They have taxed me on shares in a struck-off offshore company I paid nothing for. Can there be a charge at all if the shares have no value under the rules?
No. The Kolkata Bench upheld deletion of an addition of Rs 65,240 on 1,000 shares of a British Virgin Islands company. Rule 3(1)(c) requires unquoted equity shares to be valued at the higher of cost of acquisition and the value worked out from the company's assets and liabilities; the assessee had paid nothing, the company had been struck off and had no balance sheet, so both limbs came to nil and s.3 could not operate, the tax being imposed on the value of the undisclosed asset.
Decided by the ITAT (Rajpal Yadav Vice President and Manish Borad AM) on 2022-10-17, reported as B.M.A. No. 1/Kol/2019, assessment year 2018-19 (ITAT, Kolkata Bench); no reporter citation printed on the page read. It bears on section BMA s.3, section BMA s.2(11), section BMA s.10, section BMA Rule 3(1)(c) of the Income Tax Act 1961, in Assessment & Scrutiny and How Tax Law Is Read matters.
It is the order that actually works Rule 3 through to an answer. Where the prescribed formula yields nothing, there is no charge - and it also shows that an officer who converts a dollar figure at the exchange rate instead of applying the rule has not made a valuation at all.
Binding on the AO and CIT(A) within the Tribunal's jurisdiction. Persuasive elsewhere.
Read aloud by your device. Press again to stop.
The assessee, a legal consultant resident in India, became a director of Steel Engineering Limited, a British Virgin Islands company, in March 2011 at the request of Umesh Somani. On 20 May 2011 one thousand equity shares of USD 1 each held by Somani were transferred to the assessee, on the assessee's case without his knowledge or consent and without any consideration being paid by him. The company was struck off on 1 May 2012. The assessee said he first learned of the transfer in 2016 through media reports. Acting on information exchanged with the tax authorities of the British Virgin Islands and the United Kingdom under a Tax Information Exchange Agreement and a Double Taxation Avoidance Agreement, the Assessing Officer initiated proceedings under the Black Money Act for assessment year 2018-19, valued the foreign asset at Rs 65,240 and raised tax of Rs 19,572. The Commissioner (Appeals) deleted the addition, holding that the valuation under Rule 3(1)(c) of the Black Money Rules 2015 failed because the cost of acquisition was nil, no balance sheet existed from which the asset-based value could be computed, and no tax could therefore be imposed under s.3. The Revenue appealed.
The Revenue's appeal was dismissed. On the preliminary question the Bench held at para 8.3 that ignorance of law is no excuse and that the assessee, having consented to be a director, should have made inquiries as to his capacity and his shareholding, so that prima facie there was an undisclosed asset. But on valuation the Bench held at paras 9 and 9.1 that the Assessing Officer had not followed the formula prescribed for working out the value and had simply applied the dollar rate as on the date the shares were said to have been transferred. At para 10 it concluded that the cost of acquisition was nil and the fair market value was likewise nil, so that 'Section 3 of the said Act cannot come into play since the tax is to be imposed on the value of undisclosed asset and as the value of asset is held to be NIL, there is no tax liability u/s 3 of the Black Money Act'.
Rule 3(1)(c)(II) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules 2015 prescribes, for unquoted equity shares, the higher of the cost of acquisition and the value arrived at by the statutory formula built on the company's assets and liabilities. The Bench applied both limbs. The cost of acquisition was nil because no consideration had been shown to have been paid for the shares. The formula limb could not be worked at all: the company had been struck off in 2012, had no assets and no bank account, and there was no balance sheet from which the computation could be made. The Assessing Officer's figure was not a value determined under the rule but a conversion of the nominal dollar amount at the exchange rate. Since s.3 charges tax on the value of the undisclosed asset, and that value, determined in the only manner the rules allow, was nil, the charge failed even though the shareholding itself was an undisclosed asset.
the cost of acquisition is NIL and so as the fair market value is also NIL, Section 3 of the said Act cannot come into play
Upload it and we will read it, work out your deadline and draft the reply. A CA reviews before anything is filed.
