Share valuation report by CA can’t be accepted if it is based on only basic info. supplied by management: ITAT

Case Details: ITO v. LNB Renewable Energy (P.) Ltd. - [2022] 145 taxmann.com 269 (Kolkata-Trib.)

Judiciary and Counsel Details

• • Sanjay Garg, Judicial Member & Dr Manish Borad, Accountant Member
  • M.P. Lohia, CA & Nikhil Kanodia, CA for the Appellant.
  • Biswanath Das, CIT(D/R) for the Respondent.

Facts of the Case

Assessee-company was engaged in the business of production and generation of renewable energy. During the year, a large share premium was received on the introduction of Capital. Upon scrutiny, the assessee submitted financial statements and other details along with a Valuation Report provided by an independent Chartered Accountant.

Rejecting the valuation report, the Assessing Officer (AO) invoked Section 56(2)(viib) and made additions to the income alleging the share premium received is in excess of the Fair Market Value of shares.

On appeal, CIT (A) deleted the additions made by AO. Aggrieved-AO filed an appeal before the Kolkata Tribunal.

ITAT Held

The Tribunal held that the assessee had two wholly owned subsidiaries and two step-down subsidiaries. The valuation of the assessee was computed after considering the net worth of two step-down subsidiaries. It should be noted that such subsidiaries were acquired after the valuation date.

The valuation report prepared by the Chartered Accountant (CA), was based on the basic information, supplied by the management of the assessee. The fact of acquiring wholly owned subsidiaries/step-down subsidiaries after the cut-off date of the valuation of shares was not provided to CA. Thus, the results arrived at in the valuation report could not have been accepted.

Therefore, the provisions of Section 56(2)(viib) had rightly been invoked by AO.