Share valuation under Rule 11UA cannot be changed by the tax officer, and a pre-deposit hike without authority is invalid.

Rule 11UA permits valuation of shares either by the Net Asset Value method or the Discounted Cash Flow method, and the Assessing Officer may scrutinise the valuation report but cannot unilaterally substitute a different method chosen by the assessee. The impugned demand was therefore unsustainable to the extent it rested on replacing the chosen method. In stay proceedings, the Commissioner lacked authority to enhance the pre-deposit requirement from 20% to 50% without the requisite reference under the governing circular, making the enhancement prima facie without authority and supporting protection against coercive recovery.

---

---

Issues: (i) Whether, for determining the fair market value of shares under section 56(2)(viib), the Assessing Officer could discard the assessee's chosen Discounted Cash Flow method and substitute the Net Asset Value method; (ii) whether the Commissioner could enhance the pre-deposit requirement from 20% to 50% while dealing with the stay application.

Issue (i): Whether, for determining the fair market value of shares under section 56(2)(viib), the Assessing Officer could discard the assessee's chosen Discounted Cash Flow method and substitute the Net Asset Value method.

Analysis: Rule 11UA of the Income-tax Rules, 1962 permits the assessee to adopt either the Net Asset Value method or the Discounted Cash Flow method for valuation of shares. The Assessing Officer was entitled to scrutinise the valuation report and, if necessary, require a fresh valuation or make an independent determination. However, the valuation exercise had to remain within the method chosen by the assessee. The method itself could not be changed by the Assessing Officer merely because the report was not accepted. As the impugned demand arose from substitution of the Discounted Cash Flow method by the Net Asset Value method, the demand was not shown to be justified on that basis.

Conclusion: The Assessing Officer could not change the valuation method chosen by the assessee; the challenge to the demand on this ground succeeded in favour of the assessee.

Issue (ii): Whether the Commissioner could enhance the pre-deposit requirement from 20% to 50% while dealing with the stay application.

Analysis: The circular governing stay of demand did not confer suo motu power on the Commissioner to enhance the percentage directed by the Assessing Officer in the absence of the requisite reference. The enhancement from 20% to 50% was therefore prima facie without authority. In these circumstances, and pending consideration of the valuation issue in appeal, protection against coercive recovery was warranted.

Conclusion: The enhancement to 50% was held to be bad in law and relief was granted to the assessee.

Final Conclusion: The writ petition resulted in partial relief: recovery of the disputed demand was stayed for the period directed, with liberty to pursue stay before the appellate authority, while the impugned enhancement of the deposit condition was found unsustainable.

Ratio Decidendi: Where the statute or rule gives the assessee an option in the method of valuation, the Assessing Officer may scrutinise the valuation but cannot unilaterally substitute a different method; and a stay authority cannot enhance a pre-deposit condition beyond the power conferred by the governing circular or administrative framework.

---