DCF valuation for unquoted shares cannot be replaced by book value absent cogent proof of perversity or error.

For unquoted share valuation under Rule 11UA, the assessee may choose a recognised method such as the Discounted Cash Flow method or the Net Asset Value method, and the Assessing Officer cannot substitute a different method merely because later results differ from projections. Valuation depends on estimates, assumptions, and business forecasts, so interference is justified only where cogent material shows perversity, a demonstrably wrong approach, or a material error in the valuation process. On the facts described, no such material was brought on record, and the addition under section 56(2)(viib) was deleted.

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Issues: Whether the Assessing Officer could reject the assessee's valuation of unquoted shares under the Discounted Cash Flow method and substitute the Book Value method for the purposes of section 56(2)(viib) of the Income-tax Act, 1961.

Analysis: The valuation report was prepared by a technical expert using the Discounted Cash Flow method, which is a recognised option under Rule 11UA of the Income-tax Rules, 1962 for valuing unquoted equity shares. The assessee was entitled to adopt either the Net Asset Value method or the Discounted Cash Flow method, and once that option was exercised, the Assessing Officer could not replace it with another method merely because the projected figures did not match later results. Valuation is based on estimates, projections, and business assumptions, and is not capable of mathematical precision. Interference is justified only where the Revenue brings cogent material to show perversity, a demonstrably wrong approach, or a mistake going to the root of the valuation process. No such material was brought on record.

Conclusion: The Assessing Officer was not entitled to substitute the method chosen by the assessee, and the deletion of the addition under section 56(2)(viib) was upheld in favour of the assessee.

Final Conclusion: The Revenue's challenge to the deletion of the addition failed, and the valuation adopted by the assessee was accepted as a recognised and permissible method.

Ratio Decidendi: For valuation of unquoted shares under the prescribed rules, the assessee's choice of a recognised method cannot be displaced by the Assessing Officer unless perversity or demonstrable error in the adopted method is shown by cogent material.

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