In the case of ITA No. 885/DEL/2020, the Income Tax Appellate Tribunal (ITAT) Delhi bench adjudicated a dispute between the Income Tax Officer (ITO), Ward-16(2), New Delhi, and Malibu Estate Dispensary Pvt. Ltd. regarding the valuation of share premium for the assessment year 2016-17.
The case centers on the ITO’s challenge to the share premium amount received by Malibu Estate Dispensary Pvt. Ltd. during the fiscal year. The dispute arises from the difference in the share price compared to the Fair Market Value (FMV) as assessed by the authorities.
The core of the dispute is the addition of Rs.29,562,912 made by the ITO, based on the assertion that the share premiums were excessively above the Net Asset Value (NAV) per share calculated at Rs. 10. The assessing officer (AO) used the circle rates of the property as the benchmark instead of the NAV or the valuation provided by the company’s registered valuer.
During the proceedings, the assessee company argued that the shares were issued to existing shareholders and contended that the AO did not provide valid reasons for rejecting the registered valuer’s report. The CIT(A) agreed with the assessee, leading to the deletion of the addition, which was contested by the revenue in the tribunal.
The tribunal sided with the assessee, noting that the AO had no substantial grounds to disregard the valuation report and incorrectly applied the circle rates for property valuation. The decision reaffirmed the application of rule 11UA or the higher of the FMV of underlying assets for share valuation.
The tribunal’s decision underscores the importance of adhering to statutory provisions for valuation in share transactions and the need for tax authorities to provide substantial evidence when challenging such valuations. This case serves as a significant precedent for similar disputes involving share valuation and premium assessments.
The ruling may influence future cases where the valuation of shares is in dispute, particularly in how tax authorities assess and justify adjustments based on FMV or NAV.
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