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2025 Supreme(Online)(ITAT) 7231
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
C. N. Prasad, J, M. Balaganesh, ACJ
JCIT – Appellant
Versus
Manish Vij – Respondent
ITA No.1746/Del/2025
For the Appellants/Petitioners: Shri Salil Aggarwal, Adv, Shri Shailesh Gupta, CA, Shri Shankar, Adv
For the Respondents: Shri Mahesh Kumar, CIT (DR)
The assessee can choose between NAV and DCF methods for share valuation; the A.O. cannot impose a different method without evidence of flaws.
Headnote:(A) Income Tax Act, 1961 - Section 50CA - Capital gains - Assessment under section 143(3) r.w.s. 144B - Deletion of addition on account of short-term capital gains arising from the transfer of shares based on valuation methods NAV and DCF - Assessee justified method with independent reports, and A.O. failed to prove error in valuations. (Paras 1, 6, 10)
(B) Valuation of Shares - Assessee has the discretion to choose between NAV and DCF for calculating fair market value of shares for income tax purposes. A.O. cannot impose a method without proving the existing method’s flaws. (Paras 6.5-6.6)
Facts of the case:
The assessee sold shares and reported capital gains, but the A.O. questioned the sale price based on comparative valuations made within 11 months without indicating errors in documentation. The CIT(A) upheld the valuations and deleted the addition made by the A.O.
Findings of Court:
The CIT(A) rightly pointed out that both NAV and DCF methods are permissible under rules, and A.O. has not conducted warranted inquiries to alter recorded valuations.
Issues: The main issues revolved around the validity of valuation methods adopted for capital gains and the authority of the A.O. to adjust the declared sale price without justifiable evidence.
Ratio Decidendi: The court held that choice of valuation method lies with the assessee, and without evidence of error, the A.O. must accept the chosen valuation method.
Result: Revenue's appeal dismissed.
| Table of Content |
|---|
| 1. assessment arises from capital gains calculation. (Para 1 , 2) |
| 2. assessor's objection to valuation methods. (Para 3 , 6) |
| 3. valuation reports deemed reliable. (Para 4 , 5) |
| 4. arguments presented by the taxpayer. (Para 7 , 8) |
| 5. court's ruling regarding valuation authority. (Para 9 , 10) |
| 6. finality of the ruling on the appeal. (Para 11) |
ORDER
PER M. BALAGANESH, A. M.:
1. The appeal in ITA No.1746/Del/2025 for AY 2022, arises out of the order of the National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. ITBA/NFAC/S/250/2024-25/1072345400(1) dated 20.01.2025 against the order of assessment passed u/s 143(3) r.w.s. 144B of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 22.03.2024 by the Assessing Officer, NFeAC, Delhi (hereinafter referred to as „ld. AO‟).
2. The only issue to be decided in this appeal of the revenue is as to whether the ld CIT(A) was justified in deleting the addition on account of short- term capital gains as per provisions of Section 50CA of the Act arising out of transfer of shares of Cash Grail (P) Ltd (CGPL).
3. We have heard the rival submissions and perused the material available on record. The assessee is an individual and investor in start-up company styled as CGPL. The assessee is engaged in the business of trading of shares in derivative Segment (F&O) of capital market. The assessee during the year earned income from house property, income from business, income from capital gains and income from other sources. The return of income for AY 2022-23 was filed by the assessee on 04.11.2022 declaring total income of Rs. 32,71,14,870/- . During the year under consideration, the assessee transferred 801 shares held by him in CGPL to Vun Internet Partners on 22.04.2021 at a sale consideration of Rs. 54,960 per share. The short term capital gain arising on sale of these shares were duly reflected in the return of income filed by the assessee. To support the transfer price, the assessee submitted a valuation report obtained from Independent Chartered Accountants wherein, the value of shares of CGPL was worked out at Rs. 54,959.62 per share as on 20.04.2021 in accordance with Rule 11UA of the Income Tax Rules by adopting Net Asset Value (NAV) method.
4. The assessee on 15.02.2022 sold 595 shares of CGPL of Rs. 7,29,938/- per share to M/s Nepean Investments Trust –II on the basis of valuation report obtained from a merchant banker dated 14.02.2022 who had determined the fair market value of shares of CGPL as on 31.12.2021 to be Rs. 7,29,938/ shares by adopting Discounted Cash Flow (DCF) method.
5. The ld AO observed that within a gap of 11 months, the assessee was able to sell the 2nd lot of 595 shares at much higher value in February 2022. Accordingly, the ld AO substituted the sale consideration on first tranche of sale of 801 shares of CGPL with Rs. 7,12,664/ shares as against Rs. 54,960/ share. Vide letters dated 13.03.2024 and 18.03.2024, the assessee explained the reasons for difference in fair market value of shares between 22.04.2021 and 15.02.2022 and also justified the increase in fair market value of share of CGPL by duly explaining the complete profile of CGPL, it‟s nature of business, global economic scenario and its outlook of start-up vis-a-vis investments thereon. In the said letter the assessee also brought on record that subsequent to the transfer of 801 shares on 22.04.2021, the CGPL has raised funds from venture capital firm and from foreign investors substantially which changed NAV of CGPL drastically. The assessee also placed on record the various media reports published in newspaper with regard to raising of funds by CGPL from venture capital firms and also from foreign investors. In the said letter, the assessee also submitted before the ld AO that assessee, being an entrepreneur in the start-up industry, since over 23 years, had build several large companies as a founder and brought great respect t
