INCOME TAX ACT, 1961

Section 56(2)(viib)

Income from other sources - Addition under section 56(2)(viib) - Revenue alleged that consideration received for allotment of shares exceeded fair market value -

AO made addition under section 56(2)(viib) in respect of equity and preference shares allotted by assessee-company to various residents at a premium of Rs. 800 per share on the ground that the consideration received by the assessee for allotment of those shares exceeded the fair market value of the shares. Assessee submitted that it allotted equity as well as preference shares having a face value of Rs. 100 per share at a premium of Rs. 800 per share, which was fixed on the basis of the valuation report of a CA who adopted Discounted Cash Flow (DCF) method for valuation of the shares. However, the AO rejected the valuation report as submitted by the assessee and adopted the fair market value of the shares at NIL by applying Net Asset Value (NAV) method. Held: In view of Tribunal decision in the case M/s. VBHC Value Homes (P) Ltd., v. ACIT in ITA No. 2541/Bang/2019, dated 12-6-2020, AO can scrutinize the valuation report and he can determine a fresh valuation of shares either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. Accordingly, the matter was remanded to the AO for a fresh decision with some directions that the AO should follow DCF method only and he could not change the method opted by the assessee.

Followed:M/s. VBHC Value Homes (P) Ltd., v. ACIT in ITA No. 2541/Bang/2019, dated 12-6-2020

REFERRED : Vodafone M-Pesa Ltd. v. PCIT (164 DTR 257)

FAVOUR : Matter remanded

A.Y. : 2015-16

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