Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 3975 (ITAT-BANGALORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
02-11-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Next Hearing Date
28-10-2020
Assessment Year
2015-2016
Appeal Filed On
06-03-2020
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI A.K GARODIA, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA NO. 3 1 6 /BANG/20 20 ASSESSMENT YEAR : 2015-16 CANVERA DIGITAL TECHNOLOGIES PVT. LTD., NO.36/5, GROUND FLOOR, 27 TH MAIN ROAD, HSR LAYOUT, SOMASUNDARA PALYA, HARALUKUNTE VILLAGE, BENGALURU-560 102. VS. THE DY. COMMISSIONER OF INCOME-TAX, CIRCLE-2(1)(1), BENGALURU. APPELL ANT RESPONDENT APPELLANT BY : SMT. TANMAYEE RAJKUMAR, ADVOCATE RESPONDENT BY : SHRI PRIYADARSHI MISHRA, JCIT (DR) DATE OF HEARING : 29.10.2020 DATE OF PRONOUNCEMENT : 02.11.2020 O R D E R PER BEENA PILLAI, JUDICIAL MEMBER PRESENT APPEAL IS FILED BY ASSESSEE AGAINST ORDER DATED 21/02/2019 PASSED BY LD. CIT (A)-2, BANGALORE FOR A SSESSMENT YEAR 2015-16 ON FOLLOWING GROUNDS OF APPEAL: ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2 ('THE LEARNE D CIT(A)'), BENGALURU HAS ERRED IN CONFIRMING THE ADDITIONS MAD E BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 2(1)(1), BENGALU RU ('THE LEARNED AO') IN THE ASSESSMENT ORDER PASSED UNDER SECTION 143(3) OF THE INCOME-TAX ACT, 1961 ('THE ACT') FOR THE CAPTIONED ASSESSMENT YEAR ('AY'). ITA NO.316/BANG/2020 PAGE 2 OF 12 EACH OF THE GROUND IS REFERRED TO SEPARATELY, WHICH MAY BE KINDLY CONSIDERED INDEPENDENT OF EACH OTHER. 1. GROUND 1: THE LEARNED CIT(A) HAS ERRED IN FACT A ND IN LAW, IN CONFIRMING THE ADDITION OF INR 97,173,230 MADE BY T HE LEARNED AO TO THE APPELLANT'S RETURNED LOSS OF INR 19,86,50,599, UNDER SECTION 56(2)(VIIB) OF THE ACT READ WITH RULE 11UA(2)(B) OF THE INCOME-TAX RULES, 1962 ('THE RULES'), BY DISREGARDING THE VALUATION R EPORT PREPARED UNDER THE DISCOUNTED CASH FLOW ('DCF') METHOD, AND ADOPTI NG THE NET ASSET VALUE ('NAV') METHOD FOR COMPUTATION OF THE FAIR MA RKET VALUE ('FMV') OF SHARES ISSUED BY THE APPELLANT DURING FY 2014-15. 2. GROUND 2: THAT WHILE THE APPELLANT HAS VALUED TH E SHARES BY FOLLOWING A METHOD PRESCRIBED IN THE RULES, THE AO ERRED IN DISREGARDING THE SAME ON AN ARBITRARY BASIS, AND TH E CIT(A) FURTHER ERRED IN CONFIRMING THE SAME. 3. GROUND 3: THAT THE CIT(A) AND THE AO GROSSLY ERR ED IN COMPARING THE ACTUAL REVENUE GENERATED WITH THE PROJECTIONS TO RE JECT THE VALUATION MADE BY THE APPELLANT. 4. GROUND 4: THAT THE CIT(A) AND THE AO GROSSLY ERR ED IN REJECTING THE VALUATION MADE BY THE APPELLANT ON CONJECTURES AND SURMISES. 