N Jaideep Reddy , Hyderabad V. Asst. Commissioner of Income Tax, Central Circle-1(1), Hyderabad

ITA 623/Hyd/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 1085 (ITAT-HYDERABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-08-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Assessment Year: 2015-2016
• Appeal Filed On: 25-04-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Sale consideration of property below Jantri Value; Capital asset; Revision of order; Depreciation; Opportunity of being heard; Fair market value; Valuation report; Set aside
• Section: 56; 263; 132; 11; 139; 143(3); 56(2); 153A; 12AA; 143(2); 13; 22; 20

Judgement Text

ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 1 of 26 आयकर अपील य अ धकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member Appeal in ITA No Assessee Revenue A.Y 619/Hyd/2019 K. Vijaya Bhaskar Reddy, Hyderabad PAN AGKPK7677B A.C.I.T Central Circle-1(1) Hyderabad 2015-16 621/Hyd/2019 K. Laxma Reddy, Hyderabad PAN:AEUPK2478N -do- 2015-16 622/Hyd/2019 N. Jaiveer Reddy, Hyderabad PAN:AAUPN7364E -do- 2015-16 623/Hyd/2019 N. Jaideep Reddy, Hyderabad PAN:ACIPN4329B -do- 2015-16 Assessee by : Shri K.C. Devdas Revenue by: Dr. M. Narmada, CIT (DR) Date of hearing: 05/07/2022 Date of pronouncement: 30 /08/2022 ORDER Per Bench: The above batch of 4 appeals filed by the respective assessees are directed against the separate orders dated 27.12.2019 passed u/s. 263 of the I.T.Act, 1961 by the learned Pr.CIT Central, Hyderabad relating to A.Y.2015-16. 2. Since identical grounds have been raised by the respective assessees, therefore, these were heard together and are being disposed of by this common order. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 2 of 26 ITA No.619/Hyd/2019 – Shri K. Vijaya Bhaskar Reddy 2.1 Fact of the case, in brief, are that the assessee is an individual and one of the Directors in M/s. Ashoka Developers & Builders Ltd (ADBL) which is engaged in the business of construction of residential apartments and commercial space. A search & seizure operation was conducted in the group case of ADBL on 18.02.2016 wherein the assessee, being director of the company was also covered. Subsequently, the assessee filed his return of income for the A.Y 2015-16 on 30.09.2016 in response to notice u/s 153A of the I.T. Act 1961 declaring total income at Rs.51,74,240/-. The Assessing Officer completed the assessment u/s 143(3) r.w.s. 153A of the I.T. Act 1961 on 31.3.2017 for the A.Y 2015-16 accepting the income returned. 3. Subsequently, the learned PCIT on verification of the assessment records, noticed that during F.Y. 2014- 15, the assessee purchased 5,15,603 equity shares of CDBL (Cybercity Developers & Builders Pvt. Ltd.) from M/s Ashoka Developers & Builders Ltd. @Rs. 35/- per share, whereas the value per share adopted by the seller i.e., M/s ADBL was @Rs. 51/- per share. Hence, as per the provisions of section 56(2)(vii)(c)(ii) of the Income Tax Act 1961, the difference amounting to Rs. 16/- per share was to be assessed in the hands of the assessee being purchaser. However, the assessing officer did not verify the applicability of provisions of section 56(2) vii)(c)(ii) of the Income Tax Act, 1961 while finalizing the assessment ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 3 of 26 3.1 Since the assessment was completed without taking into account the above mentioned fact, the learned PCIT was of the opinion that the order passed by the Assessing Officer u/s 143(3) r.w.s. 153A of the Act was erroneous in so far as it was prejudicial to the interest of the Revenue. He, therefore, issued a show cause notice u/s 263 of the I.T. Act, 1961 asking the assessee to explain as to why the order passed by the Assessing Officer u/s 143(3) r.w.s. 153A should not be revised. In response to the same, the assessee company filed a detailed reply objecting the initiation of proceedings u/s. 263 of the I.T.Act, 1961 3.2 During the proceedings before the PCIT, the assessee submitted that the valuation of share is correct and there is no infirmity in the valuation and therefore, invoking the provisions of section 263 of the I.T. is not applicable. It was argued that the initiation of section 153A of the I.T. Act, 1961 itself is not legally correct. 3.3 However, the learned PCIT was not satisfied with the arguments advanced by the assessee. So far as the argument of the assessee that the valuation of shares is correct as per prescribed rules is concerned, he noted that in the instant case, the property (equity shares of CBDL) was received by the assessee ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 4 of 26 on 9.4.2014, therefore, the value of shares on 9.4.2014 should have been adopted for the purpose of determining the Fair Market Value (FMV) of shares. However, the assessee in the instant case has adopted the value of shares as per the audited balance sheet as on 31.3.2013 considering that the balance sheet as on 31.3.2014 was not drawn up and audited by the auditor of the company u/s 224 of the Companies