2018 (9) TMI 403 - ITAT JAIPUR

Valuation of the shares - valuation method provided in Rule 11UA(2)(a) - addition by rejecting the valuation done as per Discounted Cash Flow Method - The AO observed that the assessee raised loans from the above associate concerns and has converted them into shares application/premium money. - Held that:- there cannot be any scope of introduction of assessee’s unaccounted income through allotment of shares at unreasonably high priced shares. Therefore, such observations is not relevant and a mere suspicion.

It appears that the authorities below have ignored Explanation (a) below S. 56(2)(viib). The said Explanation provides that the fair market value of the shares shall be the value-(i) as may be determined in accordance with such method as may be prescribed i.e. u/r 11UA; or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher.

Accordingly, the value computed under the Rule at ₹ 95.90 per share is higher than ₹ 65.31 or ₹ 32.76 per share and therefore, the higher valuation has to be adopted. Moreover, it is only the Explanation (a)(ii) speaks of the satisfaction of the AO but there appears no such condition in the Explanation (a)(i) which therefore AO is not permitted to interfere in the valuation, once done in accordance with the method prescribed in the Rule 11UA(2). No justification behind rejecting the declared valuation of the shares and in the impugned addition made by the AO but partly sustained by the CIT(A), which is hereby deleted.- Appeal of the assessee is partly allowed