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2020 (7) TMI 393 - AT - Income TaxAddition u/s. 56(2)(viib) - differential value of shares and valuation done as per book value method - calculation of fair market value of shares issued at premium - AO calculated the fair market value of shares under Rule 11UA and as the assessee has received over & above the FMV which is treated as income of the assessee u/s.56(2)(viib) - Revenue seek to change method of valuation which has been opted by the assessee - HELD THAT:- As relying on M/S. RAMESHWARAM STRONG GLASS (P) LTD. VERSUS THE ITO, WARD 2 (1) , AJMER [2018 (9) TMI 403 - ITAT JAIPUR] when the fair market value of the shares issued by the assessee company is more than the consideration received by it from the allotment of the shares particularly when there is no occasion to invoke the provisions of section 56(2)(viib) of the Act for making the addition in the hands of the assessee company. It is the prerogative and privilege of the assessee to adopt one method and once the assessee has chosen discounted cash flow method for valuing its shares then the AO or any other revenue authorities cannot compel the assessee to adopt another method i.e. book value method - exercise of such option cannot be therefore challenged by the revenue authorities with the same has exercised at first place by the assessee but the AO is undisputedly entitled to scrutinise, verify and examine the valuation report and determine the fresh valuation either by himself or from an independent valuation after confronting the assessee. But at the same time, it is ample clear that the basis has to be the DCF method and it is not open to the revenue to change the method of valuation which has been opted by the assessee. In the instant case, the value adopted and computed by the assessee as per Rule 11UA(2)(c)(b) by following DCF method at ₹ 51/85 and the assessee company has received shares and issued/allotted @ ₹ 50 per share including premium and this rate has not been contested or challenged by the AO and during hearing before him by ld D.R. From a careful reading of the assessment order, clearly observe that the AO merely compelled the assessee to change the valuation method from DCF method to another book value method, which is not permissible as per Rule 11UA(2)(c)(b) and other provisions of the Act. As per the Explanation (a) (ii) to Section 56(2)(viib), speaks about the satisfaction of the AO but there is no condition in the explanation (a)(i) that the AO is not permitted to interfere with the valuation once done in accordance with the method prescribed in the Rule 11UA (2)(c)(b) of the Rules. Therefore, the AO as well as ld CIT(A) was not correct in rejecting the adoption of DCFM by the assessee and invoking the provisions of section 56(2)(viib) for making addition on differential value of shares and valuation done as per book value method. Appeal of the assessee is allowed.
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