2023 (6) TMI 977 - HC - Income Tax

Rule 11UA(2) allows valuation by formula or DCF at assessee's option; DCF upheld, s.56(2)(viib) additions struck down

HC dismissed the challenge and upheld the tribunal/CIT(A) finding that Rule 11UA(2) permits valuation either by the prescribed formula or by DCF at the ... Income from other sources u/s 56(2)(viib) - FMV determination - fair market value of the shares shall be the value determined under the prescribed formula or as per DCF method - HELD THAT:- As tribunal considering the provisions contained in Section 56(2)(viib) as well as Rule 11UA(2) of the Rules observed that as per the aforesaid Rule, fair market value of the shares shall be the value determined under the prescribed formula or as per DCF method which is at the option of the assessee and, therefore the DCF method adopted by the assessee for determining the fair market value of the share as per Rule 11UA2 does not require any interference - additions made u/s 56(2)(viib) are not sustainable in law and, thereby the tribunal has upheld the order passed by the CIT (Appeals) to the said extent and, thereby rejected the appeal filed by the appellant – Tribunal. No substantial question of law. Issues involved: Challenge to order u/s 260A of the Income Tax Act regarding valuation of share premium u/s 56(2)(viib) and penalty proceedings u/s 271(1)(c).Summary:The appellant, engaged in manufacturing and trading, challenged an order passed by the Income Tax Appellate Tribunal regarding the valuation of share premium u/s 56(2)(viib) of the Income Tax Act, 1961. The appellant issued shares at a premium, but the Assessing Officer disagreed with the valuation method used and added the premium amount to the income from other sources, initiating penalty proceedings u/s 271(1)(c). The CIT (Appeals) partly allowed the appeal, stating that the valuation made by the Chartered Accountant using the DCF Method was correct, and deleted the additions made by the AO. The ITAT dismissed the appeal filed by the Revenue, leading to the present appeal before the High Court.The appellant argued that the tribunal erred in deleting the addition of the share premium amount u/s 56(2)(viib) of the IT Act. The tribunal upheld the valuation method used by the assessee, stating that as per Rule 11UA(2), the fair market value of shares could be determined by a prescribed formula or the DCF method at the option of the assessee. The tribunal found no grounds to interfere with the valuation and rejected the appeal filed by the Revenue.The High Court, after reviewing the submissions and the tribunal's order, agreed with the tribunal that no substantial question of law was involved in the appeal. Therefore, the High Court dismissed the appeal, affirming the tribunal's decision regarding the valuation of share premium u/s 56(2)(viib) of the Income Tax Act.