ITO Vs Highrise Securities & Trading Pvt. Ltd (ITAT Delhi)
Future Projections vs. Actual Performance – Tribunal Rules in Favour of Assessee on DCF Valuation- ITAT Delhi deletes ₹46.06 Cr Addition u/s 56(2)(viib) – AO Cannot Tinker with DCF Valuation Once Prescribed Method is Followed
Assessee, Highrise Securities & Trading Pvt. Ltd., an NBFC engaged in investment activities, issued 9.40 lakh equity shares of ₹10 each at a premium of ₹490 per share, raising ₹46.06 crore as share premium. The valuation of shares was supported by a Merchant Banker’s report using the Discounted Cash Flow (DCF) method as prescribed under Rule 11UA.
AO rejected the valuation report, terming it unreliable since it was prepared after the date of share issuance & alleged that the projections were unrealistic compared to the company’s subsequent financial performance. On this basis, AO added the entire share premium of ₹46.06 crore u/s 56(2)(viib) as “excess share premium taxable as income from other sources.”
Before CIT(A), Assessee filed an earlier valuation report dated 02.02.2017 (prepared before share issuance) as additional evidence. After considering AO’s remand report & judicial precedents, including PCIT v. Cinestaan Entertainment Pvt. Ltd. (Delhi HC), CIT(A) deleted the addition, holding that once an assessee adopts a prescribed method (DCF or NAV), AO cannot substitute it or question the commercial wisdom behind projections.
