Can AO reject valuation report & Change Valuation Method?

Whether Assessing Officer has Power to Reject Valuation Report Submitted by Assessee and Change Method Of Valuation?

Innoviti Payments Solutions P. Ltd. v. ITO (2019) 69 ITR 33 (SN.) / 175 ITD 10 / 178 DTR 355 / 199 TTJ 626 (Bang.)(Trib.)

ITAT (Banglore) Income from other sources – AO can scrutinise the valuation report and determine a fresh valuation either by himself or by calling from independent valuer to conform the assessee but the basis has to be DCF method.

BRIEF FACTS: During the course of assessment proceedings, AO noted that assessee company collected ₹ 2,45,02,463/-as securities premium on issue of shares. AO asked assessee to substantiate the share premium so collected. In response, assessee submitted certificate obtained by Chartered Accountant. The valuation adopted by the assessee found to be as per DCF. However, AO held that the valuation of the assessee cannot be accepted without verifying the credibility of the data provided by the assessee. Accordingly, AO rejected the valuation of the assessee and adopted NAV method and thus made an addition of ₹ 1,12,21,109/-.

ON APPEAL, CIT(A) upheld the order of AO.

ITAT DECISION: Aggrieved by the same, assessee appealed before the ITAT. The Tribunal held that AO can scrutinise the valuation report and if he is not satisfied with the explanation of the assessee, he has to record the reasons and basis for not accepting the valuation report submitted by the assessee. Only thereafter, he can go for own valuation or to obtain the fresh valuation report from an independent valuer and confront the same to 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.

Further for scrutinising 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 Tribunal further held that 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.

With this observations the Tribunal restored the matter back to AO for a fresh decision. (AY. 2014-15).

*****

DISCLAIMER: the article produced here is only for information to the readers. The views expressed here are the personal views of the author ,it should not be considered as professional advise. In case of necessity do consult with Tax Consultant for more clarification and understanding on this matter.