5. GROUND 5: THE LEARNED CIT(A) I THE LEARNED AO HA S ERRED IN FACT AND IN LAW BY COMPUTING THE FMV OF PREFERENCE SHARES UN DER THE NAV METHOD AS PER RULE 11UA(1)(C)(B), AS AGAINST APPLYI NG THE OPEN MARKET VALUE AS PER RULE 11 UA(1)(C)(C). 6. GROUND 6: CIT(A) ERRED IN PLACING MISPLACED RELI ANCE ON THE DECISION OF THIS HON'BLE TRIBUNAL IN THE CASE OF CORNERSTO NE PROPERTY INVESTMENTS PVT. LTD. WHILE HOLDING AGAINST THE APP ELLANT, IN AS MUCH AS THE SAID CASE DOES NOT HAVE ANY APPLICATION TO T HE APPELLANT'S CASE. 7._GROUND 7: NOTWITHSTANDING THE CONTENTIONS OF THE APPELALTE IN GROUNDS 1 AND 2 ABOVE, EVEN WHERE THE NAV METHOD WA S TO BE ADOPTED IN DETERMINNG THE FMV OF THE SHARES, THE LD . CIT(A)/ THE LEARNED AO HAS ERRED IN FACT AND IN LAW, IN ADOPTIN G THE VALUES OF ASSETS AND LIABILITIES AS ON MARCH 31, 2015 INSTEAD OF MARCH 31, 2014. 8. GROUND 8: ON FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE LEARNED AO ERRED IN INITIATING PENALTY PROCEEDI NGS UNDER SECTION 271 (1 )(C) OF THE ACT. ALL THE ABOVE GROUNDS ARE WITHOUT PREJUDICE TO EACH OTHER. THE APPELLANT CRAVES FOR LEAVE TO ADD, AMEND, VARY, OMI T OR SUBSTITUTE OR WITHDRAW ANY OF THE AFORESAID GROUNDS AT ANY TIME B EFORE OR AT THE TIME OF HEARING OF THE MATTER WITH THE INCOME TAX APPELL ATE TRIBUNAL. BRIEF FACTS OF THE CASE ARE AS FOLLOWS: 2. ASSESSEE IS A COMPANY AND FILED ITS RETURN OF IN COME FOR YEAR UNDER CONSIDERATION ON 30/09/2015 DECLARING TO TAL INCOME OF RS.NIL, AND CURRENT YEAR LOSSES OF RS.19, 86,50,599/-. THE CASE WAS SELECTED FOR SCRUTINY AND NOTICES UNDE R SECTION 143(2) WAS ISSUED TO ASSESSEE ALONG WITH NOTICE UND ER SECTION ITA NO.316/BANG/2020 PAGE 3 OF 12 142(1) OF THE ACT. IN RESPONSE TO STATUTORY NOTICES , REPRESENTATIVE OF ASSESSEE APPEARED BEFORE LD.AO AN D FILED REQUISITE DETAILS AS CALLED FOR. 3. LD.AO NOTED THAT, ASSESSEE IS ENGAGED IN PROVIDI NG HIGH- QUALITY PRINT AND DIGITAL SOLUTIONS TO PHOTOGRAPHS. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LD.AO NOTED T HAT ASSESSEE HAS ISSUED SHARES AT FACE VALUE OF RUPEES ONE AND THE SHARE PREMIUM OF RS.1204/- INCLUDING THE FACE VALUE . IT WAS NOTED THAT, AS PER SHARE VALUATION CERTIFICATE PROV IDED BY ASSESSEE, SHARES WERE VALUED AT RS.1242.05/- AS THE FAIR MARKET VALUE PER SHARE. LD.AO ACCORDINGLY CALLED UP ON ASSESSEE TO SHOW CAUSE AS TO WHY THE VALUE SHOULD B E ACCEPTED AS THE FAIR MARKET VALUE. 