INCOME TAX ACT, 1961

Section 56(2)(viib) Section 11UA(2)(b)

Income from other sources - Addition under section 56(2)(viib) - Issuance of shares - AO changed the method of valuation as adopted by assessee so as to arrive at FMV

AO made addition under section 56(2)(viib) on allegation that value of shares issued by assessee-company exceeded the fair market value per share, while doing so, AO adopted FMV method rejecting DCF method adopted by assessee. Held: Provisions of rule 11UA(2)(b) of the Rules provides that, the assessee can adopt the fair market value as per the above two methods, i.e., either DCF method or fair market value of the unquoted equity shares determined by a merchant banker. The choice of method is that of assessee. Primary onus to prove the correctness of the Valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Thus, assessee has to satisfy about the correctness of the 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. Thus, issue was remanded to AO for decision afresh, after due opportunity of hearing to assessee.

Followed:Vodafone M-Pesa Limited v. Pr. CIT & Ors. (2018) 164 DTR 257 (Bom) : 2018 TaxPub(DT) 1191 (Bom-HC), VBHC Value Homes (P) Ltd., M/s. VBHC Value Homes (P) Ltd. v. ITO [ITA No. 2541/Bang/2019 Order, dated 12-6-2020] : 2020 TaxPub(DT) 2581 (Bang-Trib).

REFERRED : Innoviti Payment Solutions (P) Ltd. v. ITO (2019) 102 Taxmann.com 59 (Bang) : 2019 TaxPub(DT) 791 (Bang-Trib), Rameshwaram Strong Glass (P) Ltd. v. ITO 2018 TaxPub(DT) 5780 (JP-Trib) and Agro Portfolio Private Ltd. v. ITO (2018) 171 ITD 74 (Del-Trib) : (2018) 94 Taxmann.com 112 (Del-Trib) : 2018 TaxPub(DT) 2615 (Del-Trib)

FAVOUR : Matter remanded.

A.Y. : 2013-14

SUBSCRIBE FOR FULL CONTENT