Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2012 (9) TMI AT This

  • Login
  • Cases Cited
  • Referred In
  • Summary

Forgot password       New User/ Regiser

⇒ Register to get Live Demo



 

2012 (9) TMI 804 - AT - Income Tax


Issues involved:
1. Addition on account of alleged consideration in the form of constructed area as capital gain.
2. Disallowance of expenditure incurred on purchase and cancellation of shares.

Issue-wise detailed analysis:

1. Addition on account of alleged consideration in the form of constructed area as capital gain:

The primary issue in this case was whether the constructed area of 18,000 sq.ft., agreed to be given by M/s Dipti Builders as per the development agreement, should be considered as part of the sale consideration for computing capital gain. The assessee argued that since the constructed area was never received due to a subsequent tripartite conveyance deed with M/s Financial Technologies Ltd., the consideration in the form of the constructed area did not accrue and should not be included in the capital gains computation.

The AO and CIT(A) disagreed, relying on the decision of the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia, holding that the transfer of property as per the development agreement resulted in capital gain, and the consideration should include the market value of the constructed area. However, the CIT(A) accepted the alternative plea that only the cost of construction, not the market value, should be considered, thus reducing the addition to Rs.2,17,88,000/-.

The Tribunal, after considering the real income theory and subsequent events, concluded that the consideration in the form of the constructed area did not actually accrue to the assessee. It was noted that the entire consideration received from the transfer of the property was offered to tax in subsequent years, resulting in no loss to the Revenue. The Tribunal deleted the addition made by the AO and sustained by the CIT(A), allowing the assessee's appeal on this ground.

2. Disallowance of expenditure incurred on purchase and cancellation of shares:

The second issue was the disallowance of Rs.6,81,60,200/- incurred by the assessee on purchasing and canceling its own shares. The assessee contended that this expenditure was incurred to resolve disputes between two groups of shareholders, which had adversely affected the business. The expenditure was claimed as a revenue expense necessary for the smooth and efficient running of the business.

The AO disallowed the expenditure, viewing it as part of a family dispute settlement and considering it a capital expenditure. The CIT(A) upheld this view, stating that the expenditure was personal in nature and not incurred for business purposes.

The Tribunal, however, found that the facts of the case were similar to those in the case of Echjay Industries Ltd., where the expenditure on purchasing shares to resolve shareholder disputes was allowed as a revenue expense. The Tribunal noted that the disputes had indeed affected the business, and the settlement allowed the company to operate smoothly and profitably. The Tribunal held that the expenditure was revenue in nature and allowable as a deduction, thus deleting the disallowance made by the AO and confirmed by the CIT(A).

Conclusion:

The Tribunal allowed the appeal of the assessee on both grounds, deleting the additions and disallowances made by the AO and sustained by the CIT(A). The decision emphasized the application of the real income theory and the relevance of subsequent events in determining the accrual of income and the nature of expenditure in the context of business operations.

 

 

 

 

Quick Updates:Latest Updates