Whether A.O. can replace sale consideration of shares with a value based on projections?
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Whether A.O. can replace sale consideration of shares with a value based on projections?
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Short note of today's case law for quick reference:
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[2024] 114 ITR (Trib) (S.N.) 33 (ITAT[Chen])
[BEFORE THE INCOME-TAX APPELLATE TRIBUNAL — CHENNAI "A" BENCH]
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SMART INFORMATION WORLDWIDE INC.
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DEPUTY COMMISSIONER OF INCOME-TAX (INTERNATIONAL TAXATION)
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MANOJ KUMAR AGGARWAL (Accountant Member) and MANU KUMAR GIRI (Judicial Member)
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August 6, 2024.
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1) Assessee and N were independent parties.
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2) In support of the sale price, the assessee had furnished a valuation report showing price per share of Rs. 27.43, which was much lower than the sale price of Rs. 520 earned by the assessee out of the impugned sale transactions.
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3) The A.O. had not referred the valuation to an independent valuer but proceeded to compute the fair market value per share based on projections made in the earlier and subsequent years to arrive at value of Rs. 1,162 per share disregarding the agreement value between the assessee and N.
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4) However, the valuation was fallacious since the share prices would fluctuate depending upon the performance of the underlying entity, rendering the valuation merely on the basis of projections alone infeasible.
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5) There was no finding that the shares were sold at an under-valued price.
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6) That full value of consideration could not be substituted with the FMV.
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7) Section 50CA was introduced by the Finance Act, 2017 with effect only from assessment year 2018-19 and did not apply to the year in question.
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8) As there was no material to believe that the assessee had received a higher sale consideration, the addition made by the A.O. was not sustainable.