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The AO can scrutinize the valuation report and the if the AO is not satisfied with the explanation of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee and only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to the assessee. But the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee.

Shanti Prime Publication Pvt. Ltd.

Sec. 56(2)(viib) of Income Tax Act, 1961—Income from other sources— For correct valuation of shares, assessee has to satisfy about the correctness of the projections, Discounting factor and Terminal value etc. with the help of Empirical data or industry norm if any and/or Scientific Data, Scientific Method, Scientific study and applicable Guidelines regarding DCF Method of Valuation.

Facts: The only issue involved in the appeal is the action of the Assessing Officer in invoking provisions of section 56(2)(viib) and taxing the share premium received during the previous year as income of the Assessee. The question for consideration is as to what is the Fair Market Value of the shares that was issued.

Held, that issue with regard to valuation has to be decided afresh by the AO on the lines indicated in the decision of ITAT, Bangalore in the case of VBHC Value Homes Pvt.Ltd., Vs ITO i.e., (i) the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee. (ii) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Hence, he has to satisfy about the correctness of the projections, Discounting factor and Terminal value etc. with the help of Empirical data or industry norm if any and/or Scientific Data, Scientific Method, Scientific study and applicable Guidelines regarding DCF Method of Valuation. The order of CIT(A) is accordingly set aside for deciding the issue afresh after due opportunity of hearing to the Assessee. - FLUTURA BUSINESS SOLUTIONS PVT. LTD. V/s ITO - [2020] 26 ITCD Online 112 (ITAT-BANGALORE)

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