Narang Access Pvt. Ltd. Vs DCIT (ITAT Mumbai)
In the present case the valuation done by the assessee for valuing its shares is on the basis of DCF method and the AO could not have substituted it by NAV method rather he should have arrived at another value, if any, by applying DCF method only. We also noted that the explanation and additional evidences produced before us shows that why projection has been made in that manner and have been substantiated by filing additional evidences/ papers on assessee’s paper book volume 2 at pages 1 to 78. We noted that this issue has been considering by the Hon’ble Bombay High Court and remanded back to the file of the AO the issue regarding considering the value of shares in term of section 56(2)(viib) of the Act on the basis of DCF method. Here, in this present case also, we direct the AO to consider these additional evidences and then can arrive at a correct value of share for charging of share premium in term of section 56(2)(VIIB) of the Act. But on the basis of DCF method only which is adopted by the assessee. Hence, the assessment order and the order of the CIT(A) is set aside and the matter restore back to the file of the AO. In term of the above, we restore this issue to the file of the AO.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal of assessee is arising out of the order of the Commissioner of Income Tax (Appeals)-21, Mumbai in appeal No. CIT(A)-21/DCIT-13(1)(1)/IT-166/2016-17 dated 28.02.2018. The Assessment was framed by the Dy. Commissioner of Income Tax, Circle-13 (1)(1), Mumbai (in short DCIT/ITO/ AO) for AY 2013-14 vide dated 28.03.2016, under section 143(3) of the Income-tax Act, 1961 (hereinafter ‘the Act’).
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in valuing the share premium on the basis of book value of shares as reasonable value instead of valuing on the basis of Discounted Cash Flow (DCF) method and accordingly adding the share premium at ₹ 5,32,68,570/-. For this assessee has raised the following two grounds: –
“In the facts and the circumstances of the case and in law, the learned Commissioner of income Tax (A) erred in confirming fair market value per share of the Company at Rs. 8650.80 as calculated by the Assessing Officer instead of value per share of Rs. 180995/- calculated as per DCF Method duly certified by the Practicing Chartered Accountant and disallowed Rs. 53,268,570/- as income of the Company uls.56(2)(viib).
The learned Commissioner of income Tax (A) erred in confirming said addition of Rs.53,268,570/- (after deducting fair market value of premium per share of the Company at Rs. 8,640.80 as calculated by Assessing Officer) out of total share premium received of Rs. 79,995.370/-. The Company had received Share Premium of Rs. 55,924,365/- from a resident shareholder and Rs. 24,071,005/- from the non-resident shareholder i.e. MIs. Myen Pte Ltd., Singapore (a Danone Group Company) at same price. – .”
3. Briefly stated facts are that the assessee company is engaged in the business of beverage products like Red Bull, Evian, Perrier, Qua Blue and Orangina. During the course of assessment proceedings, the AO on perusal of details filed, noticed that the assessee company has issued equity shares at the rate of ₹ 10 per share and premium at ₹ 180,985/-per share. The AO noted that since, the shares were issued at a very high premium, the assessee was asked to justify the high premium. The assessee was also asked as to why the provisions of section 56(2)(viib) of the Act be not applied. The assessee replied that the provisions of section 56(2)(viib) of the Act is applicable in regard to shares issued to resident but not to non-resident. It was contended that there has been amended being brought into Act vide Finance Act, 2012 by inserting a new proviso in the Act i.e. 56(2)(viib) pertaining to the issue of shares to resident shareholders. The assessee was also asked to substantiate as to how the projections have been taken for the purpose of valuation of shares and the basis of projection was also asked. The assessee submitted the valuation report dated 07.08.2012, wherein, value per share has been arising at ₹ 1,80,475/- per share under the DCF method. The AO noted that the assessee has not submitted the basis of the projections. Hence, the AO instead of DCF method of valuation adopted book value of the share for computing the premium accordingly, computed the fair market value of unquoted equity shares at ₹ 8640.40 per share. Therefore, added the differential sum of ₹ 5,32,68,570/- as income from other sources under section 56(2)(viib) of the Act by observing in Para 5.18 as under: –
“5.18 From the discussions ad detailed in above paras, it can be perused that the assessee has failed to prove the fair market value of shares as per the DCF method as relief upon by the assessee. In the absence of reliable working of the shares as per the DCF method adoption of the book value of shares as prescribed under the Act at ₹ 8,640.80 is fair and reasonable in the given case. Accordingly, a sum of ₹ 5,32,68,570/- (₹ 1,80,995 per share [FMV as per assessee’ Rs.8,640.80 per share [FMV as calculated above] X 309 (Equity shares issued to a resident) is added to the total income of the assessee under section 56(2)(viib) of the Act. Penalty proceedings under section 271(1)(c) of the Income-tax act, 1961 is initiated separately for furnishing inaccurate particulars of income and thereby concealing the income.”
Aggrieved, assessee preferred the appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, assessee is in appeal before Tribunal.
4. We have heard rival contentions and gone through the facts and circumstances of the case. We noted that the assessee issued shares in the following proportion to the Indian shareholders and foreign shareholders as under:-
