ACIT, CENTRAL CIRCLE-1, THANE, THANE V. VIPUL R MARKHEDKAR, THANE

ITA 788/MUM/2025

AI Insights

The case revolves around an appeal by the revenue against the order of the CIT(A) which had deleted an addition made by the Assessing Officer (AO) under section 56(2)(vii)(c) of the Income-tax Act, 1961. The AO had added an amount of Rs.3,49,54,942 as income to the assessee, Vipul R Markhedkar, on the grounds that he had acquired shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. (RFAPL) at a price lower than their fair market value (FMV). The CIT(A) found that the AO had not correctly applied the method for determining FMV as per the rules applicable for the assessment year 2015-16, leading to the deletion of the addition. The Tribunal upheld the CIT(A)'s decision, referencing similar cases and the correct application of Rule 11UA as it stood during the relevant assessment year.

• Counselvise Citation: [2026] 140 COUNSELVISE.COM (IT) 848409 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-03-2026
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Mumbai
• Assessment Year: 2015-2016
• Appeal Filed On: 31-01-2025
• Other Referred Cases: McDowell and Company Ltd. Vs. Commercial Tax Officer, Killick Nizon Ltd. vs. DCIT, ACIT v. Nakul Markhedkar, PCIT v. Minda SM Technocast P. Ltd., Smiti Holding and Trading Co. P. Ltd. v. PCIT
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIVEK PERAMPURNA
• Assessee Lawyers: TARANG MEHTA
• Keywords: Set aside; Fair market value; Sham transactions; Search and seizure; Valuation report; Bogus
• Section: 56; 132

Judgement Text

"1 IN THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI “F” BENCH, MUMBAI BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI BIJAYANANDA PRUSETH, ACCOUNTANT MEMBER ITA No. 788/MUM/2025 (AY:2015-16) ACIT, Central Circle-1, Thane Room No-10, 6th Floor, A-Wing, Ashar I.T. Park, Road No. 16-Z, Wagle Estate, Thane West Maharashtra – 400604. vs. Vipul R Markhedkar 1905, Drewberry, Kolshet Road, EVEREST WORLD, Thane West Maharashtra - 400604 PAN/GIR No: CPOPM7739F (Appellant) (Respondent) Assessee by Shri Tarang Mehta, Adv Revenue by Shri Vivek Perampurna (CIT DR) Date of Hearing 29.01.2026 Date of Pronouncement 25.03.2026 O R D E R PER BIJYANANDA PRUSETH, AM: This appeal filed by the revenue emanates from the order passed under section 250 of the Income-tax Act, 1961 (in short, ‘Act’) by the Commissioner of Income-Tax (Appeals), Pune-11 [in short, ‘CIT(A)’], dated 08.11.2024 for the assessment year (AY) 2015-16. 2. The grounds of appeal raised by the revenue are as under: “1) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred deleting the addition of Rs.3,49,54,942/ mode u/o 56(2)(vil](c) on account of purchasing the shares of a company at a price less than its Fair market value, without appreciating the fact that M/s Deb Suppliers & Traders Pvt. Ltd. (the holding company of M/s Ratnagiri Financial Advisory Pvt. Ltd.) was only paper company and was involved in sham transactions and all shares of this company were acquired by the assessee along with his family members and hence, the assessee was one of the ultimate beneficiary of the transaction. Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 2 2) On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in not appreciating the fact that at the same time, Shri Rakesh Markhedkar (father of the assessee), had directly purchased 1000 shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. @ Rs. 500/- per share and by purchasing shares of M/s Deb Suppliers & Traders Pvt. Ltd. @ Rs.10/-, the assessee ultimately had got 72474 shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. wherein assessee's family members had became director just before the transactions and all this arrangement was done to acquire the shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. company at price much lower than the FMV. 3) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in not considering the facts that assessee had used a colorable device to avoid legitimate tax llabihty and failed to appreciate the unveiling of corporate veil done by AO which is very well covered by the landmark judgment of Hon'ble Supreme Court in the case of 'McDowell and Company Ltd. Vs. Commercial Tax Officer (154 ITR 148). 