Selection of option of Discounted Free Cash Flow method for valuation of shares

IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES ‘B’ JAIPUR

BEFORE: SHRI SANDEEP GOSAIN, JM & SHRI VIKRAM SINGH YADAV, AM

ITA No. 11/JP/2021

Assessment Year :2016-17

Vinayaka Microns (India) Private
Ltd., 385-386 Vinayaka Sendra
Road, Sainath Nagar, Gram
Thikrana Rajasthan

vs

Pr. Commissioner of
Income Tax, Udaipur

Assessee by : Sh. Sanjeev Jain (CA)

Revenue by : Sh. B. K. Gupta (Pr. CIT)

Date of Hearing : 21/10/2021

Date of Pronouncement: 01/11/2021

ORDER

This is an appeal filed by the assessee against the order of ld. PCIT, Udaipur dated 01.02.2021 wherein the assessee has raised the following grounds of appeal.

2. During the course of hearing, the ld A/R submitted that the assessee has filed it’s return of income for the assessment year 2016-17 declaring total income of Rs. 49.98 Lakhs. It was submitted that during the year under consideration, the assessee company had issued 59,500 equity shares of face value of Rs. 100/- at a premium of Rs. 100/-. The Fair Market Value of the shares was Rs. 250/- as per Discounted Free Cash Flow method, which was opted by the assessee as provided in Rule 11UA(2)(b) of the Income Tax Rules, 1962. The Valuation Report was obtained by the assessee from a Chartered Accountant in practice as prescribed in the Rules existing at that time. However the assessee company issued shares @ Rs. 200/- only i.e. less that the Fair Market Value thus determined. The case of the assessee was selected for scrutiny for verification of issue of share premium. The assessee filed valuation report and relevant documents alongwith detailed submission regarding selection of option of Discounted Free Cash Flow method for valuation of shares at the time of scrutiny assessment which is available on the record of the A.O. After detailed verification, returned income of the assessee was accepted without making any addition / disallowances.

3. The assessment order u/s 143(3) of the I.T. Act for the A.Y 2016-17 dated 29.11.2018 was passed by the Assessing Officer in this case, without making proper enquiries or doing any verification of the issue of Large share premium received by the assessee company during the year and the applicability of 56(2)(viib) as discussed in preceding paras. Hence, assessment order u/s 143(3) of the I.T. Act for the A.Y 2016-17 dated 29.11.2018 has thus been rendered erroneous and prejudicial to interest of Revenue on the issue of non-verification of Large share premium received by the assessee company during the year and the applicability of 56(2)(viib). The same is therefore set-aside/cancelled and restored back to the file of AO on this issue with the direction to pass fresh assessment order after conducting proper verification and enquiries on this issue and make necessary addition in accordance with the provisions of I.T. Act 1961. However, an opportunity of being heard should be given to the assessee before passing the order.

4. In light of aforesaid decisions and in the entirety of facts and circumstances of the case, we set-aside the order passed by the ld PCIT u/s 263 and the order passed by the AO is hereby sustained. In the result, the appeal of the assessee is allowed.
Order pronounced in the open Court on 01/11/2021.

Please find attached the enclosed file for the full judgement