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2013 (4) TMI 446 - AT - Income TaxCalculation of capital gains Additions were made in the total income of the assessee by the A.O. by taking the sale consideration of the shares @ 400/- per share, as against the actual sale consideration of Rs. 390/- per share by applying the RBI Guidelines related to pricing of shares. Held that - RBI Guidelines are Guidelines for the banks, issued for FEMA purposes. The very opening paragraph of these Guidelines shows that they are addressed to Authorised Dealer (AD) Banks . Thus, the duty to examine the compliance or otherwise of these Guidelines lies squarely within the purview of the Authorised Dealer Banks and not the Income-tax Authorities. If the assessee, in the view of the Income-tax Authorities, had committed any violation of these Guidelines, the appropriate course open to them was to bring it to the notice of the banks. No further. Then, since the Guidelines have been issued for FEMA purposes, it is the FEMA Authorities who are competent to take appropriate action against the assessee on breach of the Guidelines. Rather, it is seen that no objection whatsoever has been raised by the RBI. In view of the above, finding the grievance of the assessee to be justified, we accept it as such. Appeal allowed.
Issues:
1. Valuation of shares for capital gain computation. 2. Application of RBI Guidelines in determining share value. 3. Compliance with Section 48 of the IT Act. Issue 1: Valuation of shares for capital gain computation The appellant contested the assessment order by the Addl. Director of Income Tax, challenging the valuation of shares at Rs. 400 per share instead of the actual sale consideration of Rs. 390 per share. The appellant argued that the capital gain should be computed at Rs. 9,55,73,488/-, as opposed to the assessed amount of Rs. 9,88,76,204/-. The appellant's position was based on the sale of shares by M/s Zeppelin Mobile Systems GmbH to M/s Sintex Industries Ltd., with the appellant reporting income from the sale in the original return of income for Assessment Year 2007-08. Issue 2: Application of RBI Guidelines in determining share value The Dispute Resolution Panel-II upheld the assessment order, citing the RBI Guidelines as binding in determining the share value when sold by a non-resident to a resident. The Panel emphasized that the Guidelines mandated the adoption of the lower of two valuations and that negotiation of price was not permissible. The Panel concluded that the Assessing Officer correctly valued the shares at Rs. 400 per share, as per the Guidelines, despite the appellant's disclosure of Rs. 390 per share. The relevant portion of the RBI Guidelines was highlighted to support the decision, emphasizing the mandatory nature of the valuation process outlined in the Guidelines. Issue 3: Compliance with Section 48 of the IT Act The appellant further argued that the RBI Guidelines were not binding for IT Act purposes and highlighted supporting documents such as the Certificate of Remittance and the Memorandum of Understanding with Sintex Industries Ltd. The appellant contended that the rate of Rs. 390 per share was agreed upon and approved by the RBI, indicating compliance with the Guidelines. The appellant's position was supported by the absence of objections from the RBI and the acknowledgment of the agreed rate in the Memorandum of Understanding. The Tribunal agreed with the appellant, emphasizing that the RBI Guidelines were not within the purview of Income-tax Authorities, and any violations should be addressed by the appropriate authorities. The Tribunal found in favor of the appellant, allowing the appeal and accepting the grievance as justified.
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