4) On the facts and in the circumstances of the case and in law, the Ld.CIT(A) has erred in holding that the AO had considered the fair market value of the assets and liabilities of M/s Ratnagiri Financial Advisory Pvt. Ltd. as per rule IIUA effective from 01.04.2018, without appreciating the facts that the AO had calculated the fair market value of the shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. on the basis of book value of assets and liability, as per rule 11UA applicable for A.Y 2015-16. 5) The appellant craves leave to add, amend, modify or alter any of the grounds of appeal.” 3. Facts of the case, in brief, are that the assessee filed his return of income u/s 153C of the Act for the AY 2015-16 on 22.12.2021 declaring total income at Rs.7,700/-. There was a search and seizure action u/s 132 of the Act on 24.03.2021 in case of Vikran Group. On perusal of the seized and impounded materials, the AO found that assessee had acquired shares of M/s Ratnagiri Financial Advisory Pvt. Ltd. (RFAPL) below the fair market value (FMV) of the price in FY 2014-15 (AY 2015-16). RFAPL was formed on 19.02.2009 at Kolkata with share capital of Rs.1,00,000/-. Subsequently, there was change of promotors from 10.07.2008. The new promotors raised share capital of Rs.28,03,780/- at a premium at Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 3 Rs.13,73,85,220/- on 31.03.2009 by issuing 2,80,378 shares at face value of Rs.10 and premium of Rs.490/- per share. After analyzing the balance sheet, the AO noted that RFAPL neither had any significant business activities nor any significant capital/assets to command premium of Rs.490/- on its shares. Subsequently, the shareholding was transferred to Kolkata based companies namely, Farista Financial Consultants Pvt. Ltd. and Deb Suppliers and Traders Pvt. Ltd. on 31.03.2011. These two companies are stated to be paper concerns controlled and operated by entry operator, Shri Anand Sharma through dummy directors. The assessee and his family members acquired RAFPL in December, 2014 by purchasing the entire shareholding of the companies, Farista Financial Consultants Pvt. Ltd. and Deb Suppliers and Traders Pvt. Ltd. The AO observed as to how the shares of RAFPL were acquired for Rs.2 lakhs only by the family members of the assessee when it had capital of Rs.14.03 crores and the FMV of each share, as per the valuation report submitted by the assessee, was Rs.482.98 per share. The AO invoked provisions of section 56(2)(vii)(c) of the Act, according to which where any individual receives any property for any consideration which is less than FMV of the property, the difference shall be assessed as the income of the recipient. Thereafter, the AO relied on various decisions of Hon’ble Supreme Court and Bombay High Court in the cases of (i) McDowell and Company Ltd. vs. Commercial Tax Officer, 154 ITR 148, Killick Nizon Ltd. vs. DCIT (Bom.) dated 06.03.2012 and added the difference between the FMV of the shares of RFAPL and cost incurred indirectly for acquisition of such shares of RFAPL, Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 4 amounting to Rs.3,49,54,942/- u/s 56(2)(vii)(c) r.w.s. Rule 11UA in the hands of the assessee. 4. Aggrieved by the order of AO, the assessee filed appeal before the CIT(A). The CIT(A) deleted the addition by observing as under: 17. To sum-up, in the present case, the appellant has acquired shares of M/s Deb Suppliers and he is not the legal owner of the shares of M/s RFAPL. The addition in this case is made by the assessing officer u/s 56(2)(vii)(c) of the Act and therefore while applying this section, one needs to see as to what is the FMV of the movable property acquired by the appellant. Also, as discussed above, it has been held by Courts that if any method for determining the FMV has been prescribed under law, same method has to be followed mandatorily and the assessing officer cannot resort to any other method. Since, the transfer happened only of the shares of the holding companies and there was no direct transfer of shares of RFAPL, the applicability of section 56(2)(vii)(c) of the Act is required to be examined w.rt. the FMV of the shares which are directly transferred and