The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has declared that the DCF method valuation report is valid as it provides the basis for the computation of projection and growth factors.
The appellant was represented by Sh. Ravi Kant Choudhary and the respondent were represented by Sh. R.K. Mehra.
The appeal filed the Revenue against the order dated 28.03.2018, impugned herein, passed by the Commissioner of Income-tax (Appeals)-4, New Delhi u/s. 250 of the Income-tax Act, 1961 ( Act) for the assessment year 2014-15.
The Assessee,HolisolLogistics P. Ltd adopted the DCF method based onthe report determining the fair market value by the accountant as per the discounted free cash flow method. While perusing the said report, the Assessing Officer observed that in the said report, the figures adopted for the F.Y. 2014-15 and 2015-16 do not match with the actual performance of the company andheld that there was a huge mismatch between the PAT adopted as per the report and the actual.
The premium to the extent of Rs.335.48/Rs.3224=0.10405×69808344=7264051 was allowed as per the book value and the balance being Rs.6,25,44,292/- was considered as the income of the Assessee under section 56(2)(viib) of the income tax act as per the explanation to the section which gives the power to the Assessing Officer to adopt the value after taking due substantiation from the company and added the said amount to the income of the Assessee. The Commissioner on appeal allowed the contention raised by the Assessee and deleted the addition in hand.
It was observed that the Assessee has adopted one of the methods available for valuing its shares under section 56(2)(viib) of the income tax Act, based on the valuation report certified by the Chartered Accountant, which was not only based upon scientific valuation and financial position for the next seven years in the normal market/business scenario but also prepared by the prescribed Rules as applicable thereto.
A Coram of Dr B R R Kumar, an accountant member and Shri N K Choudhry, a judicial member on that DCF analysis was an important tool or method to value a project and the statute itself gives an option to choose either of the two methods, i.e., ‘book value method’ or ‘discounted cash flow method’ to the Assessee for determining the value of its shares.
The Tribunal held that there was no infirmity in the valuation report, as the same was appropriate, detailed and provided the necessary basis for computation of projection and growth factors etc and dismissed the appeal filed by the revenue.
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