Section 50CA

Section 50CA — the law in short

What the courts have decided on section 50CA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• Rajasehar Buvaneswari v ITO ITATCuts both ways
  I bought shares of a distressed company in an NCLT auction at Rs 3.59 and sold some months later at Rs 2.40. The officer used the balance sheet to value them at Rs 104 under rule 11UA. Can he?
  Not on that basis. The Chennai Tribunal held that fair market value postulates a realistic and commercially viable valuation, and that rule 11UA cannot be applied mechanically to book figures where about Rs 125 crore of the assets were irrecoverable, belonged beneficially to the company in liquidation under clause 3.2.1 of the share purchase agreement, and had been treated as unrealisable by the resolution professional. Section 50CA is a deeming provision but cannot produce absurd or commercially impossible results. The Tribunal rejected the officer's Rs 104.917 per share, and also declined to accept the declared Rs 2.40, fixing fair market value at the auction price of Rs 3.59 per share.
• JCIT v Manish Vij ITATHelps taxpayerValidity unconfirmed
  I sold the same company's unquoted shares twice in one year at very different prices. Can the AO apply s.50CA using the later valuation?
  No. Section 50CA is not a licence to substitute a later valuation for the price actually charged unless understatement is shown, and a certified valuation report cannot be discarded without the officer identifying what is wrong with it. The reports of the order also record the Tribunal as holding that both the net asset value method and the discounted cash flow method are recognised under Rule 11UA and that the seller may choose either for a particular transfer. That further proposition does not follow from the rules as printed: Rule 11UAA sends a s.50CA valuation to sub-clause (b) or sub-clause (c) of clause (c) of Rule 11UA(1), sub-clause (b) is closed arithmetic with no merchant banker in it, and the discounted cash flow method appears only in Rule 11UA(2), which is expressed to serve clause (viib) of s.56(2). Read the order before relying on the method-choice point.
• DCIT v Ashish Jugalkishor Bhala ITATCuts both ways
  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.

Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.