not w.r.t. the FMV of underlying assets ie. shares of RFAPL. Thus, the AO cannot apply the provisions of section 56(2)(vii)(c) of the Act by holding that in effect, the appellant has purchased the shares of RFAPL. Further, as discussed above, for the year under consideration, Rule 11UA provides for determination of FMV of unquoted equity shares by considering the book value of assets, therefore, same needs to be followed and the AO cannot apply the method as prescribed in the amended Rule 11UA which is applicable w.e.f. AY 2018-19 or by using the value determined by applying any other method. Thus, the action of the assessing officer to consider the value of underlying assets i.e. FMV of shares of RFAPL cannot be upheld. 18. Considering the totality of facts of the case it is held that for examining the applicability of section 56(2)(vii) (c) of the mandatorily required to apply the Rule 11UA as applicable for the year under is consideration which provides for determination of FMV of unquoted equity shares by considering the book value of assets. Since, the shares of M/s Deb Suppliers were purchased at a value which is higher than the FMV as per Rule 11UA of the Act, no addition u/s 56(2)(vii) (c) of the Act can be made. Accordingly, the addition made by the assessing Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 5 officer is directed to be deleted. The grounds no. 1, 2, 3 and 4 are ALLOWED. 19. Since, the addition made by the assessing officer has been deleted on merits rendering other grounds including additional grounds of academic nature. Thus, other grounds of appeal are not required to be adjudicated upon. 5. Aggrieved by the order of CIT(A), the revenue has filed the present appeal before the Tribunal. The Ld. CIT DR has supported the order of the AO and submitted that the assessee and his family members acquired share capital of more than Rs.28 crores by paying only Rs.25 lakhs. He argued as to how premium of Rs.13.73 crore could be raised in case of RAFPL which had no significant capital/assets or any business activity. He submitted that the CIT(A) has grossly erred in deleting the addition made by the AO u/s 56(2)(vii)(c) of the Act which was rightly invoked by the AO. He submitted that Deb Suppliers and Traders, the holding of RAFPL, was only a paper company and was involved in sham transactions. The shares of this company was acquired by the assessee and his family member who were the ultimate beneficiary of the huge share capital and premium of RAFPL. The Ld. CIT DR submitted that the ratio of the decision in case of McDowell and Company Ltd. (supra) was ignored by the CIT(A) while deleting the addition. He requested to set aside the order of the CIT(A) and restore the order of the AO. 6. On the other hand, the Ld. AR of the assessee supported the order of CIT(A). He has filed a paper book enclosing therein (i) Rule 11UA as applicable for Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 6 the year under consideration, (ii) Rule 11UA as applicable from 01.04.2018 (A.Υ. 2018-19), (iii) Order of Mumbai Tribunal in the case of ACIT v. Nakul Markhedkar for A.Ys. 2015-16 and 2016-17 in ITA Nos. 786 and 785/Mum/2025 dated 30.04.2025, (iv) Judgment of the Hon'ble Delhi High Court in the case of PCIT v. Minda SM Technocast P. Ltd. (460 ITR 7) and (v) Order of Mumbai Tribunal in the case of Smiti Holding and Trading Co. P. Ltd. v. PCIT (99 taxmann.com 157). The Ld. AR submitted that the addition of Rs. 3.49 cr. has been made by the A.O. u/s. 56(2)(vii) (c) of the Act. As per Rule 11UA, prevailing at the relevant point of time, the shares held by target company are to be considered at book value and not by valuation of shares of that company (i e ultimate investee company). The above rule has been amended w.e.f. A.Y. 2018-19, according to which the shares of target company have to be considered, not at the book value but after considering the assets and liabilities of the ultimate investee company. The A.O. has applied the amended rules (which are effective from A.Y. 2018-19) during the year under consideration, ie. A.Y. 2015-16. This has not been approved by the Mumbai Tribunal in the case of Nakul Markhedkar, a family member of the appellant, in whose case the facts