INCOME TAX ACT, 1961

Section 56(2)(vii)(b)

Income from other sources - Issuance of shares at premium - AO changed method of valuation of shares as adopted by assessee relying on actual results in subsequent years -

Assessee issued shares a premium. In order to ascertain market value of shares, assessee adopted DCF method, as prescribed under rule 11UA read with section 56(2) and accordingly, shares were issued at a premium. According to AO, valuation report furnished by assessee was not realistic as projections shown by assessee in valuation report were not realistic and were not achieved in actuality in subsequent years. Accordingly, AO rejected valuation done by the assessee and calculated valuation of share as per rule 11UA(2)(a) and thus added back share premium received to the total income of assessee under section 56(2)(viib).Held: Section 56 allows assessees to adopt one of the methods of their choice. But AO in the instant case held that assessee should have adopted only one method for determining value of the shares. It was beyond the jurisdiction of AO to insist upon a particular system, especially when the Act allows to choose one of the two methods. Accordingly, AO could not change the method adopted by assessee for valuing market value of shares addition was deleted.

Relied:Taparia Tools Ltd. v. Jt. CIT (2015) 372 ITR 605 (SC) : 2015 TaxPub(DT) 1438 (SC), Vodafone M-Pesa Ltd. v. Pr. CIT & Ors. (2018) 92 Taxmann.com 73 (Bom) : 2018 TaxPub(DT) 1191 (Bom-HC) and Dy. CIT v. Ozoneland Agro (P) Ltd. [ITA No. 4854/Mum/2016 Assessment Year 2013-14, dated 2-5-2018] : 2018 TaxPub(DT) 2488 (Mum-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

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