TaxTMI 
TaxTMI 
2026 (9) TMI 1884
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.... on the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs. 1,93,82,720/-made u/s. 56(2)(viib) by applying NAV Method since the valuation report as per DCF Method was not reliable since the valuer solely on the information provided by the assessee. 2. The appellant craves to leave to ament or alter any grounds or add new ground which may be necessary." 2. Brief facts of the case are as under:- Assessee is engaged in the business of selling and marketing non-alcoholic beer under the brand name "Coolberg". For the year under consideration, the assessee issued 1,962 equity shares having face value of Rs. 1,250/- each at a premium of Rs. 42,016/- per share. The issue pric....
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....the assessment order, the assessee preferred an appeal before the Ld.CIT(A). 3. The Ld.CIT(A), after considering the submissions by the assessee, and the valuation report placed on record, observed that Rule 11UA(2) recognises both the NAV and DCF methods as permissible methods for determining the FMV of unquoted equity shares and that the statutory option to select the appropriate method rests with the assessee. The Ld.CIT(A) further observed that the Ld. AO did not point out any arithmetical error, internal inconsistency or factual inaccuracy in the DCF computation. There was also no specific finding that the growth assumptions, discount rate or terminal value adopted by the Merchant Banker were contrary to contemporaneous material or ....
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....ula to figures furnished by the assessee without independently testing the reliability thereof. 4.2. The Ld. DR further emphasised that the valuer had projected Profit After Tax of approximately Rs. 5.45 crore for the year under consideration despite the assessee having incurred losses of approximately Rs. 8.48 crore and Rs. 10.30 crore in the immediately preceding years. According to the Ld. DR, there was no adequate explanation in the valuation report to justify such a substantial turnaround. It was therefore submitted that the DCF valuation was unreliable and that the Ld. AO was justified in adopting the NAV method. The Ld. DR accordingly prayed that the order of the Ld. CIT(A) be reversed and the addition made by the Ld. AO be restor....
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....er Rule 11UA, and thereafter substituting the same with valuation under the NAV method for the purpose of making an addition u/s. 56(2)(viib) of the Act. 6.1. It is undisputed that the assessee obtained the valuation from a Merchant Banker and adopted the DCF method. The FMV arrived at under the said report was Rs. 43,281.77/- per share, whereas the shares were actually issued at Rs. 43,266/- per share. Thus, the issue price was marginally below the FMV determined by the valuer under the method opted for by the assessee. 6.2. We find that an identical controversy was considered by the Coordinate Bench in DCIT v. Max Hospitals and Allied Services Limited (supra). In that case also, the assessee adopted DCF method for valuation of share....
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..... The Ld. AO cannot discard the DCF method and substitute the NAV method merely because he considers the projections unacceptable. 6.6. In the present case, the principal objection of the Revenue is that the valuer relied upon information and projections furnished by the management and did not independently verify such projections. We are unable to accept this objection as sufficient to sustain the action of the Ld.AO. We note that DCF valuation, proceeds on estimated future cash flows and management projections. The mere fact that such projections originate from the management does not ipso facto render the valuation unreliable. The argument of the Ld. DR that the assessee projected profit of Rs. 5.45 crore despite losses in preceding y....