were identical to those of the assessee. The Tribunal has followed the decision of Hon'ble Delhi High Court in case of Minda SM Technocast P. Ltd. (supra) and order of ITAT, Mumbai in case of Smiti Holding and Trading Co. P. Ltd. (supra) and held that the A.O. was not justified in applying the amended rules retrospectively. The Ld. AR further submitted that the Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 7 assessment order and CIT(A) order in the present case are verbatim identical to that of Nakul Markhedkar and in the case of Nakul Markhedkar also the allegation of colourable/sham transactions were levelled but the same has not been upheld by the Tribunal in the above referred order. He also submitted that while alleging colourable/sham transactions, the A.O. has referred to certain events/transactions for the financial year 2008-09 etc. However, none of these events took place during the year under consideration and, hence, even if the allegations are correct, the addition cannot be made in the year under consideration. 7. We have heard both parties and perused the materials on record. We have also deliberated on the decisions relied upon by both parties. We have also carefully perused, the provisions of the prevailing and the amended provisions of section 56(2)(vii)(c) of the Act and Rule 11UA of IT Rules, 1962. We find that the impugned issue is no longer res integra in view of the decision of the co-ordinate bench of the Mumbai Tribunal in case of DCIT vs. Nakul Markhedkar (supra) for the same AY 2015-16 in ITA Nos. 786 and 785/Mum/2025 dated 30.04.2025. The Tribunal decided the issue in favour of the appellant by relying on the decisions of Delhi High Court in case of Minda SM Technocast Pvt. Ltd. (supra) and Mumbai ITAT in case of Smiti Holding and Trading Co. Ltd. (supra). The relevant part of the order is reproduced below for ready reference and clarity: Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 8 6. We heard the parties and perused the material on record. From the finding of the AO which is extracted in the earlier part of this order, we notice that the AO has invoked the provisions of section 56(2)(vii)(c) r.w.r 11UA for the reason that the acquisition of shares by the assessee in M/s Farista Financial Consultants Pvt Limited is to indirectly acquire the shares in RFAPL at a nominal value of Rs.10 where the FMV of the shares of RFAPL is Rs.483 per share. Therefore the AO held the entire transaction to be a sham transaction and accordingly made an addition under section 56(2)(vii)(c) r.w.r.11UA towards the difference between Rs.483 per share and the value of acquisition @ Rs.10 per share by the assessee. It is also relevant to mention here that the number of shares acquired by the assessee in M/s Farista Financial Consultants Pvt Limited is 5000 shares whereas the AO while making the addition has considered the number of shares to 72,215. This assumption it is noticed that the total number of shares owned by M/s Farista Financial Consultants Pvt Limited in RFAPL is 1,44,430 and since the assessee has acquired 50% of shares in M/s Farista Financial Consultants Pvt Limited the AO has assumed that the assessee has acquired 50% of shares i.e. 72,215 shares in RFAPL. From this it is clear that the AO has not only considered the FMV value per share of the underlying asset in the books of M/s Farista Financial Consultants Pvt Limited but has also considered the number of shares alleged to be indirectly acquired by the assessee. Therefore the point of dispute is what should be the value of underlying assets that has to be considered while arriving at the FMV of the shares of M/s Farista Financial Consultants Pvt Limited as per Rule 11UA of the Rules. The relevant rules applicable for AY 2015-16 is extracted below – Determination of fair market value. 11UA. (1) For the purposes of section 56 of the Act, the fair market value of a property, other than immovable property, shall be determined in the following manner, namely, — ………….. ……….... 