I bought unquoted shares from family members at Rs 540 when the officer's rule 11UA working says Rs 661. Can a discount for lack of marketability and the company's real position be brought into the valuation?
On these facts, yes. The Pune Tribunal upheld the Commissioner (Appeals), who had accepted the assessee's second valuation report and deleted the addition of Rs 1,44,42,560 under section 56(2)(x). The first appellate order accepted the valuer's figures for two parcels of land, worked out on stamp duty and IGR rates, allowed the provision for gratuity as a liability because most employees had crossed five years of service, and allowed a discount of fifteen per cent for lack of marketability given the difficulty of realising an industrial site with a working plant on it. The Tribunal found the order detailed and speaking, noted that the Departmental Representative brought no contrary material, and followed its own earlier order in a companion case.
Decided by the ITAT (Income Tax Appellate Tribunal, Pune Bench A; R.K. Panda, Vice President and Astha Chandra, Judicial Member. Order by Panda VP) on 2025-06-16, reported as ITA No. 1238/PUN/2024, assessment year 2021-22. It bears on section 56(2)(x), section 50CA of the Income Tax Act 1961, in Assessment & Scrutiny and Capital Gains matters.
Additions under section 56(2)(x) and section 50CA on unquoted shares are usually defended on the footing that rule 11UA is a mechanical formula and the officer's arithmetic on the balance sheet is the end of it. This order shows the counter-arguments succeeding at the first appellate stage and surviving in the Tribunal: that the value of immovable property under the rule turns on the correct stamp duty rules for the kind of land involved, so undeveloped, barren, industrial converted land with open, amenity and parking areas is not valued at a single rate; that a gratuity provision computed on a scientific basis is a real liability and not a contingent one; and that a discount for lack of marketability can be given where the shares are of a closely held company transferable only among promoters. The order also illustrates how a Bench disposes of such an appeal, by testing whether the first appellate order is speaking and whether the Department has put anything on record against it.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
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The assessee, an individual and a director of Metarolls Ispat Pvt Ltd, returned income of Rs 2,94,34,790 for assessment year 2021-22 on 30 December 2021. A search under section 132 was carried out on 23 September 2021 in the Metarolls group, covering him, and the case was taken up for scrutiny. During the year he had bought 1,19,360 unlisted shares of Metarolls Ispat from seven persons at Rs 540 per share, for Rs 6,44,54,400. Asked to substantiate the price, he produced a valuation report of one chartered accountant giving Rs 752.50 under the market value method and Rs 522.48 on a weighted average of the discounted cash flow, book value and market value methods. The Assessing Officer took the view that rule 11UA(1)(c)(b) governed, computed a higher figure and issued a show cause notice. Without prejudice, the assessee filed a second report from another chartered accountant valuing the shares at Rs 643.80, rounded to Rs 640, the difference from the first report arising from the value of two immovable properties, and asked for a tolerance band of fifteen to twenty per cent. The officer rejected the reduced land values, taking the Yerur land at Rs 9,84,25,980 instead of Rs 7,44,67,966 and the Kochi Bhadravati land at Rs 74,29,514 instead of the reduced figure, and disallowed the deduction of Rs 1,45,28,805 for the long term gratuity provision as contingent. He arrived at Rs 661 per share and added Rs 1,44,42,560 under section 56(2)(x), initiating penalty under section 270A. The Commissioner (Appeals), by order of 31 March 2024, deleted the addition. The Revenue's appeal raised ten grounds, six of them on this issue and the rest on additions of Rs 26 lakh for hundi advances, Rs 1,28,700 of interest, and Rs 1,76,015 of agricultural income.
The Revenue's appeal was partly allowed. On grounds 1 to 6, the valuation issue, the Tribunal held the facts identical to those in its earlier order in ACIT v Dwarkaprasad Bhikulal Soni, found no infirmity in the first appellate order in the absence of any contrary material from the Departmental Representative, upheld it and dismissed those grounds; the deletion of the Rs 1,44,42,560 addition therefore stands. On grounds 7 and 8, the Rs 26 lakh said to have been advanced in cash on two hundis of Rs 13 lakh each found in the search, the Tribunal held that the officer had made the addition merely on the word cash written in the promissory notes, that the counterparty had explained the two postdated cheques of Rs 13 lakh each as covering an unsecured loan of Rs 25 lakh with Rs 1 lakh of interest, and that there was no evidence that the Rs 26 lakh was over and above the Rs 25 lakh paid by cheque; those grounds were dismissed. On ground 9, the Tribunal held that since the assessee admitted giving Rs 25 lakh as a loan, the interest accrued had to be added, set aside the first appellate order and restored the addition of Rs 1,28,700. On ground 10, it held that mere land holding of 4 hectare 6 R with a crop noted in the 7/12 extract could not support agricultural income of Rs 1,76,015 without proof of cultivation, produce, buyers and expenditure, but allowed Rs 75,000 as reasonable and directed the balance of Rs 1,01,015 to be treated as income from other sources.
