2012 (12) TMI 684 - AT - Income Tax

Revision u/s 263 Deferment of sale consideration Held that - As per terms of the agreement consideration for sale of shares was agreed to be paid in two stages i.e. Rs.2.70 crores to be paid at the time of agreement whereas the deferred consideration to be paid in the subsequent years depending on the financial position of Unisol Infraservices Pvt. Ltd. in the subsequent four years upto 31st March 2010 as per the formula given in the agreement. The amount of deferred consideration thus was uncertain and it was not possible to quantify the same. The aggregate consideration including initial and deferred consideration however was capped at Rs.20 crores less debt plus cash as per clause 3.2 of the agreement and thus maximum amount of consideration in our opinion was erroneously taken by the CIT as only the initial consideration of Rs.2.70 crores was certainly payable as consideration for sale of shares and that alone could be taken into consideration and not the deferred consideration the receipt of which was neither certain nor the quantum thereof was ascertainable with any reasonable certainty - there was no error in the said assessments by AO as alleged by the CIT calling for revision u/s 263 - assessment orders made by the AO u/s 143(3) are restored - in favour of assessee.

Summary

Issues:
- Interpretation of agreement for sale of shares
- Computation of capital gains
- Validity of assessment orders passed by AO u/s 143(3)
- Revision of assessments u/s 263

Interpretation of agreement for sale of shares:
The case involved the interpretation of an agreement for the sale of shares where the initial consideration was fixed at Rs.2.70 crores, with deferred consideration to be paid based on the financial position of the company in subsequent years. The agreement capped the total consideration at Rs.20 crores. The dispute arose when the CIT held that the total consideration for the sale of shares was fixed at Rs.20 crores, leading to a revision of assessments u/s 263. The assessees argued that the deferred consideration was uncertain and contingent on future financial performance, hence only the initial consideration should be considered for computing capital gains. The Tribunal agreed with the assessees, emphasizing that the deferred consideration was not certain and could not be quantified accurately, therefore only the initial consideration should be included in the computation of capital gains.

Computation of capital gains:
The assessees had declared long-term capital gains from the sale of shares based on the initial consideration received. However, the CIT contended that the total consideration for the sale was Rs.20 crores as per the agreement, leading to a revision under section 263. The Tribunal analyzed the agreement terms and concluded that since the deferred consideration was uncertain and contingent on future financial performance, only the initial consideration of Rs.2.70 crores should be considered for computing capital gains. The Tribunal upheld the assessees' computation of capital gains based on the initial consideration alone, as the deferred consideration was not certain and could not be accurately quantified.

Validity of assessment orders passed by AO u/s 143(3):
The AO had accepted the assessees' declaration of capital gains based on the initial consideration in the assessments completed u/s 143(3). However, the CIT found these assessments erroneous and prejudicial to the revenue's interest, leading to a revision under section 263. The Tribunal disagreed with the CIT, stating that the AO's acceptance of the capital gains declaration based on the initial consideration was correct. The Tribunal emphasized that the assessments were not erroneous as alleged by the CIT, as the initial consideration was the only certain amount payable for the sale of shares.

Revision of assessments u/s 263:
The CIT revised the assessments u/s 263, directing the AO to compute capital gains by considering the total sale consideration at Rs.20 crores. The assessees challenged this revision before the Tribunal. The Tribunal set aside the CIT's orders under section 263, reinstating the assessment orders made by the AO u/s 143(3). The Tribunal concluded that the CIT's revision was based on an erroneous interpretation of the agreement terms, as the deferred consideration was uncertain and contingent on future financial performance, hence only the initial consideration should be considered for computing capital gains.