Can the AO switch my valuation from DCF to NAV because the NAV figure suits him better?
No. The officer may scrutinise the valuation report and may even call for a fresh valuation from an independent valuer, but he cannot change the method the assessee opted for under Rule 11UA — any fresh valuation must stay on the DCF basis.
Decided by the High Court (Bombay High Court (M.S. Sanklecha and Sandeep K. Shinde, JJ.); Writ Petition No. 654 of 2018) on 2018-03-01, reported as [2018] 92 taxmann.com 73 (Bombay) / [2018] 256 Taxman 240 (Bombay); Writ Petition No. 654 of 2018; assessment year 2015-16. It bears on section 220(6), section 56(2)(viib), section 143(3), section Rule 11UA, section Rule 11UA(2)(a), section Rule 11UA(2)(b) of the Income Tax Act 1961, in Gifts, Shares & Angel Tax matters.
This draws the practical line in every angel tax scrutiny: the officer has an inquisitorial power over the correctness of the report, but not over the choice of method. It is the High Court authority later Tribunal benches have relied on, including Narang Access Pvt Ltd v DCIT, so it is worth citing ahead of Tribunal orders on the same point. It does not give you a free pass on the inputs — expect the assumptions to be tested. Section 56(2)(viib) is stated to be inapplicable from AY 2025-26, so the point is live only for earlier years.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2015-16 the Assessing Officer passed an order under s.143(3) on 21 December 2017 raising a demand of Rs 62.38 crore. The demand arose under s.56(2)(viib) on the fair market value of shares the assessee had issued at a premium to its holding company. The assessee had exercised the option in Rule 11UA(2) and produced a merchant banker's valuation report dated 11 March 2015 putting the fair market value at Rs 24.79 a share on the Discounted Cash Flow method. The Assessing Officer found the report not credible and, instead of testing it, abandoned the DCF method and valued the shares on the Net Asset Value method. The assessee appealed to the Commissioner (Appeals) on 23 January 2018 and applied under s.220(6) for a complete stay; on 29 January 2018 the Assessing Officer directed payment of 20 per cent. A first writ petition, No. 389 of 2018, was disposed of on 16 February 2018 after the assessee was directed to apply to the Commissioner under the CBDT Office Memorandum of 29 February 2016. By order dated 23 February 2018 the Commissioner raised the figure to 50 per cent. That order was challenged in this petition. The Revenue's answer was that the projected sales figures underlying the DCF valuation had turned out to be inflated when measured against actuals for 2015-16 to 2017-18, and that some demand would survive even on a corrected DCF working.
This is an order on a stay application, not a final ruling on valuation. Two holdings. First, and the one the report headlines, the Commissioner had no power to enhance suo motu the 20 per cent the Assessing Officer had ordered to 50 per cent: under the CBDT Office Memorandum of 29 February 2016 an enhancement above 20 per cent can be made only on a reference by the Assessing Officer to the Administrative Principal Commissioner, so that direction was prima facie bad in law (para 8). Second, on the merits of the stay, the Commissioner had not dealt with the assessee's primary grievance even though he accepted that the choice between the NAV and DCF methods is the assessee's. There is no immunity from scrutiny of a valuation report: the Assessing Officer is entitled to scrutinise it and to determine a fresh valuation himself or through an independent valuer, but the basis has to be the DCF method and he cannot change the method the assessee has opted for. Since he had disregarded the DCF method entirely and had not worked out what the demand would be on a corrected DCF basis, the demand needed to be stayed (para 9). The relief was correspondingly limited: the assessment order was stayed as to the demand for four weeks, and if the assessee applied to the Commissioner (Appeals) within that period the demand of Rs 62.38 crore would be stayed until that stay application was disposed of and for two weeks after (para 10). The Court expressly left the fair market value question to the Commissioner (Appeals) as the issue in the pending appeal, and made clear he was free to dispose of the whole appeal along with the stay application, the controversy being within a narrow compass (paras 10-11). The petition was disposed of on those terms (para 12).
On the first point the Court read the CBDT Office Memorandum of 29 February 2016 as the source of the Commissioner's administrative power in stay matters, and as permitting a deposit above 20 per cent only on a reference from the Assessing Officer to the Administrative Principal Commissioner; a Commissioner acting of his own motion is outside it (para 8). On the second, it drew the line between examining a valuation and rewriting it. Rule 11UA(2) gives the assessee the option of the NAV method under clause (a) or the DCF method under clause (b); the Commissioner himself conceded the option is the assessee's. The Assessing Officer retains full power to scrutinise the report and to have a fresh valuation made, by himself or by an independent valuer whose determination he must put to the assessee - but on the same basis, the DCF method, which he cannot displace. Having given the DCF method a complete go-by, and having failed to work out what the demand would be if the corrected figures were fed into a DCF valuation, he had left the Revenue's own case that part of the demand would survive unsupported by any figures, which is why the demand had to be stayed (para 9). The Court then declined to go further, because the fair market value of the shares was the very issue in the pending appeal (paras 10-11).
Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee.
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Handle my notice → Ask a CA on WhatsAppNo. The officer may scrutinise the valuation report and may even call for a fresh valuation from an independent valuer, but he cannot change the method the assessee opted for under Rule 11UA — any fresh valuation must stay on the DCF basis. This was decided by the High Court (Bombay High Court (M.S. Sanklecha and Sandeep K. Shinde, JJ.); Writ Petition No. 654 of 2018) and bears on section 220(6), section 56(2)(viib), section 143(3), section Rule 11UA, section Rule 11UA(2)(a), section Rule 11UA(2)(b) of the Income Tax Act 1961. It is reported as [2018] 92 taxmann.com 73 (Bombay) / [2018] 256 Taxman 240 (Bombay); Writ Petition No. 654 of 2018; assessment year 2015-16. This draws the practical line in every angel tax scrutiny: the officer has an inquisitorial power over the correctness of the report, but not over the choice of method. It is the High Court authority later Tribunal benches have relied on, including Narang Access Pvt Ltd v DCIT, so it is worth citing ahead of Tribunal orders on the same point. It does not give you a free pass on the inputs — expect the assumptions to be tested. Section 56(2)(viib) is stated to be inapplicable from AY 2025-26, so the point is live only for earlier years. If it applies to you, the first step is this: If the officer proposes to move you to NAV, object in writing before the assessment is framed that the choice of method under Rule 11UA is the assessee's and binds him once exercised.
For assessment year 2015-16 the Assessing Officer passed an order under s.143(3) on 21 December 2017 raising a demand of Rs 62.38 crore. The demand arose under s.56(2)(viib) on the fair market value of shares the assessee had issued at a premium to its holding company. The assessee had exercised the option in Rule 11UA(2) and produced a merchant banker's valuation report dated 11 March 2015 putting the fair market value at Rs 24.79 a share on the Discounted Cash Flow method. The Assessing Officer found the report not credible and, instead of testing it, abandoned the DCF method and valued the shares on the Net Asset Value method. The assessee appealed to the Commissioner (Appeals) on 23 January 2018 and applied under s.220(6) for a complete stay; on 29 January 2018 the Assessing Officer directed payment of 20 per cent. A first writ petition, No. 389 of 2018, was disposed of on 16 February 2018 after the assessee was directed to apply to the Commissioner under the CBDT Office Memorandum of 29 February 2016. By order dated 23 February 2018 the Commissioner raised the figure to 50 per cent. That order was challenged in this petition. The Revenue's answer was that the projected sales figures underlying the DCF valuation had turned out to be inflated when measured against actuals for 2015-16 to 2017-18, and that some demand would survive even on a corrected DCF working. The matter was decided on 2018-03-01 by the High Court (Bombay High Court (M.S. Sanklecha and Sandeep K. Shinde, JJ.); Writ Petition No. 654 of 2018). On those facts the High Court held as follows. This is an order on a stay application, not a final ruling on valuation. Two holdings. First, and the one the report headlines, the Commissioner had no power to enhance suo motu the 20 per cent the Assessing Officer had ordered to 50 per cent: under the CBDT Office Memorandum of 29 February 2016 an enhancement above 20 per cent can be made only on a reference by the Assessing Officer to the Administrative Principal Commissioner, so that direction was prima facie bad in law (para 8). Second, on the merits of the stay, the Commissioner had not dealt with the assessee's primary grievance even though he accepted that the choice between the NAV and DCF methods is the assessee's. There is no immunity from scrutiny of a valuation report: the Assessing Officer is entitled to scrutinise it and to determine a fresh valuation himself or through an independent valuer, but the basis has to be the DCF method and he cannot change the method the assessee has opted for. Since he had disregarded the DCF method entirely and had not worked out what the demand would be on a corrected DCF basis, the demand needed to be stayed (para 9). The relief was correspondingly limited: the assessment order was stayed as to the demand for four weeks, and if the assessee applied to the Commissioner (Appeals) within that period the demand of Rs 62.38 crore would be stayed until that stay application was disposed of and for two weeks after (para 10). The Court expressly left the fair market value question to the Commissioner (Appeals) as the issue in the pending appeal, and made clear he was free to dispose of the whole appeal along with the stay application, the controversy being within a narrow compass (paras 10-11). The petition was disposed of on those terms (para 12).
