Methodology selected by taxpayer for determining Fair Market Value of shares: Jurisdiction of a Tax Officer to ignore/ reject such selection and valuation methods adopted by taxpayer
- The Assessee had valued the shares at premium based on a valuation report of Chartered Accountant who valued the shares adopting Discounted Cash Flow (DCF) method.
- This valuation was done as per the mandate provided in the provisions of Rule 11UA(2)(b) for the purpose of determining fair market value of shares in the context of allotting shares at a premium and also the treatment of such receipt of premium under the provisions of section 56(2)(viib) of the Act.
- However, during the assessment proceedings the Assessing Officer did not accept the valuation method adopted by the Assessee and substantiated a different fair market value.
- The Tribunal placed reliance on the decision of Hon’ble Bombay High Court in the case of Vodafone M-Pesa Ltd Vs Principal Commissioner of Income Tax, wherein it was held that the Assessing Officer can scrutinise the valuation report and he can determine a fresh valuation either by himself or by calling a final determination from an independent valuer to confront the Assessee. But the basis had to be DCF method and he could not change the method of valuation which was opted by the assessee.
- In the present case, following the principle of law as laid down by the said decision the matter was set aside and restored to the Assessing Officer for fresh consideration in the light of judgment of Hon’ble Bombay High Court.
- Further, for scrutinizing the valuation report, the facts and data available on the date of valuation only was to be considered and actual result of future cannot be a basis to decide about reliability of the projections by the Assessing Officer.