The Assessing Officer rejected our DCF valuation and computed fair market value on net asset value under Rule 11UA. Doesn't the Delhi High Court say the choice of method belongs to the company?
It does, but the choice is not the end of the enquiry. The Chennai Bench read the Delhi High Court in Agra Portfolio as holding both that the option and choice vest solely in the assessee on a conjoint reading of section 56(2)(viib) with Rule 11UA(2), and that it remains open to the Assessing Officer to doubt or reject a DCF valuation submitted for his consideration. On the facts — a premium fixed on a board resolution and a chartered accountant's opinion, with a DCF report unsigned and undated obtained only during the assessment three years after the issue, and no supporting material — the Bench held the officer rightly adopted the Rule 11UA(2) method and dismissed the appeal.
Decided by the ITAT (Shri S.S. Viswanethra Ravi, Judicial Member and Shri Amitabh Shukla, Accountant Member) on 2024-11-29, reported as I.T.A. No. 325/Chny/2023 (ITAT Chennai 'B' Bench). It bears on section 56(2)(viib), section Rule 11UA, section Rule 11UA(2), section Rule 11UA(2)(b), section Rule 11UA(3) of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, Evidence & Burden of Proof and Assessment & Scrutiny matters.
This is the Revenue side of the DCF-versus-NAV line for the open years, and it is more useful than a bare 'projections not substantiated' case because it engages the taxpayer's best authority and shows where it stops. Three findings do the work. First, timing: the CIT(A) held, and the Bench agreed, that there was no valuation by the DCF method at the time of issuance of the shares, and no basis for the premium of Rs 140 on a Rs 10 face value at that time. Second, quality: the report annexed to the letter of 18 March 2021 carried no signature and no date, and nothing was filed to support it beyond that annexure. Third, and importantly for anyone hoping the 2023 amendment cures a late report, the Bench rejected the argument that Rule 11UA(3) gives the assessee an open option as to the valuation date: sub-rule (3) works from a merchant banker's report dated not more than ninety days before the issue, and where there was no report at the time of issue at all, the option is not engaged. Note that section 56(2)(viib) has been switched off from 1 April 2025 by the third proviso inserted by the Finance (No. 2) Act 2024, so this line governs the open earlier years — here, AY 2018-19.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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For AY 2018-19 the assessee company allotted shares to its promoters and existing shareholders at a premium of Rs 140 on a face value of Rs 10, taking the fair market value at Rs 150 per share on the basis of a decision of its board of directors and an opinion of a chartered accountant, with the consequent filing before the Registrar of Companies. The Assessing Officer did not accept that method and determined fair market value under Rule 11UA of the Income-tax Rules, 1962 on net asset value at Rs 63.47 per share, as recorded at page 4 of the assessment order. The assessee was show-caused and replied in writing pointing out errors; the officer rejected the reply for want of supporting documents. By a letter dated 18 March 2021, before the assessment was completed on 19 April 2021, the assessee placed a report on fair market value under the DCF method, arriving at Rs 196.98 per share as on 16 March 2018; the report was annexed as annexures A and B and, on the Bench's perusal, bore neither signature nor date. The CIT(A) confirmed the addition, holding that the assessee had not obtained a DCF valuation on or before arriving at the fair market value of Rs 150 and that a DCF valuation before issue is a pre-requisite, and relying on the Tribunal's decision in Agra Portfolio (P.) Ltd. Before the Tribunal the assessee relied on the Delhi High Court's decision in Agra Portfolio (P.) Ltd. v. PCIT, which had set aside the Tribunal's order, and on the Income Tax (Twenty First Amendment) Rules, 2023 inserting the valuation-date option in Rule 11UA(3), and on a coordinate-bench order in Brio Bliss Life Science P. Ltd.
