TaxTMI 
TaxTMI 
2025 (7) TMI 1848
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....crutiny assessment wherein one of the issues is of large capital gain set off against large capital loss. During the course of assessment proceedings, AO observed that assessee has shown lower sale price of the shares of one company i.e. M/s. Apex Homes Pvt. Ltd. whose shares were sold by the assessee during the year on which short term capital loss of INR 5,47,28,550/- and long term loss of INR 10,64,222/- was claimed. As per AO, assessee has purchased shares of this company on 28.03.2019 at a price of INR 181/- per share however, at the time of sales, the price charged was INR 10/- only and the assessee claimed that the value per share at the time of sales was valued at INR (-) 546.68 thus the assessee has sold these shares at the book value of INR 10/- per share. In support, assessee filed report of the merchant banker namely M/s. Finshore Management Services Ltd., Kolkata who valued the shares of M/s. Apex Homes Pvt. Ltd. at the time of sale of shares. After considering the submissions and the facts, the AO re-valued the shares of the company at INR 180/- per share and accordingly, the amount of capital gains was re-computed. According to which the long-term capital gain was co....
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....stainable in law as the same is based on the perverse and arbitrary findings vide 2nd impugned order dated 29.09.2022 passed by the Ld. AO without proper appreciation of the fact that converting the declared LTCL of Rs. 10,64,222/- into LTCG of Rs. 1,58,17,698/-on sale of shares of same company i.e. Apex Homes Pvt. Ltd., is absolutely illegal and unjustified in law as well as on facts and merits. 6. That the Ld. AO has grossly erred in making and subsequently the Ld. CIT(A) has erred in sustaining addition by converting the declared STCL of Rs. 5,47,28,550/- into STCG at Rs. 16,00,250/- on sale of shares of Apex Homes Pvt. Ltd by wrongly calculating deemed sale price u/s. 50CA of the Act at Rs. 186 against correctly calculated u/s. 50CA of the Act and so declared by Appellant at Rs. (-)546.68 per share as on 27.09.2019 as also substantiated by the Merchant Banker's report. That even otherwise, the Appellant sold the shares at a much higher price of Rs. 10 per share. 7. That the Ld. AO has grossly erred in making and subsequently the Ld. CIT(A) has erred in sustaining addition while not accepting the declared LTCL of Rs. 10,64,222 on sale of shares of Apex Home....
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....mentioned Grounds of Appeal at any time during the pendency of the Appeal. 13. All the aforesaid grounds of appeal are independent and without prejudice to one another." 5. Ground of appeal No.1 is general in nature hence, dismissed. 6. Ground No.10 related to the action of the AO in extending the scope of limited scrutiny without following the due procedure. 7. Heard the rival contentions and perused the material available on records. From the perusal of the reasons for limited scrutiny as appearing in the assessment order, it is seen that one of the reasons is large capital gain set off large capital loss. The AO while examining the issue of capital gain vis-à-vis capital loss had examined each and every transactions on which capital gain was declared and during this process, the AO come across the issue of valuation of shares sold. Thus, it is well within the reasons of limited scrutiny and AO has not exceeded his jurisdiction. According, Ground No.10 raised by the assessee is dismissed. 8. Ground Nos. 2 to 9 raised by the assessee are in relation to the action of AO in computing the amount of long term capital gain and short term capital gain at a fi....
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.....2008 28.03.2019 Purchase Quantity (nos.) 95,920 3,20,050 Purchase Cost (in Rs. ) 9,59,200 5,79,29,050 Indexed Cost (in Rs. ) 20,23,422 NA Sale Date 27.09.2019 (Long-Term) 05.10.2019 (Short-term) Sale Quantity (nos.) 95,920 3,20,050 Sale Value (in Rs. ) 9,59,200 32,00,500 Capital Gain/Loss -10,64,222(LTCL) -5,47,28,550 (STCL) 5. The valuation of the subject shares at the time of purchase/allotment by the issuing Company (Apex Homes) to the Appellant (i.c. buyer), was done lawfully at book value of assets as per Net Asset Method vide Rule 11UA(2)(a) of the Income-tax Rules, 1962 ("the Rules") r.w.s. 56(2)(viib) of the Income-tax Act, 1961 ("the Act") (refer pages 147 to 151 of the paper-book). 6. Subsequently, at the time of selling of shares by the Appellant (i.e.as seller) to a third party. specific provisions contained under Section 50CA r.w. Rule 11UAA determining full value of consideration of unquoted shares, shall apply in the hands of the Appellant/seller. As per the said provisions, higher of FMV or sale consideration of shares shall be deemed to be the full value of consideration received f....