Handle my notice → Ask a CA on WhatsAppNo. The Kolkata Bench upheld deletion of an addition of Rs 65,240 on 1,000 shares of a British Virgin Islands company. Rule 3(1)(c) requires unquoted equity shares to be valued at the higher of cost of acquisition and the value worked out from the company's assets and liabilities; the assessee had paid nothing, the company had been struck off and had no balance sheet, so both limbs came to nil and s.3 could not operate, the tax being imposed on the value of the undisclosed asset. This was decided by the ITAT (Rajpal Yadav Vice President and Manish Borad AM) and bears on section BMA s.3, section BMA s.2(11), section BMA s.10, section BMA Rule 3(1)(c) of the Income Tax Act 1961. It is reported as B.M.A. No. 1/Kol/2019, assessment year 2018-19 (ITAT, Kolkata Bench); no reporter citation printed on the page read. It is the order that actually works Rule 3 through to an answer. Where the prescribed formula yields nothing, there is no charge - and it also shows that an officer who converts a dollar figure at the exchange rate instead of applying the rule has not made a valuation at all. If it applies to you, the first step is this: Ask which limb of Rule 3(1)(c) the officer applied and require the working; a dollar amount converted at the rate on the date of transfer is not a valuation under the rule.
The assessee, a legal consultant resident in India, became a director of Steel Engineering Limited, a British Virgin Islands company, in March 2011 at the request of Umesh Somani. On 20 May 2011 one thousand equity shares of USD 1 each held by Somani were transferred to the assessee, on the assessee's case without his knowledge or consent and without any consideration being paid by him. The company was struck off on 1 May 2012. The assessee said he first learned of the transfer in 2016 through media reports. Acting on information exchanged with the tax authorities of the British Virgin Islands and the United Kingdom under a Tax Information Exchange Agreement and a Double Taxation Avoidance Agreement, the Assessing Officer initiated proceedings under the Black Money Act for assessment year 2018-19, valued the foreign asset at Rs 65,240 and raised tax of Rs 19,572. The Commissioner (Appeals) deleted the addition, holding that the valuation under Rule 3(1)(c) of the Black Money Rules 2015 failed because the cost of acquisition was nil, no balance sheet existed from which the asset-based value could be computed, and no tax could therefore be imposed under s.3. The Revenue appealed. The matter was decided on 2022-10-17 by the ITAT (Rajpal Yadav Vice President and Manish Borad AM). On those facts the ITAT held as follows. The Revenue's appeal was dismissed. On the preliminary question the Bench held at para 8.3 that ignorance of law is no excuse and that the assessee, having consented to be a director, should have made inquiries as to his capacity and his shareholding, so that prima facie there was an undisclosed asset. But on valuation the Bench held at paras 9 and 9.1 that the Assessing Officer had not followed the formula prescribed for working out the value and had simply applied the dollar rate as on the date the shares were said to have been transferred. At para 10 it concluded that the cost of acquisition was nil and the fair market value was likewise nil, so that 'Section 3 of the said Act cannot come into play since the tax is to be imposed on the value of undisclosed asset and as the value of asset is held to be NIL, there is no tax liability u/s 3 of the Black Money Act'.
