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2021 (11) TMI 565 - AT - Income TaxDisallowance u/s 14A - Voluntary disallowance made by assessee - HELD THAT:- It is settled position of law that disallowance cannot exceed the amount of dividend income earned during the relevant assessment year. In view of the above judgment of M/s.Marg Limited [2020 (10) TMI 102 - MADRAS HIGH COURT] it is clear that the disallowance u/s 14A of the I.T.Act cannot exceed the exempt income earned during the relevant assessment year irrespective whether larger amount was disallowed by the assessee u/s 14A of the I.T.Act while filing the return of income. Therefore, the AO is directed to restrict the disallowance u/s 14A to the amount of exempted income was earned on investment. Addition on account of share premium received u/s 56(2)(viib) - AO has expressed the view that the assessee has adopted market value for one asset and book value for remaining assets - According to AO, this kind of differential method is not permissible - HELD THAT:- AO has omitted to consider the provisions applicable for quoted shares. Further, we notice that the AO has not referred to the date of Balance Sheet considered by him for determining the NAV, i.e., the date of Balance sheet is not discernible from the AO. We noticed that the valuer has considered the nearest available quarterly Balance Sheet for determining NAV. In effect, the AO has ignored the methodology prescribed in Rule 11UA for valuing quoted shares, which accounts for major difference in the valuation. Thus, the AO has misguided himself in determining the value under NAV method. Further, it is not discernible as to which Balance Sheet, the AO has referred for determining NAV. This is also lacunae in the computation made by the AO. We notice that the Ld DRP has also confirmed the draft assessment order passed by AO on this point without appreciating the above stated factual aspects. AO has not examined the DCF method of valuation submitted by the assessee and the value of shares determined by the AO under NAV also suffers from major defects. The reasoning given by the AO for rejecting DCF method of valuation would fall on the ground, since the NAV method adopted by the AO suffers from major defects. We notice that the AO has not appreciated the necessity of preparing two valuation reports and the AO has also omitted to consider the correct provisions of Rule 11UA. Hence, various faults found by the AO with regard to the valuation reports are liable to be rejected. This issue requires fresh examination at the end of AO. Accordingly, we restore this issue to the file of the AO for examining it afresh with the direction to examine the valuation reports furnished by the assessee in order to find out whether they have been prepared in accordance with Rule 11UA. If the AO could find fault in the methodology, he may put it across to the assessee and seek explanation. After considering the explanations and information that may be furnished by the assessee, the AO may take appropriate decision in accordance with law.
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