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....) at Rs. 394.20 Cr., (@Pg. 103 of the paper-book & Para 9 of the AO order) for the sake of parity of FMV at the time of purchase/ allotment vis-à-vis subsequent sale of shares (no legal basis) and thereby, assessed the FMV of shares (@ Rs. 186/- per share (at book value) and determined Capital Gain of Rs. 1,74,17,948/- Consequently, made an addition of Rs. 7,01,25,181/-, which was later upheld by the 1.d. CIT(A). 12. It reiterated that Rule 11UA(1)(c)(b) (as per applicable Section 50CA r.w. Rule 11UAA) states that at the time of calculating FMV of unquoted equity shares, if the underlying asset is an immovable property, then "the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property" has to be the FMV of such said immovable property. Consequently, for the purposes of Rule 11UA, the book value of land and building does not depict correct valuation of immovable property which and is not in accordance with the applicable provisions of law (vide Hon'ble Delhi High Court in PCIT v. Minda Sm Technocast Pvt. Lad. ITA 942/2018). 13. With that, the legislature inte....
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....the merchant banker has taken the value of immovable assets owned by M/s. Apex Homes Pvt. Ltd. in terms of provision of Rule 11UA of the Income Tax Rules, 1962 ("the Rules") r.w.s. 56(2)(viib) of the Act. It is further submitted by Ld.AR that in terms of provision of Rule 11UA(1)(c)(b), the fair market value ("FMV") of the immovable assets is to be taken at a value assessed / assessable by stamp value authorities. Accordingly, the merchant banker while computing the value per share of M/s. Apex Homes Pvt. Ltd. as on the date of sale had taken value of the immovable property at INR 1,51,27,43,006/- as against book value at INR 3,93,78,35,262/- being the value assessable by the stamp value authorities. Ld. AR thus submitted that the valuation done by the merchant banker which is solely based on the FMV of the immovable assets based on the value assessable by the stamp value authorities, thus, the same should be accepted. Ld.AR further submits that in the case of the assessee for the purposes of valuation of unquoted shares, the assessee has followed the procedure as laid down under the Act according to which the valuation has been done by the merchant banker and such report cannot be....
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....he capital and called as Net Asset value method (NAV method). The other method is of discounted cash flow method. It is at the option of the assessee to adopt any of the method to value unquoted equity shares as specified in Clause (a) & (b) of Rule 11UA(2) of the Rules. The AO has no power to challenge the method adopted by the assessee and this view is supported by the judgement of Hon'ble Jurisdictional High Court in the case of PCIT vs M/s. Cinestaan Entertainment Pvt.Ltd. reported in 433 ITR 82. 13. As per Rule 11UAA, for the purpose of valuation u/s 50CA of the Act, the FMV of share of a company other than quoted share shall be determined in the manner provided in sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-Rule (1) of Rule 11UA and the valuation date for the purpose is the date when the shares were transferred. Thus, it is clear that for the purpose of valuation of unquoted shares to compute capital gain in accordance with the provisions of section 50CA of the Act, one has to follow the provision of Rule 11UA of I.T. Rules. 14. In the present case, the assessee has obtained the valuation report from the merchant banker where the FMV was d....
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....aw applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;" [Emphasis is ours] 15. From the perusal of above, "Item No.D" for the purpose of valuation of unquoted shares, the value of immovable property should be taken as the value adopted or assessable by any authority of Government for the purpose of payment of stamp duty. Nowhere in the Rule, it is stated that in case, the book value is higher than the stamp value, the same should be taken and it is stated in clear terms that the value assessed or assessable by for the purpose of stamp duty is to be considered. This view is supported by the judgement of Hon'ble Jurisdictional High Court in the case of PCIT vs Minda SM Tecnocast Pvt.Ltd. (supra) wherein in para 13, the Hon'ble Court has observed as under:- 13. "In other words, if immovable property, such as land, had to be taken into account in arriving at the Fair Market Value of unquoted shares by adopting the formula prescribed in Rule 1....
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....CF) method Document 2 Annexure-1: Valuation of Equity shares of AHPL as per Net Asset Value Methodology as on September 26, 2019 Amount In INR Valuation of Apex Homes Private Limited as per Rule 11UA of Income Tax Rules, 1962 A Book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by,- 4,44,56,280 Less Income Tax Paid less Income Tax Refund 47,682 Less: Any amount shown as asset including unamortised deferred expenditure which doesnot represent the value of asset TOTAL A = 4,44,08,598 B The price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer; C Fair market value of shares and securities as determined in the manner provided in this rule (Note below) 1 D The value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property) 1,51,27,43,006 Total Assets E (A+B+C+D) = 1,55,71,51,604 L Book value of Liabilities: 3,94,20,14,112 Less the paid-up capital in respect of equity shar....