On the first point the Court read the CBDT Office Memorandum of 29 February 2016 as the source of the Commissioner's administrative power in stay matters, and as permitting a deposit above 20 per cent only on a reference from the Assessing Officer to the Administrative Principal Commissioner; a Commissioner acting of his own motion is outside it (para 8). On the second, it drew the line between examining a valuation and rewriting it. Rule 11UA(2) gives the assessee the option of the NAV method under clause (a) or the DCF method under clause (b); the Commissioner himself conceded the option is the assessee's. The Assessing Officer retains full power to scrutinise the report and to have a fresh valuation made, by himself or by an independent valuer whose determination he must put to the assessee - but on the same basis, the DCF method, which he cannot displace. Having given the DCF method a complete go-by, and having failed to work out what the demand would be if the corrected figures were fed into a DCF valuation, he had left the Revenue's own case that part of the demand would survive unsupported by any figures, which is why the demand had to be stayed (para 9). The Court then declined to go further, because the fair market value of the shares was the very issue in the pending appeal (paras 10-11). In the words reproduced by the source cited on this page: "Therefore, the Assessing Officer is undoubtedly entitled to scrutinise the valuation report and determine a fresh valuation either by himself or by calling for a final determination from an independent valuer to confront the petitioner. However, the basis has to be the DCF Method and it is not open to him to change the method of valuation which has been opted for by the Assessee." The decision followed or applied Followed by the Delhi High Court in Agra Portfolio (P.) Ltd. v. Pr. CIT [2024] 161 taxmann.com 303 (Delhi), IT Appeal No. 1385 of 2018, 4 April 2024 (Yashwant Varma and Purushaindra Kumar Kaurav, JJ.), whose case review records this decision followed (para 17) and which set aside the Tribunal's contrary order in Agro Portfolio (P.) Ltd. v. ITO [2018] 94 taxmann.com 112 / 171 ITD 74 (Delhi - Trib.).
It was decided by the High Court on 2018-03-01 and is reported as [2018] 92 taxmann.com 73 (Bombay) / [2018] 256 Taxman 240 (Bombay); Writ Petition No. 654 of 2018; assessment year 2015-16. Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 220(6), section 56(2)(viib), section 143(3), section Rule 11UA, section Rule 11UA(2)(a), section Rule 11UA(2)(b), 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 taxpayer. This is an order on a stay application, not a final ruling on valuation. Two holdings. First, and the one the report headlines, the Commissioner had no power to enhance suo motu the 20 per cent the Assessing Officer had ordered to 50 per cent: under the CBDT Office Memorandum of 29 February 2016 an enhancement above 20 per cent can be made only on a reference by the Assessing Officer to the Administrative Principal Commissioner, so that direction was prima facie bad in law (para 8). Second, on the merits of the stay, the Commissioner had not dealt with the assessee's primary grievance even though he accepted that the choice between the NAV and DCF methods is the assessee's. There is no immunity from scrutiny of a valuation report: the Assessing Officer is entitled to scrutinise it and to determine a fresh valuation himself or through an independent valuer, but the basis has to be the DCF method and he cannot change the method the assessee has opted for. Since he had disregarded the DCF method entirely and had not worked out what the demand would be on a corrected DCF basis, the demand needed to be stayed (para 9). The relief was correspondingly limited: the assessment order was stayed as to the demand for four weeks, and if the assessee applied to the Commissioner (Appeals) within that period the demand of Rs 62.38 crore would be stayed until that stay application was disposed of and for two weeks after (para 10). The Court expressly left the fair market value question to the Commissioner (Appeals) as the issue in the pending appeal, and made clear he was free to dispose of the whole appeal along with the stay application, the controversy being within a narrow compass (paras 10-11). The petition was disposed of on those terms (para 12). It arises in Gifts, Shares & Angel Tax matters, on section 220(6), section 56(2)(viib), section 143(3), section Rule 11UA, section Rule 11UA(2)(a), section Rule 11UA(2)(b) of the Income Tax Act 1961, and was decided by Bombay High Court (M.S. Sanklecha and Sandeep K. Shinde, JJ.); Writ Petition No. 654 of 2018. 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. Where a fresh valuation is called for from an independent valuer, check that the reference asks for a DCF valuation and object at once if it asks for NAV. Be ready to defend the inputs and assumptions in the DCF report on their merits, since testing the correctness of the report is within the officer's power.
