Supported share valuation and limited-scrutiny boundaries prevent unsupported premium additions and out-of-scope expense disallowances.

A supported share-valuation report for share premium under section 56(2)(viib) cannot be displaced by an Assessing Officer's unsupported net asset value calculation, particularly where the report's workings are not properly examined or referred for valuation. The article notes that the share-premium addition was deleted. In limited scrutiny, expense disallowances outside the selected issues require recorded satisfaction and prior approval for conversion to complete scrutiny; without valid conversion, such additions exceed the Assessing Officer's jurisdiction. The article states that the expense disallowance was also deleted.

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Issues: (i) Whether the addition for excess share premium under section 56(2)(viib) could be sustained after rejection of the assessee's valuation report; (ii) Whether disallowance of expenses could be made in a limited-scrutiny assessment without conversion into complete scrutiny.

Issue (i): Whether the addition for excess share premium under section 56(2)(viib) could be sustained after rejection of the assessee's valuation report.

Analysis: The assessee furnished a chartered accountant's valuation report, supported by detailed workings, valuing the shares above the issue price. The Assessing Officer substituted that valuation with a self-computed net asset value without referring the matter to the valuation cell. The objections to the report rested on unverified doubts and lack of examination of the supporting workings, while the appellate finding accepting the report was reasoned and supported by the material.

Conclusion: The deletion of the addition for excess share premium was upheld, in favour of the assessee.

Issue (ii): Whether disallowance of expenses could be made in a limited-scrutiny assessment without conversion into complete scrutiny.

Analysis: The scrutiny selection was confined to advances, loans and share premium; expense disallowance was outside those selected issues. No satisfaction was recorded and no prior approval was obtained to convert the limited scrutiny into complete scrutiny. An addition on an issue beyond the prescribed scope was therefore beyond the Assessing Officer's jurisdiction.

Conclusion: The deletion of the expense disallowance was upheld, in favour of the assessee.

Final Conclusion: The assessed share-premium addition and expense disallowance were not legally sustainable.

Ratio Decidendi: A supported share-valuation report cannot be displaced by an Assessing Officer's unsupported substitute valuation, and additions outside limited-scrutiny issues require valid conversion to complete scrutiny.

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