JCIT Vs GTR Aluminium Pvt. Ltd. (ITAT Bangalore)
DCF Method Chosen by Assessee Is Binding—AO Cannot Switch to NAV Merely Because Projections Differ; Karnataka HC Ruling in Waterline Hotels Applied
The Revenue appealed against the order of CIT(A)/NFAC dated 12-10-2023 deleting the addition of ₹5,22,24,080 made u/s 56(2)(viib) on the ground that the Assessee’s share valuation under the DCF method was correct and the AO could not substitute it with the NAV method. The Tribunal first condoned a 50-day delay in Revenue’s filing, noting sufficient cause.
GTR Aluminium Pvt Ltd had issued 1,09,000 shares at ₹500 per share (₹10 face value + ₹490 premium). The Assessee obtained a certified valuation under the DCF method, as permitted under Rule 11UA(2)(b). The AO rejected DCF, adopted NAV of ₹20.88, and taxed the difference of ₹479.12 per share as income from other sources u/s 56(2)(viib), based on a 263 revision by the Pr.CIT.
CIT(A) deleted the addition, relying on Vodafone M-Pesa (Bom HC) and UKN Hospitality (ITAT Bangalore), holding that once the Assessee opts for DCF—one of the two permitted methods—the AO cannot unilaterally change the valuation method, although he may examine the correctness of the DCF workings.
Before ITAT, the Revenue argued that DCF projections were unrealistic as actual revenues in later years differed significantly, and therefore NAV should replace DCF. The Assessee countered that DCF is forward-looking and must be evaluated only on information available on the valuation date, not on hindsight of subsequent financials.
The Tribunal held that Rule 11UA(2) expressly grants the Assessee an option to choose between NAV and DCF, and once chosen, AO cannot discard DCF simply because future results differ. Relying heavily on the binding jurisdictional precedent—Waterline Hotels Pvt Ltd (ITAT Bangalore, affirmed by Karnataka High Court on 05-03-2025)—the Tribunal ruled that:
