INCOME TAX ACT, 1961

Section 56(2)(viib)

Income from other sources - Transfer of property without consideration for inadequate consideration - Issuance of shares - Power of AO to discard assessee's method of valuation of shares

Assessee-company issued shares at premium basis for valuing the shares as adopted by the assessee was DCF (Discounted Cash Flow) method. AO discard the same and adopted NAV method for valuing shares. Accordingly, AO concluded that shares were issued at a price more than fair market value and amount received in excess of fair market value of shares would be taxed as income from other sources. In view of section 56(2)(viib). Held: As per rule 11UA (2), the assessee could opt for DCF method and assessee had so opted for DCF method, AO could not discard the same and adopt other method, i.e., NAV method of valuing shares. However, AO was well within his rights to examine the methodology adopted by assessee and/or underlying assumptions and if he was not satisfied, he could suggest necessary modifications/alternations on sound reasoning and rationale basis. Hence, assessee was directed to satisfy the AO about correctness of projections, discounting factor and terminal value, etc., with the help of Empirical data or industry norm, if any, and/or Scientific Data, Scientific Method, scientific study and applicable guidelines regarding DCF Method of Valuation.

Relied:Rameshwaram Strong Glass (P) Ltd. v. ITO, Ward 2 (1) , Ajmer in [ITA No. 884/JP/2016, dt. 12-7-2018], ITO v. Universal Polypack (India) (P) Ltd. ITA No. 609/JP/2017, dt. 31-1-2018 and Vodafone M-Pesa Ltd. v. Pr.CIT (20180) 164 DTr 257 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour (for statistical purposes).

A.Y. : 2014-15

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