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2021 (9) TMI 742 - ITAT AMRITSARAdditions u/s 56(2)(viib) - Addition as income from other sources and taxing the same as revenue income - amount of share premium treated as income from other sources - DCF method Application - Eligibility of valuation Report from a Chartered Accountant - case of the Assessee was selected under CASS and notice u/sec 143(2) reason for selection of the case of the Assessee was "Large share premium received during the year - valuation report of the share duly certified by the chartered accountant - case of the assessee before us that the report of the Chartered Accountant evidencing the value of shares as per Rule 11UA of the Act was duly filed before the CIT(A) but the same was not considered - HELD THAT:- Once the assessee had opted to valuation of shares under rule 11 UA by following the DCF method, then it is not open for the assessing officer or to the CIT(A) to adopt a different method of valuation, for determining the fair market value. As per rule 11 UA, the choice is given to the assessee not to the assessing officer. AO is duty bound to examine the working of the DCF method but has no right to change the method of calculating the fair market value of the shares. Once the assessee has exercised its option of opting for DCF method, then the said method is required to be applied however the assessing officer is having the power to review the calculations and correct adoption of the parameters applied by the assessee for the purpose of arriving at valuation of the shares by applying the DCF method. Report has duly been submitted vide DCF method and the Assessing Officer has applied his own method and has computed a different value of share. Explanation to S. 56(2)(viib) of the Act provides that the fair market value (FMV) of unquoted equity shares for the purpose of 56(2)(viib) of the Act shall be the value as determined in accordance with such method as may be prescribed. The prescribed methods of valuations are given under Rule 11 UA of Income Tax Rules, 1962. In the present case, it is not denied that the assessee adopted clause (b) of Rule 11UA(2) of the Rules and accordingly obtained a Valuation Report from a Chartered Accountant. Since the law has prescribed the specific method for valuation i.e Discounted Cash Flow Method (hereinafter also referred as "DCF"), so he was free (and rather entitled) to choose this method. The method of valuation could be challenged by the AO only if it was not a recognized method of valuation (as per Rule 11UA (2) of the Rules).The very purpose of certification of DCF valuation by a merchant banker or chartered accountant is to ensure that the valuation is fair and reasonable. Lower authorities have not examined the method adopted by the assessee for the purposes of arriving at the fair market value of the shares and have made the additions on the basis of book value of the shares. The said action of the assessing officer as well as of the CIT(A) cannot be approved as once the assessee has opted for DCF method, then it is not open for the assessing officer/CIT appeal to change the method of valuation the shares. Remand back the matter to the file of the assessing officer with a direction to consider the valuation report dated 6 January 2014 forming part of the paper book based on DCF method and determine the fair market value of the shares allotted by the assessee. Appeal of the assessee is allowed for statistical purposes.
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