INCOME TAX RULES, 1963

Rule 46A

Appeal [CIT(A)] - Issue as regards addition made by AO for excess amount of share premium received on allotment of equity shares - CIT(A) did not confront material that was placed before him to substantiate the valuation under the DCF method adopted by assessee -

AO made addition under section 56(2)(vii), for excess amount of share premium received on allotment of equity shares. According to assessee, DCF method was a permitted method of valuation in terms of rule 11UA(2)(b) of the IT Rules, 1962 (Rules) read with section 56(2)(viib). AO rejected valuation report prepared as per DCF method and proceeded to value shares as per book value method and treated difference between FMV and premium received as income chargeable to tax under section 56(2)(viib). CIT(A) deleted addition made by AO. Held: It was agreed by both parties that there was a violation of rule 46A, in as much as the CIT(A) did not confront material that was placed before him to substantiate the valuation under the DCF method adopted by assessee in its report of valuation. Assessee, however, submitted that what was filed before CIT(A) was only financial statements to substantiate valuation as made by assessee. When basis of conclusion of CIT(A) was financial statements filed by assessee before him, it was incumbent upon CIT(A) to have confronted the material filed before him to AO with the mandate of rule 46A. Since there was a violation of rule 46A, issue was remanded back to CIT(A) for fresh consideration after affording opportunity to AO.

REFERRED : Vodafone M-Pesa Ltd. v. Pr.CIT & 6 Ors. (2018) 256 Taxmann 240 (Bom) : 2018 TaxPub(DT) 1191 (Bom-HC) and VBHC Value Homes Pvt. Ltd. v. ITO [ITA No. 2541/Bang/2019, Order, dated 12-6-2020] : 2020 TaxPub(DT) 2581 (Bang-Trib).

FAVOUR : Matter remanded.

A.Y. : 2016-17

SUBSCRIBE FOR FULL CONTENT