Act, 1956 following the rule 11U(b)(i) of the I.T. Rules. He observed that the method prescribed in rule 11U(b)(i) of the I.T. Rules is applicable for the purpose of Sub Rule (2) of rule 11AA which pertains to valuation of unquoted equity shares for the purpose of 56(2)(viib) of the IT Act,1961 whereas this case squarely falls under Rule 11U(b)(ii) of the IT Rules as per which in any other case the balance sheet of such company as drawn up on the valuation date which has been audited by the auditors appointed under section 224 of the Companies Act,1956. Accordingly, the assessee should have either appointed the auditor u/s 224 of the Companies Act, 1956 and got the accounts audited as on the valuation date i.e as on 09.04.2014 or adopted the balance sheet as on immediate preceding year i.e. 31.03.2014 Since, the auditor was not appointed by the assessee to get the accounts audited as on the valuation date, the only option left with the assessee was to adopt the balance sheet as on 31.03.2014. He noted that the FMV ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 5 of 26 arrives @Rs 51/per share after following the balance sheet as on 31.03.2014 and the same value i.e.(@Rs. 5l/- per share) was adopted by the seller i.e, M/s ADBL to arrive at the capital gain tax for the A.Y. 2015-16. Accordingly, the difference amounting to Rs. 16/- per share was to be assessed in the hands of the assessee as envisaged in section 56(2)(vii)(c)(ii) of the Income Tax Act, 1961. Hence, the objection raised by the assessee with regard to valuation of share is not correct and hence denied. 3.4 So far as the argument of the assessee that the notice u/s 153A is invalid in absence of any incriminating material is concerned, the PCIT observed that the said provisions have been inserted by the Finance Act, 2017 which is effective from 1.4.2017 whereas the case of the assessee is A.Y 2015-16. Therefore, the newly inserted provisions are not applicable to the facts of the present case. Distinguishing the various decisions cited before him, the learned PCIT held that the assessment order passed by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the Revenue as envisaged in section 263 of the I.T. Act. He accordingly set aside the order passed by the Assessing Officer with a direction to redo the same afresh taking into a/c the provisions of section 56(2)(viib) of the IT Act,1961 after providing an opportunity of being heard to the assessee. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 6 of 26 4. The assessee argued that the company M/s ADBL had disclosed the difference in rate amounting to Rs. 16/- per share in the company's hands and paid taxes which was brought to the notice of the AO and the same was accepted by the AO. However, on verification of the assessment record, he noted that the Assessing Officer has not examined the applicability of provisions of section 56(2)(vii )(c)(ii) during the assessment proceedings. Hence, there is no question of accepting the claim of the assessee with regard to the payment of taxes by the company M/s ADBL. 5. So far as the objection regarding the invoking of provisions of section 263 of the Act as there is no loss to the Revenue is concerned, he noted that the explanation 2 of sub section l of section 263 clearly specifies that if the order is passed without making inquiries or verification which should have been made or the order is passed allowing any relief without inquiring into the claim, the order passed by the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interest of the revenue. In the instant case, it is clearly evident from the verification of record that the AO has not enquired about the FMV of the share purchased by the assessee. 6. The ld.PCIT further noted that the provisions of section 56(2)(vii)(c)(ii) do not stipulate that if the taxes are already paid by ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 7 of 26 the seller, the purchaser need not pay the taxes. In other words, the said section only states about the treatment of difference in FMV for taxation in the hands of the purchaser and the same is nothing to do with the seller Hence, the assessee' s argument that there is no loss of revenue to the Government because the amount has already been brought to tax in the hands of the company has no logic and accordingly, the initiation of proceedings u/s 263 of the Income Tax Act, 1961 stands valid. In view of the above, he set aside the order passed by the AO and directed him to decide the issue afresh taking into account the provisions of section 56(2)(vii)(c)(ii) of the I.T.Act after providing due opportunity of being heard to the assessee. 7. Aggrieved with such order of the learned PCIT, the assessee is in appeal before the Tribunal by raising the following grounds of appeal: “ 1. The order of the Hon'ble Pr.CIT is erroneous in law as well as facts of the case 2. The Hon'ble Pr. CIT ought to have observed that the order passed by the assessing officer u/s.153A of the IT Act is neither erroneous nor prejudicial to the interest of revenue and therefore there is no Scope to invoke provisions of section 263 of the IT Act. 3. The Hon'ble Pr. CIT observed that the valuation of the shares as per the balance sheet dated 31.03.2014 was in-accordance with the provisions / rules under the statute and therefore the value adopted by the assessee need not be disturbed. 