CIT(A)’s Order is Unjust and Unfair: ITAT Restores ₹14.25 Cr Addition u/s 56(2)(viib) After Rejecting DCF Valuation [Read Order]

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the Revenue’s appeal and restored an addition of over ₹14.25 crore made under Section 56(2)(viib) of the Income Tax Act, 1961, holding that the fair market value of shares issued at a high premium was not properly substantiated.

The appeal arose in the case of Quetzal Exim Pvt. Ltd. from an order passed by the Commissioner of Income Tax (Appeals), which had deleted the addition made by the Assessing Officer for the assessment year 2016-17.

During assessment proceedings, the Assessing Officer observed that the assessee had issued shares at a substantial premium and relied on the Discounted Cash Flow method to justify the valuation. Despite several opportunities, the assessee failed to produce supporting evidence or ensure the appearance of relevant parties. The valuation report was found to be unsubstantiated and unreliable.

The Assessing Officer rejected the DCF method and determined the fair market value of the shares in accordance with Rule 11UA(2) of the Income Tax Rules, which resulted in an addition of ₹14.25 crore under Section 56(2)(viib). Although the CIT(A) deleted the addition, the Revenue challenged the relief before the Tribunal.

The Tribunal, comprising S. Rifaur Rahman (Accountant Member) and Vimal Kumar (Judicial Member) noted that the assessee remained absent during multiple hearings and notices issued were unserved. On examination of the record, the Bench observed that the rejection of the DCF method by the Assessing Officer was justified.

Thus, the Tribunal set aside the appellate order and restored the addition made by the Assessing Officer. Accordingly, the appeal filed by the Revenue was allowed.

The ruling was pronounced on January 20, 2026.

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