On the valuation issue the Tribunal did not write its own analysis. It set out the first appellate order at length and then adopted the reasoning of a coordinate bench in a companion case on identical facts. The reasoning so adopted runs as follows. For the Yerur land, the stamp duty rules themselves prescribe different treatment for industrial converted plots according to open area, amenity area and parking area, the land was undeveloped and barren and not demarcated as usable under the conversion order, and the valuer had followed those rules, so no single uniform rate could be applied and the lower figure was acceptable. For the Chandrapur land, the value adopted was the IGR rate published by the State Government and was therefore reasonable. On gratuity, most employees had completed more than five years of continuous service and were entitled to payment, the provision was made on a scientific basis derived from past data, and it was accordingly a certain liability to be deducted. On the discount, the first appellate authority reasoned that fair value is dynamic and depends on the willingness of buyers, the nature of the assets and whether they are freely traded, that these shares were being redistributed among promoters of a closely held group and could not be transferred outside without consent under the Companies Act, and that realising the immovable property would require removing a working plant, with the attendant time and legal difficulties, so that a discount of fifteen per cent for lack of marketability was justified, bringing the figure back to about Rs 544 and so to the Rs 540 adopted. The Tribunal's own contribution was to note that the order below was detailed and speaking, that reasons had been given for the discount, and that the Department had brought no distinguishing material. On the other grounds it reasoned from the evidence: an addition cannot rest on the single word cash in a promissory note where the counterparty's explanation fits the banking record; but interest accrues on an admitted loan whether or not the cheque has been encashed; and an agricultural claim needs more than a land record, though a modest figure may be allowed to end the litigation.
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Handle my notice → Ask a CA on WhatsAppOn these facts, yes. The Pune Tribunal upheld the Commissioner (Appeals), who had accepted the assessee's second valuation report and deleted the addition of Rs 1,44,42,560 under section 56(2)(x). The first appellate order accepted the valuer's figures for two parcels of land, worked out on stamp duty and IGR rates, allowed the provision for gratuity as a liability because most employees had crossed five years of service, and allowed a discount of fifteen per cent for lack of marketability given the difficulty of realising an industrial site with a working plant on it. The Tribunal found the order detailed and speaking, noted that the Departmental Representative brought no contrary material, and followed its own earlier order in a companion case. This was decided by the ITAT (Income Tax Appellate Tribunal, Pune Bench A; R.K. Panda, Vice President and Astha Chandra, Judicial Member. Order by Panda VP) and bears on section 56(2)(x), section 50CA of the Income Tax Act 1961. It is reported as ITA No. 1238/PUN/2024, assessment year 2021-22. Additions under section 56(2)(x) and section 50CA on unquoted shares are usually defended on the footing that rule 11UA is a mechanical formula and the officer's arithmetic on the balance sheet is the end of it. This order shows the counter-arguments succeeding at the first appellate stage and surviving in the Tribunal: that the value of immovable property under the rule turns on the correct stamp duty rules for the kind of land involved, so undeveloped, barren, industrial converted land with open, amenity and parking areas is not valued at a single rate; that a gratuity provision computed on a scientific basis is a real liability and not a contingent one; and that a discount for lack of marketability can be given where the shares are of a closely held company transferable only among promoters. The order also illustrates how a Bench disposes of such an appeal, by testing whether the first appellate order is speaking and whether the Department has put anything on record against it. If it applies to you, the first step is this: Get a valuation report that works each immovable property under the stamp duty rules that actually apply to that class of land, and put the ready reckoner or IGR extract on record; that is what carried the two land items here.
