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| The Tax Publishers2021 TaxPub(DT) 0020 (Del-Trib) INCOME TAX ACT, 1961
Section 56(2)(viib)
Rule 11UA clearly provides an option to assessee to estimate FMV by applying either 'Net Assets Value' (NAV) Method or 'Discounted Cash Flow'(DCF) Method. In the instant case, assessee exercising this option had chosen DCF method. Under DCF, valuation of shares is basically estimated taking into consideration the future anticipated revenues and profits. The method once adopted thus cannot be changed. Under DCF, the information to be considered should be as on date of valuation. Accordingly, AO erred in comparing estimated projections with the actual audited revenues and, therefore, issue was set aside to AO for de novo examination of DCF valuation adopted by assessee as per law.
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Income from other sources - Addition under section 56(2)(viib) - Issuance of shares at premium - AO rejected DCF method adopted by assessee
Assessee-company issued shares at premium valuding shares as per estimated projections under DCF method. AO adopted NAV method and thus made addition under section 56(2)(viib). Held: From plain reading of rule 11UA, it is clear that it provides an option to assessee to estimate FMV by applying either 'Net Assets Value' (NAV) Method or 'Discounted Cash Flow' (DCF) Method. In the instant case assessee exercising this option had chosen DCF method. Under DCF, valuation of shares is basically estimated taking into consideration the future anticipated revenues and profits. These projections are then discounted to arrive at the present value of the business. Section 56(2)(viib) is a deeming provision and one cannot expand the meaning of scope of any word while interpreting such deeming provision. If statute provides that the valuation has to be done as per the prescribed method and if one of prescribed methods has been adopted by the assessee, then AO has to confine to the choice made by the assessee. The method once adopted thus cannot be changed. Under DCF, the information to be considered should be as on date of valuation. Accordingly, AO erred in comparing estimated projections with the actual audited revenues and, therefore, issue was set aside to AO for de novo examination of DCF valuation adopted by assessee as per law.
Followed:VBHC Value Homes (P) Ltd. v. ITO ITA No. 2541 & 37/Bang/2019 : 2020 TaxPub(DT) 2581 (Bang-Trib) and Innoviti Payment Solutions (P) Ltd. v. ITO (2019) 102 Taxmann.com 59 (Bang-Trib) : 2019 TaxPub(DT) 791 (Bang-Trib).
REFERRED :
FAVOUR : Matter remanded.
A.Y. : 2014-15
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