The Tax Publishers2020 TaxPub(DT) 4365 (Jp-Trib) : (2020) 208 TTJ 0787

INCOME TAX ACT, 1961

Section 56(2)(viib)

When law has specifically provided a method of valuation of shares and assessee exercised an option by choosing a particular method (DCF here), changing the method, i.e., NAV method would be beyond the powers of AO as AO was not an expert. If AO found working of CA or assumptions made as erroneous or contradictory, he could suggest necessary modification and alterations but it was not open for AO to challenge or change the method of valuation, once opted by the assessee and to modify the figures as per his own whims and fancies. Accordingly, addition made under section 56(2)(viib) was deleted.

Income from other sources - Valuation of shares for a consideration more than FMV - AO changed the method of valuation adopted by assessee -

Assessee-company issued shares at premium. AO rejected DCF method applied by assessee for valuation of shares. The sole controversy was around the value of the land being the asset of the assessee company which was acquired by assessee at Rs. 1,30,00,000 and shown in Balance Sheet at cost price, whereas the Registered Valuer has adopted the fair market value of the said land as on the date of issue of the shares at Rs. 2,93,00,000. Thus, AO after applying NAV method of valuation, AO made addition under section 56(2)(viib). Held: Pertinent to note that for the purpose of fair market value of shares, has to be determined in accordance with methods prescribed under rule 11UA. AO wanted to impose upon the method of valuation of his own choice, completely disregarding legislative intent which has given an option to assessee to choose any one of the two methods of valuation of his choice. When law has specifically provided a method of valuation and assessee exercised an option by choosing a particular method (DCF here), changing the method, i.e., NAV method would be beyond the powers of AO as AO was not an expert. If AO found working of CA or assumptions made as erroneous or contradictory, he could suggest necessary modification and alterations but it was not open for AO to challenge or change the method of valuation, once opted by the assessee and to modify the figures as per his own whims and fancies. Accordingly, addition made under section 56(2)(viib) was deleted.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15



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