PR. COMMISSIONER OF INCOME TAX, BIKANER vs. M/S CHOUDHARY BUILDMART PVT. LTD.

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ITA/134/2018HC RajasthanRJHC01046930201811 October 2018Bench: SANGEET LODHA,DINESH MEHTA1 pages
AI SummaryDismissed

What did the High Court hold?

The Tribunal found no infirmity in the impugned order dated 9.2.2018 passed by the ITAT. The reasoning was that Section 56(2)(viib) of the Income Tax Act permits different methods for determining the fair market value of unlisted shares, and Rules 11U and 11UA specifically allow the use of the discounted free cash flow method for unquoted equity shares. The appeal did not dispute the specific index applied in the valuation. Therefore, the Tribunal upheld the ITAT's decision, which had accepted the assessee's valuation based on the discounted free cash flow method. The operative direction was to dismiss the appeal.

What were the facts?

The appeal was filed by the Principal Commissioner of Income Tax, Bikaner, against M/s Choudhary Buildmart Pvt. Ltd. The assessment year(s) are not explicitly stated. The challenge is to the order dated 9.2.2018 passed by the Income Tax Appellate Tribunal (ITAT). The core of the dispute revolves around the valuation of unquoted equity shares. The assessee determined the fair market value of these shares using the discounted free cash flow method, as permitted by Section 56(2)(viib) of the Income Tax Act and Rules 11U and 11UA. The Revenue's appeal does not dispute the specific index applied in the valuation, but rather the method itself or its application in a broader sense.

What were the issues?

1. Whether the ITAT erred in upholding the fair market valuation of unquoted equity shares determined by the assessee using the discounted free cash flow method, under Section 56(2)(viib) of the Income Tax Act, read with Rules 11U and 11UA. The appellant (Revenue) contended that the ITAT's order was infirm. The respondent (Assessee) relied on the discounted free cash flow method for determining the fair market value of unquoted equity shares. The judgment does not record specific arguments from the Revenue beyond stating that the ITAT's order was found to have no infirmity. It is not recorded if the Revenue relied on any specific authorities, circulars, or precedents.

Which sections of the Income-tax Act were involved?

Section 56(2)(viib)

AI-generated summary — verify with the full judgment below

HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR D.B. Income Tax Appeal No. 134/2018 Pr. Commissioner Of Income Tax, Bikaner, Bikaner ----Appellant Versus M/s Choudhary Buildmart Pvt. Ltd., Sriganganagar (Rajasthan) ----Respondent For Appellant(s) : Mr. KK Bissa HON'BLE THE CHIEF JUSTICE Mr. PRADEEP NANDRAJOG HON'BLE MR. JUSTICE DINESH MEHTA Judgment 11/10/2018 1. Heard learned counsel for the appellant. 2. Concededly Section 56(2) (viib) of the Income Tax Act permits different methods to determine the fair market value of the shares of companies which are not enlisted. Further, rule 11 U and rule 11UA permit fair market value of unquoted equity shares to be determined as per the discounted free cash flow method. 3. In the instant case the assessee relied upon the fair market valuation of the unquoted equity shares determined as per the discounted free cash flow method. 4. It is not the case in the appeal that a particular indice was wrongly applied while determining the fair market value as per the discounted free cash flow method. 5. Thus, we find no infirmity in the impugned order dated 9.2.2018 passed by the ITAT. 6. The appeal is dismissed accordingly. (DINESH MEHTA),J (PRADEEP NANDRAJOG),CJ Cpogyal/26

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