ITAT Delhi: Intermesh Shopping Network Pvt. Ltd. vs. ITO, Ward-12(3), Delhi
ITA No.1587/Mum/2024
Order dated 1 December, 2025 ( AY 2016-17)
The Delhi Bench of the Tribunal Evaluated whether a large addition under section 56(2)(viib) could be maintained where the assessee had issued shares at different premiums to different investors and had relied upon a discounted cash-flow (DCF) valuation prepared by a qualified valuer. The Commissioner (Appeals) had upheld an addition exceeding Rs. 8.39 crore on the ground that the projections were unrealistic and the valuation report contained disclaimers. The Tribunal addressed the validity of such rejection in light of binding judicial precedents.
Core Issue:- The main question was whether the Assessing Officer was justified in rejecting a DCF valuation furnished by an approved valuer and substituting it with his own NAV-based valuation under Rule 11UA, for the aim of invoking section 56(2)(viib).
Facts:- The assessee had allotted equity shares to four investors. While three persons subscribed at a premium of Rs. 460 per share, another investor, Mr. Naveen Arya, subscribed at a premium of Rs. 10,810 per share. The higher premium was supported by a valuation report issued by Himanshu Bansal & Co., Chartered Accountants, applying the DCF method with an 18 percent discount rate. The valuer had examined projected cash flows supplied by the management, and the investment agreement corroborated that the projections had been scrutinised by the investor and formed the basis of valuation.
The Assessing Officer doubted the reliability of the projections and objected to standard disclaimers in the valuation report. Although the valuer appeared under summons and confirmed the valuation on oath, the Assessing Officer rejected the DCF report and substituted the valuation with the NAV method, resulting in a fair market value of Rs. 200 per share. The differential amount was added under section 56(2)(viib) and the first appellate authority affirmed the addition.
Statutory Scheme:- Rule 11UA recognises both NAV and DCF methodologies. Where the assessee opts for a recognised method and furnishes a valuation by a qualified expert, the Assessing Officer may interfere only if serious infirmities exist or by obtaining a counter-valuation through the Valuation Officer. Section 56(2)(viib) cannot be invoked merely because projections subsequently turn out differently.
Case Law Discussed and Relied Upon
The Tribunal considered multiple judicial precedents, including:
1. Agra Portfolio Pvt. Ltd. v. ITO, ITA No. 2189 /Del /2018 (ITAT) , which had earlier supported the Assessing Officer,
but was later reversed by the Delhi High Court in PCIT v. Agra Portfolio Pvt.Ltd. (2024) 464 ITR 348 (Del).
The High Court held that DCF valuation can not be declined merely because projections differ from actual results and that Revenue can not sit in the armchair of a business man while evaluating valuation assumptions.
2. PCIT v. Cinestaan Entertainment Pvt.Ltd.(2021) 433 ITR 82 (Del), a significant jurisdictional High Court ruling. The judgment emphasised that once the assessee furnishes a valuation from a qualified expert using a established method, the Assessing Officer can not dismiss it merely because he prefers a different method.The Court held that estimation errors or variances in projections do not justify rejection of DCF-based fair market valuation.
These decisions are directly applicable and form binding law for the Delhi Tribunal.
Tribunal’s Analysis:- The Tribunal held that the Assessing Officer’s approach was legally untenable. Once the valuer appeared in person and confirmed the methodology, assumptions and reports, the Assessing Officer had no basis to discard the valuation merely due to hindsight comparison of projections with actual figures. Variance between projected and real outcomes is inherent to the DCF model.
The Tribunal further observed that the disclaimers in the valuation report were standard and present in almost all valuation exercises performed by chartered accountants, merchant bankers and other experts. Such disclaimers do not dilute the evidentiary value of the valuation nor render it unreliable.
If the Assessing Officer had reservations, the proper course would have been to refer the matter to the Valuation Officer. No such reference was made. Instead, the Assessing Officer adopted the NAV method solely on the basis of his disagreement with projections, which is impermissible under binding High Court rulings.
The Tribunal also took note that the assessee had furnished an additional valuation report prepared by a merchant banker before the appellate authority, which further corroborated the CA’s valuation.In view of the above, and in light of the Delhi High Court’s rulings in Cinestaan Entertainment Pvt. Ltd.(433 ITR 82) and Agra Portfolio Pvt. Ltd. (464 ITR 348), the Tribunal held that the DCF valuation could not be rejected and the addition under section 56(2)(viib) was unsustainable.
Decision:- The Tribunal directed the deletion of the entire addition of Rs. 8,39,55,840 made under section 56(2)(viib). The appeal of the assessee was allowed.
Note:-
The ruling reinforces that DCF valuation, once prepared by a qualified expert under a recognised methodology, cannot be rejected merely due to projection-actual variances.
Standard disclaimers in valuation reports do not invalidate them.
Revenue cannot substitute its preferred NAV-based value without referring the matter to the Valuation Officer.
By,
Ajay Kumar Agarwal, FCA
Sr. Partner
Ajay K. Agarwal & Associates Chartered Accountants, New Delhi
(N.B: All statements, opinions, and analysis presented in this article represent the independent personal views of the author and do not necessarily reflect the views of publication or its editorial team.)
