Rejection of valuation as DCF method was not there in rule 11UA on date of issue of shares unjustified

ACIT Vs Etawah Chakeri (ITAT Delhi)

ITAT Delhi held that rejection of valuation merely on the ground that on the date of issue of shares, DCF method was not there in Rule 11UA of the ITAT Rules is unjustified in as much as AO failed to demonstrate that methodology adopted by the assessee was not correct.

Facts- The present appeal is preferred by the revenue contesting that CIT(A) has erred in deleting the addition of Rs.90 crores made by the Assessing Officer u/s 56(2)(viib) r.w.s 2(24)(xvi) of the Income-tax Act, 1961.

Notably, AO found that the assessee has issued 51 lakh shares on 29.8.2012 for a consideration of Rs.51 crores to Oriental Structural Engineers Projects Private Limited and 49 lakh shares for a consideration of Rs.49 crores to Oriental Tollways Ltd. Drawing support from the relevant provisions of the Act, AO was of the opinion that the relevant provisions provides for determination of fair market value of shares in accordance with sections 11 U and 11 UA of the Act and as per Rule 11 UA of the Act prevailing as on 01.04.2012. As regards valuation of unquoted equity shares NAV method was to be used. However, the CBDT, vide Notification No. 52/2012 dated 29.11.2012, amended Rule 11 UA and inserted an option to the assessee either to choose NAV or DCF method for determination of fair market value.

AO noted that since the assessee has issued shares on 29.08.2012, prior to the date of notification and insertion of DCF method, the assessee ought to have valued the fair market value of the shares by applying NAV method as, on the date of issue of shares, Rule 11 UA did not provide for computation of fair market value as per DCF method.

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