Kataria Snack Pellets Pvt. Ltd. Vs ACIT (ITAT Rajkot)
Assessee, a newly incorporated private limited company engaged in manufacturing snack pellets, filed its return declaring a loss of ₹2.26 crore. The original scrutiny assessment under section 143(3) (dated 27-12-2017) accepted the return. Subsequently, based on INSIGHT portal inputs categorised as high-risk transaction, the AO reopened the case u/s 147 on the ground that the assessee had received share premium of ₹3.99 crore. The company had issued 8,000 shares of ₹10 each at a premium of ₹4,990 per share, valuing them through the Discounted Cash Flow (DCF) method supported by a Chartered Accountant’s report dated 01-02-2015.
AO rejected the DCF valuation report, holding it to be unsupported & unrealistic:
- The valuer assumed growth rates of 10%, 7% & 5% without any empirical or industry basis.
- No justification for terminal value of ₹25.59 crore was provided.
- The Technical Guide on Share Valuation (ICAI) parameters—cash-flow projections, discount rate, terminal value, & risk factors—were ignored.
- Actual performance of the company in subsequent years showed large deviation from projected figures.
- No dividends were declared from 2015 to 2024.
Accordingly, AO recomputed the fair market value (FMV) under Rule 11UA (NAV method) at ₹10 per share, treating the premium of ₹4,990 × 8,000 = ₹3.99 crore as income from other sources u/s 56(2)(viib).
