DIABETOMICS Medical Private Limited Vs ACIT (ITAT Hyderabad)
ITAT Hyderabad Deletes Sec 56(2)(viib) Addition – AO Cannot Change DCF Valuation Method Adopted by Assessee
In Diabetomics Medical Pvt. Ltd. vs ACIT (AYs 2016-17 to 2018-19), the ITAT Hyderabad allowed the assessee’s appeals and held that the AO had no jurisdiction to substitute the valuation method chosen by the assessee while invoking sec 56(2)(viib). The company, a start-up manufacturing innovative medical diagnostics, issued CCPS at ₹720 per share based on a Chartered Accountant’s DCF valuation; however, the AO rejected DCF and adopted NAV method, leading to addition of ₹9.56 crore towards share premium.
The Tribunal held that Rule 11UA(2) gives an explicit option to the assessee to adopt either NAV or DCF, and once DCF is chosen, the AO may scrutinize assumptions or obtain an independent valuation but cannot change the method itself. Reliance was placed on multiple High Court and Tribunal precedents holding that projections under DCF are forward-looking estimates and cannot be rejected merely because actual results differ later. ITAT further noted that the assessee received investment from a Venture Capital Fund and was engaged in setting up its business, strengthening its claim for relief. Since the AO exceeded jurisdiction by switching valuation methodology without pinpointing defects in DCF workings, the additions u/s 56(2)(viib) sustained by CIT(A) were held unsustainable and deleted.
FULL TEXT OF THE ORDER OF ITAT HYDERABAD