7. From the plain reading of the above rule which is applicable for the year under consideration it is clear that for the purpose of determining the FMV of the unquoted shares, the underlying asset including assets in the form of shares are to be valued at book value as appearing in the Balance Sheet. This provision of considering the value of underlying asset being shares is amended w.e.f. 01.04.2018 to provide that the value of the underlying asset being shares need to be considered at FMV Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 9 as determined in the manner provided in rule 11UA and not the book value as per Balance Sheet. 8. In assessee's case, on perusal of the AO's order we notice that the AO himself has arrived at the FMV of the value of shares of M/s.Farista Financial Consultants Pvt. Ltd. at Rs.7.67 per share taking the value of assets including shares of RFAPL at book value (refer page 6 of AO's order). However the AO for the purpose of making addition under section 56(2)(vii)(c) has considered the FMV of the RAFPL shares thereby valuing the underlying assets of M/s.Farista Financial Consultants Pvt. Ltd. at FMV which is applicable only from 01.04.2018. In this regard we notice that the Hon'ble Delhi High Court while considering the applicability of amended provisions of Rule 11UA has held that ……….. 9. We further notice that a similar view has been held by the Co-ordinate Bench in the case of Smiti Holding & Trading Company Pvt. Ltd. (supra) where it has been held that ………… 10. We find that the AO besides applying the incorrect Rule 11UA has also not followed the right way to calculate the addition to be made under section 56(2)(vii)(c). We notice that the AO has considered 50% of the total shares RAFPL held by M/s.Farista Financial Consultants Pvt. Ltd. and made the addition by taking the difference between FMV and the price paid by the assessee for acquiring shares of M/s.Farista Financial Consultants Pvt. Ltd. under section 56(2)(vii)(c). In our considered view the formula applied by the AO for making the addition is not as per the method provided under Rule 11UA which provides that FMV is to be worked at by applying the formula (A - L) × (PV)/(PE). The AO ought to have arrived at the FMV of the shares of M/s.Farista Financial Consultants Pvt. Ltd. by applying Rule 11UA for the relevant AY and if the FMV thus arrived is more than consideration paid by the assessee for obtaining the shares of M/s.Farista Financial Consultants Pvt. Ltd. then the difference should have been added under section 56(2)(vii)(c). The difference between the FMV of the shares RAFPL and the purchase consideration paid by the assessee for obtaining shares in M/s.Farista Financial Consultants Pvt. Ltd. which is added by the AO under section 56(2)(vii)(c) in our view does not fall within any method prescribed under the Act. It is also relevant to mention here that the AO while examining share value of RAFPL which is alleged to be purchased by paper companies at a premium of Rs.490 has held that the premium is not substantiated since RAPFL is not carrying on any business and that Printed from counselvise.com ITA No.788/MUM/2025 (AY 2015-16) Vipul R Markhedkar 10 the AO has recorded a detailed finding with respect each of the 22 companies who have purchased the shares of RAFPL. However the AO for the purpose of making addition under section 56(2)(vii)(c) in the hands of the assessee has arrived the FMV of RAFPL at Rs.483 by considering the alleged bogus premium into consideration as has been pointed out in the order of the CIT(A). 11. In view of these discussions and considering the facts unique in assessee's case we see no infirmity in the order of the CIT(A) in deleting the addition made under section 56(2)(vii)(c). 8. Since the facts of the present appeal are similar to those of Nakul Markhedkar (supra) reproduced above, following the said decision, we affirm the order of CIT(A) in deleting the addition made u/s 56(2)(vii)(c) of the Act. Accordingly, the grounds raised the revenue are dismissed. 9. In the result, the appeal of the revenue is dismissed. Order is pronounced on 25.03.2026. Sd/- Sd/- (SANDEEP GOSAIN) (BIJYANANDA PRUSETH) JUDICIAL MEMBER ACCOUNTANT MEMBER *Aniket Chand; Sr. PS MUMBAI Date: 25.03.2026 Copy of the Order forwarded to: 1. The Assessee 2. The Respondent 3. The CIT(A) 4. CIT 5. DR/AR, ITAT, MUMBAI 6. Guard File By Order Assistant Registrar ITAT, MUMBAI Printed from counselvise.com "