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Section 56(2)(viib) is inserted to tax receipt of consideration that is in excess of fair value of shares issued by the company. FMV meaning value arrived at either by net assets value method or discounted cash flow method. The choice lies with assessee. However when it comes to opting for DCF method there is no choice available in selection of an expert. 

 The all time settled proposition and also an old saying that the Revenue cannot sit in the armchair of the businessman to decide what is profitable and how business should be carried out has come into focus in (2023] 107 ITR (Trib) 11 (ITAT[Chand] where the CIT using S. 263 power insisted for Net Asset value Method over DCF method of valuation for premium realised on issue of shares by this start-up company but the hon’ble ITAT bench held it not possible as according to it the choice/option/discretion rests with the assessee under the rule. 

 In this case a valuation report was obtained from a Chartered Accountant for determining fair market value of the unquoted equity share as per the DCF method and the same has been accepted by the AO. 

 The old maxim likewise should have equal application when it comes to choosing the expert to undertake the valuation on DCF method.  The decision to choose the method or the expert essentially should be that of the company by this premise. 

 In the light of this decision of Chandigarh Tribunal it is not proper to contain  the choice or liberty in the selection of expert to undertake valuation as per DCF method to a merchant banker only even when the rule so prescribe as much as it is an unreasonable restriction on the fundamental rights to carry on business. 

 ICAI may have every reason to challenge rule 11UA amendment in the Court of law on the basis of this ruling facts. 




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