ITAT allows rectification under section 254, reduces share valuation from Rs. 131.86 to Rs. 70.59 per share using Rule 11UA methodology

ITAT Delhi allowed assessee's rectification application under section 254, modifying the fair market value of shares from Rs. 131.86 to Rs. 70.59 per share for capital gains computation. The Tribunal found the original Department workings contained fallacies as they were not in accordance with Rule 11UA of Income Tax Rules, 1962. The Tribunal noted it had always intended to adopt Rule 11UA methodology using NAV method, and the same shares were valued at Rs. 70.59 in spouse's case using proper Rule 11UA calculations. The rectification was deemed an arithmetical correction of mistake apparent from record.

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Issues Involved:
1. Recall of the Tribunal's order.
2. Errors in the valuation of shares.
3. Application of Rule 11UA.
4. Tribunal's direction on valuation methodology.
5. Tribunal's reliance on Department's working.
6. Tribunal's rejection of Kotak Mahindra's valuation.
7. Tribunal's decision in the case of Mrs. Neelu Analjit Singh.
8. Tribunal's power to rectify mistakes under Section 254(2).

Detailed Analysis:

1. Recall of the Tribunal's Order:
The assessee sought to recall the Tribunal's order dated 01.12.2017 in ITA No. 4737/Del/2017, claiming errors apparent from the record regarding the valuation of shares sold and the resultant long-term capital gains. The Tribunal had partly allowed the appeal filed by the assessee against the CIT(A)'s order dated 07.07.2017 for the assessment year 2014-15.

2. Errors in the Valuation of Shares:
The assessee argued that the Tribunal's order contained errors in the valuation of shares of Scorpio Beverages Pvt. Ltd. (SBPL), which led to an incorrect computation of long-term capital gains. Specifically, the assessee contended that the Tribunal had adopted a fair market value (FMV) of Rs. 131.86 per share, which was flawed due to incorrect figures and the exclusion of certain liabilities.

3. Application of Rule 11UA:
The assessee highlighted that the Tribunal had directed the Department to compute the FMV of the shares in accordance with Rule 11UA of the Income Tax Rules, 1962. However, the Department's computation was alleged to have errors, including incorrect figures and the exclusion of liabilities such as preference share capital and arrears of dividends.

4. Tribunal's Direction on Valuation Methodology:
The Tribunal had rejected the valuation report by Kotak Mahindra, which used a hybrid method (DCF for VIL shares and NAV for intermediary companies), stating that it did not align with Rule 11UA. The Tribunal emphasized that Rule 11UA was specific for valuing unquoted shares and directed the Department to follow this rule.

5. Tribunal's Reliance on Department's Working:
The Tribunal had relied on the Department's working, which valued SBPL shares at Rs. 131.86 per share. However, the assessee argued that this working was flawed and did not comply with Rule 11UA. The Tribunal acknowledged that the Department's working had been accepted without any rebuttal from the assessee at that time.

6. Tribunal's Rejection of Kotak Mahindra's Valuation:
The Tribunal had rejected Kotak Mahindra's valuation of SBPL shares at Rs. 5.40 per share, stating that it was not in accordance with Rule 11UA. The Tribunal directed the Department to provide a correct valuation using Rule 11UA, which resulted in the FMV of Rs. 131.86 per share.

7. Tribunal's Decision in the Case of Mrs. Neelu Analjit Singh:
In the case of Mrs. Neelu Analjit Singh, who had also sold SBPL shares, the Tribunal had directed the AO to verify figures from audited balance sheets and compute the FMV according to Rule 11UA. The AO determined the FMV at Rs. 70.59 per share in the giving effect order dated 12.02.2020. The assessee sought a similar rectification in his case.

8. Tribunal's Power to Rectify Mistakes under Section 254(2):
The Tribunal acknowledged that the errors in the Department's working constituted mistakes apparent from the record, warranting rectification under Section 254(2) of the Income Tax Act. The Tribunal directed the AO to adopt the FMV of Rs. 70.59 per share and recompute the capital gains accordingly, modifying the original order dated 01.12.2017.

Conclusion:
The Tribunal allowed the assessee's miscellaneous application, directing the AO to adopt the FMV of Rs. 70.59 per share for SBPL shares and recompute the capital gains. The order dated 01.12.2017 was modified accordingly.

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