JCIT (OSD) Vs Magnet Buildtech Pvt Ltd (ITAT Ahmedabad)
ITAT Ahmedabad held the Discounted Cash Flow Method [DCF method] adopted by the assessee for valuing the CCPS is legitimate and in accordance with Rule 11UA of the Income Tax Rules. The AO cannot reject the method chosen by the assessee if it is prescribed by law.
Facts- The case of the assessee was selected for the limited scrutiny by issuing notices u/s.143(2) and 142(1) of the Act. During the course of assessment proceedings, it was observed by the AO that the assessee-company had issued 7,99,900 Compulsory Convertible Preference Shares of Rs.10/- each at a premium of Rs.990/- per equity share. Accordingly, share capital of company was increased by Rs.79,99,000/- and securities premium by Rs.79,19,01,000/-.
AO issued a show-cause notice to the assessee to explain why the amount of Rs.79,98,71,290/- should not be added to the income as per provisions of section 56(2)(viib) of the Act. Not satisfied with the explanations offered by the assessee, the AO added Rs.79,19,01,000/- to the total income u/s 56(2)(viib) of the Act, while doing so, he noted the Valuer has not verified the financial projections from independent source, the assessee-company has declared losses for subsequent years indicating that the projections are far from reality and the financials used by the Valuer are not up to the date of certificate.
