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This appeal is preferred by the assessee against order dated 27.11.2018 passed by the Learned Commissioner of Income Tax (Appeals)-7, New Delhi {CIT (A)} for Assessment Year 2015-16.

Rockland Diagnostics Services Pvt. Ltd. vs. ITO 2.0 The brief facts of the case are that the assessee company is engaged in the business of setting up, operating and managing diagnostic centers and clinical pathology testing services, etc. The return of income for the relevant Assessment Year was filed declaring income at Rs. Nil. The return was initially processed u/s 143(1) of the Income Tax Act, 1961 (hereinafter called 'the Act') and was later selected under the limited scrutiny to examine Large Share Premium received during the year. (Verifying applicability of Section 56(2)(viib)). The assessment was completed at an income of Rs.1,11,91,703/- after making addition of Rs.1,07,82,453/- u/s 56(2)(b)(viib) of the Act and making another disallowance of Rs.4,09,250/- on account of disallowance of ROC fees paid by the assessee company.

Rockland Diagnostics Services Pvt. Ltd. vs. ITO 3.7 With reference to the disallowance of the ROC Fees, the Ld. AR submitted that the assessee had amortised the same as per law.

4.0 In response, the Ld. SR. DR placed reliance on the observations and findings of the Ld. CIT (A) and submitted that the Ld. CIT (A) has made a categorical observation that the valuation report was prepared by a Chartered Accountant on the basis of the data provided by the management of the company who had not gone into the accuracy of the information relied upon in his report and that the Chartered Accountant had not made any independent investigation, examination, analysis, etc on the reliability of the data provided by the management of the company as was evident from the disclaimer certificate by the Chartered Accountant in the valuation report.

4.1 With respect to the disallowance of ROC fees, the Ld. Sr. DR placed reliance on the observations of the Assessing Officer.

Rockland Diagnostics Services Pvt. Ltd. vs. ITO 5.0 We have heard the rival submissions and have also perused the material on record. So far as the issue of addition of Rs.1,07,82,453/- is concerned, it is seen that the Assessing Officer has disregarded the valuation report mainly on the ground that valuation of equity shares was based on projection of revenue which did not match with the actual revenue during the subsequent years. In addition, the Assessing Officer has also adopted the Fair Market Value of the shares at Rs.10/- being the price paid by the Rockland Hospital Limited to acquire shares of erstwhile shareholders in the month of November, 2014. Apparently, the Assessing Officer has proceeded on mere assumptions and surmises while disregarding the valuation report submitted by the assessee. The assessee has applied the DCF method for the purposes of valuation of shares and has relied on the valuation report of the Chartered Accountant in this regard. There is settled law on the issue that as per Sec. 56(2)(viib) of the Act read with Rule-11 UA of the Income tax Rules, 1962, every assessee has an option to do valuation of shares and determine its Fair Market Value either by DCF method or NAV method, and that the Rockland Diagnostics Services Pvt. Ltd. vs. ITO Assessing Officer cannot examine or substitute his own value in place of the value so determined. The ITAT Delhi Bench in the case of Cinestaan Entertainment (P.) Ltd. vs. ITO, reported in [2019] 106 taxmann.com 300 (Delhi Tribunal), has held as under:

5.3 As far as the issue of disallowance of ROC fees is concerned, it is settled law that ROC fees paid are to be considered as preliminarily expenditure within the meaning of Section 35D of the Act. The same is directed accordingly. Accordingly, this ground stands allowed.

6.0 In the final result, the appeal of the assessee stands allowed.

Order pronounced on 25th February, 2021.

            Sd/-                                 Sd/-
   (N.K. BILLAIYA)                  (SUDHANSHU SRIVASTAVA)
ACCOUNTANT MEMBER                      JUDICIAL MEMBER
Dated: 25/02/2021
PK/Ps