ITAT decision sets aside AAC's order on share valuation, emphasizing rule 1D for wealth tax.

The ITAT CALCUTTA-C allowed the appeals, setting aside the AAC's order, and directed the valuation of shares in Orient Steel (P.) Ltd. and Ajay Paper Mills in accordance with rule 1D for wealth-tax assessment purposes, emphasizing the mandatory nature of the rule in determining the market value of unquoted equity shares.

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Issues: Valuation of unquoted equity shares for wealth-tax purposes

Analysis:
The judgment by the Appellate Tribunal ITAT CALCUTTA-C pertains to the valuation of unquoted equity shares in Orient Steel (P.) Ltd. and Ajay Paper Mills for the purpose of computing the net wealth of the assessee. The primary issue in the appeals was the determination of the market value of these shares for wealth-tax assessment.

In the first appeal, the assessee initially declared the value of each share in Orient Steel (P.) Ltd. at Rs. 16.36 per share but later revised it to Rs. 4.99 per share based on the yield method, considering the unavailability of stock exchange quotations and the company not being in liquidation. However, the WTO valued the shares at Rs. 18 per share in accordance with rule 1D of the Wealth-tax Rules, 1957. Similarly, in the second year, the dispute revolved around the valuation of shares in Ajay Paper Mills, with the assessee estimating Rs. 10 per share, while the WTO computed it at Rs. 16.83, again applying rule 1D. The AAC accepted the assessee's contention, relying on the Supreme Court decision in CGT v. Smt. Kusumben D. Mahadevia, directing the valuation of shares on the yield method. Subsequently, the revenue appealed before the ITAT.

During the appeal hearing, various authorities were cited by the department's representative, emphasizing the application of rule 1D for valuing unquoted equity shares. References were made to precedents such as CWT v. Smt. Chandrakala Lal and CWT v. Laxmipat Singhania, highlighting the mandatory nature of rule 1D in determining share values for wealth-tax purposes. The department argued that the Tribunal should not deviate from the prescribed rules in valuation.

Contrarily, the assessee relied on the Supreme Court decision in Smt. Kusumben D. Mahadevia's case and a Tribunal decision in WT Appeal Nos. 471 to 476 of 1979, contending that rule 1D was not mandatory but directory, advocating for valuation based on profit-earning methods. However, the ITAT, after thorough consideration of the arguments and precedents, disagreed with the assessee's position. The Tribunal referenced the Special Bench decision in Biju Patnaik v. WTO, establishing the procedural and retrospective nature of rule 1BB, which applies to pending assessments. Despite the Bombay High Court's decision in Smt. Kusumben D. Mahadevia's case, the ITAT upheld the applicability of rule 1D, emphasizing the lack of discretion in valuing unquoted equity shares contrary to the rules.

Consequently, the ITAT allowed the appeals, setting aside the AAC's order, and directed the valuation of shares in accordance with rule 1D for both Orient Steel (P.) Ltd. and Ajay Paper Mills, emphasizing the mandatory nature of the rule in determining the market value of unquoted equity shares for wealth-tax assessment purposes.

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