4. IN RESPONSE ASSESSEE FILED VARIOUS DETAILS VIDE LETTER DATED 22/12/2017, 29/12/2017. FROM THE DETAILS FILED, LD. AO OBSERVED THAT, ASSESSEE HAD COMPUTED THE VALUE AS P ER DCF METHOD AND THAT THERE WAS NOTHING TO SUGGEST THAT D CF METHOD WAS AN APPROPRIATE METHOD TO VALUE THE SHARE S. LD.AO REJECTED DCF METHOD ADOPTED BY ASSESSEE FOR THE REA SONS THAT CASH FLOW FROM OPERATIONS WERE NOT POSITIVE, THE GR OWTH RATE WAS TAKEN AT 50% IS UNREALISTICALLY HIGH AND FAR FR OM REALITY AND ASSESSEE WAS SUFFERING LOSS YEAR BY YEAR. LD.AO ALSO NOTED THAT ASSESSEE IS A COMPANY IN WHICH PUBLIC IS NOT S UBSTANTIALLY INTERESTED AND THEREFORE AS PER EXPLANATION TO SECT ION 56(2)(VIIB) THE METHOD ADOPTED SHOULD BE NET ASSET VALUE FOR DETERMINING THE FAIR MARKET VALUE RATHER THAN DISCO UNTED CASH FLOW METHOD WHICH IS AS PER RULE 11UA(1)(C)(B) OF I NCOME TAX RULES. ITA NO.316/BANG/2020 PAGE 4 OF 12 5. LD.AO THUS COMPUTED VALUE OF SHARE PREMIUM AT RS.51.32 PER SHARE AND DISALLOWED EXCESS SHARE PREM IUM OF RS.9,71,73,320/-AND TREATED AS EXCESS FAIR MARKET V ALUE UNDER SECTION 56(2)(VIIB) OF THE ACT. 6. AGGRIEVED BY THE ADDITION, ASSESSEE PREFERRED AP PEAL BEFORE LD.CIT(A). 7. LD.CIT(A) WAS OF THE OPINION THAT THE PRIMARY ON US TO PROVE THE CORRECTNESS OF THE VALUATION REPORT IS ON ASSESSEE AS HE HAS SPECIAL KNOWLEDGE IS PRIVY TO THE FACTS OF THE COMPANY AND ONLY ASSESSEE HAS OPTED FOR THIS METHOD. LD.CIT (A) ALSO OBSERVED THAT ASSESSEE FAILED TO ACHIEVE THE PROJEC TED TARGETS ARE NOT ACCEPTABLE FOR THE REASON THAT INDEPENDENT VALUE SHOULD HAVE TAKEN THE SCIENTIFIC APPROACH OF ESTIMA TION. LD.CIT(A) UPHELD THE DISALLOWANCE MADE BY LD.AO. 8. AGGRIEVED BY THE ADDITION CONFIRMED BY LD.CIT(A) ASSESSEE IS IN APPEAL BEFORE US NOW. 9. AT THE OUTSET LD.AR SUBMITTED THAT THERE IS A DE LAY OF ABOUT 305 DAYS IN FILING THE PRESENT APPEAL BEFORE THIS TRIBUNAL. SHE THE DELAY WAS NEITHER WILFUL NOR WANTED BUT WAS ONLY ACCOUNT OF THE CIRCUMSTANCES SET OUT IN AFFIDAVIT D ATED 06/03/2020. LD.AR SUBMITTED THAT AS THERE WAS CONFL ICTING VIEWS OF VARIOUS FORUM, THE CONSULTANT HANDLING ASS ESSEES CASE ADVISED ASSESSEE NOT TO PREFER APPEAL AGAINST THE I MPUGNED ORDER PASSED BY LD.CIT(A). LD.AR SUBMITTED THAT, SU BSEQUENTLY ASSESSEE STARTED INTERNALLY EVALUATING THE RAMIFICA TIONS OF PENALTY PROCEEDINGS INITIATED BY LD.AO FOR THE YEAR AS WELL AS OTHER ASSESSMENT YEARS AND TOOK A DECISION TO PURSU E THE ISSUE BEFORE THIS TRIBUNAL . ON COMING TO SUCH CONCLUSION ASSESSEE ITA NO.316/BANG/2020 PAGE 5 OF 12 IMMEDIATELY APPOINTED NEW TAX CONSULTANTS AND REQUE STED TO CONSIDER THE CASE TO BE FILED BEFORE THIS TRIBUNAL . LD.AR SUBMITTED THAT THIS COST THE DELAY IN FILING THE PR ESENT APPEAL BEFORE THIS TRIBUNAL . SHE PLACED RELIANCE ON DECISION OF HONBLE SUPREME COURT IN CASE OF COLLECTOR, LAND ACQUISITION AND ANOTHER VS KATIJI AND ORS. , REPORTED IN (1987) 2 SCC 107 . 