Amended Rule 11UA Cannot be Applied Retrospectively for Share Valuation: ITAT [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai Bench, dismissed Revenue's appeals and upheld the deletion of additions made under Section 56(2)(vii)(c) after finding that the Assessing Officer had effectively applied the amended provisions of Rule 11UA to the years under consideration.

The assessee, Kanchan Markhedkar, had acquired shares of holding companies at face value. During assessment proceedings, the Assessing Officer adopted the fair market value of shares of the underlying companies for determining the value of shares acquired by the assessee and made additions under Section 56(2)(vii)(c).

However, the CIT(A) deleted the additions. Aggrieved, the Revenue preferred appeals before the Tribunal.

Before the Tribunal, the Revenue contended that the assessee had effectively acquired control over the underlying companies through intermediary entities and therefore the provisions of Section 56(2)(vii)(c) were rightly invoked.

The assessee contended that Rule 11UA, as applicable to the relevant assessment years, required determination of fair market value on the basis of book value of assets. It was submitted that the valuation mechanism relied upon by theAssessing Officer was introduced only through a subsequent amendment.

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The Tribunal comprising Amit Shukla (Judicial Member) and Makarand Vasant Mahadeokar (Accountant Member) observed that the amendment to Rule 11UA providing for valuation based on the fair market value of underlying assets and investments came into effect from 01.04.2018. It noted that by adopting the fair market value of shares of the underlying companies, the Assessing Officer had effectively applied the amended Rule to the years under consideration.

Relying on PCIT v. Minda SM Technocast Pvt. Ltd. [2023], the Tribunal observed that the amended Rule could not be applied retrospectively.

Accordingly, the Tribunal found no infirmity in the orders of the CIT(A) deleting the additions made under Section 56(2)(vii)(c). The Revenue's appeals were dismissed