Delhi High Court Upholds ITAT Order: Dismisses Revenue's Appeal Against DCF-Based Valuation of Unquoted Shares

The Delhi High Court has upheld an order from the Income Tax Appellate Tribunal (ITAT) and dismissed an appeal filed by the revenue department concerning the valuation of unquoted shares using the Discounted Cash Flow (DCF) method. The revenue had challenged the valuation, arguing that it was a colorable device to introduce unaccounted money. However, the ITAT had accepted the DCF valuation presented by the assessee. The High Court, in its decision, found no perversity in the ITAT's order. It affirmed that the choice of valuation method is a commercial decision for the assessee, and the revenue cannot impose a different method unless the chosen one is demonstrably flawed or mala fide. This judgment reinforces the legitimacy of the DCF method for valuing unquoted equity shares for the purpose of Section 56(2)(viib) of the Income Tax Act, providing significant clarity and relief to companies, especially startups, on matters of share valuation.