Valuation of shares should be based on various factors and not merely on financials

M/s India Convention and Culture Centre Pvt. Ltd. Vs ITO (ITAT Delhi)

From the various details furnished by the assessee, we find the assessee had obtained permission of the competent authority for change of land use from ‘agricultural’ to ‘institutional’ for art, culture and convention centre for a total area of 42949 sq. mtrs or 51366.94 sq. yards. A perusal of the circle rate for such institutional area shows that the circle rate has been prescribed at Rs.22,000/- per sq. yard. Thus, as per the circle rate prescribed by the competent authority, the value of total assets i.e., the fair market value of the land which was converted from ‘agricultural’ into ‘institutional’ comes to Rs.113,00,72,749/-. If the other assets of Rs.9,17,608/- is added to such asset and the total liability of 46,55,69,537/- is deducted, then, the net asset comes to Rs.665,420,820/-. If the same is divided by the number of equity shares of 10,10,000/-, then, the value per share comes to Rs.658.83 which is more than the premium of Rs.5/- charged by the assessee on a share of Rs.10/-. We, therefore, find merit in the argument of the ld. counsel for the assessee that the valuation of the shares should be made on the basis of various factors and not merely on the basis of financials and the substantiation of the fair market value on the basis of the valuation done by the assessee simply cannot be rejected where the assessee has demonstrated with evidence that the fair market value of the asset is much more than the value shown in the balance sheet. The order of the CIT(A) is accordingly set aside and the grounds raised by the assessee are allowed.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal filed by the assessee is directed against the order dated 1st November, 2017 of the CIT(A)-4, New Delhi relating to assessment year 2014-15.

2. Facts of the case, in brief, are that the assessee is a company and filed its return of income on 29^th September, 2014, declaring the loss of Rs.3,56,772/-. During the course of assessment proceedings, the Assessing Officer noted that the assessee company has allotted 70 lac equity shares of Rs.10 each at a premium of Rs.5 per share to the following companies:-

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