10. LD.SR.DR THOUGH OBJECTED TO THE CONDONATION OF DELAY, COULD NOT CONTROVERT THE SUBMISSIONS ADVANCED BY LD .AR. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF ARGUMENTS ADVANCED BY BOTH SIDES. 12. IN OUR VIEW, THE DELAY CAUSED IN FILING THE PRE SENT APPEAL WOULD NOT STAND IN BENEFIT OF ASSESSEE. WE ALSO ARE OF THE VIEW THAT SUBSTANTIAL JUSTICE MUST BE GRANTED AS THERE W AS NO MALAFIDE INTENTION ON BEHALF OF ASSESSEE. WE ALSO N OTE THAT THERE WAS SUFFICIENT AND BONA FIDES REASONS THAT CA USED DELAY AS EXPRESSED BY ASSESSEE IN ITS APPLICATION FOR CON DONATION OF DELAY. 13. HONBLE SUPREME COURT IN CASE OF COLLECTOR, LAND ACQUISITION AND ANOTHER VS KATIJI AND ORS. , (SUPRA) WHERE SUBSTANTIAL JUSTICE IS PITTED AGAINST TECHNICALITIE S, THE JUDICIAL REVIEW MUST TILT IN FAVOUR OF JUSTICE RATHER THAN T ECHNICALITIES. THEREFORE IN OUR VIEW CONDONATION OF DELAY IS WARRA NTED AND THE APPEAL SHOULD BE DECIDED ON MERITS. 14. RESPECTFULLY FOLLOWING THE RATIO LAID DOWN BY HONBLE SUPREME COURT IN CASE OF COLLECTOR, LAND ACQUISITION AND ANOTHER VS KATIJI AND ORS. , (SUPRA), WE ADMIT THE APPEAL TO BE DECIDED ON MERITS. ITA NO.316/BANG/2020 PAGE 6 OF 12 15. ON MERITS, LD.AR SUBMITTED THAT ON IDENTICAL RE ASONING BY LD.CIT(A)/LD.AO, THIS TRIBUNAL HAS CONSIDERED THE VALUATION OF SHARES IN THE FOLLOWING DECISIONS: VODAFONE M-PESA PVT.LTD VS DCIT REPORTED IN (2018) 92 TAXMANN.COM 73 (BOM) INNOVITI PAYMENT SOLUTIONS PVT.LTD. VS ITO REPORTED IN (2019) 102 TAXMANN.COM 59 (BANG) VBHC VALUE HOMES PVT.LTD. VS ITO IN ITA NO. 2541/BAN G/2019 BY ORDER DATED 12/06/2020. 16. SHE THUS SUBMITTED THAT, THE ISSUE MAY BE REMAN DED TO LD.AO FOR SCRUTINIZING THE VALUATION REPORT FILED B Y ASSESSEE. LD.SR.DR DID NOT OBJECT FOR THE ISSUE TO BE REMANDE D TO LD.AO FOR RECONSIDERATION BASED ON THE VALUATION REPORT F ILED BY ASSESSEE. 17. WE HAVE PERUSED SUBMISSIONS ADVANCED BY BOTH SI DES IN LIGHT OF RECORDS PLACED BEFORE US. 18. WE NOTE THAT THIS TRIBUNAL IN CASE OF INNOVITI PAYMENT SOLUTIONS PVT.LTD. VS ITO (SUPRA) WHILE CONSIDERING AN IDENTICAL ISSUE HAD FOLLOWED THE RATIO LAID DOWN BY HONBLE BOMBAY HIGH COURT IN CASE OF VODAFONE M-PESA PVT.LTD VS DCIT (SUPRA) . THIS TRIBUNAL OBSERVED IN INNOVITI PAYMENT SOLUTIONS PVT.LTD. VS ITO (SUPRA) AS UNDER: '9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE REPRODUCE PARAS 11 TO 14 FROM THE TRIBUNAL ORDER CI TED BY LEARNED AR OF THE ASSESSEE HAVING BEEN RENDERED IN THE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD., VS. ITO (SUPRA). THESE PARAS ARE AS FOLLOWS: '11. AS PER VARIOUS TRIBUNAL ORDERS CITED BY THE LE ARNED AR OF THE ASSESSEE, IT WAS HELD THAT AS PER RULE 11 UA (2), T HE ASSESSEE CAN OPT FOR DOE METHOD AND IF THE ASSESSEE HAS SO OPTED FOR DCF METHOD, THE AC CANNOT DISCARD THE SAME AND ADOPT OT HER METHOD I.E. NAV METHOD OF VALUING SHARES. IN THE CASE OF M /S. RAMESHWARAM STRONG GLASS (F) LTD. VS. THE ITO (SUPR A), THE TRIBUNAL HAS REPRODUCED RELEVANT PORTION OF ANOTHER TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. M/S UNIVERSAL POLYP ACK (INDIA) PVT LTD. IN ITA NO. 609/JP/2017 DATED 31.01.2018. IN TH IS CASE, THE ITA NO.316/BANG/2020 PAGE 7 OF 12 TRIBUNAL HELD THAT IF THE ASSESSEE HAS OPTED FOR DC F METHOD, THE AO CANNOT CHALLENGE THE SAME BUT THE AC IS WELL WITHIN HIS RIGHTS TO EXAMINE THE METHODOLOGY ADOPTED BY THE ASSESSEE AND /OR UNDERLYING ASSUMPTIONS AND IF HE IS NOT SATISFIED, HE CAN CHALLENGE THE SAME AND SUGGEST NECESSARY MODIFICATIONS/ALTERA TIONS PROVIDED ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. N OS. 29 AND 59/BANG/2020 THE SAME ARE BASED ON SOUND REASONING AND RATIONALE BASIS. IN THE SAME TRIBUNAL ORDER, A JUDG MENT OF HON'BLE BOMBAY HIGH COURT IS ALSO TAKEN NOTE OF HAVING BEEN RENDERED IN THE CASE OF VODAFONE M-PESA LTD. VS. POIT AS REPORT ED IN 164 DTR 257. THE TRIBUNAL HAS REPRODUCED PART OF PARA 9 OF THIS JUDGMENT BUT WE REPRODUCE HEREIN BELOW FULL PARA 9 OF THIS J UDGMENT. '9. WE NOTE THAT, THE COMMISSIONER OF INCOME-TAX IN THE IMPUGNED ORDER DATED 23RD FEBRUARY, 2018 DOES NOT DEAL WITH THE PRIMARY GRIEVANCE OF THE PETITIONER. THIS, EVEN AFTER HE CO NCEDES WITH THE METHOD OF VALUATION NAMELY, NAV METHOD OR THE DCF M ETHOD TO DETERMINE THE FAIR MARKET VALUE OF SHARES HAS TO BE DONE/ADOPTED AT THE ASSESSEE'S OPTION. NEVERTHELESS, HE DOES NOT DEAL WITH THE CHANGE IN THE METHOD OF VALUATION BY THE ASSESSING OFFICER WHICH HAS RESULTED IN THE DEMAND. THERE IS CERTAINLY NO I MMUNITY FROM SCRUTINY OF THE VALUATION REPORT SUBMITTED BY THE A SSESSEE. THEREFORE, THE ASSESSING OFFICER IS UNDOUBTEDLY ENT ITLED TO SCRUTINISE THE VALUATION REPORT AND DETERMINE A FRE SH VALUATION EITHER BY HIMSELF OR BY CALLING FOR A FINAL DETERMINATION FROM AN INDEPENDENT VALUER TO CONFRON T THE PETITIONER. HOWEVER, THE BASIS HAS TO BE THE DCF METHOD AND IT IS NOT OPEN TO HIM TO CHANGE THE METHOD OF VALUATION WHICH HAS BEE N OPTED FOR BY THE ASSESSEE. IF MR. MOHANTY IS CORRECT IN HIS SUBM ISSION THAT A PART OF DEMAND ARISING OUT OF THE ASSESSMENT ORDER DATED 21ST DECEMBER, 2017 WOULD ON ADOPTION OF DCF METHOD WILL BE SUSTAINED IN PART, THE SAME IS WITHOUT WORKING OUT THE FIGURES. THIS WAS AN EXERCISE WHICH OUGHT TO HAVE BEEN DONE BY TH E ASSESSING OFFICER AND THAT HAS NOT BEEN DONE BY HIM. IN FACT, HE HAS COMPLETELY DISREGARDED THE DCF METHOD FOR ARRIVING AT THE FAIR MARKET VALUE. THEREFORE, THE DEMAND IN THE FACTS NE ED TO BE STAYED.' 