TaxTMI 
TaxTMI 
2026 (9) TMI 1786
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....facts that the valuation is based on the future projections of profit after tax, cash flows etc. for upcoming five years but along with the valuation report, no basis/justification/rationale to adopt these figures has been given? 2. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition of Rs3,37,80,000/-, ignoring the facts that the valuer has relied on the details, data and estimates provided by the management and no independent verification has been made so as to verify its accuracy genuineness and reasonableness? 3. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition ignoring the facts that the financial projections given by the assessee has not been verified/audited by the valuer? 4. Whether on the facts and in the circumstances of the case and in law, the ld. CIT(A) was justified in deleting the addition ignoring the facts that as per balance sheet for the financial year ending 31.03.2016, the FMV of shares as determined under rule 11 UA, comes to 62.48 per share. The formula given in rule 11 UA is prepared loo....
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....e appellant has duly substantiated the share issue price with expert valuation reports, both of which adopted prescribed methods and corroborated the price of Rs. 85 per share. The Assessing Officer's computation at Rs. 62.48 per share is strictly by formula, but the law clearly permits acceptance of substantiated valuation by the appellant if higher, as is held by judicial precedent relied upon by the appellant in its replies during the course of appellants proceedings. In this case, the substantiated value is higher and has not been shown to be invalid. Therefore, the addition made under section 56(2)(viib) cannot be sustained. In conclusion, while the objection regarding the validity of reassessment proceedings is dismissed, the addition of Rs. 3,37,80,000/- made u/s 56(2)(viib) is directed to be deleted. The valuation adopted by the appellant is accepted as valid and justified. 6.2 In the result, the appeal is partly allowed." 7. The learned Departmental Representative (hereinafter referred to as "the learned DR") supported the order of the AO and reiterated the grounds of appeal. It was contended that the valuation reports filed by the assessee were rightl....
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....r the value substantiated by the company to the satisfaction of the Assessing Officer based on the value of its assets. The method so prescribed is contained in Rule 11UA(2) of the Rules, which provides that the fair market value of unquoted equity shares shall be determined, at the option of the assessee, either as per the Net Asset Value method under clause (a) or as per the Discounted Cash Flow method by a merchant banker under clause (b). 11. A plain reading of Rule 11UA(2) of the Rules makes it clear that the choice of the method of valuation, whether the Net Asset Value method or the Discounted Cash Flow method, has been left to the option of the assessee. Once the assessee has exercised that option and has determined the fair market value in accordance with one of the prescribed methods, it is not open to the AO to discard that method and substitute a valuation of his own. The AO is undoubtedly entitled to examine the valuation report and to test the correctness of the basis adopted therein; but he can reject the valuation only by demonstrating that it has been arrived at on a wholly erroneous basis or on demonstrably wrong facts, and not merely because he entertains a di....
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....as founded on the data furnished by the assessee. Rejecting that approach, the Hon'ble Delhi High Court, at paragraph 26 of its order, held as under: "The learned ITAT had found that the disclaimers set out by the expert in the valuation report were general disclaimers and are common in all such reports furnished by experts as they are founded on the data as provided by the entity. The expert report could not be rejected on the ground of such disclaimers without the AO pointing out any material error in the data as used by the expert." 15. When the facts of the present case are examined in the light of the settled position noted above, we find no infirmity in the order of the learned CIT(A). The assessee had exercised its option under Rule 11UA(2) of the Rules and had substantiated the issue price of Rs. 85 per share by obtaining two valuation reports from independent Chartered Accountants, one under the Net Asset Value method and the other under the Discounted Cash Flow method. The objections raised by the AO, namely that the valuation rests on future projections, that the valuer relied on the data and estimates furnished by the management, and that the projections wer....