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2013 (9) TMI 802 - AT - Income TaxArm's length price - transfer pricing adjustments - Risk adjustment in addition to adjustment made through PV factor for future cash flows of the company – Held that:- Most important aspect in the application of the Discounted Cash Flows (DCF) is the discounting factor used for working out the net present value (NPV) - PV factor is to be spread starting with the year in which the transaction took place - For a valuation to have some amount of objectivity it is imperative that errors in calculations are avoided and variables are considered within a reasonable limit so that acceptable values can be arrived at. Even a slight change in the discounting ratio will result in substantial change in the valuation of the company - A discount for illiquidity of shares should be given, this cannot be accepted for the reason that when weighted average cost of capital is worked out and discounting factor is applied for ascertaining the net present value of the future cash flows, such discounting rate would take into account all associated risks. When the value of an enterprise is fixed based on the present value of its future earnings there is no scope for any further allowance for any perceived risk factor - Discounted cash flow method was appropriate to determine the arm's length price of the international transaction, set aside the issue to the file of the Assessing Officer for re-working the value afresh in accordance with standard practices adopted for such valuation – Decided in favor of Assessee.
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