12. AS PER ABOVE PARA OF THIS JUDGMENT OF HON'BLE B OMBAY HIGH COURT, IT WAS HELD THAT THE AO CAN SCRUTINIZE THE V ALUATION REPORT AND HE CAN DETERMINE A FRESH VALUATION EITHER BY HI MSELF OR BY CALLRG A FINAL DETERMINATION FROM AN INDEPENDENT VA LUER TO CONFRONT THE ASESEE. BUT THE BASIS HAS TO BE DCF METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. HENCE, IN OUR CONSIDERED OPINION, IN THE PRESENT CASE, WHEN THE GUIDANCE OF HON'BLE BOMBAY HIGH COURT IS A VAILABLE, WE SHOULD FOLLOW THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN PREFERENCE TO VARIOUS TRIBUNAL ORDERS CITED BY BOTH SIDES AND THEREFORE, WE ARE NOT REQUIRED TO EXAMINE AND CONSI DER THESE TRIBUNAL ORDERS. RESPECTFULLY FOLLOWING THIS JUDGME NT OF HONBLE BOMBAY HIGH COURT, WE SET ASIDE THE ORDER OF CIT (A ) AND RESTORE ITA NO.316/BANG/2020 PAGE 8 OF 12 THE MATTER TO AO FOR A FRESH DECISION IN THE LIGHT OF THIS JUDGMENT OF HON'BLE BOMBAY HIGH COURT. THE AO SHOULD SCRUTINIZE THE VALUATION REPORT AND HE SHOULD DETERMINE A FRESH VALUATION EI THER BY HIMSELF OR BY CALLING A FINAL DETERMINATION FROM AN INDEPEN DENT VALUER AND CONFRONT THE SAME TO THE ASSESSEE. BUT THE BASIS HA S TO BE DCF METHOD AND HE CANNOT ITA NO. 2541/BANG/2019 ITA NO. 37/BANG/2020 S. P. NOS. 29 AND 59/BANG/2020 CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASS ESSEE. IN OUR CONSIDERED OPINION AND AS PER REPORT OF RESEARCH CO MMITTEE OF (ICAI) AS REPRODUCED ABOVE, MOST CRITICAL INPUT OF DCF MOD EL IS THE CASH FLOW PROJECTIONS. HENCE, THE ASSESSEE SHOULD BE ASK ED TO ESTABLISH THAT SUCH PROJECTIONS BY THE ASSESSEE BASED ON WHIC H, THE VALUATION REPORT IS PREPARED BY THE CHARTERED ACCOU NTANT IS ESTIMATED WITH REASONABLE CERTAINTY BY SHOWING THAT THIS IS A RELIABLE ESTIMATE ACHIEVABLE WITH REASONABLE CERTAI NTY ON THE BASIS OF FACTS AVAILABLE ON THE DATE OF VALUATION AND ACT UAL RESULT OF FUTURE CANNOT BE A BASIS OF SAYING THAT THE ESTIMATES OF T HE MANAGEMENT ARE NOT REASONABLE AND RELIABLE. 13. BEFORE PARTING, WE WANT TO OBSERVE THAT IN THE PRESENT CASE, PAST DATA ARE AVAILABLE AND HENCE, THE SAME CAN BE USED TO MAKE A RELIABLE FUTURE ESTIMATE BUT IN CASE OF A START UP WHERE NO PAST DATA IS AVAILABLE, THIS VIEW OF US THAT THE PROJECTION S HOULD BE ON THE BASIS OF RELIABLE FUTURE ESTIMATE SHOULD NOT BE INSISTED UPON BECAUSE IN THOSE CASES, THE PROJECTIONS MAY BE ON T HE BASIS OF EXPECTATIONS AND IN SUCH CASES, IT SHOULD BE SHOWN THAT SUCH EXPECTATIONS ARE REASONABLE AFTER CONSIDERING VARIO US MACRO AND MICRO ECONOMIC FACTORS AFFECTING THE BUSINESS. 