The Tribunal held that the DCF method is also a recognised method under Rule 11UA of the Income Tax Act and the AO's rejection based on the non-achievement of projected turnover in the DCF valuation is not justified.
Nidhi | Dec 4, 2025 |
ITAT: DCF Method Cannot be Rejected Based on Non-Achievement of Projected Turnover
The Income Tax Appellate Tribunal (ITAT), Mumbai, has upheld the use of the Discounted Cash Flow (DCF) method for share premium valuation, directing the Assessing Officer (AO) to delete the Rs 8.39 crore addition made under section 56(2)(viib).
The assessee company, Intermesh Shopping Network Pvt. Ltd, issued equity shares at a premium to investors. Assessing Officer (AO) asked the company to explain the difference in share premium charged from different persons and also submit the basis on which the share premium was charged. The company submitted a valuation report by Chartered Accountant, Himanshu Bansal, who used the Discounted Cash Flow (DCF) method prescribed as per Rule 11UA(2)(b), for valuing the shares of the company by using the discounted rate of 18%. Based on this method, the AO calculated a difference of Rs 8,39,55,840 as the amount the company received over and above the fair market value under section 56(2)(viib). The NFAC also upheld this addition made by the AO.
On comparing the projected turnover with the actual turnover for the years 2016 and 2017, the AO found that the assessee did not meet the expected turnover for these years. Based on this, the AO rejected the valuation report and used the Net Asset Value (NAV) method to determine the value.
The Tribunal held that the DCF method is also a recognised method under Rule 11UA of the Income Tax Act and the AO’s rejection based on the non-achievement of projected turnover in the DCF valuation is not justified. The Tribunal also clarified that the rejection of the valuation report based on the disclaimer clause provided in the valuation report is also not acceptable, as this disclaimer is given in every report given by every consultant.
The Tribunal also said that if the AO was confused, he could have referred the matter to the Valuation Officer for determining the fair market value. Therefore, based on these facts, the Tribunal directed the AO to delete the addition of Rs 8,39,55,840.
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