| |
| The Tax Publishers2020 TaxPub(DT) 3958 (Mad-HC) : (2020) 429 ITR 0069 : (2021) 276 TAXMAN 0330 INCOME TAX ACT, 1961
Section 56(2)(viib)
Where AO had discarded the DCF method adopted by assessee on the ground that actual revenue varied from the projected revenue for four years, Tribunal rightly noted that projected value was an estimate and variation in the estimate is marginal and merely because AO was of the view that NAV method alone had to be adopted was not a ground to reject the DCF method, further, AO did not point out any flaw in method of calculation of the value of shares by adopting the DCF method, therefore, appeal of Revenue was dismissed.
|
Income from other sources - Fair value for purposes of section 56(2)(viib) - Rejection of method adopted by assessee - No basis for such rejection
During the course of assessment, it was pointed out that assessee company had issued shares and was directed to explain the method of valuation to substantiate the share premium collected. Assessee submitted that the value of shares were done by adopting Discounted Free Cash Flow method as per the Report of Chartered Accountant. AO held that assessee was converted into a three-star category hotel during the assessment year 2013-14 and valuation done based on DCF method is by adopting the projections of future profits. This according to AO would not yield the true picture on date of valuation, as assessee had made only projection of revenue growth. Assessee had made excessive projection of revenue without any reasonable basis. Accordingly, AO held that NAV method was appropriate method, which should have been adopted for valuation of shares and assessed the same as per Section 56(2)(viib). Held: Merely because AO was of the view that NAV method alone had to be adopted was not a ground to reject the DCF method. Noting that AO had discarded the DCF method adopted by assessee on the ground that actual revenue varied from the projected revenue for four years, Tribunal rightly noted that projected value is an estimate and the variation in the estimate is marginal. There was no material to hold that assessee's projected sales revenues are fabricated or manipulated. As pointed out that AO did not point out any flaw in method of calculation of the value of shares by adopting the DCF method but, out rightly rejected the same, which should not have been done. Therefore, appeal of Revenue was dismissed.
REFERRED : CIT v. Vaani Estates Pvt. Ltd. [T.C.A.No.224 of 2018 dated 4-4-2019] : 2019 TaxPub(DT) 3779 (Mad-HC) and The Asstt. CIT v. VVA Hotels Pvt. Ltd., [ITA Nos.2013 & 2014/Chny/2018, dt. 26-3-2019].
FAVOUR : In assessee's favour.
A.Y. : 2013-14
 SUBSCRIBE FOR FULL CONTENT
|