14. IN NUTSHELL, OUR CONCLUSIONS ARE AS UNDER:- (1) THE AO CAN SCRUTINIZE THE VALUATION REPORT AND THE IF THE AO IS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, HE HAS TO RECORD THE REASONS AND BASIS FOR NOT ACCEPTING THE VALUATI ON REPORT SUBMITTED BY THE ASSESSEE AND ONLY THEREAFTER, HE C AN GO FOR OWN VALUATION OR TO OBTAIN THE FRESH VALUATION REPORT F ROM AN INDEPENDENT VALUER AND CONFRONT THE SAME TO THE ASS ESSEE. BUT THE BASIS HAS TO BE DOE METHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEEN OPTED BY THE ASSESSEE. (2) FOR SCRUTINIZING THE VALUATION REPORT, THE FACT S AND DATA AVAILABLE ON THE DATE OF VALUATION ONLY HAS TO BE C ONSIDERED AND ACTUAL RESULT OF FUTURE CANNOT BE A BASIS TO DECIDE ABOUT RELIABILITY OF THE PROJECTIONS. (3) THE PRIMARY ONUS TO PROVE THE CORRECTNESS OF TH E VALUATION REPORT IS ON THE ASSESSEE AS HE HAS SPECIAL KNOWLED GE AND HE IS PRIVY TO THE FACTS OF THE COMPANY AND ONLY HE HAS O PTED FOR THIS METHOD. HENCE, HE HAS TO SATISFY ABOUT THE CORRECTN ESS OF THE PROJECTIONS, DISCOUNTING FACTOR AND TERMINAL VALUE ETC. WITH THE HELP OF EMPIRICAL DATA OR INDUSTRY NORM IF ANY AND/OR SC IENTIFIC DATA, SCIENTIFIC METHOD, SCIENTIFIC STUDY AND APPLICABLE GUIDELINES REGARDING DCF METHOD OF VALUATION. ITA NO.316/BANG/2020 PAGE 9 OF 12 10. FROM THE PARAS REPRODUCED ABOVE, IT IS SEEN THA T IN THIS CASE, THE TRIBUNAL HAS FOLLOWED THE JUDGMENT OF HONBLE BO MBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA). THE TRIBUNAL HAS NOTED THAT AS PER THE JUD GMENT OF HONBLE BOMBAY HIGH COURT, IT WAS HELD THAT AO CAN SCRUTINI ZE THE VALUATION REPORT AND HE CAN DETERMINE A FRESH VALUA TION EITHER BY HIMSELF OR BY CALLING A DETERMINATION FROM AN INDEP ENDENT VALUER TO CONFRONT THE ASSESSEE BUT THE BASIS HAS TO BE DOE M ETHOD AND HE CANNOT CHANGE THE METHOD OF VALUATION WHICH HAS BEE N OPTED BY THE ASSESSEE. THE TRIBUNAL HAS FOLLOWED THE JUDGMEN T OF HONBLE BOMBAY HIGH COURT AND DISREGARDED VARIOUS OTHER TRI BUNAL ORDERS AGAINST THE ASSESSEE WHICH WERE AVAILABLE AT THAT P OINT OF TIME. IN THE PRESENT CASE ALSO, WE PREFER TO FOLLOW THE JUDG MENT OF HONBIE BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD., VS. PR. CIT (SUPRA) IN PREFERENCE TO THE JUDGMENT O F THE HONBLE KERALA HIGH COURT CITED BY DR OF THE REVENUE RENDER ED IN THE CASE OF SUNRISE ACADEMY OF MEDICAL SPECIALITIES (INDIA) (P.) LTD. VS. ITO (SUPRA) BECAUSE THIS