The appeal was dismissed. The Assessing Officer, having considered the DCF report furnished by the assessee and rejected it because the assessee failed to produce supporting documents and it was prepared on discussion with the management, rightly adopted the method under Rule 11UA(2) in determining the fair market value of the unquoted shares at Rs 63.47; and there was admittedly no valuation by the DCF method at the time of issuance of the shares (para 9). The argument that Rule 11UA(3) leaves the valuation date to the assessee's option was rejected, because the CIT(A) had found there was no merchant banker's valuation report at the time of issuance of the shares (para 10). Brio Bliss Life Science was distinguished on the footing that there the matter had been remanded whereas here the report was already before the Assessing Officer and had been held not acceptable; the CIT(A)'s reasons were agreed with in full and the invocation of section 56(2)(viib) read with Rule 11UA held justified (para 11). Grounds 1 to 10 were dismissed and the appeal dismissed (paras 11 and 12).
The Bench accepted, on its reading of the Delhi High Court's decision, that the option and choice of method vest solely in the assessee on a conjoint reading of section 56(2)(viib) with Rule 11UA(2), and equally that it is open to the Assessing Officer to doubt or reject a DCF valuation submitted for his consideration (para 9). It then applied that to the record: the officer had in fact considered the DCF report and rejected it for stated reasons — no supporting documents, and preparation based on discussion with the management — and nothing further had been filed before the Tribunal except the annexures to the letter of 18 March 2021. The Bench separately noted that the report bore no signature or date. On Rule 11UA(3) it read the sub-rule as operating on a merchant banker's report dated not more than ninety days before the date of issue, and since the finding below was that there was no such report at the time of issue, the option could not be invoked to validate a report obtained in 2021 for shares issued in March 2018 (para 10).
Therefore, we find the Assessing Officer rightly adopted the method under Rule 11UA(2) of the IT Rules in determining the FMV of the unquoted shares at ₹.63.47.
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Handle my notice → Ask a CA on WhatsAppIt does, but the choice is not the end of the enquiry. The Chennai Bench read the Delhi High Court in Agra Portfolio as holding both that the option and choice vest solely in the assessee on a conjoint reading of section 56(2)(viib) with Rule 11UA(2), and that it remains open to the Assessing Officer to doubt or reject a DCF valuation submitted for his consideration. On the facts — a premium fixed on a board resolution and a chartered accountant's opinion, with a DCF report unsigned and undated obtained only during the assessment three years after the issue, and no supporting material — the Bench held the officer rightly adopted the Rule 11UA(2) method and dismissed the appeal. This was decided by the ITAT (Shri S.S. Viswanethra Ravi, Judicial Member and Shri Amitabh Shukla, Accountant Member) and bears on section 56(2)(viib), section Rule 11UA, section Rule 11UA(2), section Rule 11UA(2)(b), section Rule 11UA(3) of the Income Tax Act 1961. It is reported as I.T.A. No. 325/Chny/2023 (ITAT Chennai 'B' Bench). This is the Revenue side of the DCF-versus-NAV line for the open years, and it is more useful than a bare 'projections not substantiated' case because it engages the taxpayer's best authority and shows where it stops. Three findings do the work. First, timing: the CIT(A) held, and the Bench agreed, that there was no valuation by the DCF method at the time of issuance of the shares, and no basis for the premium of Rs 140 on a Rs 10 face value at that time. Second, quality: the report annexed to the letter of 18 March 2021 carried no signature and no date, and nothing was filed to support it beyond that annexure. Third, and importantly for anyone hoping the 2023 amendment cures a late report, the Bench rejected the argument that Rule 11UA(3) gives the assessee an open option as to the valuation date: sub-rule (3) works from a merchant banker's report dated not more than ninety days before the issue, and where there was no report at the time of issue at all, the option is not engaged. Note that section 56(2)(viib) has been switched off from 1 April 2025 by the third proviso inserted by the Finance (No. 2) Act 2024, so this line governs the open earlier years — here, AY 2018-19. If it applies to you, the first step is this: Obtain the merchant banker's valuation before the shares are issued, dated, signed, and within the ninety-day window in Rule 11UA(3); a report generated during assessment is the fact that loses these cases.