4. The Hon'ble Pr. CIT ought to have taken into consideration the fact that the difference in valuation was voluntarily disclosed by the company M/s. Ashoka Developers & Builders Limited in their ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 8 of 26 total income, in the course of post search enquiry proceedings, in which the assessee and other co-shares were shareholders. 5. The Hon'ble Pr. CIT ought to have observed that there was no revenue loss as the relevant amount was already brought to tax in the case of M/s. Ashoka Developers & Builders Limited instead of individual shareholders. 6. The Hon'ble Pr. CIT ought to have observed that, in the case of the assessee, though proceedings u/s.153A were initiated, the assessment was finalized without making any addition as there was no incriminating material indicating concealment of income and therefore initiation of further proceedings u/s.263 in respect of such order u/s.153A cannot be considered as valid. 7. Any other ground will be raised at the time of hearing”. 8. The learned Counsel for the assessee strongly challenged the order of the learned PCIT in invoking the jurisdiction u/s 263 of the I.T. Act. He submitted that on the date of search on 18.2.2016, no incriminating materials were found. Therefore, in absence of any incriminating material found during the course of search, the learned PCIT was not justified in assuming jurisdiction u/s 263 of the I.T. Act. 9. The learned Counsel for the assessee in his next plank of argument submitted that the assessee has disclosed the investment in accordance with the purchase of shares in the return of income filed u/s 139 of the I.T. Act. The shares, in question, were transferred on 9.4.2014 and the assessee has adopted the shares @ Rs.35/- per share which is as per the provisions of section 11 and 11UA of the I.T. Rules. Referring to the provisions of ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 9 of 26 section 11UA of the I.T. Rules, 1961, the learned Counsel for the assessee submitted that as per the said Rule, the Fair Market Value (FMV) of unquoted equity shares shall be the value on the valuation date of such unquoted equity shares as determined in the manner prescribed therein. 10. Referring to various decisions he submitted that perusal of Rule 11UA clearly brings out that the shares are to be valued in accordance with the last audited balance sheet which was as on 31.3.2013 relevant to the financial year 2012-13. Since the balance sheet for A.Y 2013-14 was not drawn up as on 9.4.2014, the shares were valued as per the last audited balance sheet which was relevant to the financial year 2012-13, he submitted that the valuation of the shares @ Rs.35/- per share was on the basis of the last audited balance sheet on 31.3.2013 which is not disputed. On the contrary, the computation of value of shares of M/s. Cyber City Developers & Builders (P) Ltd @ 51/- per share as on 31.3.2014, which was not on the basis of audited accounts at Rs.51/- is not in accordance with the statutory provisions and Rules. He accordingly submitted that in accordance with the provisions of valuation as laid down in Rule 11UA of Income Tax Rules, 1961 which was Asset Backing Method i.e.(Assets-Liabilities:-No. of shares). Therefore, the adoption of value of shares at Rs.51/- by the learned ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 10 of 26 PCIT is totally contrary to the statutory provisions. Therefore, the order passed by the learned PCIT u/s 263 has no legs to stand. 11. The learned Counsel for the assessee in yet another plank of his argument submitted that since in the case of the assessee as well as remaining 3 assessees, the original assessments were not taken up for scrutiny and the A.Y involved being A.Y 2015-16, the time limit for issuance of notice u/s 143(2) expired on 30.09.2015 and the entire proceedings stood terminated on 30.09.2015. 12. Referring to the decision of the Hon'ble Punjab & Haryana High Court in the case of CIT vs. Vippin Khanna reported in 255 ITR 220 and the CBDT Circular No.549 of 31/10/1989 reported in 182 ITR (ST)001, he submitted that the assessment stood terminated and no proceedings were pending as on 30.09.2015. He submitted that when the entire assessment were subject to search u/s 132 on 18.2.2016 and no proceedings were pending in respect of the above mentioned assessees, the question of making addition u/s 153A does not arise in absence of any incriminating material found during the course of search. