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2023 (2) TMI 966 - ITAT CHENNAIAddition u/s 56(2)(viib) - correctness of DCF method followed by the assessee - amount received on account of share premium on shares and compulsory convertible debentures - AO made additions towards excess premium over and above face value u/s. 56(2)(viib) on the ground that the assessee could not justify valuation of shares under DCF method with necessary financials - As argued appellant would squarely fall under the definition of Venture Capital Undertaking as provided u/s 56(2)(viib) read with explanation (c) of Section 10(23FB) and hence the addition made u/s 56(2)(viib) was completely erroneous and not justifiable - HELD THAT:- AO is completely erred in arriving at a conclusion that DCF method followed by the assessee is incorrect only on the basis of one element, difference in projected financials and actual performance of the company for two financial years, because DCF method is mainly on the basis of projected financials of future years and depends upon various estimations and assumptions. AO is free to examine correctness of DCF method and method followed by the assessee to arrive at a free cash flow and relevant ratios considered for arriving at projected revenue and expenditure. In this case, the AO has failed to carry out necessary enquiries to ascertain correctness of DCF method followed by the assessee, but simply went on to reject the method only on one ground that there was a difference in two financial years when compared to projected free cash flow and actual cash flow. Therefore, we are of the considered view that the issue needs to go back to the file of the AO to re-examine method followed by the assessee to arrive at fair market value of equity shares and this view is supported by the decision of ITAT, Chennai Benches in the case of S.A. Metro Plots (P) Ltd [2022 (12) TMI 430 - ITAT CHENNAI] We set aside the issue to the file of the AO and direct the AO to re-consider the issue of addition towards share premium u/s. 56(2)(viib) of the Act, in light of various arguments made by the assessee, including valuation report submitted under DCF method. The AO is free to examine method followed by the assessee, however, he does not have power to change method followed by the assessee from DCF method to NAV method, and to decide the issue in accordance with law. Appeal filed by the assessee is treated as allowed for statistical purposes.
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