INCOME TAX ACT, 1961

Section 56(2)(viib) Rule 11UA(2)(c)(b)

Income from other sources - Addition under section 56(2)(viib) - AO, whether competent to compel assessee to change valuation method from Discounted cash flow (DCF) method to another book value method -

Issue was as regards addition of Rs. 14,43,200, made under section 56(2)(viib). Assessee issued 80,000 numbers of shares at a face value of Rs. 10 and at a premium of Rs. 40 per share. AO alleged that fair market value of shares was not in accordance with Rule 11UA(a)(c)(b). Therefore, AO calculated fair market value of shares under rule 11UA at Rs. 31.96 per share and treated differential amount above fair market value as income of assessee under section 56(2)(viib). Held: In instant case, value adopted and computed by assessee as per rule 11UA(2)(c)(b) by following discounted cash flow (DCF) method at Rs. 51/85 and assessee-company received shares and issued/allotted @ Rs. 50 per share including premium and this rate was not contested or challenged by AO. AO merely compelled assessee to change valuation method from DCF method to another book value method, which was not permissible as per rule 11UA(2)(c)(b). Explanation (a)(ii) to section 56(2)(viib), speaks about satisfaction of AO but there is no condition in Explanation (a)(i) that AO is not permitted to interfere with valuation once done in accordance with the method prescribed in rule 11UA(2)(c)(b).

Followed:M/s. Rameshwaram Strong Glass (P) Ltd. v. ITO [ITA No.884/JP/2016 for assessment year 2013-14 Order, dated 12-7-2018] : 2018 TaxPub(DT) 5780 (Jp-Trib)

REFERRED : Vodafone M-Pesa Limited v. PCIT & Others (2018) 92 Taxmann.com 73 (Bombay) : 2018 TaxPub(DT) 1191 (Bom-HC)

FAVOUR : In assessee's favour

A.Y. :

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