Payswiff Technologies Private Limited Vs DCIT (ITAT Hyderabad)
DCF Is Your Choice—But the Valuation Still Needs Evidence
The dispute: Share premium meets the valuation test
The assessee company, engaged in software-related technical and consultancy services and the digital payments ecosystem, filed its return for AY 2021-22, declaring a loss of ₹12,94,39,906.
During scrutiny, the Assessing Officer noticed that the company had issued equity shares at two different prices. It allotted 36,842 shares at ₹950 per share, receiving ₹3,49,99,900, and another 1,06,348 shares at ₹1,348 per share, receiving ₹14,33,57,104.
The company maintained that these prices were supported by valuation under the Discounted Cash Flow method, a permissible method under Rule 11UA(2). The Assessing Officer, however, rejected the valuation and adopted the Net Asset Value method, determining the value at ₹149.69 per share. This resulted in an addition of ₹15,69,22,893 under section 56(2)(viib).
Why the Assessing Officer rejected the valuation
The Assessing Officer observed that the company had low operational cash flows and operating revenue. He considered the DCF valuation substantially higher than the value determined under the NAV method.
More significantly, the company had not furnished an independent valuation report before the Assessing Officer or adequate supporting analysis to substantiate its projections. Consequently, the Assessing Officer treated the difference between the issue prices and his NAV valuation as taxable income.
