AO’s Power is limited to Overlook Fairness of Share Valuation Report, not to change Valuation Method Adopted: ITAT [Read Order]

In a recent ruling the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) ruled that the Assessing Officer’s power is limited to overlook fairness and reasonableness of share valuation report, not to change valuation method adopted.

Briefly stated, the assessee filed return of income for Assessment Year 2015-16 in question, declaring total loss of Rs.1,30,40,430/-. The return filed by the assessee was subjected to scrutiny assessment. The AO in the course of the scrutiny assessment observed that the assessee company in the year under consideration has allotted 9223 number of equity shares of Rs.10/- each at a premium of Rs.4435.76/- per share amounting to Rs.4,09,11,014/- to M/s. Sun Edison Solar Power India Pvt. Ltd.

Mr. Vivek Kumar Upadhyay representing the revenue relied upon the action of the AO and submitted that by no stretch of imagination such a huge premium on issue of share can be justified more so when the assessee is a loss making company.

The DR submitted that once the case of the assessee falls within the four corners of a deeming provision, such provision requires to be strictly construed and there is no scope for deviating from legal position enunciated in the provisions of the Act. The DR thus sought cancellation of the order of the CIT(A) and restoration of the additions made by the Assessing Officer.

On the other hand, the counsel for the assessee, Mr. Pawan Chakrapani submitted at the outset that the valuation of shares as per DCF Method has been backed by valuation report. Besides, the shares have allotted to the holding company existing shareholders and not to an outsider and therefore, it does not make any difference to a shareholder in bringing money to its subsidiary company at premium or at cost when seen holistically

 The two member bench consisting Kul Bharat ( Judicial member ) and Pradip Kumar Kediya ( Accountant member ) observed that the AO cannot change the method of valuation of shares adopted by the assessees and the projected figures cannot be compared blindly with the actuals to state that the valuation report is not correct.

Further added that the AO is competent and within his powers to look into the fact whether the valuation report is fair and reasonable. In the present case, the AO has not found any specific error in the valuation report. The valuer is bound to give disclaimers as the valuer cannot be expected to determine the exact value as the same was not feasible.

Accordingly, the addition made by the AO was deleted and the grounds of appeal are allowed.

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