2015 (7) TMI 604 - AT - Income Tax

Validity of proceedings u/s. 158BD - Held that - The provisions of section 158BD can be invoked where the Assessing Officer is satisfied that any undisclosed income of a person other than one against whom search was conducted is reflected in the books of accounts/documents of the person searched. We find that after recording of satisfaction notice u/s. 158BD was issued to the assessees by the Assessing Officer on 29-09-2004. The ld. AR of the assessees has contended that the entire income has been accounted for and is reflected in the balance sheet of the assessees. However, no documentary evidence has been placed on record in support of such contentions. Further, the ld. AR has not been able to show that the assessees have disclosed Capital Gains on sale of shares in any of the impugned assessment years. Thus, we are not inclined to accept the contentions of the assessees that invoking of jurisdiction u/s. 158BD is unjustified. Accordingly, we reject the same. Computation of LTCG - Consideration for transfer of shares - CIT(A) adopting sale consideration for transfer of 400 shares at ₹ 22,50,000/- as against ₹ 5,00,000/- - contentions of the assessees is that they have received only ₹ 10,00,000/- and the remaining amount of ₹ 35,00,000/- has not been received by the assessees from Shri Prakash Laddha till date - Held that - We do not concur with the submissions of the assessees that the consideration of ₹ 45,00,000/- is towards transfer of shares and repayment of cost of improvement of site. The assessees till date have not brought on record any document to show the terms and conditions and the allocation of consideration for transfer of company from assessees to Laddha Group. In the absence of any documentary evidence the only inevitable inference that can be drawn is that ₹ 45,00,000/- is sale consideration for transfer of shares alone. To treat ₹ 17,49,617/- as part of sale consideration is nothing but an attempt to reduce the capital gains arising on sale of shares. A perusal of the above letter of Shri Prakash P. Laddha shows that an amount of ₹ 40,000/- was allegedly paid to Shri Janardan R. Kapse against purchase of shares. The claim made by the assessee and the statement given by Shri Prakash P. Laddha are not congruent. Shri Prakash P. Laddha during the course of assessment further admitted that payment to the extent of ₹ 17,89,000/- in cash and ₹ 40,000/- by cheque out of the total of ₹ 41,50,000/- as appearing in seized documents. Thus, in view of seized documents and the admission of Shri Prakash P. Laddha regarding the payment of consideration and also the fact that share of M/s. Vastukrupa Construction (India) Pvt. Ltd. have been transferred in the name of Shri Prakash P. Laddha and his wife, we are of the considered opinion that the entire sale consideration has to be taxed in the hands of the assessees as Long Term Capital Gain. - Decided against assessee.

Summary

Issues Involved:
1. Validity of proceedings under section 158BD.
2. Determination of sale consideration for transfer of shares.
3. Treatment of site development expenses as part of the sale consideration.
4. Taxation of long-term capital gains on the sale of shares.

Issue-wise Detailed Analysis:

1. Validity of proceedings under section 158BD:

The assessees challenged the invocation of jurisdiction under section 158BD, arguing that no incriminating material was found during the search proceedings against them. However, the Tribunal noted that the assessees did not raise this ground before the Commissioner of Income Tax (Appeals) nor in their grounds of appeal before the Tribunal. Despite this, the Tribunal decided to address the issue. During the search of the Laddha Group, documents relating to the sale of shares of Vastukrupa Construction (India) Pvt. Ltd. were found, indicating undisclosed capital gains. The Tribunal found that the Assessing Officer issued the notice under section 158BD after recording satisfaction, and the assessees failed to provide documentary evidence to support their claim that the income was accounted for. Therefore, the Tribunal upheld the validity of the proceedings under section 158BD.

2. Determination of sale consideration for transfer of shares:

The assessees contended that they received only Rs. 10,00,000 out of the total sale consideration of Rs. 45,00,000 for the transfer of shares, with the remaining Rs. 35,00,000 unpaid due to dishonoured cheques. The Tribunal noted that the shares were transferred to Shri Prakash Laddha and his wife, and the consideration for the transfer was Rs. 45,00,000. The Tribunal did not accept the assessees' claim that part of the consideration was for site development expenses, as there was no documentary evidence to support the allocation of the sale consideration. The Tribunal concluded that the entire amount of Rs. 45,00,000 was the sale consideration for the transfer of shares.

3. Treatment of site development expenses as part of the sale consideration:

The assessees claimed that they incurred expenses for site development, which should be considered part of the sale consideration. The Tribunal rejected this claim, stating that there was no evidence to show that the expenses were part of the sale consideration. The Tribunal held that treating the site development expenses as part of the sale consideration was an attempt to reduce the capital gains arising from the sale of shares.

4. Taxation of long-term capital gains on the sale of shares:

The Tribunal held that the transfer of shares resulted in long-term capital gains, which should be taxed in the year of transfer. The Tribunal emphasized that the income accrues in the year of transfer, regardless of whether the entire sale consideration is received. The Tribunal referred to the assessment order and the order of the Commissioner of Income Tax (Appeals) in the case of Shri Prakash P. Laddha, which indicated that an amount of Rs. 41,50,000 was paid to Shri Janardan R. Kapse in cash. The Tribunal concluded that the entire sale consideration of Rs. 45,00,000 should be taxed as long-term capital gains in the hands of the assessees.

Conclusion:

The Tribunal upheld the order of the Commissioner of Income Tax (Appeals), confirming the findings of the Assessing Officer. The appeals of the assessees were dismissed, and the Tribunal found no merit in their arguments. The judgment emphasized the importance of documentary evidence in substantiating claims and the principle that capital gains should be taxed in the year of transfer of the asset.