ACIT Vs Cinestaan Entertainment Pvt. Ltd. (ITAT Delhi)
ITAT Upholds DCF Share Valuation Because Actual Results Cannot Override Future Projections; Revenue Cannot Question Commercial Wisdom of Investors in Share Premium Cases; ITAT Rejects Section 56(2)(viib) Addition Due to Accepted DCF Valuation Method; ITAT Says Assessing Officer Cannot Substitute Own Share Valuation Without Statutory Power.
The ITAT Delhi dismissed the Revenue’s appeal against deletion of an addition of Rs.39.98 crore made under Section 56(2)(viib) of the Income Tax Act in relation to share premium received by the assessee company during AY 2016-17.
The assessee had issued equity shares at substantial premium to investors including Rakesh Jhunjhunwala and Derive Investments represented by Radhakishan Damani under a joint investment agreement executed in February 2015. The investment agreement contemplated phased investments aggregating to Rs.50 crore, with shares to be issued in tranches. For valuation of shares, the assessee relied on a valuation report dated 15.12.2014 prepared under Rule 11UA using the Discounted Cash Flow (DCF) method.
The Assessing Officer held that no fresh valuation report had been obtained during the relevant financial year and therefore invoked Section 56(2)(viib), treating the fair market value of the shares at face value and adding the entire share premium received. The AO also questioned the projections adopted in the DCF valuation by comparing projected revenues with actual financial performance in subsequent years.
