Can a Rs. 6.75 lakh jump in share price lead to a Rs. 52 crore tax addition ?

A real case from the ITAT Delhi shows that it absolutely can.

Here is the complete breakdown of this landmark ruling and why it matters for investors, start-ups, valuers, and tax professionals.

Download the full judgement – JCIT(OSD), NEW DELHI V. MANISH VIJ, DELHI

Facts Relating to the Issue

• The assessee sold unlisted shares of a start-up in two separate transactions. The pre-share values and dates are summarized below: 

• The sharp rise in the per-share price from Rs. 54,960/- Rs. 7,30,000/- within about 11 months drew scrutiny from the tax authorities. 

• The AO rejected the assessee’s 1^st valuation on 22^nd April 2021 and substituted the sale consideration by applying the later DCF based method fair market value, thereby questioning the FMV used in 1^st sale, alleging undervaluation of earlier sale. 

Arguments of the Appellant (Assessee): 

• The assessee argued that both valuation methods: NAV and DCF are statutorily permitted under Rule 11UA for determining FMV of unlisted shares. 

• There is no statutory requirement to maintain consistency of valuation method across multiple transfers in the same assessment year. Hence, different methods on different dates (reflecting differing market/financial realities) are valid. 

• The assessee had obtained independent valuation reports for each transfer, prepared by registered valuers, faithfully declaring gains in the ITR. 

• There was no evidence of any “additional consideration” (other than the declared sale price) being paid or received undermining the AO’s assumption of undervaluation.

Arguments of Revenue: 

• The Revenue contended that the steep increase in per-share value within months suggests that the original sale consideration (₹54,960 per share) was understated and did not reflect true FMV. 
• On that basis, the AO substituted the sale consideration under Section 50CA by applying the DCF-based FMV used in the later sale thereby calculating a larger capital gain and making the ₹52 crore addition. 
• Implicitly, the Revenue assumed that the earlier NAV-based valuation was not representative of the real value, given rapid growth, and that a uniform approach must apply. 

Decision of the Court: 

The ITAT, Delhi Bench in its order dated 14^th November 2025 [ITA No. 1746/Del/2025], dismissed the revenue appeal and upheld the assessment of first valuation. Thereby, quashed Rs. 52 cr. Addition made u/s 50CA and restore the declared capital gains of the assessee. 

Reasons for such decision: 

• The Tribunal observed that both NAV and DCF are recognised under Rule 11UA, and the assessee is free to choose either method for any particular transfer. There is no requirement to use the same method across all transfers in the year. 

• The AO did not point out any defects in the valuation reports, and there was no material evidence produced showing that the chosen methods were erroneous, unreasonable, or manipulated. 

• Mere difference in valuations over time, especially in a start-up context where growth and business prospects may change rapidly, does not by itself justify substituting declared consideration under section 50CA. 

• The AO also failed to show that any extra unreported consideration was received a necessary precondition for invoking Section 50CA substitution. 

Case laws relied upon: 

• The Tribunal (and earlier the CIT(A)) referred to a prior decision of the ITAT, Mumbai dated 19 January 2022 in the case of Credit alpha Alternative Investment Advisors (P.) Ltd vs. DCIT which similarly recognized that for unlisted shares, either NAV or DCF method may be used for valuation under Rule 11UA. 

• That precedent helped cement the principle that the choice of valuation method lies with the assessee, provided statutory requirements are satisfied and the report is credible. 

Applicability of judgment: 

• This ruling reinforces that taxpayers dealing in unlisted shares can legitimately use either NAV or DCF (or other permitted) methods under Rule 11UA, even if different methods are used for different transfers of the same company’s shares in the same year. 

• It provides a strong precedent for cases where share value has surged rapidly (e.g., after fresh funding, growth prospects, or business developments), and the taxpayer has bona fide expert valuations. 

• For practitioners and investors: If valuation reports are properly obtained, and no additional consideration is hidden, the mere fact of a steep increase in share price does not automatically trigger re-characterization under Section 50CA. 

Download the full judgement – JCIT(OSD), NEW DELHI V. MANISH VIJ, DELHI

Print