The Karnataka High Court has held that the department cannot reject fair market value of shares determined using statutory methods without justification.
The bench of Justice Krishna S Dixit and Justice Ramachandra D. Huddar has observed that the valuation done by the assessee cannot be rejected without recording any finding to the contrary by the lower authorities and therefore the addition is not sustainable.
The respondent/assessee had submitted the valuation report issued by a Chartered Accountant using DCF method of valuation. The assessee has projected its income, which according to the AR, is substantiated by the JDA entered into by the assessee.
The lower authorities have rejected the DCF method of valuation on the ground that the same is not based on any scientific method and that since the assessee is making a loss, there is no possibility of valuing the shares of the assessee at a premium.
Further, the lower authorities have not gone into the details used by the assessee under DCF method to arrive at the valuation and rejected the entire methodology as adopted by the assessee. It is also noticed that one of the reasons as quoted by the AO for not considering the valuation report is that the Director during the survey proceedings has stated that there is no valuation report.
The lower authorities have not examined the basis on which the valuation is done and from the perusal of facts, no details in this regard have been called for by the lower authorities. The valuation report is rejected based on the objective satisfaction and not based on detailed examination.
The court answered against the department and eventually in favour of Assessee.
Case Details
Case Title: PCIT Versus Waterline Hotels Pvt Ltd.
Case No.: Income Tax Appeal No. 425 Of 2023
Date: 05/03/2025
Counsel For Petitioner: Y V Raviraj
Counsel For Respondent: S Shankar
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