The assessee, an individual and a director of Metarolls Ispat Pvt Ltd, returned income of Rs 2,94,34,790 for assessment year 2021-22 on 30 December 2021. A search under section 132 was carried out on 23 September 2021 in the Metarolls group, covering him, and the case was taken up for scrutiny. During the year he had bought 1,19,360 unlisted shares of Metarolls Ispat from seven persons at Rs 540 per share, for Rs 6,44,54,400. Asked to substantiate the price, he produced a valuation report of one chartered accountant giving Rs 752.50 under the market value method and Rs 522.48 on a weighted average of the discounted cash flow, book value and market value methods. The Assessing Officer took the view that rule 11UA(1)(c)(b) governed, computed a higher figure and issued a show cause notice. Without prejudice, the assessee filed a second report from another chartered accountant valuing the shares at Rs 643.80, rounded to Rs 640, the difference from the first report arising from the value of two immovable properties, and asked for a tolerance band of fifteen to twenty per cent. The officer rejected the reduced land values, taking the Yerur land at Rs 9,84,25,980 instead of Rs 7,44,67,966 and the Kochi Bhadravati land at Rs 74,29,514 instead of the reduced figure, and disallowed the deduction of Rs 1,45,28,805 for the long term gratuity provision as contingent. He arrived at Rs 661 per share and added Rs 1,44,42,560 under section 56(2)(x), initiating penalty under section 270A. The Commissioner (Appeals), by order of 31 March 2024, deleted the addition. The Revenue's appeal raised ten grounds, six of them on this issue and the rest on additions of Rs 26 lakh for hundi advances, Rs 1,28,700 of interest, and Rs 1,76,015 of agricultural income. The matter was decided on 2025-06-16 by the ITAT (Income Tax Appellate Tribunal, Pune Bench A; R.K. Panda, Vice President and Astha Chandra, Judicial Member. Order by Panda VP). On those facts the ITAT held as follows. The Revenue's appeal was partly allowed. On grounds 1 to 6, the valuation issue, the Tribunal held the facts identical to those in its earlier order in ACIT v Dwarkaprasad Bhikulal Soni, found no infirmity in the first appellate order in the absence of any contrary material from the Departmental Representative, upheld it and dismissed those grounds; the deletion of the Rs 1,44,42,560 addition therefore stands. On grounds 7 and 8, the Rs 26 lakh said to have been advanced in cash on two hundis of Rs 13 lakh each found in the search, the Tribunal held that the officer had made the addition merely on the word cash written in the promissory notes, that the counterparty had explained the two postdated cheques of Rs 13 lakh each as covering an unsecured loan of Rs 25 lakh with Rs 1 lakh of interest, and that there was no evidence that the Rs 26 lakh was over and above the Rs 25 lakh paid by cheque; those grounds were dismissed. On ground 9, the Tribunal held that since the assessee admitted giving Rs 25 lakh as a loan, the interest accrued had to be added, set aside the first appellate order and restored the addition of Rs 1,28,700. On ground 10, it held that mere land holding of 4 hectare 6 R with a crop noted in the 7/12 extract could not support agricultural income of Rs 1,76,015 without proof of cultivation, produce, buyers and expenditure, but allowed Rs 75,000 as reasonable and directed the balance of Rs 1,01,015 to be treated as income from other sources.
On the valuation issue the Tribunal did not write its own analysis. It set out the first appellate order at length and then adopted the reasoning of a coordinate bench in a companion case on identical facts. The reasoning so adopted runs as follows. For the Yerur land, the stamp duty rules themselves prescribe different treatment for industrial converted plots according to open area, amenity area and parking area, the land was undeveloped and barren and not demarcated as usable under the conversion order, and the valuer had followed those rules, so no single uniform rate could be applied and the lower figure was acceptable. For the Chandrapur land, the value adopted was the IGR rate published by the State Government and was therefore reasonable. On gratuity, most employees had completed more than five years of continuous service and were entitled to payment, the provision was made on a scientific basis derived from past data, and it was accordingly a certain liability to be deducted. On the discount, the first appellate authority reasoned that fair value is dynamic and depends on the willingness of buyers, the nature of the assets and whether they are freely traded, that these shares were being redistributed among promoters of a closely held group and could not be transferred outside without consent under the Companies Act, and that realising the immovable property would require removing a working plant, with the attendant time and legal difficulties, so that a discount of fifteen per cent for lack of marketability was justified, bringing the figure back to about Rs 544 and so to the Rs 540 adopted. The Tribunal's own contribution was to note that the order below was detailed and speaking, that reasons had been given for the discount, and that the Department had brought no distinguishing material. On the other grounds it reasoned from the evidence: an addition cannot rest on the single word cash in a promissory note where the counterparty's explanation fits the banking record; but interest accrues on an admitted loan whether or not the cheque has been encashed; and an agricultural claim needs more than a land record, though a modest figure may be allowed to end the litigation.
