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2012 (7) TMI 525 - AT - Income TaxDisallowance of service tax and interest paid as liability on account of service tax has not crystallized during the year under consideration - Held that - Once the payment of service tax has been made during the year, it does not make any difference whether the same is under dispute before the service tax authorities. This issue is no more res integra as the Hon ble Supreme Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax 1971 (8) TMI 10 - SUPREME COURT has decided this very question in the context of provision of Section 43B that for the claim of deduction of the sum paid against the liability of tax, duty, cess, fee, etc., the year of payment is relevant which is to be taken into account. The year in which the assessee incurred the liability to pay such tax, duty etc., has no relevance and cannot be linked in the matter of giving benefit of deduction under Section 43B - the amount of service tax along with interest paid by the assessee is allowable in view of the provisions of Section 43B - in favour of assessee. Enhancement in the book value of shares - Sham transaction - cost of acquisition of the value of the investment of shares - held that - This is a transactions solely between the parent company and the holding company, the same cannot be treated as a sham transaction as the shares have been transferred purely on the book value disclosed earlier. - addition made on account of short term capital gain by reducing the value of cost of acquisition of shares is uncalled for.
Issues Involved:
1. Disallowance of Rs. 81,39,000/- on account of service tax and interest paid. 2. Computation of short-term and long-term capital gain concerning the cost of acquisition and sale price of shares. Issue-wise Detailed Analysis: 1. Disallowance of Rs. 81,39,000/- on account of service tax and interest paid: The assessee challenged the disallowance of Rs. 81,39,000/- on the grounds that the liability for service tax had not crystallized during the year under consideration. The assessee had shown a debit of Rs. 81.30 lakhs in the profit and loss account, which included service tax of Rs. 55.06 lakhs and interest of Rs. 25.12 lakhs. The service tax authorities conducted a survey and issued a show cause notice, leading the assessee to pay the service tax liability along with interest to avoid further litigation. The Assessing Officer (AO) disallowed the deduction, stating that the liability had not crystallized as there was no formal written order, and the matter was still in dispute. The CIT(A) upheld the AO's decision, considering the payment as an advance deposit until the liability crystallized. The assessee argued that the payment of service tax was a statutory liability and should be allowed under Section 43B, citing several case laws in support. The CIT DR countered that mere payment based on a show cause notice does not constitute a crystallized liability. The Tribunal referenced the Supreme Court's decision in Kedarnath Jute Mfg. Co. Ltd. v. Commissioner of Income-tax, which established that a disputed liability does not negate its accrual. Section 43B allows deductions for sums paid by way of tax, duty, cess, or fee in the year of actual payment, irrespective of the year in which the liability was incurred. The Tribunal concluded that the service tax and interest paid by the assessee were allowable under Section 43B, thus deleting the disallowance of Rs. 81,39,000/-. 2. Computation of short-term and long-term capital gain: The assessee sold 10,400 shares of "Euro RSCG Target Media Pvt. Ltd." to its parent company "M/s Havas International" for Rs. 2.42 crore. The assessee computed short-term capital gain as nil and long-term capital loss of Rs. 14,85,063/- based on the cost of acquisition and indexed cost of purchase. The AO questioned the cost of acquisition, suggesting it should be based on the market value per the valuation certificate given to RBI, which valued the shares at Rs. 208 each. The AO considered the agreement between the assessee and its parent company as a self-serving document and recalculated the cost of acquisition and sale consideration, resulting in a short-term capital gain of Rs. 1,70,40,000/- and long-term capital loss of Rs. 44,91,158/-. The CIT(A) upheld the AO's findings, agreeing that the agreement was a self-serving document and the cost of acquisition should be based on the fair market value. The assessee argued that the cost of acquisition had been accepted in the previous assessment year and could not be disputed in the current year. The valuation report was prepared for RBI purposes, and the actual consideration was as per the agreement. The Tribunal found that the cost of acquisition shown in the books and accepted in earlier years could not be disregarded. The agreement between the parties was valid, and there was no evidence to suggest the book value was fictitious. The Tribunal held that the addition made on account of short-term capital gain by reducing the cost of acquisition was uncalled for. However, since the sales price was not disputed, the Tribunal did not adjudicate on this point, allowing the ground in part. Conclusion: The appeal was partly allowed, with the Tribunal deleting the disallowance of Rs. 81,39,000/- for service tax and interest paid and upholding the assessee's computation of the cost of acquisition for shares, thus adjusting the short-term capital gain accordingly.
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