INCOME TAX ACT, 1961

Section 56(2)(viib)

Income from undisclosed sources - Addition under section 56(2)(viib) - Issuance of shares at more than fair value - AO rejected DCF method of valuation on the ground of projected results not matching with actual results

AO made addition under section 56(2)(viib). Assessee-company issued equity shares at a price more than fair market value of shares. Assessee submitted valuation report as per discounted cash flow (DCF) method substantiating its fair market value of equity share. However, AO rejected valuation report furnished by assessee on the ground that year-wise results projected were far from the actual results declared in final accounts. Held: Clause (b) of rule 11UA(2) refers to DCF method as supported by valuation report of a merchant banker or a Chartered Acountant. In the instant case, assessee had opted for clause (b) of rule 11U(2) by applying DCF method and obtained valuation report from a Chartered Accountant thereby fulfilling both the requirements of such specific rule on the other hand, AO was not able to pinpoint any specific inaccuracies or shortcomings in DCF valuation report of Chartered Accountant/Valuer other than stating that year- wise results as projected were not matching with actual results declared in the final accounts. However, such rejection was unjustified as valuation report required under rule 11UA is based on future aspects of the company at the time of issuing shares, it may vary from actual figures depending on market condition at the point of time. Accordingly, addition made by AO was deleted.

Supported by:Cinestaan Entertainment Pvt. Ltd. (2019) 177 ITD 809 (Del-Trib) : 2019 TaxPub(DT) 4550 (Del-Trib).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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