Crore Share-Premium Addition
Hero Fincorp Ltd. issued 57,65,905 share warrants on 15 September 2016 at ₹520.30 per warrant, comprising face value of ₹10 and premium of ₹510.30. The valuation was supported by an expert report dated 16 August 2016, adopting the Discounted Cash Flow method. The warrants were subsequently converted into equity shares, and the balance consideration was received during AY 2018–19.
The AO rejected the DCF valuation by comparing the projected turnover and profitability with the actual results for FY 2017–18. He substituted the Net Asset Value method, determined the fair market value at ₹228.41 per share, and added the differential premium of ₹168,30,67,669 under Section 56(2)(viib).
The Delhi ITAT held that a DCF valuation must be examined based on the facts, estimates and information available on the valuation date and cannot be rejected merely because subsequent actual results differed from projections. Valuation is not an exact science, and an expert’s report cannot be discarded without identifying specific defects in the figures, assumptions or methodology adopted.
The Tribunal also noted that the projections were consistent with the company’s historical growth. In fact, during later years, the company’s actual growth exceeded the projected growth, demonstrating that the projections were not excessively aggressive. Considering only one year’s actual results presented an incomplete and misleading picture. The entire addition of ₹168.31 crore was therefore deleted.
On Section 14A, the assessee had voluntarily disallowed ₹910, but the AO computed a disallowance of ₹56,97,807, which the CIT(A) restricted to the exempt dividend income of ₹1,16,450. The ITAT held that the AO had not recorded the mandatory objective dissatisfaction with the assessee’s computation after examining its accounts. Merely computing a different amount does not constitute the satisfaction required under Section 14A(2). Consequently, the remaining ₹1,16,450 disallowance was also deleted.
FULL TEXT OF THE ORDER OF ITAT DELHI
