In a recent decision, the Himachal Pradesh High Court held that the Assessing Officer lacks jurisdiction to substitute the net asset value ( NAV ) method of assessing valuation of shares when assessee exercised the Discounted Cash Flow ( DCF ) valuation method.
In the assessment order, the valuation report furnished by the assessee-company was rejected by the Assessing Officer ( AO ), holding that the Discounted Cash Flow ( DCF ) valuation used by the assessee, is bogus and has no connection with the real figures.
The said order stated that the valuation was done with fictitious figures having no correlation with actual affairs of the assessee-company. Thereafter, the Assessing Officer, National Faceless Assessment Centre, computed the fair market value of the unquoted shares on the basis of balance sheet figures as per NAV method and passed his order.
When the challenge was raised before the Income Tax Appellate Tribunal ( ITAT ), it was held that the Assessing Officer was not correct in rejecting the DCF method and proceeding to value the shares by NAV method merely on the ground that there was a huge difference in projected figures and actual results available for some years. Challenging the ITAT order, the Revenue preferred appeal before the High Court.
A Division Bench of Chief Justice MS Ramachandra Rao and Justice Satyen Vaidya observed that “The orders passed by the Appellate Tribunal as well as the CIT(Appeals), are fairly comprehensive. Both of them have concurrently found that no consideration was received by the assessee-firm for allotment of the shares, therefore Section 56(2)(viib) of the Income Tax Act would not apply, and that it would have applied only if consideration was received for such a transaction.”
The Bench upheld the decision of the appellate tribunal and CIT(A) that the AO has no jurisdiction to substitute NAV method of assessing valuation of shares when assessee exercised DCF valuation method.
Subscribe Taxscan Premium to view the JudgmentSupport our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
