ITAT Delhi: No Section 50CA Addition When Share Sale Price Exceeds FMV Under Prescribed Rules

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has dismissed the Revenue’s appeal in DCIT v. Bharat Kalia, holding that no addition under Section 50CA of the Income Tax Act, 1961 can be made where the sale consideration of unquoted shares exceeds the fair market value (FMV) computed in accordance with the prescribed rules.

The ruling arose from the Revenue’s challenge to an order of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), which had deleted an addition of ₹3.80 crore made by the Assessing Officer (AO) on account of alleged understatement of long-term capital gains.

The assessee, Bharat Kalia, had sold 14,219 shares of Lifelong Online Retail Pvt. Ltd. to Thrasio LL Acquisitions Inc. for a total consideration of approximately ₹83.05 crore, resulting in substantial long-term capital gains. During the assessment, the AO noted that the same company had issued fresh shares to the same buyer at a higher price and inferred that the assessee had received lower consideration. On this basis, the AO invoked Section 50CA and made an addition of ₹3.80 crore by substituting the declared sale value.

Before the Tribunal, the Revenue argued that the valuation report relied upon by the assessee, prepared by a Chartered Accountant using the Net Asset Value (NAV) method, was invalid. It contended that post-amendment to Rule 11UA, valuation of unquoted shares must be conducted by a merchant banker using the Discounted Cash Flow (DCF) method.

Rejecting this contention, the Tribunal clarified the legal position governing valuation under Section 50CA. It held that the AO had incorrectly applied Rule 11UA(2), which pertains to Section 56(2)(viib), instead of the applicable framework under Rule 11UAA read with Rule 11UA(1). Under these provisions, valuation of unquoted equity shares for Section 50CA purposes can be carried out using the NAV method, and the valuation report may be obtained either from a merchant banker or a Chartered Accountant.

The Tribunal noted that the assessee’s shares were valued at ₹1,650 per share under the prescribed NAV method, whereas the actual sale consideration was significantly higher (₹58,411.78 per share). In such circumstances, Section 50CA could not be invoked, as the deeming fiction applies only where the consideration is lower than FMV.

It further observed that the Revenue had failed to produce any evidence indicating receipt of any additional or undisclosed consideration. The Tribunal reiterated that the Assessing Officer cannot substitute the actual consideration with any notional value unless expressly permitted under the statute.

Upholding the findings of the CIT(A), the Tribunal concluded that the addition made by the AO was unsustainable in law and dismissed the Revenue’s appeal.

Case Details:
Case Title: DCIT v. Bharat Kalia
Case No.: ITA No. 295/Del/2025
Coram: Shri Anubhav Sharma (Judicial Member) and Shri Manish Agarwal (Accountant Member)