Share valuation under Rule 11UA must use the actual allotment date; ROC fee for capital increase remains capital expenditure.

For valuation of shares under section 56(2)(viib) read with Rule 11UA, the assets and liabilities must be taken as on the actual allotment date; a valuation based on an earlier balance-sheet date was incorrect, so the addition required fresh recomputation on the correct date and was restored to the Assessing Officer. Fee paid for increasing authorised share capital was treated as capital expenditure with enduring benefit, so the disallowance was sustained.

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Issues: (i) whether the addition made under section 56(2)(viib) on issue of shares was sustainable when the valuation under Rule 11UA was computed with reference to the wrong balance-sheet date; (ii) whether the fee paid to the Registrar of Companies for increase in authorised share capital was allowable as revenue expenditure.

Issue (i): whether the addition made under section 56(2)(viib) on issue of shares was sustainable when the valuation under Rule 11UA was computed with reference to the wrong balance-sheet date.

Analysis: The shares were allotted on 31.03.2017, so the valuation under Rule 11UA had to be worked out on the basis of the assets and liabilities position as on that date. The valuation adopted by the Assessing Officer used figures of an earlier date, which distorted the fair market value computation. The matter therefore required fresh computation on the correct date to determine whether any addition under section 56(2)(viib) survived.

Conclusion: The issue was decided in favour of the assessee and was restored to the Assessing Officer for re-computation of fair market value on the correct date.

Issue (ii): whether the fee paid to the Registrar of Companies for increase in authorised share capital was allowable as revenue expenditure.

Analysis: Fee paid for increasing authorised share capital is expenditure incurred for enduring benefit and is treated as capital in nature. The settled legal position supports disallowance of such expenditure.

Conclusion: The disallowance was upheld and the issue was decided against the assessee.

Final Conclusion: The appeal succeeded only on the share-valuation ground, while the disallowance of the ROC fee was sustained, leaving the assessee with partial relief.

Ratio Decidendi: For valuation of shares under section 56(2)(viib) read with Rule 11UA, the relevant assets and liabilities must be taken as on the actual date of allotment, and expenditure incurred for increasing authorised share capital is capital in nature.

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