IS SETTLED POSITION OF LAW BY NOW THAT IF TWO VIEWS ARE POSSIBLE THEN THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE ADOPTED AND WITH REGARD TO VARIOUS TRIBUNAL ORDE RS CITED BY LEARNED DR OF THE REVENUE WHICH ARE AGAINST THE ASS ESSEE WE HOLD THAT BECAUSE WE ARE FOLLOWING A JUDGMENT OF HONBL E BOMBAY HIGH COURT RENDERED IN THE CASE OF VODAFONE M-PESA LTD. VS PR. CIT (SUPRA), THESE TRIBUNAL ORDERS ARE NOT RELEVANT IN LE CASE OF INNOVITI PAYMENT SOLUTIONS PVT. LTD. VS. ITO (SUPRA). THIS J UDGMENT OF HONBLE BOMBAY HIGH COURT WAS FOLLOWED AND THE MATTER WAS R ESTORED BACK TO THE FILE OF AO FOR A FRESH DECISION WITH A DIRECTION THAT AO SHOULD FOLLOW DCF METHOD ONLY AND HE CANNOT CHANGE THE METHOD OPTED BY THE ASSESSEE AS HAS BEEN HELD BY THE HONBL E BOMBAY HIGH COURT. THE RELEVANT PARAS OF THIS TRIBUNAL ORD ER ARE ALREADY REPRODUCED ABOVE WHICH CONTAIN THE DIRECTIONS GIVEN BY THE TRIBUNAL TO THE AD IN THAT CASE. IN THE PRESENT CAS E ALSO, WE DECIDE THIS ISSUE ON SIMILAR LINE AND RESTORE THE MATTER B ACK TO THE FILE OF AO FOR A FRESH DECISION WITH SIMILAR DIRECTIONS. AC CORDINGLY, GROUND NO.3 OF THE ASSESSEE'S APPEAL IS ALLOWED FOR STATIS TICAL PURPOSES. 18. FROM THE ABOVE OBSERVATIONS, UNDER RULE 11UA AS SESSEE HAS OPTION TO DETERMINE FAIR MARKET VALUE BEING NAV METHOD OR DCF METHOD. AS PER OBSERVATION OF HONBLE BOMBAY HI GH COURT IN CASE OF VODAFONE M-PESA (SUPRA). IF ASSESSEE DETE RMINES THE FAIR MARKET VALUE IN ANY ONE METHOD AS PRESCRIBED U NDER RULE 11UA, THE ASSESSING OFFICER CAN NOT DISPUTE THE MET HOD SO ADOPTED. ITA NO.316/BANG/2020 PAGE 10 OF 12 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 . 19. WE THEREFORE, REMAND THIS ISSUE BACK TO LD.AO F OR SCRUTINISING VALUATION REPORT FILED BY ASSESSEE BY FOLLOWING DCF METHOD EITHER BY HIMSELF OR BY CALLING A DETERMINAT ION FROM AN INDEPENDENT VALUER AND TO CONFRONT THE SAME WITH AS SESSEE. 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 REPOR T BASED ON DOCUMENTS/EVIDENCES. ASSESSEE HAS TO SATISFY THE CO RRECTNESS OF THE PROJECTION OF DISCOUNTING FACTOR WITH THE HE LP OF EMPIRICAL DATA OR INDUSTRY NORM. 20. ACCORDINGLY, THE ISSUE IS REMANDED TO LD.AO FOR DECIDING IT AFRESH BY AFFORDING PROPER OPPORTUNITY OF BEING HEARD TO ASSESSEE IN ACCORDANCE WITH LAW. IN THE RESULT APPEAL FILED BY ASSESSEE STANDS ALLOW ED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND NOV, 2020. (A.K GARODIA) (BEENA PILLAI) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 2 ND NOV, 2020. /VMS/ ITA NO.316/BANG/2020 PAGE 11 OF 12 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, ITAT, BANGALORE
