Asirvad Micro Finance Pvt. Ltd. Vs DCIT (ITAT Chennai)
The Income Tax Appellate Tribunal (ITAT), Chennai, considered an appeal against an order of the Commissioner of Income Tax (Appeals) for Assessment Year 2015–16 concerning an addition made under Section 56(2)(viib) of the Income Tax Act, 1961.
The assessee, engaged in microfinance business, had issued rights shares at a premium of Rs. 73.32 per share to another non-banking financial company. The valuation was determined using the Discounted Cash Flow (DCF) method, as permitted under the rules, and supported by a Chartered Accountant’s certificate.
During scrutiny, the Assessing Officer (AO) rejected the DCF-based valuation on the ground that it relied on projections provided by the assessee and lacked independent verification by the Chartered Accountant. The AO instead adopted the Net Asset Value (NAV) method and determined a lower share value, resulting in an addition of Rs. 27.53 crore under Section 56(2)(viib), treating the excess premium as taxable income. This addition was upheld by the CIT(A).
The assessee argued that the valuation was in accordance with prescribed rules and duly certified, and that the AO had not established any inflow of unaccounted money. It was also contended that actual profits exceeded projections used in the DCF method, validating the valuation. The assessee further pointed out that the transaction was genuine, approved by the Reserve Bank of India, and involved regulated entities.
