Fwd: Omission of the word ‘Accountant’ to issue Valuation Certificate under Rule 11UA(2)(b)
P.D.RUNGTA
From: CA. Pramod Jain <pramo...@lunawat.com>
Date: Mon, May 28, 2018 at 6:32 PM
Subject: Re: Omission of the word ‘Accountant’ to issue Valuation Certificate under Rule 11UA(2)(b)
To: pdru...@gmail.com
This message is eligible for Automatic Cleanup! (Namaste
Recently CBDT has omitted the word ‘accountant’ from Rule 11UA(2)(b) from Income Tax Rules, 1962, resulting in - Chartered Accountant would not be able to value shares for issuance purposes under Income Tax, which is not proper at all. Objecting the same, I have sent a mail to various government officials (related) and President & Secretary of ICAI. The text of the mail is in the trail mail and also available at http://expertspanel.in/index.php?qa=user&qa_1=CA.+Pramod+Jain&qa_2=articles
I am sharing the same with you, with the intent that you use your valuable resources to convince the government to not only restore the same, but also allow Chartered Accountants to do valuation of shares under Companies Act 2013 post 30th September 2018 also.
Warm Regards
CA. Pramod Jain
B. Com (H), FCA, FCS, FCMA, LL.B, DISA (ICAI), MIMA Lunawat & Co. | Chartered Accountants | www.lunawat.com | pramo...@lunawat.com | +91 9811073867From: Pramod Jain [mailto:pramo...@lunawat.com]
Sent: 28 May 2018 17:22
To: 'chairm...@nic.in'; 'memberl...@gov.in'; 'smn....@nic.in'; 'mosfi...@nic.in'; 'f...@nic.in'; 'rs...@nic.in'; 'jst...@nic.in'; 'jst...@nic.in'
Cc: pres...@icai.in; secr...@icai.in
Subject: Re: Omission of the word ‘Accountant’ to issue Valuation Certificate under Rule 11UA(2)(b)
Namaste
Re: Omission of the word ‘Accountant’ to issue Valuation Certificate under Rule 11UA(2)(b)
Dear Sirs
Rule 11UA(2)(b) has been amended vide Notification No. S.O. 2087(E) dated 24th May 2018 to omit the words ‘or the accountant’, which is not proper due to the reasons stated hereafter.
Rule under Income Tax Laws
Rule 11UA contains valuation rules of various assets for the purposes of section 56. Rule 11UA (2) prescribes two options for valuation of issue of unlisted shares for the purposes of section 56(2)(viib). Clause (b) of Rule 11UA (2) prior to amendment read as under:
“the fair market value of the unquoted equity shares determined by a merchant banker or an accountant as per the Discounted Free Cash Flow method”
Now the word ‘accountant’ has been omitted meaning thereby that they would not be allowed to issue valuation report in such cases. The word accountant has the same meaning given in Explanation to s. 288(2) of Income Tax Act, which means a Chartered Accountant in practice.
Provision under Companies Act
Companies Act 2013 contains provisions related to valuation of shares at the time of issue of shares in case of Private Placement (u/s 42) as well as preferential issue (u/s 62). Section 247 of Companies Act 2013 prescribes that where valuation of various assets including shares are to be made it has to be done by a registered valuer. The said section was made applicable w.e.f. 18th October 2017 and consequently Companies (Registered Valuers and Valuation) Rules, 2017 were notified. As per the notified rules only those persons would be able to do valuations, who have cleared the required examination whether he is a Chartered Accountant or a Merchant Banker.
The Rules have provided for the transition period in Rule 11 upto 31st March 2018 i.e. valuation of various assets under Companies Act could be done in existing manner and not the notified registered valuers till 31st March 2018. The said date was extended to 30th September 2018 vide MCA notification dated 9th February 2018 vide F. No. 1/27/2013-CL-V(Part).
Why the IT Rules amendment is not proper
Under Companies Act 2013, upto 30th September 2018 valuation for issue of shares can be done by the existing professional who includes Chartered Accountants. However, for the same transaction i.e. valuation for issue of shares, they would be not eligible under Income Tax Act w.e.f. 24th May 2018 which is neither proper not logical.
Meaning thereby that for a single transaction i.e. valuation for issue of shares one law in the country (Companies Act 2013) allows a Chartered Accountant to issue valuation certificate, but another law (Income Tax Rules, 1962) does not allow, which is not logical at all, against the principles of natural justice and against the principles of ‘Ease of Doing Business’ of the current government.
A Chartered Accountant having specialised knowledge in this field is very competent to value financial instruments such as shares through DCF method. Removing the Chartered Accountant and only allowing only merchant bankers to do valuation under Income Tax Laws is not only without proper logic but also imposing huge financial costs on a small and medium companies, who for even a small issue of capital say Rs. 1 Lakh, would have to find a merchant banker to issue a certificate.
Suggestion
It is suggested that not only the word ‘accountant’ be restored in rule 11UA(2)(b), but Companies (Registered Valuers and Valuation) Rules, 2017 (Rules) be suitably amended to allow a Chartered Accountant in Practice having at least 10 years of practice to be a registered valuer for the purposes of valuation of shares under Companies Act 2013.
A positive response on the above would be highly appreciated.
Best Regards
CA. Pramod Jain | Lunawat & Co. | Chartered Accountants |
B. Com (H), FCA, FCS, FCMA, LL.B, DISA (ICAI), MIMA
www.lunawat.com | pramo...@lunawat.com | +91 9811073867
u