Rule 3(1)(c)(II) of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Rules 2015 prescribes, for unquoted equity shares, the higher of the cost of acquisition and the value arrived at by the statutory formula built on the company's assets and liabilities. The Bench applied both limbs. The cost of acquisition was nil because no consideration had been shown to have been paid for the shares. The formula limb could not be worked at all: the company had been struck off in 2012, had no assets and no bank account, and there was no balance sheet from which the computation could be made. The Assessing Officer's figure was not a value determined under the rule but a conversion of the nominal dollar amount at the exchange rate. Since s.3 charges tax on the value of the undisclosed asset, and that value, determined in the only manner the rules allow, was nil, the charge failed even though the shareholding itself was an undisclosed asset. In the words reproduced by the source cited on this page: "the cost of acquisition is NIL and so as the fair market value is also NIL, Section 3 of the said Act cannot come into play"
It was decided by the ITAT on 2022-10-17 and is reported as B.M.A. No. 1/Kol/2019, assessment year 2018-19 (ITAT, Kolkata Bench); no reporter citation printed on the page read. 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 BMA s.3, section BMA s.2(11), section BMA s.10, section BMA Rule 3(1)(c), 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 helps the taxpayer. The Revenue's appeal was dismissed. On the preliminary question the Bench held at para 8.3 that ignorance of law is no excuse and that the assessee, having consented to be a director, should have made inquiries as to his capacity and his shareholding, so that prima facie there was an undisclosed asset. But on valuation the Bench held at paras 9 and 9.1 that the Assessing Officer had not followed the formula prescribed for working out the value and had simply applied the dollar rate as on the date the shares were said to have been transferred. At para 10 it concluded that the cost of acquisition was nil and the fair market value was likewise nil, so that 'Section 3 of the said Act cannot come into play since the tax is to be imposed on the value of undisclosed asset and as the value of asset is held to be NIL, there is no tax liability u/s 3 of the Black Money Act'. It arises in Assessment & Scrutiny and How Tax Law Is Read matters, on section BMA s.3, section BMA s.2(11), section BMA s.10, section BMA Rule 3(1)(c) of the Income Tax Act 1961, and was decided by Rajpal Yadav Vice President and Manish Borad AM. 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. Establish the cost of acquisition from the assessee's own records; if no consideration passed, say so and prove it. Obtain the company's status - struck off, dissolved, dormant - and its balance sheet if any; without assets and liabilities the net asset limb of the formula cannot be computed. Take the charging point squarely: s.3 taxes the value of the undisclosed asset, so if the value determined under the prescribed rules is nil there is nothing on which tax can be charged. Do not expect ignorance of the shareholding to succeed on its own - the Bench held the assessee should have made inquiries once he consented to be a director.
Searched for later treatment; none was found. That is not the same as a source affirming it. No decision applying, following or doubting this order was located, and nothing was found to show whether the Revenue carried it to the Calcutta High Court. The order is narrow on its facts - a struck-off company with no assets and shares acquired for no consideration - and should not be read as authority that a nil cost of acquisition is by itself enough where the company has a balance sheet that the formula can be worked on. 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.
Note what this order does not hold. The Bench rejected the assessee's plea of ignorance and found prima facie an undisclosed asset at para 8.3; the relief came entirely from the valuation, not from any finding that the shares were not his. The rule applied is Rule 3(1)(c)(II) of the Black Money Rules 2015, tagged here as BMA Rule 3(1)(c). The amounts are small - an assessed value of Rs 65,240 and tax of Rs 19,572 - but the point of construction is not. 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 dismissed. On the preliminary question the Bench held at para 8.3 that ignorance of law is no excuse and that the assessee, having consented to be a director, should have made inquiries as to his capacity and his shareholding, so that prima facie there was an undisclosed asset. But on valuation the Bench held at paras 9 and 9.1 that the Assessing Officer had not followed the formula prescribed for working out the value and had simply applied the dollar rate as on the date the shares were said to have been transferred. At para 10 it concluded that the cost of acquisition was nil and the fair market value was likewise nil, so that 'Section 3 of the said Act cannot come into play since the tax is to be imposed on the value of undisclosed asset and as the value of asset is held to be NIL, there is no tax liability u/s 3 of the Black Money Act'.
TaxSphere, “DCIT v Uday Pratap Singh”, https://taxnotice.vittsphere.com/caselaw/case/dcit-v-uday-pratap-singh-bma-rule-3-valuation/ (validity last checked 2026-09-16)
The judgment itself is a government work and may be quoted freely. The summary, the validity note and the reasoning on this page are this library's own writing: quote them with attribution, and please do not present either as the words of the court — this page keeps the two apart and so should a quotation of it.
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
I declared my interest in a foreign discretionary trust under s.59 and the assessment accepted it. Can the Principal Director now revise that order?
The officer valued my foreign shareholding under the rule meant for bank accounts. Does that stand, and was I even an 'assessee' under the Act as a not ordinarily resident?
My name appears as beneficial owner on a foreign bank account opening form I never signed. Is that enough to tax the balance in my hands?
The assessment rests on bank statements the department got from a foreign tax authority. They are uncertified and parts are blacked out. Do they prove anything?