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 11 of 26 13. Referring to the decision of the Kolkata Bench of the Tribunal in the case of Anjali Jewellers vs. Pr.CIT reported in (2021) 92 ITR TRIB.35 (ITAT Kolkata), he submitted that when no incriminating material was found during the course of search, the PCIT fell into error in stating that the addition could be made u/s 153A of the Act and in a proceeding u/s 143(3) r.w.s. 153A a concluded assessment could not be taken up or in short settled issues cannot be unsettled unless there was incriminating material. 14. Referring to the decision of the Hon'ble A.P High Court in the case of Spectra Shares & Scrips (P) Ltd vs. CIT reported in 354 ITR 35, he submitted that the Hon'ble High Court in the said decision has held that the Assessing Officer in the assessment order is not required to give detailed reasons and once it is clear that there was application of mind by an enquiry merely because the Commissioner entertains a different opinion in matter, cannot invoke his powers u/s 263 of the Act. 15. Referring to the decision of the Hon'ble A.P High Court in the case of ACIT vs. Shri KCKA Gupra, copy of which is placed at page No.13 of the Paper Book filed, he submitted that the Hon'ble High Court in the said decision has held that where two views are possible, the Commissioner cannot revise the assessment order ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 12 of 26 merely because he does not agree with the view taken by the Assessing Officer. 16. The learned Counsel for the assessee referring to the seized material found during the course of search drew the attention of the Bench to the same and submitted that the Department during the course of search has seized the extract of the resolution passed at the extra-ordinary general meeting held on 27.3.2014 and the explanatory statement pursuant to section 102(1) of the Companies Act, 1913. Referring to the said seized material, he submitted that the rate per share has been mentioned at Rs.35/- per share. 17. Referring to the decision of the Delhi Bench of the Tribunal in the case of Sadhvi Securities (P.) Ltd. vs. Assistant Commissioner of Income Tax reported in 109 Taxmann.com 245, he submitted that the Tribunal in the said decision has held that where the assessee issued equity shares (unquoted) on 31.3.2014, the valuation date of unquoted shares was also 31.3.2014 and if the balance sheet was not drawn up by the Auditor on 31.3.2014 the valuation of assets and liabilities as on 31.03.2013 should have been adopted. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 13 of 26 18. Referring to the decision of the Coordinate Bench of the Tribunal in the case of Medplus Health Services (P) Ltd vs. Income Tax Officer reported in (2016)68 taxmann.com 29, he submitted that the Tribunal in the said decision has held that where a method has been prescribed by the Legislature, that method alone shall be followed for computation of the fair market value. 19. He submitted that the decision of Hon'ble A.P. High Court in the case of Gopaldas Bhadruka reported in 346 ITR 106 is not applicable to the fact of the present case. 20. So far as the statement given by Shri K.Vijaya Bhaskar Reddy recorded on 8.3.2016 is concerned, he submitted that the statement recorded u/s 132(4) is not an incriminating material. He accordingly submitted that the order passed by the learned PCIT by invoking the provisions of section 263 of the I.T. Act setting aside the order passed by the Assessing Officer being not in accordance with law should be set aside and the grounds raised by the assessee should be allowed. 21. The learned DR, on the other hand, heavily relied on the order of the learned PCIT. He submitted that the Assessing Officer in the instant case had not verified the applicability of provisions of section 56(2)(vii)(c)(ii) of the I.T. Act while finalising the assessment. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 14 of 26 Further, the statement of the assessee Mr. Vijaya Bhaskar Reddy, who is the director of the M/s. Cyber City Builders & Developers (P) Ltd, recorded during the course of search and thereafter including the affidavit on 1.6.2016 by Shri N. Jaiveer Reddy before the DDIT (Inv.) were not considered by the Assessing Officer. 22. Referring to the decision of Hon'ble Kerala High Court in the case of E.N. Gopakumar vs. CIT (Central) reported in (2016) 390 ITR 131 (Kerala), he submitted that the assessment proceedings generated by issuance of a notice u/s 153A(1)(a) can be concluded against the interest of the assessee including making addition even without any incriminating material being available against the assessee in search u/s 132 on the basis of which notice was issued u/s 153A(1)(a) of the I.T. Act. He accordingly submitted that since the Assessing Officer in the instant case has not considered the adoption of the fair market value at Rs.51/-, therefore, the order passed by the Assessing Officer has become erroneous as well as prejudicial to the interest of the Revenue and therefore, the learned PCIT was fully justified in assuming jurisdiction u/s 263 of the I.T. Act. 23. The learned Counsel for the assessee in his rejoinder submitted that after the above decision in case of Shri ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 15 of 26 E.N.Gopakumar, the full Bench of the Kerala High Court in the case of CIT vs. C.N.Ravi vide order dated 16.10.2018 has taken a totally different view. Therefore, the decision in the case of Shri E.N. Gopakumar no longer applies. He also relied on the decision of the Hon'ble A.P High Court in the case of Sri Ramdas Motor Transport Ltd. vs Karedla Suryanarayana And Ors. on 18 October, 2001, Reported in(2002) 110 CompCas 193 AP. He accordingly submitted that the order passed by the learned PCIT being not in accordance with law, should be set aside and the grounds raised by the assessee should be allowed. 24. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned PCIT and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us by both sides. We find the AO in the instant case completed the assessment u/s 143(3) r.w.s. 153A of the I.T. Act 1961 on 31.3.2017 accepting the income declared at Rs.51,74,240/-. We find the learned PCIT assumed jurisdiction u/s 263 of the I.T. Act on the ground that the assessee, during the year under consideration, has purchased 5,15,603 equity shares of Cybercity Builders & Developers Ltd from M/s. Ashoka Developers & Builders Ltd @ Rs.35/- per share whereas the value per share adopted by the seller i.e. ADBL was at Rs.51/- per ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 16 of 26 share. Therefore, the provisions of section 56(2)(vii)(c)(ii) of the I.T. Act 1961 applies and the difference amount of Rs.16/- per share which should have been assessed in the hands of the assessee, being the purchaser was not properly verified by the Assessing Officer. According to the learned PCIT, since the equity shares of CBDL were received by the assessee on 9.4.2014, therefore, the value of shares as on 9.4.2014 should have been adopted for the purchase of shares determining the fair market value. However, the assessee in the instant case has adopted the value of shares as per audited balance sheet as on 31.3.2013 considering that the balance sheet as on 31.3.2014 was not drawn up and audited by the Auditor of the company appointed u/s 224 of the I.T. Act. According to him, since the Assessing Officer has passed the order without making any enquiry which should have been made or the order is passed allowing a relief without enquiry, the order passed by the Assessing Officer is erroneous and prejudicial to the interest of the Revenue and therefore, he set aside the order to the file of the Assessing Officer with a direction to redo the same afresh. 24.1 It is the submission of the learned Counsel for the assessee that no incriminating material was found during the course of search and therefore, the learned PCIT could not have invoked the jurisdiction u/s 263 of the I.T. Act. Further, the assessee has ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 17 of 26 disclosed the entire amount of purchase of shares in the balance sheet filed along with the return of income and the provisions of section 11UA are applicable to the facts of the present case according to which the shares have to be valued in accordance with the last audited balance sheet which is in the instant case is 31.03.2013 as no balance sheet was drawn up as on 09.04.2014 or 31.03.2014. Therefore, the learned PCIT was not justified in invoking the provisions of section 263 of the I. T. Act. 25. We find some force in the above arguments of the learned Counsel for the assessee. There is no dispute to the fact that the assessee in the impugned assessment year has purchased 5,15,603 equity shares of CBDL from ABDL @ Rs.35/- per share. The assessee has disclosed the investment in accordance with the purchase of shares in the return of income filed before the date of search that took place on 18.2.2016. The return of income originally filed u/s 139 of the I.T. Act as well as the return filed u/s 153A of the Act have been accepted. 26. We find the provisions of section 56(2)(vii)(c)(ii) of the I.T. Act 1961 read as under: “ (vii) where an individual or a Hindu undivided family receives, in any previous year, from any person or persons on or after the 1st day of October, 2009 but before the 1st day of April, 2017, (any sum of money, without consideration, the aggregate value of which exceeds fifty ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 18 of 26 thousand rupees, the whole of the aggregate value of such sum; (b) any immovable property,- without consideration, the stamp duty value of which exceeds fifty thousand the rupees, stamp duty value of such property; (i for a consideration which is less than the stamp duty value of the property by amount an exceeding fifty thousand rupees, the stamp duty value of such property exceeds such consideration: as Provided that where the date of the agreement fixing the amount oi consideration for the transfer of immovable property and the date of registration are not the same, the stamp duty value on the date of the agreement may be taken for the purposes