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2013 (12) TMI 1354 - AT - Income TaxDeletion on account of Short Term Capital Gains Difference of the value of transfer of shares - Applicability of Section 148 - Held that - Section 153C in fact corresponds to earlier section 158BD relating to assets, documents etc. of any other person found during search or requisition as per chapter XIVB - In such a case, books, documents etc. have to be handed over to the AO having jurisdiction over such third person who will initiated the proceedings and issue a notice to such person u/s 153C of the Act Following MANISH MAHESHWARI and INDORE CONSTRUCTION P. LTD. Versus COMMISSIONER OF INCOME-TAX 2007 (2) TMI 148 - SUPREME COURT OF INDIA - if procedure laid down in Sec.158BD is not followed, the block assessment proceedings would be illegal - The provisions of section 153BC are exactly similar to the provisions of section 158BD under block assessment proceedings - The AO has grossly erred in not issuing notice u/s 153C and in not making asstt u/s 153C read with section 153A of the Act - The provisions of section 153C specifically exclude the applicability of provisions of section 148 of the Act. In the various statement recorded, none of the witnesses was questioned about the sale of shares by the appellant, much less any witness stating that the appellant had been paid any amount over and above the face value of the shares by the buyer of the shares - The AO could have summoned the persons who had negotiated the deal of purchase of shares from the appellant and ascertained whether any amount over and above the face value of the shares was paid to the appellant - there is not an iota of evidence to establish that the appellant received any money over and above the face value for the transfer of shares Decided against Revenue.
Issues Involved:
1. Deletion of addition on account of Short Term Capital Gains. 2. Admission of receipt of sale consideration by a director. 3. Alleged device to reduce the value of shares. Detailed Analysis: 1. Deletion of Addition on Account of Short Term Capital Gains: The primary issue was whether the CIT(A) was justified in deleting the addition made by the AO amounting to Rs.1,13,62,500/- on account of Short Term Capital Gains. The AO had adopted the break-up value method, valuing the shares at Rs.1525/- per share, as opposed to the face value of Rs.10/- per share. This valuation was based on evidence found during the search and assessment proceedings of M/s. Today Homes and Infrastructure Pvt. Ltd. The CIT(A) quashed the notice under section 148, holding that the AO erred by not issuing notice under section 153C. The Tribunal upheld this view, referencing the Supreme Court decision in Manish Maheshwari Vs. ACIT, which mandates the procedure under section 153C for such cases. The Tribunal affirmed that the AO's approach of substituting the fair market value for actual consideration was incorrect, especially since section 52, which allowed such substitution, had been omitted. The Tribunal cited previous cases where similar additions were deleted, reinforcing that the fair market value could not replace the actual sale consideration for computing capital gains. 2. Admission of Receipt of Sale Consideration by a Director: The second issue was whether the CIT(A) erred in not appreciating the affidavit of a director, who admitted receiving Rs.1,00,00,000/- on behalf of all partners and shareholders from the total sale consideration of Rs.12,25,00,000/-. The Tribunal noted that the AO relied on statements from directors of both companies involved, but these statements did not confirm any transaction above the recorded value. The Tribunal emphasized that no evidence suggested the appellant received more than the face value of the shares. The director's admission of receiving a sum related to a proposed project, which was accounted for, did not imply additional unrecorded consideration for the shares. 3. Alleged Device to Reduce the Value of Shares: The third issue involved the allegation that the assessee used a device to reduce the value of shares by selling land owned by the company separately. The AO referenced the McDowell & Co. Ltd. vs. CTO case, which allows courts to expose tax avoidance schemes. However, the Tribunal found no evidence supporting the AO's claim that the shares were sold at a higher price than recorded. The Tribunal reiterated that the AO's reliance on fair market value was misplaced, as the actual consideration received must be established. The Tribunal also noted that previous judgments cited by the AO did not support substituting fair market value for actual consideration in capital gains computation. Conclusion: The Tribunal upheld the CIT(A)'s orders, dismissing the Revenue's appeals. It concluded that the AO's failure to follow the correct procedure under section 153C rendered the assessment invalid. Additionally, the Tribunal confirmed that there was no evidence to support the AO's higher valuation of shares or any unrecorded consideration received by the assessee. The Tribunal's decision was consistent with previous rulings in similar cases, emphasizing the necessity of actual evidence over theoretical fair market valuations.
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