Fair Market Value Of Shares Determined By Statutory Methods Can't Be Rejected By Income Tax Department: Karnataka High Court
Mehak Dhiman
17 March 2025 9:05 AM
The Karnataka High Court stated that fair market value of shares determined by statutory methods can't be rejected by the income tax department.
The Division Bench of Justices Krishna S Dixit and Ramachandra D. Huddar was addressing a case where the revenue has challenged the order passed by the Tribunal where the Tribunal held that the valuation report on DCF Method produced during assessment proceedings was a valid report justifying valuation of shares.
In this case, the assessee/respondent had submitted the valuation report issued by a Chartered Accountant using DCF method of valuation. The assessee has projected its income, which according to the AR, is substantiated by the JDA entered into by the assessee.
The lower authorities have rejected the DCF method of valuation on the ground that the same is not based on any scientific method and that since the assessee is making a loss, there is no possibility of valuing the shares of the assessee at a premium.
The Tribunal observed that the lower authorities have not gone into the details used by the assessee under DCF method to arrive at the valuation and rejected the entire methodology as adopted by the assessee.
The Tribunal opined that the valuation done by the assessee cannot be rejected without recording any finding to the contrary by the lower authorities.
The revenue/appellant has challenged the order passed by the Tribunal.
The assessee submitted that the Tribunal has wrongly construed Sec.56(2)(viib) of the Income Tax Act, 1961 and thereby committed error of deleting addition made in an amount of Rs.33,71,77,500/- in respect of securities premia credited on share issue in question.
The bench observed that the Tribunal has construed the subject provision of the Act keeping in view the fair market value of the shares in question and not the premium amount.
The bench agreed with the assessee that the fair market value of the Shares in question has been arrived at by the Assessee by adopting one of the statutorily designated methods in terms of Rule 11UA(2) of the extant Rules.
In view of the above, the bench answered against the revenue and in favour of assessee.
Case Title: The PR. Commissioner of Income Tax
Case Number: INCOME TAX APPEAL NO. 425 OF 2023
Counsel for Appellant/ Department: YV Raviraj and M Dilip
Counsel for Respondent/ Assessee: S Shankar and Madhusudhan