For AY 2018-19 the assessee company allotted shares to its promoters and existing shareholders at a premium of Rs 140 on a face value of Rs 10, taking the fair market value at Rs 150 per share on the basis of a decision of its board of directors and an opinion of a chartered accountant, with the consequent filing before the Registrar of Companies. The Assessing Officer did not accept that method and determined fair market value under Rule 11UA of the Income-tax Rules, 1962 on net asset value at Rs 63.47 per share, as recorded at page 4 of the assessment order. The assessee was show-caused and replied in writing pointing out errors; the officer rejected the reply for want of supporting documents. By a letter dated 18 March 2021, before the assessment was completed on 19 April 2021, the assessee placed a report on fair market value under the DCF method, arriving at Rs 196.98 per share as on 16 March 2018; the report was annexed as annexures A and B and, on the Bench's perusal, bore neither signature nor date. The CIT(A) confirmed the addition, holding that the assessee had not obtained a DCF valuation on or before arriving at the fair market value of Rs 150 and that a DCF valuation before issue is a pre-requisite, and relying on the Tribunal's decision in Agra Portfolio (P.) Ltd. Before the Tribunal the assessee relied on the Delhi High Court's decision in Agra Portfolio (P.) Ltd. v. PCIT, which had set aside the Tribunal's order, and on the Income Tax (Twenty First Amendment) Rules, 2023 inserting the valuation-date option in Rule 11UA(3), and on a coordinate-bench order in Brio Bliss Life Science P. Ltd. The matter was decided on 2024-11-29 by the ITAT (Shri S.S. Viswanethra Ravi, Judicial Member and Shri Amitabh Shukla, Accountant Member). On those facts the ITAT held as follows. The appeal was dismissed. The Assessing Officer, having considered the DCF report furnished by the assessee and rejected it because the assessee failed to produce supporting documents and it was prepared on discussion with the management, rightly adopted the method under Rule 11UA(2) in determining the fair market value of the unquoted shares at Rs 63.47; and there was admittedly no valuation by the DCF method at the time of issuance of the shares (para 9). The argument that Rule 11UA(3) leaves the valuation date to the assessee's option was rejected, because the CIT(A) had found there was no merchant banker's valuation report at the time of issuance of the shares (para 10). Brio Bliss Life Science was distinguished on the footing that there the matter had been remanded whereas here the report was already before the Assessing Officer and had been held not acceptable; the CIT(A)'s reasons were agreed with in full and the invocation of section 56(2)(viib) read with Rule 11UA held justified (para 11). Grounds 1 to 10 were dismissed and the appeal dismissed (paras 11 and 12).
The Bench accepted, on its reading of the Delhi High Court's decision, that the option and choice of method vest solely in the assessee on a conjoint reading of section 56(2)(viib) with Rule 11UA(2), and equally that it is open to the Assessing Officer to doubt or reject a DCF valuation submitted for his consideration (para 9). It then applied that to the record: the officer had in fact considered the DCF report and rejected it for stated reasons — no supporting documents, and preparation based on discussion with the management — and nothing further had been filed before the Tribunal except the annexures to the letter of 18 March 2021. The Bench separately noted that the report bore no signature or date. On Rule 11UA(3) it read the sub-rule as operating on a merchant banker's report dated not more than ninety days before the date of issue, and since the finding below was that there was no such report at the time of issue, the option could not be invoked to validate a report obtained in 2021 for shares issued in March 2018 (para 10). In the words reproduced by the source cited on this page: "Therefore, we find the Assessing Officer rightly adopted the method under Rule 11UA(2) of the IT Rules in determining the FMV of the unquoted shares at ₹.63.47." The decision followed or applied Agra Portfolio (P.) Ltd. v. PCIT (Delhi High Court) — as read and applied by the Bench; Brio Bliss Life Science P. Ltd. v. ITO, ITA No. 3067/Chny/2019 dated 22 February 2023 — distinguished.
