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2023 (6) TMI 335 - AT - Income TaxValuation of shares at a premium u/s 56(2)(viib) - FMV determined under DCF method of the unquoted shares - Whether AO is correct in rejecting the DCF method and the FMV determined under DCF method by comparing the actual performance figures with the projections used under the DCF method? - HELD THAT:- CIT(A) concluded correctly that in the instant case there is no merit in rejecting the DCF method on the ground of mismatch between the projections adopted in DCF method and those achieved during the first two years post-valuation date. Whether the AO can change the method of valuation of unquoted shares under Rule 11UA of I.T. Rules 1962? - Rule 11UA(2) prescribes two methods - Book Value method and DCF method. However, the said rule also provides that the method to be adopted is left to the choice of the assessee. The option to choose the method to be adopted to determine the FMV of unquoted shares is not with the AO but with the assessee. In the instant case the assessee opted for the DCF method and the AO could not have switched the method from DCF to Book Value method for determining the FMV of the unquoted shares. Whether the AO erred in rejecting the DCF method because the Valuer failed to furnish the documents called for by him? - It is noted here that there is merit in the AO' s observation that the valuation report is very brief. However, in the absence of any prescribed format or size, one cannot reject the valuation merely on that ground. Further, the AO has not pointed out any specific deficiency in the Valuation Report itself - Hence, it would be incorrect to reject the DCF method solely on that ground. Keeping in view that DCF is correct method of determining the FMV of the unquoted shares, the assessee has option to determine the method of valuation and the AO has no power to reject the method resorted by the assessee, the results in the instant case of the holding company have exceed the projections, as no infraction of methodology has been brought out by the AO and non-payment of advance tax cannot be a collateral reason to reject the DCF method, we decline to interfere with the well reasoned order of the ld. CIT(A). Decided against revenue.
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