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Revaluation of shares as per HC’s mandate not to be considered while computing book profit under MAT.

The assessee-company was engaged in the business of development of infrastructure and real estate. During the year, two wholly owned subsidiaries of the assessee-company, i.e., PREPL and PPPL were amalgamated with the assessee-company. The merger scheme was approved by the High Court under sections 391 to 394 of the Companies Act, 1956, read with rules 67 to 87 of the Companies’ Act.
Assessee acquired shares of one, IHFL held by amalgamating companies. It revalued such shares at time of amalgamation as per existing market price. Difference arising between book value of shares shown in books of amalgamating companies and fair value of shares formed part of capital reserve of assessee-amalgamated company
Assessing Officer (AO) was of view that in terms of clause (v) of Explanation 1 to section 115JB, such amount in capital reserve on account of revaluation of shares had to be taken into account while computing book profit.
The Delhi ITAT held that it was noted that impugned capital reserve was not created on account of revaluation of asset albeit shares were acquired through amalgamation and were valued as per purchase method for a certain price.
These shares were entered in books of assessee by virtue of amalgamation and valued on fair market value as mandated by order of High Court approving amalgamation scheme. Thus, there was no revaluation of shares.
Therefore, provisions of clause (j) of the Explanation 1 to section 115JB would not be applicable at all shares as there was no revaluation reserve relating to revalued asset. Accordingly, addition made by AO was to be deleted.
Prakhar Kalaniauthor

Prakhar Kalani (B.Com, ACA, DISA), Partner at Kalani Gattani & Co. Prakhar Kalani is a Qualified Chartered Accountant . contact him @

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