The AO cannot change valuation method
Agra Portfolio (P.) Ltd. vs Principal Commissioner of Income-tax [ IT Appeal no. 1385 of 2018] Delhi HC
The company issued equity shares at a premium. In order to determine the value of the shares, the company relied on a valuation report prepared by a merchant banker using the DCF method, valuing each share at Rs. 9.60.
However, the Assessing Officer rejected this report, stating that the valuation was not realistic considering the company’s growth and status. The Officer noted that the report lacked detailed reasoning behind the assumptions made.
Consequently, the Assessing Officer independently assessed the value of each share at Rs. 40.40 and added this amount to the assessee’s income under section 56(2)(viib).
The language of rule 11UA(2) gives the assessee the option to either follow the prescribed route in clause (a) or present a Valuation Report by a merchant banker using the DCF method to the Assessing Officer. While the Assessing Officer may question or dismiss a valuation submitted for consideration, the statute does not seem to authorize the Officer to independently evaluate the face value of unquoted equity shares using a different method than the one chosen by the assessee.
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