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2024 (4) TMI 447 - AT - Income TaxAddition u/s 56(2)(viib) - closely held company issues its shares at a price which is more than its fair market value then the amount received in excess of fair market value of shares - CIT(A) rejecting the working of fair market value of shares at Rs. 36.76/- per share by AO and allowing the fair market value of shares at Rs. 185.92 per share as per DCF method by assessee thus deleted addition - HELD THAT:- There has to be some enabling provision under the rule or the Act where AO has been given a power to tinker with the valuation report obtained by an independent Valuer as per the qualification given in the rule 11U. Here, in this case, AO has tinkered with DCF methodology and rejected by comparing the projections with actual figures. The Rules provide for two valuation methodologies, one is assets based NAV method which is based on actual numbers as per latest audited financials of the assessee company. Whereas in a DCF method, the value is based on estimated future projection. These projections are based on various factors and projections made by the management and the Valuer, like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors. These factors are considered based on some reasonable approach and they cannot be evaluated purely based on arithmetical precision as value is always worked out based on approximation and catena of underline facts and assumptions. Nevertheless, at the time when valuation is made, it is based on reflections of the potential value of business at that particular time and also keeping in mind underline factors that may change over the period of time and thus, the value which is relevant today may not be relevant after certain period of time. From time to time various courts/Tribunals have held that as per section 56(2)(viib) r.w.R 11UA, the assessee has the option to do valuation of shares and determine FMV either on DCF Method or NAV method and AO cannot substitute his own value in place so determined. Similar issue came for consideration before case of Cinestaan Entertainment P. Ltd. [2021 (3) TMI 239 - DELHI HIGH COURT] where in held if law provides the assessee to get the valuation done from a prescribed expert as per the prescribed method, then the same cannot be rejected because neither the Assessing Officer nor the assessee have been recognized as expert under the law. Decided in favour of assessee.
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