The Bangalore ITAT upholds the CIT(A) order rejecting the DCF method adopted by the Assessee to determine the fair market value of the preference shares by holding that the DCF method is a hypothetical method of estimation lacking cogent basis.
The Assessee issued 1045 preference shares at the face value of Rs.1000 and share premium of Rs.10,000 per share.
The Revenue found that the valuation of the shares was done by following discounted cash flow (DCF) method forecasting the future growth which is a hypothetical estimation and not in accordance with Rule 11UA of the Income Tax Rules, 1962, thus, rejected the same along with the CA certificate.
The department contented that the method adopted by the Assessee in determining the fair market value of the equity share will not be applicable to determine the fair market value of preference shares, thus the DCF method adopted by the Assessee is not acceptable.
The ITAT held that the preference shares should have been issued at the face value including the premium and share premium of Rs.1.04 Cr received by the Assessee is in excess of fair market value of the shares, thus added to the same in Assessee’s hands, which was confirmed by the CIT(A).
MobiCom Technologies Pvt. Ltd. V/s ITO