Valuation Report of Equity Shares prepared by Accountant is not Sacrosanct: ITAT upholds Revision Order [Read Order]

The Kolkata bench of the Income Tax Appellate Tribunal (ITAT) has recently held that a valuation report of equity shares prepared by an accountant is not sacrosanct. Hence the bench upheld the revision order.

Assessee SIS Prosegur Holdings Pvt. Ltd. filed the appeal against the revision order of the Principal Commissioner of Income Tax (PCIT).

The PCIT while examining assessment records found that the assessee during the year had issued 900000 equity shares of Rs.10/- at a premium of Rs.90/- per share totalling Rs.100/- per share.

The Assessing Officer has not examined the fair market value of the shares and there were discrepancies in the valuation record furnished by the accountant. Further PCIT found that provisions of section 56(2)(viib) of the Income Tax Act were applicable in the assessee’s case.

After considering the submission of the assessee the PCIT held that the assessment order passed by the Assessing Officer was erroneous so far as it was prejudicial to the interest of the revenue.

Hence the PCIT observed that the valuation of shares arrived at by the accountant as per DCF (Discounted Cash Flow Method) method at Rs.97/- per share relying on the arbitrary values, figures etc information provided by the management of the company and without independently verifying the accuracy or completeness of such information or seeking the views of third party/industry specialists for all such information provided, cannot be held to be correct market value.

Aggressive by the order, the assessee filed an appeal before the tribunal.

Nageswar Rao, counsel for the assessee submitted that the accountant has given valuation following the ICAI guidelines and following one of the recognised methods i.e. discounted cash flow method.

The valuer has given only future projections which due to certain factors may not actually give the projected results. That the valuation was an art and not an exact science and it was passed only on estimated future projections. That the Assessing Officer could not question the valuation undertaken by the company.

Rinku Singh, counsel for the revenue submitted that the Assessing Officer has jurisdiction to go into the correctness of the report of the valuer. For the valuation of shares has the option to choose for having a valuation done by an accountant by Discounted Cash Flow Method as provided in Rule 11UA(2) of the Income Tax Rules.

However, the valuation report prepared by the accountant is not sacrosanct and the Assessing Officer has the power to enquire and question the basic assessment made by the valuer.

Relied upon the decision of the Bombay High Court in the case of Vodafone M-Pesa Ltd. vs. PCIT the tribunal observed that “there is no immunity from the scrutiny of the valuation report submitted by the assessee and the Assessing Officer is undoubtedly entitled to scrutinize the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner”

Further, it was observed by the tribunal that PCIT has pointed out various discrepancies which the assessee has failed to rebut and however, the Assessing Officer did not make the required enquiries to go into the question of the valuation given by the accountant for the purpose of assessment of the income of the assessee as per the provisions of section 56(2)(viib) of the Income Tax Act.

Therefore the two-member bench of Sanjay Garg, (Judicial Member) and Girish Agrawal, (Accountant Member) held that the order of the Assessing Officer was erroneous and prejudicial to the interest of the revenue. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates