| The Tax Publishers2020 TaxPub(DT) 0435 (Mum-Trib) : (2020) 181 ITD 0242 INCOME TAX ACT, 1961
Section 56(2)(viib) Rule 11UA
As per rule 11UA assessee had option to select valuation method, i.e., based on net asset or based on DCF method and assessee could can adopt higher of the two value arrived based on the above said two methods and, therefore, CIT(A) rightly rejected contention of AO to value the shares based only on net asset method, however, CIT(A) was trying to evaluate accuracy of valuation at the time of assessment, this was not proper and also factuals were based on so many factors subsequent to adoption of projection and valuation. Accordingly, the way adopted by CIT(A) was not proper and valuation report submitted by assessee deserved acceptance.
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Income from other sources - Addition under section 56(2)(viib) - Valuation of shares issued by assessee - AO insisting for only NAV method to be adopted rejecting DCF method applied by assessee--CIT(A) accepted DCF valuation only to the extent of actual performance in subsequent years
Assessee company issued 10,12,14,568 shares of face value of Rs. 10 each at a premium of Rs. 14.70 per share, accordingly received share premium of Rs. 148,78,54,000. AO required proceedings assessee to furnish working of premium and valuation report in respect of the intrinsic value of shares. Assessee furnished valuation report from Ernst & Young Merchant Banking Services Pvt. Ltd. AO noticed that in valuation report, valuer had relied on company specific information with respect to various projections up to March 2024 and this information was provided to Valuer by the Management of assessee. Thus, AO took the view that valuer had not independently valued prospects of assessee company and had merely relied on the information supplied by assessee company. Accordinlgy, AO himself calculated valuation of shares based on net assets value and determined value at Rs. 4.15 per share and amount received by assessee over and above net assets value was treated as excess income liable for section 56(2)(viib) addition. CIT(A) accepted contentions of assessee with regard to valuation of shares based on fair market value on the basis section 56(2)(viib) read with rule 11UA but rejected valuation report submitted by assessee as erroneous by adopting DCF method, but accepted DCF valuation only to the extent of actual performance in subsequent years and accordingly, partly allowed ground raised by assessee. Held: As per rule 11UA assessee had option to select valuation method, i.e., based on net asset or based on DCF method and assessee could can adopt higher of the two value arrived based on the above said two methods and, therefore, CIT(A) rightly rejected contention of AO to value the shares based only on net asset method, however, CIT(A) was trying to evaluate accuracy of valuation at the time of assessment, this was not proper and also factuals were based on so many factors subsequent to adoption of projection and valuation. Accordingly, the way adopted by CIT(A) was not proper and valuation report submitted by assessee deserved acceptance.
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