AO Cannot Replace Projections with Actuals for Valuation | ITAT

Case Details: Ecoenergy Insights Ltd. vs. Deputy Commissioner of Income-tax - [2025] 180 taxmann.com 307 (Delhi-Trib.)

Judiciary and Counsel Details

• Anubhav Sharma, Judicial Member & S. Rifaur Rahman, Accountant Member
• Nageshwar Rao, Parth & Pratik Rath, Advs. for the Appellant.
• S.K. Jadhav, CIT DR for the Respondent.

Facts of the Case

The assessee-company was engaged in the business of providing integrated security solutions. During the assessment proceedings, the Assessing Officer (AO) observed that the assessee had undertaken international transactions and had partially transferred certain specified assets to its AE. The assessee had determined the value of development technology, trade name, and goodwill, on which the assessee had estimated the revenue for the year 2007 onwards.

The AO referred the matter to the TPO. The TPO asked the assessee to submit the actual figures for the assessment years 2017 to 2020, to compare them with the estimations of revenue by the assessee for the purpose of valuation for the transfer of specified assets. The TPO proceeded to reject the projections adopted by the assessee as per the valuation report and also rejected the cost of risk premiums adopted by the valuer. Accordingly, he proceeded to propose the ALP adjustment under section 92CA.

On appeal, the DRP sustained the ALP adjustment proposed by the TPO, noting that the assessee had not provided the actual sales value, despite being specifically asked to do so. The matter reached the Tribunal.

ITAT Held

The Tribunal held that the TPO had replaced the projected figures with actuals when estimating the valuation of the specified assets, and also objected to the additional risk of the cost of capital adopted by the valuer in completing the valuation of the specified assets. The assessee valued the specified assets while acquiring the assets in the previous assessment year, and the acquisition of the business was completed with a Board Resolution, and also acquired a valuation from a third-party expert; the same was adopted in their books of account, and also declared specific notes of account in the financial statements.

During the previous assessment year, the assessee adopted the same valuation method to transfer the specified assets during the year under consideration. The TPO attempted to replace the estimated/projected figures with actual figures and also questioned the methodology adopted by the independent valuer.

It is clear from the decision of the jurisdictional High Court in Pr. CIT v. Cinestaan Entertainment (P.) Ltd. [2021] 433 ITR 82 (Delhi), that at the time of assessment, the officer cannot match actual performance with projections. Therefore, this approach lacks a material foundation and is irrational, as the valuation is intrinsically based on projections that can be affected by various factors. It was held that the valuer makes a forecast or approximation, based on the potential valuation of the business. Therefore, consistently, the Hon’ble Courts have held that the AO cannot rework the projections at the time of assessment by replacing the projections with actuals. Thus, the ground raised by the assessee in this regard was allowed.

List of Cases Reviewed

• Pr. CIT v. Cinestaan Entertainment (P.) Ltd. [2021] 433 ITR 82 (Delhi) [Para 22] Followed

List of Cases Referred to

• UCWEB Mobile (P.) Ltd. v. Assessment Unit, Income Tax Department [2025] 175 taxmann.com 146 (Delhi – Trib.) (para 13)
• UCWEB Mobile (P.) Ltd. v. Assessment Unit, Income Tax Department, Delhi [M.A. No. 183 (Delhi) of 2025, dated 6-8-2025] (para 14)
• Pr. CIT v. Cinestaan Entertainment (P.) Ltd. [2021] 433 ITR 82 (Delhi) (para 19).