Geomysore Services (India) Private Limited Vs ITO (ITAT Delhi)
The Income Tax Appellate Tribunal (ITAT) disposed of two appeals filed by the assessee for Assessment Years 2017-18 and 2018-19 involving additions made under Section 56(2)(viib) of the Income-tax Act, 1961 on account of alleged excess share premium.
For Assessment Year 2017-18, the assessee, a private limited company engaged in mineral exploration activities principally for gold in southern India, had issued 92,090 equity shares at a premium in two tranches, raising total consideration of ₹12,12,54,726. The assessee supported the share valuation through two independent valuation reports prepared by Chartered Accountants applying the Discounted Cash Flow (DCF) method under Rule 11UA of the Income-tax Rules, 1962. One report valued the shares at ₹1,444.50 per share, while the other valued them at ₹1,300 per share.
During scrutiny, the Assessing Officer (AO) questioned the assumptions and projections adopted in the DCF valuations, including the feasibility reports, production estimates, and projected cash flows. Rejecting the DCF valuations, the AO determined the fair market value (FMV) of the shares under the Net Asset Value (NAV) method at ₹896 per share and treated the difference as excess share premium, making an addition of ₹3,64,46,682 under Section 56(2)(viib). The Commissioner of Income Tax (Appeals) affirmed the AO’s action after examining the valuation reports, the objections raised by the AO, and the Technical Guide on Share Valuation issued by the ICAI.
