Share valuation report duly accepted by AO couldn’t be by tinkered with by CIT(A): ITAT

[2019] 104 taxmann.com 385 (Delhi – Trib.)

IT: Where assessee allotted shares of a company held by it on premium and substantiated valuation of shares to satisfaction of Assessing Officer that same was on basis of valuation report provided by valuer of said company whose shares were held by it wherein valuer had applied Discounted Cash Flow (DCF) method and said report was certified by an independent Chartered Accountant and Assessing Officer accepted such valuation, Commissioner (Appeals) was unjustified in rejecting impugned valuation or valuation method

Section 56 of the Income-tax Act, 1961 read with rule 11U and 11UA of the Income-tax Rules, 1962 – Income from other sources – Chargeable as (Share premium) – Assessment years 2013-14 and 2014-15 – Whether Explanation (a) to section 56(2)(viib) provides for determination of value of shares in either of following two manner; firstly, it may be determined in accordance with method prescribed, i.e., rules 11U and 11UA; or secondly, company substantiates valuation of shares to satisfaction of Assessing Officer based on value on date of issuance of shares – Held, yes – Whether when Assessing Officer has accepted valuation method which was also based on several precedence on date of issuance of shares, then Commissioner (Appeals) cannot acquire jurisdiction to tinker with such a valuation or valuation method – Held, yes – Assessee-company issued shares of company MTNPL held by it to one, MM on face value of Rs. 10 and premium of Rs. 20 per share – Assessee substantiated that valuation of shares was done on basis of valuation report provided by valuer of MTNPL, wherein, valuer had applied Discount Cash Flow (DCF) method and said valuation report was certified by independent Chartered Accountant – Assessing Officer did not tinker with such valuation and accepted same – Whether since assessee had substantiated valuation of shares to satisfaction of Assessing Officer and, further, shares were issued at much lesser amount than FMV of shares, Commissioner (Appeals) could not reject impugned valuation or valuation method simply on ground that report so furnished by assessee was not as per prescribed rules 11U and 11UA – Held, yes – Whether, therefore, Commissioner (Appeals) was unjustified in reducing value of shares – Held, yes

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