The Income Tax Appellate Tribunal (ITAT) has granted partial relief to film production and distribution company Cinestaan Entertainment in a dispute over the taxation of share premium arising from a Rs 50 crore investment round and ordered that tax authorities cannot “arbitrarily reject” a recognised valuation method.
The tribunal, however, sent the case back for reassessment due to the absence of a year specific valuation report for the transaction. The dispute relates to a Rs 50 crore investment round, with the tax department seeking to tax Rs 39.98 crore of share premium, that came under the tax man’s lens. The tax department had questioned the valuation adopted by the company for shares issued at a premium and sought clarification on how the company was valued. However, it remanded the matter to the assessing officer for fresh examination because neither the company nor the tax department had a valuation report specific to the assessment year in question.
“While the angel tax provisions have been abolished from April 01, 2025, to support start‑ups and reduce disputes, the aforesaid judgment will act as an important precedent to defend historical funding rounds still under scrutiny. Overall, while the ruling is favourable in limiting arbitrary adjustments made by the tax officer, it also signals that the taxpayers must be ready with robust, year‑specific and Rule 11UA‑compliant valuation reports for each historical funding round,” said Hitesh Sawhney, Partner, Price Waterhouse & Co. LLP