Unquoted share valuation under Rule 11UA: valuation method cannot be replaced, and the issue was sent back for fresh examination.

Valuation of unquoted shares under Rule 11UA remained central to the challenge to an addition under section 56(2)(viia), with the dispute turning on whether the Assessing Officer could replace the assessee's chosen valuation method. The text notes that the officer may examine the components of the valuation report and make adjustments where deficiencies exist, but cannot substitute the method itself. Because there was uncertainty about whether a later valuation report had been filed and both sides accepted that reconsideration was needed, the deletion of the addition was set aside and the matter was restored for fresh adjudication.

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Issues: Whether the addition made under section 56(2)(viia) of the Income-tax Act, 1961, arising from purchase of shares below the fair market value determined by the Assessing Officer under Rule 11UA of the Income-tax Rules, 1962, could be sustained, and whether the matter required fresh examination.

Analysis: The dispute turned on valuation of unquoted shares and the method adopted for determining fair market value under Rule 11UA. The valuation reports placed before the Assessing Officer reflected different approaches, including combined methods and a discounted cash flow valuation. It was noted that the Assessing Officer cannot substitute the valuation method chosen by the assessee, though the components of the valuation report may be examined and adjusted if deficiencies are found. As there was uncertainty whether the later valuation report had been filed before the Assessing Officer, and both sides agreed that the issue required reconsideration, the matter was found fit for fresh examination.

Conclusion: The deletion of the addition was set aside and the issue was restored to the Assessing Officer for fresh adjudication.

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