PCIT Vs Boppudi Logistics Private Limited (Madras High Court)
Madras HC: Rule 11UA Permits Valuation of Unquoted Preference Shares by Chartered Accountant – AO Cannot Substitute Statutory FMV With Price From Isolated Comparable Transaction
In PCIT v. Boppudi Logistics Pvt. Ltd., the Madras High Court considered the applicability of section 56(2)(viia) to the purchase of unquoted preference shares by the assessee for AY 2011-12. The Revenue alleged that the assessee had acquired shares from a group company at ₹130 per share, whereas the seller had earlier purchased certain preference shares from an NRI at ₹240 per share, and therefore treated ₹240 as their fair market value.
The first issue was whether a valuation certificate issued by a Chartered Accountant could be accepted for determining FMV. The High Court referred to Rule 11UA(1)(c)(c), which expressly provided that the FMV of unquoted shares and securities other than equity shares could be estimated at the price they would fetch in the open market and that the assessee may obtain a report from a merchant banker or an accountant. The Court therefore held that when the Rule itself permits an accountant’s valuation, the Department cannot insist upon valuation only by an independent valuer or merchant banker.
