|The Tax Publishers2020 TaxPub(DT) 4171 (Bang-Trib)
INCOME TAX ACT, 1961
Rule 11UA(2)(b) provides assessee two choices of adopting either NAV method or DCF method for valuation of shares, accordingly, AO was not justified to adopt NAV method rejecting DLF method adopted by assessee. Accordingly, AO was directed to examine the issue afresh.
Income from other sources - Issuance of shares at premium - Addition under section 56(2)(viib) - AO rejected DCF method of share valuation as adopted by assessee, and proceeded on NAV method
Assessee-company issued shares @ Rs. 632 per share, which included share premium of Rs. 622 per share. AO took the view that share valuation under DCF method was carried out on the basis of projections and estimations given by management and accordingly, held that value of share @ Rs. 632 per share was an inflated value and value of share was to be based on 'Net Asset Method' mentioned in rule 11UA. Accordingly, AO worked out value of shares at Rs. 75 per share under Net Asset Method. Accordingly, AO assessed excess share premium as income of assessee under the head 'Income from other sources' under section 56(2)(viib). Held: Rule 11UA(2)(b) provides assessee two choices of adopting either NAV method or DCF method. If assessee determines fair market value in a method as prescribed, AO does not have a choice to dispute justification. In the instant case, AO proceeded to determine value of shares in both the years by adopting different method without scrutinizing valuation report furnished by assessee under DCF method. AO erred in considering actual of revenue and profits declared in the future years as a basis to dispute projections. At the time of valuing shares, actual results of later years would not be available. What is required for arriving at the fair market value by following the DCF method are expected and projected revenues. Accordingly, AO was directed to examine the issue afresh.
FAVOUR : Matter remanded.
A.Y. : 2015-16 & 2016-17
IN THE ITAT, BANGALORE BENCH
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