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Issues: Whether, for the purpose of section 56(2)(vii)(c) of the Income-tax Act, 1961, the fair market value of shares actually acquired had to be determined under Rule 11UA on the basis applicable to the relevant assessment years, or whether the Assessing Officer could adopt the fair market value of the underlying company's shares by applying the amended valuation approach retrospectively.
Analysis: The shares acquired by the assessee were shares of the holding companies, and the property received for the purpose of section 56(2)(vii)(c) was therefore confined to those shares alone. For the relevant assessment years, Rule 11UA required valuation of unquoted shares on the book value basis reflected in the balance sheet, and the amended approach permitting consideration of fair market value of underlying shares and securities applied only from 01.04.2018. The Assessing Officer's computation proceeded on a look-through basis by valuing the underlying companies' shares instead of the shares actually purchased, which amounted to applying the later amendment retrospectively. The allegation of sham or colourable device did not alter the statutory mandate because the addition was made under section 56(2)(vii)(c), which assumes a real transaction at undervalue and requires strict compliance with the prescribed valuation rule.
Conclusion: The addition under section 56(2)(vii)(c) was not sustainable, and the deletion made by the first appellate authority was upheld.
Final Conclusion: The Revenue's appeals failed, and the additions made on account of alleged undervaluation of shares remained deleted for both assessment years.
Ratio Decidendi: For the relevant years, valuation under section 56(2)(vii)(c) must be made strictly in accordance with Rule 11UA as then in force, and the amended look-through valuation method cannot be applied retrospectively to substitute the value of the underlying company's shares for the shares actually acquired.
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