The High Court held that u/r 11UA(2) of the Income Tax Rules, ...

Share premium received on issue of shares below fair market value: Assessee's choice of valuation method binding.

Case Laws     Income Tax

November 15, 2024

The High Court held that u/r 11UA(2) of the Income Tax Rules, 1962, the assessee has the option to choose between the Net Asset Value method or the Discounted Cash Flow (DCF) method for computing the fair market value for the applicability of Section 56(2)(viib) of the Income Tax Act. Once the assessee exercises this option, the Assessing Officer cannot question the applicability or computation of the fair market value using the chosen method, even during regular assessment proceedings. The Assessing Officer cannot reopen the assessment merely because the valuation under one method is lower than the other method chosen by the assessee, as this does not constitute an escapement of income. The court opined that the Assessing Officer cannot assume jurisdiction to reopen the assessment to verify the veracity and computation under the DCF method on the ground that the assessee did not fulfill the projected growth in subsequent years, as no assessee can accurately predict future growth at the time of making projections.

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