INCOME TAX ACT, 1961

Section 92C

Trensfer pricing - Arm's Length Price - ALP of the share price determined by TPO was lesser than the price determined by assessee -

Assessee-company redeemed some of the preference shares at a premium based on the valuation done the expert valuer by adopting the Net Asset Value (NAV) method. TPO accepted the method of valuation adopted by assessee, i.e., Net Asset Value method, but reworked redemption value based on book value of assets. TPO arrived at redemption value at Rs. 286.80 per share which resulted in an adjustment of Rs. 29,95,66,000 that arose out of difference between redemption value adopted by assessee and TPO. AO passed the final assessment order giving effect to TP adjustment. CIT(A) held that TP adjustment made by TPO determining the value at which preference shares should have been redeemed, could not be treated as income in the hands of assessee. However, since ALP of the share price determined by TPO was lesser than the price determined by assessee, CIT(A) proposed to make addition to the extent of same amount by treating it as deemed dividend under section 2(22)(e). Held: The method of valuation adopted as Net Asset Value was not disputed as TPO had also applied the same method and impugned addition has arisen only due to the value of land and building considered by TPO for arriving at Net Asset Value. Considering the guideline value of land and building for the purpose of valuation of preference shares under Net Asset Value method was right. Therefore, addition made by TPO computing the differential premium basis the book value of assets was not sustainable. Since, there could not be any addition made towards premium on redemption of the preference shares, addition made by CIT(A) considering the same as deemed dividend under section 2(22)(e) will not survive.

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 2(22)(d)

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