Locked-in Shares Not Quoted Shares for Rule 11UA Valuation | ITAT

Case Details: Assistant Commissioner of Income-tax vs. Ajay Singh - [2025] 175 taxmann.com 134 (Delhi-Trib.)

Judiciary and Counsel Details

• Vikas Awasthy, Judicial Member & Avdhesh Kumar Mishra, Accountant Member
• Javed Akhtar, CIT-DR for the Respondent.

Facts of the Case

The assessee purchased 110,300,753 equity shares of Spicejet Ltd. from a shareholder for a total consideration of Rs. 1. In the return of income, the assessee declared such shares as income from other sources at Rs. 1. The Assessing Officer (AO) did not accept the transaction value and applied the provisions of section 56(2)(x) and computed the fair market value (FMV) of shares at Rs. 22.88 per share and made addition to the income of the assessee.

The CIT(A) deleted the additions made by AO, and the matter reached the Delhi Tribunal.

ITAT Held

The Tribunal held that section 56(2)(x) applies only if the shares are transferred at a price less than their FMV. The FMV of these shares is to be computed in accordance with the provisions of Rule 11UA. In the instant case, the assessee has purchased the equity shares of Spicejet Ltd. from the shareholder, and such shares were under lock-in as per the requirements of SEBI Regulations 2009.

The assessee contended that the value of shares as traded on BSE cannot be taken as the fair market value of shares. The lock-in shares are akin to unlisted shares; hence, the FMV of unquoted equity shares in accordance with the provisions of Rule 11UA has to be taken.

A valuation report was taken from the auditors, who computed the book value of equity shares at around (-) Rs. 24 per share. Since the shares purchased by the assessee were under lock-in as per the requirements of SEBI Regulations 2009, such shares do not qualify as quoted shares as defined under Rule 11U of the Income Tax Rules.

Therefore, the shares were required to be valued as per Rule 11UA(1)(c)(b). As per the Valuation Report, the value of the FMV of shares purchased by the assessee is in negative. Thus, the provisions of section 56(2)(x) are not attracted in the case of the assessee.