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 raised a ground of appeal that the Commissioner of Income Tax (Appeals) had erred in confirming the action of Assessing Officer of invoking section 56(2)(viib) of the Act and taxing the share premium of Rs. 93.01 lakhs under the said provisions.
- The Tribunal placed reliance on the judgment of Hon’ble Bombay High Court rendered in the case of Vodafone M-Pesa Ltd. Vs. Principal Commissioner of Income Tax, wherein it was held that the Assessing Officer can scrutinize 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 has to be Discounted Cashflow method and he cannot change the method of valuation which was opted by the Assessee.
- Further, as per report of research committee most critical input of Discounted Cashflow model is the Cash Flow Projections. Hence, the Assessee should be asked to establish that such projections by the Assessee based on which, the valuation report was prepared by the Chartered accountant is estimated with reasonable certainty by showing that it was a reliable estimate achievable with reasonable certainty on the basis of facts available on the date of valuation.
- Respectfully following the said judgment in the present facts of the case the matter was restored back to the file of Assessing Officer for a fresh decision.