2020 (2) TMI 1406 - AT - Income Tax

Capital gain computation - addition was made by the AO on the basis of future projection of income submitted by the company to its bankers for availing loan - HELD THAT - As per section 48 of the Income Tax Act, 1961, what is relevant is full value of the consideration received or accrued as a result of transfer of capital asset. As per section 50C of the IT Act, 1961, it has been provided that in case of transfer of land / building or both, values adopted or assessed by the stamp valuation authority of the State Government for the purpose of stamp duty may be considered as full value of consideration but in the case of transfer of shares, there is no such provision which authorizes the AO to adopt any other value be it market value. The computation made by the AO was not as per section 48 of the Act. Only as per section 50C the full value of consideration received or accruing as a result of transfer of certain capital assets being, land or building or both, shall be the value adopted or assessed by the stamp valuation authority of the State Government for purposes of payment of stamp duty. These provisions however, apply only in relation to a transfer of capital asset being land or building or both and they have no application in so far as transfer of shares. Accordingly, the addition made is hereby deleted - Decided against revenue.

Summary

Issues:
- Dispute over addition made by the AO regarding capital gain of ?3,33,23,661.

Analysis:
1. The appeal was filed by the Revenue against the order of CIT(A)-1, Bengaluru, for the Assessment Year 2012-13. The only issue in dispute was the addition made by the AO in respect of capital gain of ?3,33,23,661. The AO estimated the total sale consideration based on a loan application projection, while the CIT(A) deleted the addition citing relevant case laws.

2. The AO's addition was based on the future income projection submitted by the company to its bankers for a loan. However, the relevant provision under section 48 of the Income Tax Act, 1961, focuses on the full value of consideration received or accrued from the transfer of a capital asset. Unlike section 50C for land/building transfers, there is no provision authorizing the AO to adopt a different value for share transfers.

3. The CIT(A) followed the decision of the Hon'ble Karnataka High Court and the Supreme Court in the case of George Henderson & Co. Ltd. The CIT(A) found no clear evidence of a different consideration received by the appellant. The computation made by the AO was not in line with section 48 of the Act, and since the AO's approach was not contradicted by the Revenue, the CIT(A)'s decision to delete the addition was upheld.

4. Considering the CIT(A)'s finding that the AO's computation did not align with section 48 of the IT Act, and with no challenge from the Revenue, the Tribunal found no grounds to interfere with the CIT(A)'s order. Consequently, the appeal of the Revenue was dismissed, and the decision was pronounced in the open court as per the caption page.