Electra Paper and Board Pvt. Ltd. Vs ITO (ITAT Chandigarh)
In the instant case undisputedly on the date of allotment of shares i.e. 31.3.2016, a balance-sheet was drawn by the assessee albeit the said balance sheet was unaudited on that date. The FMV of the shares was determined on the basis of said balance-sheet. The said Balance-sheet was subsequently audited by the Auditors of the company and ostensibly, there was no difference in the financials of tentative balance-sheet drawn on 31.03.2016 after audit by the Auditors. Since, the balance sheet was drawn on the date of valuation the case of assessee is covered by first limb of the definition of ‘Balance Sheet’. In so far as the condition that the Balance Sheet should be audited by the Auditor of the company, the said condition is also satisfied as the Balance sheet drawn on 31.3.2016 was subsequently audited with purportedly no change in financials. In other words, the twin conditions mandated under Rule 11U(b) for a balance sheet on the basis of which valuation is to be made i.e.
(i) The Balance Sheet should be drawn of the date of valuation; and
(ii) The Balance Sheet should be audited by the Auditors of the Company appointed under the provisions of the Companies Act;
are satisfied in present case. In our considered opinion, the emphasis is on drawing of balance sheet on the date of valuation. The rule does not mandate that the balance sheet should also be audited on the date of valuation. Even if the balance sheet is audited subsequently, it would be sufficient compliance of the provisions of Rule 11U(b). However, in spirit and purpose of the provisions of rule defining ‘balance sheet’, there should not be material change in the financials of the Balance Sheet after audit so that it may not lose the tenacity and relevance of ‘balance sheet on the date of valuation’.
In light of the facts discussed above, we hold that the balance sheet on the basis of which FMV of shares allotted on 31.3.2016 was determined by the assessee falls within the meaning of ‘Balance Sheet’ as envisaged under Rule 11U. Hence, we find no error in the FMV of shares determined by the assessee on the basis of balance sheet drawn on 31.3.2016.
