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TMI Blog2022 (8) TMI 1416X X X X Extracts X X X X X X X X Extracts X X X X ..... er, for the purpose of computation of capital gains, the fair market value of the 225 equity shares held by the assessee in Somani & Co Pvt Ltd as on 1.4.1981, should have been taken at face value (i.e. Rs 100 each) or at the break-up value (i.e. Rs 3,833)- as certified by the approved valuer. For the records, however, the grounds of appeal taken by the assessee are reproduced as below: Ground No. 1 : Cost of acquisition of 225 shares of Somani & Company P. Ltd. 1.a. The learned CIT(A) erred in confirming the Long Term Capital Gain at Rs. 3,85,65,708 /- instead of Rs. 3,51,20,122/-, in respect to the sale of shares of Somani & Company Pvt. Ltd. 1.b. The learned CIT(A) erred in determining the indexed cost of acquisition of 225 equity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue as on 1st April 1981 which was stated to be Rs 3,833. This valuation was done by dividing the net fair market value of the assets of the SCPL (i.e. Rs 7,66,80,100) by the total number of equity shares (i.e. 20,000). The fair market value of the shares, as on 1st April 1981, was duly supported by the report of Shah & Shah, Government Approved Valuers, for the valuation of land held by the company- which was its most valuable asset. The Assessing Officer, however, rejected this claim on the assessee, and observed as follows: 5. The assessee's contentions are considered but cannot be acceptable for the following reasons. 1. The assessee has stated that the value of one of the major assets of the company i.e. land should be taken as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the same price. In This scenario it is difficult to accept that the value quoted by the assessee of Rs 8,62,425/- is the value of the share. 3. The market value can also be determined by comparative precedents like the value which other individuals would pay to purchase the same commodity. In the case of Balgopal Trust, whose assessment lies with the incumbent, shares of the same company i.e. Somani and Company were acquired by Vinay Somani and Shrilekha Somani for Rs 100. If the shares of the company were available to all buyers for the face value of Rs 100 then how is it possible for the assessee to claim the FMV to be Rs8,62,425/- in 1981. 4. Further, considering that the Share Market in India was not developed it is difficult t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing the judgement of their own bench. It has been clearly mentioned in the Hon'ble Mumbai ITAT's judgement in the case of Ayesha Soni that even though Rule 1D has been omitted from the WT rules, it does not mean that it cannot be used for determination of the value of unquoted shares. The Hon'ble Apex court as held in the case of Bharat Hari Singhania vs CWT 207 ITR 1 that it is obligatory to follow Rule 1D of the WT rules in every case where unquoted equity shares of the company have to be valued. 3. The Hon'ble ITAT Mumbai while deciding the case of Mrs. Shashi Dharnidharka has not considered the judgement of the Hon'ble Apex Court in the case of Bharat Hari Singhania cited supra. The Hon'ble ITAT further relied on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the apex court in the case or Bharat Hari Singhania and other judicial decisions discussed supra. In fact, there is not much of difference between the value disclosed by Shri. Vinay Somani in the WT returns and the value adopted by the AO which is also the FMV in 1985-86 and 2006-07. Therefore, the valuation made by the AO is upheld and the addition made on account of this valuation is confirmed. This ground of appeal is dismissed. 5. The assessee is not satisfied and is in further appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. We find that there is no dispute that the shares were acquired before 1st April 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset is sold, but it would also include a hypothetical price which such a capital asset would fairly fetch in an open market. The shares of a private limited company are not sold in an open market, and, therefore, when computing such a price under section 2(22B), one has to proceed on the basis that if the shares of the private limited company are to be sold in an open market. As to what would have been a fair price for such shares, particularly in a closely held private company in which the fair market value of land is more than 90% of the entire fair market value of the net assets of the company, in our considered view, the intrinsic value of the shares on the basis of net assets divided by the total number of equity shares is most approp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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