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TMI Blog1998 (10) TMI 89X X X X Extracts X X X X X X X X Extracts X X X X ..... in the balance sheet has to be reduced by depreciation in accordance with the rates applicable under the IT Act and the Rules. The mere fact that depreciation at the said rates is not shown in the balance sheet for some reason, does not entitle the AO to take the full value of the assets minus the depreciation actually shown (and not the depreciation allowable as per the provisions of IT Act and Rules). In this respect, the AO and the learned CWT(A) have not considered the notes forming part of the accounts appended to the balance sheet. 4. That the order of the AO in valuing the equity shares of Control and Switch Gear Co. Ltd., at Rs. 419 per share as against Rs. 339 declared by the petitioner and the action of the CWT(A) in upholding the said order of the AO is against law and facts of the case." 2. Shri B.B. Ahuja, the learned senior advocate, contended that both these assessees own certain number of shares of M/s Control Switch Gear Co. Ltd. Both of them had valued those shares in conformity with the relevant rules contained in Sch. III of the WT Act, 1957. The valuation of the said shares was computed by the assessees at Rs. 339 per share on the basis of following statem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the value of fixed assets being WDV as per IT Rules. 2.3. The learned senior advocate further submitted that r. 11(2) of Sch. III provides that value of all the liabilities as shown in the balance sheet of such company, shall be deducted from the value of its assets shown in the balance sheet and the net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet for the purposes of computing the value of unquoted shares of such companies. The explanation in the said r. 11 of Sch. III further provides that for the purposes of this rule "balance sheet" in relation to any company means, the balance sheet of such company including the notes annexed thereto and forming part of the accounts. He, therefore, emphasises that the "note on account" of forming part of the accounts of the company ought to have been taken into consideration by the AO while computing the value of such unquoted shares. In the Note No. 2, forming part of the accounts, it has clearly been stated that in past years, depreciation was being calculated on reducing balance method at the rate prescribed by income-tax for the full period as at the close ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hankar based on the guidelines for valuation of equity shares of companies issued by the Ministry of Finance, Deptt. Of Economic Affairs have been recorded. A copy of the said guidelines published in (1990) 68 Company Cases (St) 121 relating to the principles and method of valuation was also submitted. The learned counsel invited out attention towards para 6.2 (viii) of the said guidelines in which the approach required to be adopted for making a provision for depreciation have been explained. 2.7. The learned senior advocate also invited our attention towards the judgment of Hon'ble Supreme Court in the case of CWT vs. Aluminium Corpn. of India Ltd. (1972) 85 ITR 167 (SC) at p. 172. It was held by the Hon'ble Supreme Court that revaluation in the absence of any evidence to show that it was incorrect, undoubtedly afforded a sound basis for valuing the assessee's assets. But then, when the value of those assets had to be determined on the valuation dates, the WTO should have deducted from the 1956 valuation, when revaluation was made, the depreciation of those assets after they were revalued. Undoubtedly, these assets were subject to wear and tear and there was no evidence to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments submitted in the compilation to which our attention was drawn during the course of hearing. 4.1. It may be relevant to reproduce the relevant rr. 11 and 14 of Sch. III to WT Act in order to properly appreciate the rival contentions made by the learned representatives of both sides: "11. Unquoted equity shares in companies other than investment companies.- (1) The value of unquoted equity shares in any company, other than an investment company, shall be determined in the manner set out in sub-r. (2). (2) The value of all the liabilities as shown in the balance sheet of such company shall be deducted from the value of all its assets shown in that balance sheet; the net amount so arrived at shall be divided by the total amount of its paid-up equity share capital as shown in the balance sheet; the result multiplied by the paid-up value of each equity share shall be the breakup value so determined shall be the value of the unquoted equity share for the purposes of this Act. "Explanation.- For the purposes of this rule, "balance sheet", in relation to any company, means the balance sheet of such company (including the notes annexed thereto and forming part of the accounts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ania does not contain any specific finding against this proposition. The CWT(A) has simply held that r. 14 of Sch. III of WT Act is not applicable as the said rule applies only where a business is owned and carried on by the assessee himself. He has further held that the AO was right in applying the r. 11(2) of Sch. III and had rightly taken the value of assets at their book value. While giving such findings, the learned CWT(A) had completely ignored the note number 2 appended with the audited balance sheet which form part of the accounts for the relevant year ended on 30th June, 1988. It is clear that both the AO as well as CWT(A) completely overlooked the Explanation appearing below r. 11 of Sch. III. If the said note, forming part of the audited balance sheet would have been taken into consideration in the true and correct perspective, there would have been no justification in rejecting the mode and method of valuation of such unquoted equity share worked out by the assessee. 5. On a careful consideration of the entire relevant facts and material, the relevant provisions of law and the aforesaid judgments, we are of the considered opinion that the CWT(A) ought to have accepted ..... 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