2011 (11) TMI 89 - HC - Income Tax

Sale consideration of unquoted shares - Value declared by assessee ignored- Held - all these shares which were sold were stock in trade of the assessee as it was dealing in the business of sale and purchase of shares, dividends, securities, etc and were not mere investments by it. The CIT(A) and the Tribunal have observed that there was nothing gathered by the AO that the market price of these shares were more than the price at which they were sold by the assessee or that the assessee in any way concealed or suppressed the sale price. The Supreme Court in the case of Additional Commissioner Of Income-Tax, Delhi-I Versus Mrs. Avtar Mohan Singh (1981 -TMI - 29585 - DELHI High Court) has held that difference between the market value and the consideration declared was not sufficient, and it was also necessary to show that the assessee had received more than what is declared or disclosed by him as consideration of sale of shares. Even the burden to show this lies on the Department. - Decided in favor of assessee.

Summary

Issues:
1. Interpretation of Section 260A of the Income Tax Act, 1961
2. Assessment of difference in sale consideration of unquoted shares
3. Application of CCI guidelines for valuation of unlisted shares
4. Burden of proof on the assessing officer
5. Comparison with relevant case laws

Analysis:

1. The appeal was filed under Section 260A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal for the assessment year 2002-2003. The substantial question of law raised was whether the ITAT erred in restricting the addition on account of the difference in sale consideration of unquoted shares.

2. The assessee, a company dealing in the sale and purchase of shares, filed income tax returns for the year 2002-03. The Assessing Officer added a significant amount to the income of the assessee, alleging that unquoted shares were sold at a much lower price than declared. The CIT(A) and the Tribunal later deleted this addition, emphasizing the reliance on CCI guidelines for valuation of unlisted shares and the burden of proof on the assessing officer.

3. The revenue appealed against the Tribunal's order, arguing that the shares were sold at a mutually agreed price due to business obligations. The CIT(A) and the Tribunal found no evidence that the market price of the shares exceeded the sale price or that the assessee concealed the sale price, supporting their decision.

4. The judgment referred to the case law of Commissioner of Income Tax, West Bengal v Calcutta Discount Co. Ltd., highlighting the principle that selling stock-in-trade at a price lower than the market price does not necessarily result in profits. The burden of proof to show that the assessee received more than the declared consideration lies with the Department.

5. Additionally, the judgment cited the case of K.P. Vargheese v Avtar Mohan Singh, emphasizing the importance of proving that the assessee received more than the declared consideration for the sale of shares. The judgment concluded that there was no illegality or perversity in the impugned order, dismissing the appeal.

This detailed analysis of the judgment covers the interpretation of relevant legal provisions, assessment of the sale consideration of unquoted shares, application of guidelines for valuation, burden of proof, and comparison with established case laws to support the decision reached by the court.