of this sub-clause: Provided further that the said proviso shall apply only in case where the amount of consideration referred to therein, or a part thereof, has been paid cash on or before the date of the agreement for the transfer of such immovable property; (c) any property, other than immovable property (i) Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market Value of such property (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding Fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section(2) of section 50C, the Assessing Office may refer the valuation of such property to a Valuation OII1cer, and the provisions of section SOC and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections. Provided further that this clause shall not apply to any sum of money or any property received- (a) from any relative; or (b) on the occasion of the marriage of the individual; or (c) under a will or by way of inheritance; or (d) in contemplation of death of the payer or donor, as the case may be; or (e) from any local authority as defined in the Explanation to clause (20) of section 10; or (f) from any fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or (g) from any trust or institution registered under 6section 12AA or section 12AB); or (h) by way of transaction not regarded as transfer under clause (vicb) or clause (vid) or clause (vu) of section 47. ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 19 of 26 Explanation.-For the purposes of this clause, (a) "assessable" shall have the meaning assigned to it in the Explanation 2 to sub-section (Z) of section 50C; (b) "fair market value of a property, other than an immovable property, means the value determine in accordance with the method as may be prescribed; (Rule 11U and 11UA) (c) “jewellery” shall have the meaning assigned to it in the Explanation to sub-clause (1) of clause (14) of section 2 27. A perusal of the above shows that the shares are to be valued as per the provisions contained in Rule 11UA of the I.T. Rules, 1961 in accordance with the explanation which read as under: “ 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,— (c) valuation of shares and securities,— (a) the fair market value of quoted shares and securities shall be determined in the following manner, namely,— (i) if the quoted shares and securities 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 ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 20 of 26 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)× (PV)/(PE), where, A= book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by,— (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; 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; 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; L= book value of liabilities shown in the balance sheet, but not including the following amounts, namely:— (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income- tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law 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; PV= the paid up value of such equity shares; PE = total amount of paid up equity share capital as shown in the balance-sheet;] (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 21 of 26 estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant 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:— (a) the fair market value of unquoted equity shares = where, A = book value of the assets in the balance-sheet as reduced by any amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act and any amount shown in the balance-sheet as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; L = book value of liabilities shown in the balance-sheet, but not including the following amounts, namely:— (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law 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; PE = total amount of paid up equity share capital as shown in the balance-sheet; PV = the paid up value of such equity shares; or (b) the fair market value of the unquoted equity shares determined by a merchant banker 2 [***] as per the Discounted Free Cash Flow method.] ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 22 of 26 A perusal of the aforesaid Rule 11UA of I.T. Rules 1962 shows that the shares are to be valued in accordance with the last audited balance sheet which was as on 31.3.2013 relevant to the financial year 2013 as no balance sheet was drawn up as on 09.04.2014 or on 31.03.2014. It is pertinent to mention here that as per form 20B filed by the assessee, the Annual General Meeting for the financial year ending on 31.03.2014 was conducted on 22.09.2014 before and the Annual General Meeting for financial year ending 31.03.2013 was conducted on 23.09.2013 and the shares were purchases on 09.04.2014. Therefore, the question that arises as to what should be the valuation date in this case. 28. We find the Delhi Bench of the Tribunal in the case of Sadhvi Securities (P) Ltd vs. ACIT while adjudicating an identical issue has observed as under: “12. We do not find any merit