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| The Tax Publishers2020 TaxPub(DT) 3209 (Bang-Trib) : (2020) 185 ITD 0008 INCOME TAX ACT, 1961
Section 56(2)(viib)
Law provides assessee two choices of adopting either NAV method or DCF method for valuation of shares and, therefore, AO could not change DCF method adopted by assessee. Further, At the time of valuing shares actual results of the later years would not be available and valuation could be on the basis of estimates of future income contemplated at the point of time when valuation was made. If AO was not satisfied with estimation made by assessee, he could scrutinize valuation report and he could etermine a fresh valuation either by himself or by calling determination from an independent valuer to confront assessee
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Income from other sources - Addition under section 56(2)(viib) - Change in method - Valuation of AO
Assessee-company issued 6,15,088 equity shares of Rs. 10 each at a premium of Rs. 80 per share to six persons. AO proceeded to examine collection of share premium in terms of section 56(2)(viib). Assessee furnished a valuation certificate obtained from a Chartered Accountant in support of the price at which shares were issued. AO noticed that CA had adopted discounted cash flow method (DCF Method) for valuation of shares and valuation had been arrived on the basis of projected figures. Further, it was noticed that details of projected results had been furnished by management only and the basis of projections was also not given. Accordingly, AO rejected DCF method of valuation and held that share valuation had to be arrived on the basis of book value, i.e., Net Asset Value (NAV) method. Accordingly, AO made addition under section 56(2)(viib).Held: Law provides assessee two choices of adopting either NAV method or DCF method for valuation of shares. If assessee determines fair market value in a method as prescribed, AO does not have a choice to dispute the justification. At the time of valuing shares actual results of the later years would not be available. What is required for arriving at fair market value by following DCF method are the expected and projected revenues. Accordingly valuation was on the basis of estimates of future income contemplated at the point of time when valuation was made. AO could scrutinize valuation report and he could etermine a fresh valuation either by himself or by calling determination from an independent valuer to confront assessee but the basis had to be DCF method and he could not change the method of valuation opted by the assessee.
Followed:Futura Business Solutions Pvt. Ltd. [ITA No. 3404/Bang/2018] : 2020 TaxPub(DT) 2711 (Bang-Trib), VBHC Value Homes ITA No. 2541/Bang/2019 Order, dated 12-6-2020 : 2020 TaxPub(DT) 2581 (Bang-Trib) and Vodafore mPesa Ltd. v. Pr. CIT 164 DTR 257. Vodafore mPesa Ltd. v. Pr. CIT 164 DTR 257.
REFERRED :
FAVOUR : Matter remanded.
A.Y. : 2014-15
IN THE ITAT, BANGALORE BENCH
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