Share premium valuation under the discounted cash flow method cannot be replaced without cogent evidence of perversity.

Section 56(2)(viib) is described as an anti-abuse provision against routing unaccounted money through excessive share premium. Where an assessee uses a prescribed Rule 11UA valuation method, the Assessing Officer should not replace the discounted cash flow method with net asset value without cogent material showing that the method or projections are perverse. The notes state that genuine transactions, absence of evidence of unaccounted-money infusion, higher actual profits, RBI approval, and a subsequent valuation report supported the share value. On those facts, the share-premium addition was described as unsustainable and deleted.

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Issues: Whether the addition of share premium under Section 56(2)(viib) upon rejecting the assessee's discounted cash flow valuation and substituting the net asset value method was sustainable.

Analysis: Section 56(2)(viib) is an anti-abuse measure directed at preventing introduction of unaccounted money through excessive share premium. Where the assessee has opted for a prescribed valuation method under Rule 11UA, the Assessing Officer cannot substitute another valuation method without cogent material establishing that the chosen method or its underlying projections are perverse. The transaction's genuineness was not doubted, no material established infusion of unaccounted money, and the Assessing Officer did not demonstrate that the discounted cash flow projections were incorrect. Actual aggregate profits exceeded the projections, the comparison relied upon by the Assessing Officer was erroneous, and the share issue and premium had received RBI approval. A valuation report obtained after the share issue could still substantiate the share value.

Conclusion: The share-premium addition under Section 56(2)(viib) was unsustainable and was deleted, in favour of the assessee.

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