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TMI Blog2021 (12) TMI 1284X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Rs. 20,00,000/- made by the Assessing Officer and confirmed by the ld. CIT(A) being the difference between the fair market value (FMV) of the shares and the value actually received by the assessee company u/s. 56(2)(viib) of the Income Tax Act, 1961 (hereinafter 'the Act') read with Rule 11UA of the Income Tax Rules, 1962 (hereinafter 'the Rules'). 2. The assessee in the present case is a company which is engaged in the business of manufacturing and sale of laminated rolls and tarpaulin. The return of income for the year under consideration was filed by the assessee on 21/11/2014 declaring a loss of Rs. 59,56,603/-. During the year under consideration, the assessee company had issued 10,00,000 equity shares (having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrong in taking a valuation not allowable in law only with the intension of rejecting the valuation as provided by the assessee and making an addition based on the deeming provision and the same is based on incorrect interpretation of section 56(2)(viib) read along with Rule 11UA and as such the addition made may kindly be deleted." 4. The ld. CIT(A) did not find merit in the submission made on behalf of the assessee and proceeded to confirm the addition of Rs. 20,00,000/- made by the Assessing Officer for the following reasons given in his impugned order:- "I have considered the submission of the appellant and perused the relevant assessment records. The only issue in this appeal is the valuation of share under Rule 11UA of the I T Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee." The definition of property under explanation (d) to section 56(1) includes shares and securities. Therefore, the date of valuation of shares for which fair market value has to be computed as per on date of transfer or allotment of the shares. This view is fortified by Rule 11UAA which was introduced by the Income-tax (20th Amendment) Rules, 2017 - CBDT Notification G.S.R. 865(E) dated 12th July, 2017 - w.e.f. the 1st day of April, 2018 which clearly states that "for the purpose of section 50CAFMV of unquoted shares shall be determined in the manner provided in Rule 11UA(1)(c)(b) or Rule 11UA(1)(c)(c) as the case may be. Valuation date for the purpose of Rule 11U & 11UA shall mean the date on which the capital asset, being shares of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ld. CIT(A), however, made the valuation of shares on the basis of balance sheet of the assessee as on 31/03/2013 which was audited on 25/07/2013 and was not available on the date of allotment of shares i.e., on 15/07/2013. In support of this contention, he has relied on the definition of 'balance sheet' given for the purpose of Rule 11UA in Clause (b) of Rule 11U which reads as under:- "11U. For the purposes of this rule and rule 11UA,- (a) .............. (b) "balance-sheet", in relation to any company, means,- (i) for the purposes of sub-rule (2) of rule 11UA, the balance-sheet of such company (including the notes annexed thereto and forming part of the accounts) as drawn up on the valuation date which has been audited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3, the valuation date was 15/07/2013 and since the balance sheet of the assessee company was not drawn up on the said valuation date, the balance sheet drawn up as on a date immediately preceding the valuation date, which has been approved and adopted in the AGM of the shareholders of the company, was to be taken as the balance sheet for the purpose of valuation as per Rule 11UA read with Clause (b) of Rule 11U. In the present case, the last balance sheet of the assessee company was drawn as on 31/03/2013 being a date immediately preceding the valuation date but since the same was audited on 25/07/2013 i.e., after the date of valuation i.e., 15/07/2013 and had been approved and adopted in the AGM of the shareholders of the company held afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the auditor of the company clearly suggests or indicates that the balance sheet referred to therein need not be available on the date of valuation simply because the balance sheet as drawn up on the valuation date and audited by the auditor of the company cannot be practically available as on the date of valuation itself. We are, therefore, of the considered view that the balance sheet drawn up as on 31/03/2013 was rightly taken by the Assessing Officer as well as the ld. CIT(A) for the determination of the FMV of the shares sold by the assessee on 15/07/2013 as per Clause (b) of Rule 11U for the purpose of sub-rule (2) of Rule 11UA being the balance sheet drawn up immediately preceding the valuation date. In that view of the matter, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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