| Question And Answer | |
|---|---|
| Subject: | Section 56(2)(viib) |
| Category: | Income-Tax |
| Querist: | Ruchi Bhansali |
| Answered by: | Dr .K. Shivaram Senior Advocate |
| Tags: | DCF Method, section 56(2)(viib), valuation |
| Date: | May 21, 2022 |
Assessee is a start up company and issued the shares to the investors at a premium of Rs. 200 per share. During the course of assessment proceedings for A.Y 2020-21, AO issued a show cause as to why share premium received by the assessee company should not be taxed in the hands of the company under Section 56(2)(viib) of the Act.
The assessee company submitted a detailed reply,however the AO proceeded to make addition under Section 56(2)(viib) on the ground that the assessee company could not give proper justification for acceptance of the premium, without considering the fact that the share premium has been accepted on the basis of valuation report wherein, the DCF method for valuation has been adopted.
Whether the action of the AO is legally correct?
The Assessing Officer is not justified in rejecting the valuation of DCF method of valuation . In PCIT v. Cinestaan Entertainment Pvt. Ltd. (2021) 433 ITR 82/ 199 DTR 345/ 320 CTR 381 (Delhi) (HC) the Court held that addition cannot be made disregarding the DCF method adopted by the assessee. Refer , TSI Yatra (P.) Ltd v. ACIT ( 2021 ) 209 TTJ 596 ( Delhi)( Trib), UKN Hospitality (P.) Ltd. v. ITO (2021) 191 ITD 566 (Bang) (Trib.), Nabh Multitrade Pvt. Ltd. v. ITO (2020) 208 TTJ 787 (Jaipur)(Trib.), DCIT v. Ozoneland Agro Pvt. Ltd. (2018) 53 CCH 427 / 64 ITR 6 (SN) (Mum.)(Trib.), www.itatonline.org