Rule 11UAA

Rule 11UAA — the law in short

What the courts have decided on section Rule 11UAA, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.

• 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.
• Statutory position — Rule 11UA(2) to (4) as substituted with effect from 25 September 2023: five further methods for non-resident subscriptions, price matching, and a ten per cent safe harbour CBDT Circulars & InstructionsCuts both waysValidity unconfirmed
  My client's start-up took money from an overseas investor. Which valuation methods are open under Rule 11UA, and is there any tolerance if the issue price is a little above the valuation?
  Sub-rules (2) to (4) of Rule 11UA were substituted for the old sub-rule (2) by the Income-tax (Twenty-first Amendment) Rules, 2023, with effect from 25 September 2023. For consideration received from a resident, the fair market value of unquoted equity shares may be taken at the assessee's option under sub-clause (a) (the adjusted book-value formula), (b) (merchant banker's Discounted Free Cash Flow), (c) (venture-capital price matching) or (e) (price matching against a notified entity); where the consideration is from a non-resident, sub-clauses (a) to (e) are all available, and sub-clause (d) opens five further merchant-banker methods — Comparable Company Multiple, Probability Weighted Expected Return, Option Pricing, Milestone Analysis and Replacement Cost. Sub-rule (4) is a safe harbour: where the issue price exceeds the value so determined by not more than ten per cent of the valuation price, the issue price is deemed to be the fair market value.

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.