The Commissioner of Income Tax (CIT) directed the Assessing ...

Family business' share valuation method upheld, faulty tax assessment set aside.

Case Laws     Income Tax

September 16, 2024

The Commissioner of Income Tax (CIT) directed the Assessing Officer (AO) to compute the assessee's income by adding the difference in valuation of shares u/s 56(2)(viib). The CIT held that the valuation report submitted by the assessee was not found in the assessment folders. The assessee's counsel argued that the valuation report must have been misplaced by the Department, and the assessee should not face hardship for the same. The valuation was done based on the balance sheet as of 30/06/2013, i.e., the book value, and not the discounted free cash flow method. The AO was satisfied with the premium of Rs. 310 per share charged by the assessee on allotment of shares to family members, and the entire amount was received in October 2013, after which the allotment was done. The AO had no reason to doubt the premium charged. The assessee produced the valuation report before the Principal Commissioner of Income Tax (PCIT), but the PCIT neither verified the report nor found any fault in the valuation method and set aside the assessment order without reasoning. The PCIT erroneously invoked Section 263 without examining the valuation report or finding fault in the valuation method. The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal.

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