Case Law Details
GSE Commerce Private Ltd. Vs ACIT (ITAT Bangalore)
The A.O. was of the view that the shares of the company have been over valued and accordingly asked the assessee to justify the valuation. After considering the explanations of the assessee, the A.O. took the view that the valuation report has been prepared on the basis of information and data provided by the management of the assessee company and the Chartered Accountant has not carried out any independent verification. The A.O. also took the view that the projections and estimations made by the management are not realistic and they do not have any basis and thus they were purely arbitrary in nature. Accordingly, the A.O. rejected the valuation report of the assessee. Then the A.O. proceeded to determine the valuation of the shares under net Asset value/Book value method prescribed under rule 11UA of the I.T. Rules. The A.O. calculated the value of shares at Rs.1,081.13ps. per share. Accordingly, he determined excess share premium collected by the assessee at Rs.1,61,88,765/- and assessed the same as income of the assessee u/s 56(2)(viib) of the Act. The Ld. CIT(A) also confirmed the same and hence the assessee has filed this appeal before us.
We are of view that the issue with regard to valuation has to be decided afresh by the AO on the lines indicated in the decision of ITAT, Bangalore in the case of VBHC Value Homes Pvt.Ltd., Vs ITO (supra) i.e.,
(i) the AO can scrutinize the valuation report and he can determine a fresh valuation either by himself or by calling a determination from an independent valuer to confront the assessee but the basis has to be DCF method and he cannot change the method of valuation which has been opted by the assessee.
(ii) For scrutinizing the valuation report, the facts and data available on the date of valuation only has to be considered and actual result of future cannot be a basis to decide about reliability of the projections. The primary onus to prove the correctness of the valuation Report is on the assessee as he has special knowledge and he is privy to the facts of the company and only he has opted for this method. Hence, he has to satisfy about the correctness of the projections, Discounting factor and Terminal value etc. with the help of Empirical data or industry norm if any and/or Scientific Data, Scientific Method, Scientific study and applicable Guidelines regarding DCF Method of Valuation.
Please become a Premium member. If you are already a Premium member, login here to access the full content.
