2013 (9) TMI 1140 - AT - Income Tax

Capital gains (loss) on extinguishment of rights in a defunct company - Exemption u/s 54F - Held that - There is no finding by the CIT(A) whether the amount of loss claimed by the assessee on account of extinguishment of rights in respect of the shares of a defunct company is factually correct. Similarly with respect to the exemption u/s 54F on account of the capital gain on sale of shares of Ambience Publicis Advertising Pvt. Ltd. invested in the new asset the CIT(A) has again allowed the claim of the assessee without examination of the correctness of the claim. There is no quarrel as far as the legal aspect of the claims are concerned but before allowing the claim the factual correctness of claim has to be ascertained. It is clear from the details recorded by the CIT(A) that even only a part of capital gain has been invested in the new asset which has been fully allow without considering the proportion of the net consideration/sale proceed to the investment in the new asset. Therefore we are of the view that the CIT(A) is not justified in allowing the claim without giving an opportunity to the AO to examine the correctness of the claims. Accordingly we set aside the order of the CIT(A) and remand the matter to the record of the Assessing Officer to consider and decide both fresh claims of the assessee as per law. Needless to say the assessee be give an appropriate opportunity of hearing.

Summary

Issues Involved:
1. Consideration of capital gains loss on extinguishment of rights in shares of a defunct company.
2. Allowance of exemption u/s 54F against the claim made in the return of income.
3. Justification of CIT(A) allowing the claims without verification during scrutiny proceedings.

Analysis:

Issue 1: Consideration of Capital Gains Loss
The appellant, Revenue, contested the CIT(A)'s decision directing the Assessing Officer (AO) to consider a capital gains loss suffered due to the extinguishment of rights in shares of a defunct company. The Revenue argued that since the claim was not part of the original return of income, the CIT(A) erred in allowing the claim without giving the AO an opportunity to verify its correctness. The appellant further contended that such claims require factual investigation, which was not conducted. The respondent, on the other hand, supported the CIT(A)'s decision, emphasizing that all relevant records were presented and examined. The Tribunal observed that the AO's jurisdiction is limited to claims made in the return of income and noted that the CIT(A) did not conduct any inquiry into the factual correctness of the claim. Consequently, the Tribunal set aside the CIT(A)'s decision and remanded the matter to the AO for proper consideration.

Issue 2: Allowance of Exemption u/s 54F
Another ground of appeal was the allowance of exemption u/s 54F by the CIT(A) against the claim made in the return of income. The Revenue argued that the CIT(A) should not have allowed the claim without verifying its accuracy, especially since the claim was not part of the original return of income. The respondent contended that the CIT(A) had thoroughly examined the facts and records before making the decision. The Tribunal found that the CIT(A) did not ascertain the factual correctness of the claim and had not considered the proportion of the net consideration invested in the new asset. Therefore, the Tribunal concluded that the CIT(A) should have given the AO an opportunity to examine the correctness of the claim before allowing it. Consequently, the Tribunal set aside the CIT(A)'s decision and remanded the matter to the AO for proper consideration.

Issue 3: Justification of CIT(A)'s Decision
The Tribunal emphasized the importance of verifying the factual correctness of claims before allowing them, even if the legal aspects are sound. It noted that the CIT(A) did not conduct a thorough examination of the claims and failed to consider crucial aspects such as the proportion of the net consideration invested in the new asset. The Tribunal concluded that the CIT(A) should have given the AO an opportunity to verify the claims before making a decision. Therefore, the Tribunal set aside the CIT(A)'s decision and remanded the matter to the AO for proper consideration, ensuring the assessee receives a fair hearing.

In conclusion, the Tribunal allowed the appeal of the Revenue for statistical purposes, emphasizing the importance of proper verification and examination of claims before allowing them, even if legally sound.