Still good law. Followed by the Delhi High Court in Agra Portfolio (P.) Ltd. v. Pr. CIT [2024] 161 taxmann.com 303 (Delhi), decided 4 April 2024, whose case review records this decision followed and which set aside a contrary Tribunal order on the same point. Two limits on its weight. It is an order on a stay application: the Court expressly left the fair market value question to be decided by the Commissioner (Appeals) in the pending appeal, so the observations on the DCF method, influential as they have been, were made in assessing a prima facie case. And s.56(2)(viib) itself, though still on the statute book, no longer reaches consideration received on or after 1 April 2025, the Finance (No. 2) Act 2024 having inserted a third proviso to that effect; the clause was not omitted, and the decision matters for receipts before that date and for the general proposition about an officer's power over a valuation report. Separately useful, and often overlooked, is the holding at para 8 that a Commissioner cannot on his own motion raise the deposit above the 20 per cent directed by the Assessing Officer - under the Office Memorandum of 29 February 2016 that can be done only on a reference by the Assessing Officer to the Administrative Principal Commissioner. 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 this for what it is: an order on a stay of demand under s.220(6), reported under that section, in which the Court's observations on valuation were made in deciding whether the assessee had a case strong enough to justify a stay. The fair market value question was expressly left to the Commissioner (Appeals) in the pending appeal, and the stay granted ran for four weeks with an extension if a stay application was filed. Its influence has nonetheless been real: the Delhi High Court followed it in Agra Portfolio (P.) Ltd. v. Pr. CIT [2024] 161 taxmann.com 303 (Delhi), 4 April 2024, and set aside a contrary Tribunal order. The other holding, at para 8, is worth citing in its own right: a Commissioner cannot of his own motion raise the deposit above the 20 per cent directed by the Assessing Officer, because under the CBDT Office Memorandum of 29 February 2016 that requires a reference by the Assessing Officer to the Administrative Principal Commissioner. Note finally that s.56(2)(viib) has not been omitted: the Finance (No. 2) Act 2024 inserted a third proviso disapplying the clause to consideration received on or after 1 April 2025, so the valuation point arises on receipts before that date. The judgment does not decide the fair market value or the correctness of the merchant banker's report; that was left to the Commissioner (Appeals) and the outcome is not recorded here. The report carries no citator banner, so whether the Revenue appealed is not established. The parallel citation (2018) SCC OnLine Bom 4323 carried in this entry was not on the citation line of the report consulted. 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.
This is an order on a stay application, not a final ruling on valuation. Two holdings. First, and the one the report headlines, the Commissioner had no power to enhance suo motu the 20 per cent the Assessing Officer had ordered to 50 per cent: under the CBDT Office Memorandum of 29 February 2016 an enhancement above 20 per cent can be made only on a reference by the Assessing Officer to the Administrative Principal Commissioner, so that direction was prima facie bad in law (para 8). Second, on the merits of the stay, the Commissioner had not dealt with the assessee's primary grievance even though he accepted that the choice between the NAV and DCF methods is the assessee's. There is no immunity from scrutiny of a valuation report: the Assessing Officer is entitled to scrutinise it and to determine a fresh valuation himself or through an independent valuer, but the basis has to be the DCF method and he cannot change the method the assessee has opted for. Since he had disregarded the DCF method entirely and had not worked out what the demand would be on a corrected DCF basis, the demand needed to be stayed (para 9). The relief was correspondingly limited: the assessment order was stayed as to the demand for four weeks, and if the assessee applied to the Commissioner (Appeals) within that period the demand of Rs 62.38 crore would be stayed until that stay application was disposed of and for two weeks after (para 10). The Court expressly left the fair market value question to the Commissioner (Appeals) as the issue in the pending appeal, and made clear he was free to dispose of the whole appeal along with the stay application, the controversy being within a narrow compass (paras 10-11). The petition was disposed of on those terms (para 12).
TaxSphere, “Vodafone M-Pesa Ltd v PCIT”, https://taxnotice.vittsphere.com/caselaw/case/vodafone-m-pesa-v-pcit-dcf-method/ (validity last checked 2026-08-19)
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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?
The department says my DCF projections never came true. Is that enough to tax my share premium?
My client's start-up took money from an overseas investor. Which valuation methods are open under Rule 11UA, and is there any tolerance if the issue price is a little above the valuation?
I have read that angel tax was abolished. Is section 56(2)(viib) gone from the statute book, and from which year does it stop applying?
