The assessee issued shares at a premium of ₹10 per share based on a Chartered Accountant’s valuation using the DCF method as prescribed under Rule 11UA(2)(b). The AO rejected the valuation citing unrealistic projections and absence of tangible assets, and added the premium to income u/s 56(2)(viib). The CIT(A) noted that in AY 2018–19, the same valuer’s report was accepted by the department and deleted the addition. The Tribunal, following Cinestaan Entertainment (P.) Ltd. v. ITO [2019] 106 taxmann.com 300 (Delhi)(Trib) affirmed in PCIT v. Cinestaan Entertainment (P.) Ltd.[2021] 433 ITR [2021] 433 ITR 82 (Delhi)(HC), held that where a recognised method prescribed in law is adopted by a qualified valuer, the AO cannot substitute his own valuation or reject it merely because projections differ from actual results. Variations are inherent in DCF valuation, which is based on reasonable estimates. Deletion of addition upheld. (AYs 2016–17, 2017–18) (ITA Nos. 3083–3084/Mum/2025, dt. 11-8-2025 )
Max Hospitals and Allied Services Ltd. v. DCIT, (Mum)(Trib)www.itatonline.org
S. 56 : Income from other sources – Share premium – Valuation under DCF method – AO cannot substitute or reject valuation done by a prescribed valuer without authority – Projection variations with actuals cannot be a ground to disregard valuation – Deletion of addition justified. [S. 56(2)(viib), 11UA(2)(b) ]
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