Himachal Pradesh High Court on implication of Section 56(2)(viib) on conversion of Loan to Equity and Choice of Valuation method
Hon’ble High Court of Himachal Pradesh (‘HC’) in the case of Pr. Commissioner of Income Tax-1, Chandigarh vs M/s I.A. Hydro Energy (P) Limited dated 31st May 2024, dismisses Revenue’s appeal, confirm ITAT and CIT(A)’s decision that the Assessee did not receive any consideration when pre-existing unsecured loans of partners were converted into equity shares at a premium on the partnership’s conversion into the Assessee-company; HC thus confirms the view taken by ITAT & CIT(A) that Section 56(2)(viib) of Income Tax Act, 1961, did not apply since Assessee did not receive any consideration on account of issuance of shares.
It was held that the valuation is done by the assessee as per DCF method, which is an internationally accepted method of valuation of shares, and is a permissible methodology as per Rule 11UA(2)(d) of the Rules.
It further clarified that the right to select the method of valuation (NAV or DCF), is vested with the assessee, and the Assessing Officer erred in substituting the assessee’s method of valuation, i.e. DCF, with his own method of valuation, i.e. NAV method.
For complete details, please refer judgement of High Court of Himachal Pradesh in the case of Pr. Commissioner of Income Tax-1, Chandigarh vs M/s I.A. Hydro Energy (P) Limited dated 31st May 2024:
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