Valuation of unlisted shares should be on the basis of audited balance sheet

Last updated: 14 February 2023
Quick Summary
The Income Tax Appellate Tribunal (ITAT) has ruled that the valuation of unlisted shares must be based on an audited balance sheet as of the valuation date. In this case, the assessee company, which had no business activity, issued shares at a premium. The Assessing Officer rejected the valuation report, as it was not based on an audited balance sheet adopted by shareholders. The ITAT upheld this decision, stating that the balance sheet must be audited and approved by shareholders to determine the fair market value of shares.

Court :
ITAT New Delhi Bench

Brief :
Generally companies in which public are not substantially interested issue shares at a price more than Face Value of Shares or more than Fair Market Value of shares and keep the proceeds above normal value of shares in Share Premium Account. If company is unable to provide satisfactory proof or answer or proof of such high valuation made is not satisfactory in the view of AO, then the difference between the Issue Price and FMV is treated as Income of the Company. The FMV is calculated on the basis of Audited and adopted Balance Sheet and PL of the Company.

Citation :
ITA NO. 6353/DEL/2018 [A.Y. 2014-15]

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1 Year PLAN
1999
(Excl. of GST ₹359)

BEST VALUE
2 Years PLAN
3499
(Excl. of GST ₹629)

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