in the argument of the ld. counsel for the assessee. A perusal of the Rule 11U(b) as reproduced by CIT(A) at para 5.6 of his order makes it clear that the balance sheet means the balance sheet as drawn up on the balance sheet date which has been audited by the auditor of the company and where the balance sheet on the valuation date has not been drawn up the balance sheet drawn up as on a date immediately preceding the valuation date which has been approved and adopted in the AGM of the shareholders of the company. We find in the instant case, on the date of receipt of the consideration the balance sheet of the assessee company was not drawn up as the same was drawn up only on 31st July, 2014 which is evident from the audited balance sheet filed. Clause (b) and clause (j) of Rule 11UA makes it clear that for computing fair market value of the shares the value of the assets and liabilities as stated in ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 23 of 26 the audited balance sheet immediately prior to the receipt of consideration should be adopted. If, on the date of receipt of the consideration, the balance sheet was not drawn up, then, the balance sheet drawn up as on a date immediately preceding the valuation date should be adopted i.e., the balance sheet of the immediately preceding year should be adopted. We find, in the instant case, on the valuation date i.e., on 31.03.2004, the balance sheet was not drawn up by the auditor as audited financials were drawn up only on 31st July, 2014 and, therefore, we concur with the observation of the ld.CIT(A) that the valuation of assets and liabilities in the balance sheet of the immediately preceding year i.e., 31.03.2013 should have been adopted. Since the valuation done by the assessee was not in accordance with the Rule framed for valuation of unquoted shares i.e., the assessee has not taken the value of assets before introduction of share capital received through fresh allotment and since the Assessing Officer has correctly determined the valuation of the unquoted shares which has been upheld by the CIT(A), therefore, we do not find any infirmity in the order of the CIT(A). Accordingly, the same is upheld and the grounds raised by the assessee are dismissed”. Since in the instant case the assessee has purchased shares @ Rs.36/- per share on the basis of the last audited balance sheet as on 31.3.2013 therefore, in our opinion, the order passed by the learned PCIT disputing the valuation of shares is totally contrary to the statutory provisions. In our opinion, merely because the director of the seller company had made a statement, the same cannot be basis for addition in the hands of the assessee unless the same is sustainable within the four corners of law. The AO is expected to examine the applicable provisions during the assessment proceedings. However, when the provision itself cannot be invoked, since the Balance Sheet for the year ending on 31.03.2014 was adopted and approved on 22.09.2014 i.e. after the shares were ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 24 of 26 purchased, therefore as per the provisions of the I.T.Act, 1961 and I.T.Rules 1962, the AO was not required to examine the applications of section 56(2)(vii)(c)(ii) as wrongly recorded by the PCIT. In view of the above discussion, we are of the considered opinion, that the PCIT was not justified in disputing the valuation of the shares. We accordingly set aside the order passed u/s. 263 and the grounds raised by the assessee challenging the validity of 263 proceedings are allowed. 29. Since, the assessee succeeds on the issue of validity of 263 proceedings, the grounds challenging the validity of assessment proceedings u/s. 153A in absence of any incriminating material becomes academic in nature and therefore are not being adjudicated. 30. In the result, the appeal filed by the assessee is allowed. ITA No.621/Hyd/2019 for AY 2015-16 – Shri K.Laxma Reddy ITA No.622/Hyd/2019 for AY 2015-16 - Shri N.Jaiveer Reddy ITA No.623/Hyd/2019 for AY 2015-16 - Shri Jaideep Reddy 31. After hearing both sides, we find the grounds raised in the above appeals are identical to grounds of appeal in ITA No.619/Hyd/2019. We have already decided the issue and the appeal filed by the ITA Nos 619, 621, 623 and 624 of 2019 K Vijaya Bhaskar Reddy & Other Hyd. Page 25 of 26 assessee has been allowed. Following similar reasonings, the above appeals are allowed. 32. In the result, the above four appeals filed by the respective assessees are allowed. Order pronounced in the Open Court on 30 th August, 2022. Sd/- Sd/- (LALIET KUMAR) JUDICIAL MEMBER (R.K. PANDA) ACCOUNTANT MEMBER Hyderabad, dated 30 th August, 2022. Vinodan/sps Copy to: S.No Addresses 1 K.Vijaya Bhaskar Reddy, K. Laxma Reddy,N. Jaiveer Reddy, N. Jaideep Reddy C/o B. Narsing Rao & Co. C.A. Plot No.554, Road No.92, Jubilee Hills, Hyderabad 500096 2 A.C.I.T. Central Circle 1(1) Hyderabad 3 Pr.CIT (Central Circle)- ,Hyderabad 4 Add.CIT-Central Range-1, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order