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Issues: Valuation of shares of M/s Udaipur Distillery Co. Ltd. as per rule 1D, application of s. 7(1) and s. 7(2) of the Income Tax Act, adherence to rules in valuation, mandatory nature of rule 1D.
Analysis: 1. The appeals involved common issues regarding the valuation of shares of M/s Udaipur Distillery Co. Ltd. The assessees valued the shares in accordance with rule 1D, resulting in a declared value of nil. However, the WTO assessed the shares at significantly higher values based on a sale that occurred after the valuation date. The AAC considered conflicting views on the mandatory or directory nature of rule 1D and concluded that, given the provision in s. 7(1) stating "Subject to any rules made in this behalf," the valuation method prescribed by rule 1D should be followed. Consequently, the AAC allowed the appeals of the assessees. 2. The Department appealed the AAC's decision, arguing that the actual sale value of the shares on 1st April, 1981, at Rs. 1,800 each, should be considered for valuation. The Department contended that the balance sheet value did not reflect the true worth of the shares, and the WTO failed to apply the provisions of s. 7(2) for revaluation. The Tribunal noted the Department's submissions and the assessees' reliance on various court decisions and tribunal rulings. The Tribunal observed that the valuation should consider the time value of the shares and the assets' actual worth, as per the provisions of s. 7(2). 3. The Tribunal further analyzed the application of s. 7(1) and s. 7(2) in determining the value of shares. It emphasized that the WTO should follow the prescribed procedures under s. 7(2) for valuing the entire business if choosing not to apply rule 1D. Referring to a Special Bench decision, the Tribunal affirmed that rule 1D is mandatory. It highlighted the importance of adhering to the rules and circulars issued by the Board for consistent application of valuation methods. Consequently, the Tribunal upheld the AAC's decision to apply rule 1D for valuing the shares of the company, dismissing the Department's appeal. 4. In conclusion, the Tribunal dismissed the Department's appeal, affirming the AAC's decision to value the shares in accordance with rule 1D. The judgment underscores the mandatory nature of rule 1D and the importance of following prescribed valuation procedures under the Income Tax Act to ensure consistency and adherence to legal provisions.
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