Case Law Details
DCIT Vs Hometrail Buildtech Pvt. Ltd. (ITAT Delhi)
The case of DCIT Vs Hometrail Buildtech Pvt. Ltd. before the ITAT Delhi revolves around the contentious issue of share valuation under section 56(2)(viib) of the Income-tax Act, 1961. The Revenue contested the deletion of an addition of Rs. 8 crores made by the Assessing Officer, arguing that the Discounted Cash Flow (DCF) Method used by the assessee for share valuation was incorrect.
The crux of the matter lies in the method chosen for valuing the shares issued by the assessee company. While the Assessing Officer favored the Book Value Method, the assessee relied on the DCF Method, supported by a Business Valuation Report. The dispute primarily revolves around the divergence between the financial projections and actual performance of the company.
The ITAT carefully examined the provisions of the Income-tax Act, particularly Rule 11UA, which allows for the valuation of unquoted equity shares either by Net Asset Value (NAV) Method or DCF Method. The Tribunal emphasized that once the assessee chooses a method, the Assessing Officer is bound to follow it unless there is substantial evidence of its perversity.
The ITAT’s decision rested on the recognition of the DCF Method as a legitimate approach for valuation, considering factors like business growth, economic conditions, and future demand. It cited precedents to underscore that valuation is not an exact science but a complex process influenced by various factors and assumptions.
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