It was decided by the ITAT on 2025-06-16 and is reported as ITA No. 1238/PUN/2024, assessment year 2021-22. Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere. A Tribunal decision binds the assessing officer and the Commissioner (Appeals) within that Tribunal's jurisdiction, and is persuasive before other benches. It is not binding on a High Court, and a contrary co-ordinate bench decision will be argued against you, so check whether the point has been taken the other way before you build a reply around it. On section 56(2)(x), section 50CA, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The Revenue's appeal was partly allowed. On grounds 1 to 6, the valuation issue, the Tribunal held the facts identical to those in its earlier order in ACIT v Dwarkaprasad Bhikulal Soni, found no infirmity in the first appellate order in the absence of any contrary material from the Departmental Representative, upheld it and dismissed those grounds; the deletion of the Rs 1,44,42,560 addition therefore stands. On grounds 7 and 8, the Rs 26 lakh said to have been advanced in cash on two hundis of Rs 13 lakh each found in the search, the Tribunal held that the officer had made the addition merely on the word cash written in the promissory notes, that the counterparty had explained the two postdated cheques of Rs 13 lakh each as covering an unsecured loan of Rs 25 lakh with Rs 1 lakh of interest, and that there was no evidence that the Rs 26 lakh was over and above the Rs 25 lakh paid by cheque; those grounds were dismissed. On ground 9, the Tribunal held that since the assessee admitted giving Rs 25 lakh as a loan, the interest accrued had to be added, set aside the first appellate order and restored the addition of Rs 1,28,700. On ground 10, it held that mere land holding of 4 hectare 6 R with a crop noted in the 7/12 extract could not support agricultural income of Rs 1,76,015 without proof of cultivation, produce, buyers and expenditure, but allowed Rs 75,000 as reasonable and directed the balance of Rs 1,01,015 to be treated as income from other sources. It arises in Assessment & Scrutiny and Capital Gains matters, on section 56(2)(x), section 50CA of the Income Tax Act 1961, and was decided by Income Tax Appellate Tribunal, Pune Bench A; R.K. Panda, Vice President and Astha Chandra, Judicial Member. Order by Panda VP. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Support a gratuity or similar provision with the actuarial or scientific basis and with the service records showing employees have qualified, so that it is shown to be a certain rather than a contingent liability. If a discount for lack of marketability is claimed, give the reasons in the valuation itself: restrictions on transfer under the articles, the absence of willing outside buyers, and the practical difficulty and time involved in realising the assets. Do not let the Department's case rest on assertion; the Tribunal here dismissed the grounds because no contrary material was brought against a detailed and speaking first appellate order. Keep each addition separate. The same appeal saw the valuation additions deleted but the interest accrued on an admitted loan restored and the agricultural income addition partly restored, each on its own evidence.
Still good law. An order of 16 June 2025 of a Bench of the Tribunal, binding only on the parties, which follows a coordinate bench order in ACIT v Dwarkaprasad Bhikulal Soni on identical facts. The source page records no later citation of it, and whether the Department has appealed was not checked in this session. Its persuasive value on the marketability discount is limited by the fact that the Tribunal upheld the order below for want of contrary material rather than deciding for itself whether rule 11UA permits such a discount. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The harvested page is marked as clipped and about 7,900 characters from the middle are not reproduced. The gap falls inside the long extract from the first appellate order, which is in any event set out twice in the text, once in the Tribunal's narrative and once inside the coordinate bench order it adopts, so the substance appears to be recoverable from the surviving passages; but part of that reasoning, and the Tribunal's discussion of the coordinate bench decision, could not be read. The order contains no reasoning of the Tribunal's own on whether rule 11UA permits a discount for lack of marketability or a tolerance band: it adopts the coordinate bench order and rests on the absence of contrary material, so no passage of the Tribunal's own words on the central point is available to quote. The figures are inconsistent in places, the Chandrapur land appearing as Rs 60,75,383 in one extract and Rs 66,75,383 in another, and the addition under section 50CA on the sale of 9,500 shares is described in a way that does not reconcile with the figures given. The batch line listed sections 50CA, 56(2)(x) and rules 11U and 11UA; the addition actually made was under section 56(2)(x), section 50CA being referred to in the reasoning. The order does not deal with the penalty initiated under section 270A. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The Revenue's appeal was partly allowed. On grounds 1 to 6, the valuation issue, the Tribunal held the facts identical to those in its earlier order in ACIT v Dwarkaprasad Bhikulal Soni, found no infirmity in the first appellate order in the absence of any contrary material from the Departmental Representative, upheld it and dismissed those grounds; the deletion of the Rs 1,44,42,560 addition therefore stands. On grounds 7 and 8, the Rs 26 lakh said to have been advanced in cash on two hundis of Rs 13 lakh each found in the search, the Tribunal held that the officer had made the addition merely on the word cash written in the promissory notes, that the counterparty had explained the two postdated cheques of Rs 13 lakh each as covering an unsecured loan of Rs 25 lakh with Rs 1 lakh of interest, and that there was no evidence that the Rs 26 lakh was over and above the Rs 25 lakh paid by cheque; those grounds were dismissed. On ground 9, the Tribunal held that since the assessee admitted giving Rs 25 lakh as a loan, the interest accrued had to be added, set aside the first appellate order and restored the addition of Rs 1,28,700. On ground 10, it held that mere land holding of 4 hectare 6 R with a crop noted in the 7/12 extract could not support agricultural income of Rs 1,76,015 without proof of cultivation, produce, buyers and expenditure, but allowed Rs 75,000 as reasonable and directed the balance of Rs 1,01,015 to be treated as income from other sources.
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