Sec. 56(2)(viib)-Discounted cash flow method adopted by assessee -cannot be changed by AO without cogent reason – Projections employed in the DCF valuation cannot be compared with actual results to discard the valuation.

Assessing Officer cannot challenge the method of valuation adopted by the assessee for the purpose of sec. 56(2)(viib) once the Assessee adopts one of the prescribed method. The method of valuation is always the option of the assessee. The learned assessing officer is authorised to examine whether assessee has adopted one of the available options properly or not. It is an established fact that discounted cash flow method is always based on future projections adopting certain parameters such as expected generation of cash flow, the discounted rate of return and cost of capital. In hindsight, on availability of the actual figures, if the future projections are not met, it cannot be said that the projections were wrong. If projected future cash flow and actual result matches, such situation would always be rare. As the exercise of valuation must be viewed as on the date of the valuation looking forward and cannot be reviewed in retrospect. Both the methods i.e. the NAV method and the DCF method have different approaches and methodologies. Therefore there are bound to be differences, but it does not give any authority to the assessing officer to pick and choose one of the method and make the addition. (ITA No. 7056/Mum/2019, dt. 19.01.2022) (A.Y. 2013-14)

Dy.CIT v. Credtalpha Alternative Investment Advisors Pvt. Ltd. (Mum.)(Trib.)
[Coram : Hon’ble MS SUCHITRA KAMBLE, JM AND HON’BLE SHRI PRASHANT MAHARISHI, AM]