DCF share valuation cannot be replaced without specific defects in the report; addition under share premium rules was deleted.

Where an assessee adopts a valuation method permitted under law for share premium, the Assessing Officer cannot discard the report and substitute a different method without pointing out any specific defect, inaccuracy, or methodological infirmity. The assessee's DCF valuation was acted upon by a bank for loan sanction, and mere mismatch with later actual results did not justify rejection. The addition under section 56(2)(viib) was therefore unsustainable and was deleted.

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Issues: Whether the addition made under section 56(2)(viib) of the Income-tax Act, 1961 by rejecting the assessee's valuation report and substituting the Assessing Officer's own valuation was justified.

Analysis: The assessee had valued the shares under the Discounted Cash Flow method as permitted by the prescribed rules. The dispute centered on whether the Assessing Officer could discard that valuation merely because the projected figures did not match the later actual results and then adopt the Net Asset Value method on his own. The record showed that the valuation report had been acted upon by a bank for sanctioning loan facilities, and no specific defect, inaccuracy, or methodological infirmity in the valuation report was pointed out by the Assessing Officer. In such circumstances, the prescribed valuation adopted by the assessee could not be substituted by a different valuation merely on the basis of the Assessing Officer's disagreement with the projections.

Conclusion: The rejection of the DCF valuation report was unjustified and the addition under section 56(2)(viib) was not sustainable. The issue is decided in favour of the assessee.

Final Conclusion: The assessee's share premium addition was deleted and the appeal succeeded.

Ratio Decidendi: Where an assessee adopts a valuation method permitted by law for determining share premium, the Assessing Officer cannot replace it with his own valuation in the absence of specific defects or inaccuracies in the report.

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