S.50CA FMV of unquoted shares determined by Rule 11UA(1)(c)(b) NAV method using CA report; sale above FMV attracts no addition.

ORDER

PER MANISH AGARWAL, AM :

The present appeal is filed by the Revenue against the order dated 12.11.2024 by Ld. Commissioner of Income Tax (A), National Faceless Appeal Centre (“NFAC”), Delhi [“Ld. CIT(A)”] in Appeal No. NFAC/2021-22/10326531 passed u/s 250 of the Income Tax Act, 1961 [“the Act”] arising out of assessment order dated 27.02.2024 passed u/s 143(3) r.w.s. 144B of the Act pertaining to Assessment Year 2022-23.

2. Brief facts of the case are that the assessee has e-filed its return of income on 22.07.2022, declaring total income of INR 54,98,42,700/-. During the year under appeal, assessee has sold 14,219 shares of M/s. Life Long Online Retail Pvt. Ltd. wherein the assessee is a promoter Director and shareholder. The company is recognized as a start-up. The case of the assessee was selected under CASS for the reason large capital gain deduction claimed and notice u/s 143(2) followed by notices u/s 142(1) alongwith questionnaires were issued from time to time. The AO observed that assessee has sold 14,219 shares to M/s. Thrasio LL Acquisitions INC for total consideration of INR 83,05,57,146/- and has Long Term Capital Gain (“LTCG”) of INR 82,90,75,864/-. The AO further observed that during the year itself, the company M/s. Life Long Online Retail Pvt. Ltd. had issued 16,422 shares at a premium of INR 61,092.42 per share to M/s. Thrasio LL Acquisitions INC as against which assessee has sold his shares to same buyer at a price of INR 58,411.78 per share. Thus, the AO alleged that assessee has received less consideration of INR 2,680.64 per share and accordingly, total capital gain of INR 3,80,92,562/- was alleged as less shown. The AO after considering the submissions of the assessee, invoked the provisions of section 50CA of the Act and made the addition for the differential amount of INR 3,80,92,562/- as LTCG.

3. Against the said order, assessee filed an appeal before Ld. CIT(A), who vide order dated 12.11.2024, allowed the appeal of the assessee. Aggrieved by the same, Revenue is in appeal before the Tribunal wherein both the Grounds of appeal taken are with respect the deletion of additions made by Ld. CIT(A).

4. Before us, Ld. Sr. DR for the Revenue submits that during the year under appeal, assessee has sold shares of a unlisted company at a price which is less than the fair market value at which shares were directly allotted by the company to the same buyer to whom shares were sold by the assessee. Ld. Sr. DR submits that Ld. CIT(A) has failed to appreciate the fact that assessee has placed reliance on the Valuation Report of a Chartered Accountant (“CA”) whereas after the amendment in Rule 11UA vide 6th Amendment Rules, 2018 w.e.f. 24.05.2018, fair market value of unquoted equity shares of a private limited company should be determined by a merchant banker as per discounted cash flow method and the word “by an Accountant” was omitted vide this amendment. He, therefore, submits that the Valuation Report furnished by the assessee since based on the fair market value of equity shares of the company, M/s. Life Long Online Retail Pvt. Ltd. is done by a CA therefore, such report cannot be made basis for deleting the addition. He thus, prayed that the additions made by AO deserves to be restored.

5. On the other hand, Ld. AR submits that in the case of the assessee, shares sold were unquoted equity shares of a private limited company and for which the full value of consideration should be in accordance with the provisions of section 50CA of the Act. Ld. AR further submits that u/s 50CA of the Act, fair market value of such shares is to be determined as prescribed under Rule 11UA of the Income Tax Rules, 1962 (the Rules). Under Rule 11UA