It was decided by the ITAT on 2024-11-29 and is reported as I.T.A. No. 325/Chny/2023 (ITAT Chennai 'B' Bench). Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 56(2)(viib), section Rule 11UA, section Rule 11UA(2), section Rule 11UA(2)(b), section Rule 11UA(3), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. The Assessing Officer, having considered the DCF report furnished by the assessee and rejected it because the assessee failed to produce supporting documents and it was prepared on discussion with the management, rightly adopted the method under Rule 11UA(2) in determining the fair market value of the unquoted shares at Rs 63.47; and there was admittedly no valuation by the DCF method at the time of issuance of the shares (para 9). The argument that Rule 11UA(3) leaves the valuation date to the assessee's option was rejected, because the CIT(A) had found there was no merchant banker's valuation report at the time of issuance of the shares (para 10). Brio Bliss Life Science was distinguished on the footing that there the matter had been remanded whereas here the report was already before the Assessing Officer and had been held not acceptable; the CIT(A)'s reasons were agreed with in full and the invocation of section 56(2)(viib) read with Rule 11UA held justified (para 11). Grounds 1 to 10 were dismissed and the appeal dismissed (paras 11 and 12). It arises in Gifts, Shares & Angel Tax, Evidence & Burden of Proof and Assessment & Scrutiny matters, on section 56(2)(viib), section Rule 11UA, section Rule 11UA(2), section Rule 11UA(2)(b), section Rule 11UA(3) of the Income Tax Act 1961, and was decided by Shri S.S. Viswanethra Ravi, Judicial Member and Shri Amitabh Shukla, Accountant Member. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. File the underlying material with the report — the assumptions, the basis of the projections, the working — because the rejection here rested on the absence of anything beyond the annexures. When relying on the Delhi High Court's Agra Portfolio line, quote both halves of it: the choice of method is the assessee's, and the officer may still doubt or reject the valuation submitted. Do not treat Rule 11UA(3) as an answer to a late report; it presupposes a merchant banker's report predating the issue by not more than ninety days. State the assessment year: for AY 2025-26 and later the clause does not apply at all.
Searched for later treatment; none was found. That is not the same as a source affirming it. The citator returns nothing. A name search returns 69 documents, but they are Madras, Andhra Pradesh and Kerala High Court contract, works and State-tax matters involving this company; none is an income-tax appeal and none concerns section 56(2)(viib) or Rule 11UA(2). No later Tribunal order applying or doubting the holding — that the choice of valuation method vests in the assessee on a conjoint reading of section 56(2)(viib) with Rule 11UA(2), following the Delhi High Court in Agra Portfolio, but that the choice does not end the enquiry — was found, and no appeal against this order. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Read paragraphs 8 to 12; the order ends with the disposal at para 12. The Delhi High Court decision is named throughout this order as 'Agra Portfolio (P.) Ltd. v. PCIT'; the Tribunal order it set aside is also referred to as 'Agra Portfolio (P.) Ltd.' — this library elsewhere carries the name as Agro Portfolio, and the discrepancy is left as printed here because I did not retrieve the High Court judgment. Everything this entry says about that decision is the Chennai Bench's characterisation of it, including the reference to its para 17, and NOT a reading of the judgment itself; no words are attributed to the High Court. Paragraphs 1 to 7 were not transcribed on this build, so the assessment and first-appeal history is taken from paras 8 and 9 as returned. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed. The Assessing Officer, having considered the DCF report furnished by the assessee and rejected it because the assessee failed to produce supporting documents and it was prepared on discussion with the management, rightly adopted the method under Rule 11UA(2) in determining the fair market value of the unquoted shares at Rs 63.47; and there was admittedly no valuation by the DCF method at the time of issuance of the shares (para 9). The argument that Rule 11UA(3) leaves the valuation date to the assessee's option was rejected, because the CIT(A) had found there was no merchant banker's valuation report at the time of issuance of the shares (para 10). Brio Bliss Life Science was distinguished on the footing that there the matter had been remanded whereas here the report was already before the Assessing Officer and had been held not acceptable; the CIT(A)'s reasons were agreed with in full and the invocation of section 56(2)(viib) read with Rule 11UA held justified (para 11). Grounds 1 to 10 were dismissed and the appeal dismissed (paras 11 and 12).
TaxSphere, “SPL Infrastructure Pvt. Ltd. v ITO — the choice of method is the assessee's, but a DCF report first produced during assessment does not displace the officer's NAV computation, and Rule 11UA(3) does not help”, https://taxnotice.vittsphere.com/caselaw/case/spl-infrastructure-v-ito-dcf-report-produced-only-during-assessment/ (validity last checked 2026-09-08)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
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