The Delhi ITAT held that valuation of an unquoted equity share, in terms of Rule 11UA of the Rules can, at the option of the assessee, be determined as per either NAV Method or as per DCF Method, which means that the option is given to the assessee and once the assessee has exercised an option, the Assessing Officer is bound to follow the same unless by bringing cogent material on record, the Assessing Officer establishes perversity in the method adopted by the assessee.

The grievance of the department is that the CIT(A) erred in deleting the addition of Rs. 8 crores made by the Assessing Officer u/s 56(2)(viib) of the Income-tax Act, 1961 holding that the DCF Method is the correct method for valuation of shares.

The assessee company is a part of Max Group of hospitals. The assessee is a subsidiary company of Max Healthcare Institute Ltd., which is a subsidiary of Max India Ltd.

Return for the year under consideration was filed on 29.09.2005 declaring current year’s loss of Rs. 21,81,94,961/-. Return was selected for scrutiny assessment and, accordingly, statutory notices were issued and served upon the assessee.

During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has issued 20 lakhs equity shares at a premium of Rs. 40/- per share to M/s Max Healthcare Institute Limited and received share premium of Rs. 8 crores.

The assessee was asked to furnish valuation of shares as on date of allotment. The assessee submitted Business Valuation Report dated 09.03.2015. The value of shares as per Discounted Cash Flow [DCF] Method is Rs. 15,988/-.

The Assessing Officer noticed that there was a huge difference between the financial projections and actual projections submitted by the assessee. The assessee was asked to furnish share valuation certificate as per book valuation and was show caused to explain why share premium received should not be added u/s 56(2)(viib) of the Act.

The tribunal held that the action of the Assessing Officer in substituting the method of valuation is beyond jurisdiction. DCF Method is based on projections which are based on factors like growth of the company, economic/market conditions, business conditions, expected demand and supply, cost of capital and host of other factors.

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