AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2026 (4) TMI 833
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....under CASS for the reason large capital gain deduction claimed and notice u/s 143(2) followed by notices u/s 142(1) alongwith questionnaires were issued from time to time. The AO observed that assessee has sold 14,219 shares to M/s. Thrasio LL Acquisitions INC for total consideration of INR 83,05,57,146/- and has Long Term Capital Gain ("LTCG") of INR 82,90,75,864/-. The AO further observed that during the year itself, the company M/s. Life Long Online Retail Pvt. Ltd. had issued 16,422 shares at a premium of INR 61,092.42 per share to M/s. Thrasio LL Acquisitions INC as against which assessee has sold his shares to same buyer at a price of INR 58,411.78 per share. Thus, the AO alleged that assessee has received less consideration of INR 2,680.64 per share and accordingly, total capital gain of INR 3,80,92,562/- was alleged as less shown. The AO after considering the submissions of the assessee, invoked the provisions of section 50CA of the Act and made the addition for the differential amount of INR 3,80,92,562/- as LTCG. 3. Against the said order, assessee filed an appeal before Ld. CIT(A), who vide order dated 12.11.2024, allowed the appeal of the assessee. Aggrieved by the s....
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.... shares as per net asset value prescribed under Rule 11UA(1)(c)(b) at INR 1,650/- per shares. Ld. AR submits that since the assessee sold the shares at a higher price than the fair market value per share as determined by the valuer, therefore, provisions of section 50CA of the Act are not applicable. Ld. AR submits that Ld. CIT(A) appreciated these facts and deleted the additions which order deserves to be uphold. 6. Heard the contentions of both the parties and perused the material available on record. In the instant case, sole dispute is whether the Valuation Report submitted by CA U/R 11UA(1)(b)(c) of the Rules, is a valid report and acceptable or not. As per AO, said report must be obtained from merchant banker where DCF method should be applied for valuation of unquoted equity shares. Whereas claim of the assessee is that under Rule 11UA(b)(c) of the Rules, report can be obtained from the merchant banker or from CA and the valuation should be done at Net Asset value method as prescribed under Rule 11UA(1)(b) of the Rules. As per section 50CA, the valuation of share is prescribed under Rule 11UAA of the Rules. Rule 11UAA of the Rules provides that the fair market value of qu....
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....ecurities are received by way of transaction carried out through any recognized stock exchange, the fair market value of such shares and securities shall be the transaction value as recorded in such stock exchange; (ii) if such quoted shares and securities are received by way of transaction carried out other than through any recognized stock exchange, the fair market value of such shares and securities shall be,- (a) the lowest price of such shares and securities quoted on any recognized stock exchange on the valuation date, and (b) the lowest price of such shares and securities on any recognized stock exchange on a date immediately preceding the valuation date when such shares and securities were traded on such stock exchange, in cases where on the valuation date there is no trading in such shares and securities on any recognized stock exchange; (b) the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:- the fair market value of unquoted equity shares =(A+B+C+D - L)x (PV)/(PE), where, A = book value of all the asset....
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....ant in respect of which such valuation. (2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), the fair market value of unquoted equity shares for the purposes of sub-clause (i) of clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner under clause (a) or clause (b), at the option of the assessee, namely:- ..................... 8. The AO has hold that valuation report should be obtained from merchant banker however, here the AO has made an error in applying Rule 11UA(2) as against Rule 11UA(1). Rule 11UA(2) is applicable for the valuation of the shares u/s 56(2)(viib) of the Act whereas the provisions of Rule 11UA(1)(b) are applicable where the valuation is done for the purpose of section 50CA of the Act. Ld. CIT(A) has appreciated these facts and by accepting the valuation report of a CA, has deleted the additions made by making following observations:- 7. Decision "Although there are four grounds of appeal, the core issue revolves around addition of Rs. 3,80,92,562/-on account o....
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....It was also contended that when law prescribed a method for determining FMV of unquoted equity shares, the AO (Assessment Unit) cannot arrive at its own FMV/deemed sale consideration on some other basis. The appellant maintained that the AO (Assessment Unit), while rejecting the valuation report filed by the appellant, determining FMV of unquoted equity share at Rs. 1,650/- as per Rule 11UA(I)(c)(b) and asserting that as per Rule 11UA, the valuation should be determined by a Merchant Banker and not by an accountant, probably lost sight of the fact that the provisions contained in Rule 11UA(2) are only applicable for the purposes of section 56(2)(viib) of the Act. Section 56(2)(viib) applies only to consideration received by a company for issue of shares i.e. fresh shares issued by company in which public are not substantially interested. In the present case, the assessment order under reference was made in respect of the appellant Bharat Kalia and not in respect of any company (in which public are not substantially interested) issuing fresh shares. So, the issue concerns application of section 50CA and not section 56(2)(viib) of the Act and the prescribed Rule is Rule 11UA....
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.... Mis Lifelong Online Retail Pvt. Ltd. also issued 16,422 equity shares by way of fresh issue to the same buyer, namely, Thrasio LL. Acquisitions, Inc of USA at the rate of Rs. 61,092.42 per share cannot be a criterion for substituting the sale value declared by the appellant because as per the existing law, there is no such provision where the AO can exercise his discretion going beyond the provision of section 50CA and Rule 11UAA. As such, even if the same unquoted equity share is sold to the same entity at different prices, once by way of direct transfer (i.e. primary shares) and in the other instance by way of sale of existing shares of the company (i.e. secondary shares), the AO (Assessment Unit) is not at liberty to adopt the share price at Rs. 61,092.42/- per share, being the higher price at which the unlisted equity share of M/s Lifelong Online Retail Pvt Ltd was allotted to the same Thrasio LL Acquisitions, Inc of USA, who was the buyer at the rate of Rs. 58,411.78 from the appellant and six other parties. Although there was enough provocation to redress the disparity in the transfer price. such an action of the AO is not permissible within the existing provision of law. Ex....