2018 (5) TMI 2005 - HC - Income Tax

Addition to the declared sale consideration received by the assessee for transfer of its shares - difference between the declared consideration and the market value of the property to tax - AO was of the opinion that the sale consideration was grossly inadequate given that the most significant or substantial asset held by the company was some immovable property - AO rejected the sale value and referred the issue to the District Valuation Officer (DVO) - HELD THAT - As is evident from the plain reading of the condition the amount was never received by the assessee but rather remained with the company of which the most significant control went to the purchaser - rejection of the valuation and the amount brought to tax by the AO was correctly held by the lower appellate authorities to be unjustified. In view of this concurrent findings of fact no substantial question of law arise on this aspect. Nature of income declared by the assessee. Since it dealt in the business of securities its treatment of the amount received towards investments was scrutinised by the AO who felt that the claim for capital gains was not warranted. CIT(A) disagreed after noticing that the assessee was maintaining separate books in respect of its investments portfolio on the one hand and in respect of the day-to-day transactions as a securities/shares broker. In view of these findings (which also took note of the CBDT s circular No.4 of 2007 dated 15.06.2007) and the various tests prescribed in the circular this Court is of the opinion that no substantial question of law arises on this aspect too.

Summary

Issues:
1. Addition of ?3.22 crores to declared sale consideration for transfer of shares in a company.
2. Nature of income declared by the assessee - capital gains or business income.

Analysis:
1. The primary issue in this case revolved around the addition of ?3.22 crores to the declared sale consideration for the transfer of shares in a company. The Assessing Officer (AO) had added this amount to the declared sale consideration of ?5.03 crores received by the assessee for transferring its shares in M/s Trojan Developers Pvt. Ltd. The AO believed that the sale consideration was undervalued, especially considering the significant immovable property held by the company. The matter was referred to the District Valuation Officer (DVO), who valued the property at ?9.87 crores. The AO considered the difference as consideration paid to the assessee for the share transfer. However, the CIT(A) and the Income Tax Appellate Tribunal (ITAT) disagreed with this addition, leading to the Revenue's appeal. The High Court upheld the lower authorities' decision, emphasizing that the amount of ?3.22 crores was to be paid to the company, not the assessee, as per the agreement clause, and thus, the addition was unjustified.

2. The second issue pertained to the nature of income declared by the assessee, whether it should be considered as capital gains or business income. The AO questioned the capital gains claim, but the CIT(A) noted that the assessee maintained separate books for its investment portfolio and day-to-day securities transactions. This distinction was crucial, and the High Court, considering the CBDT's circular and various tests prescribed therein, found no substantial question of law on this matter. Consequently, both appeals were dismissed, affirming the lower authorities' decisions and the application was also rejected.