2023 (8) TMI 1410 - AT - Income Tax

Capital loss/gain determination - FMV determination - additional investments by purchasing shares from the subsidiary company - A.R submitted that barring sec.50CA, there is no other provision in the Act, by virtue of which the AO could substitute Full value of consideration declared by the assessee, thus AO was not justified in adopting the sale consideration of shares at Rs.14,361/- per share and Ld DRP was not justified in confirming the same - AO has disbelieved the sale consideration determined on 30-11-2017, by way of an agreement entered with the buyer at a price of Rs.7,094/- per share, only for the reason that the assessee had purchased the very same shares at price of Rs.14,351/- prior to about one month only - HELD THAT - The Full value of consideration received by the assessee is Rs.7,094/- per share, while the value of share arrived under Net Asset Value method was (-)Rs.630.29. Since the full value of consideration received by the assessee is more than the FMV, there is no reason to tinker with the full value of consideration declared by the assessee. We notice that the AO did not accept the FMV computed under Rule 11UAA of Income tax Rules for the reasons that (a) the value under Net Asset value method has been arrived at by considering the Balance Sheet as on 31.3.2017, while it should have been computed on the basis of Balance Sheet as on 30-11-2017, i.e., the date of transfer. (b) the value under DCF method has been arrived at by the valuer on the basis of information provided by the management, which is not supported by any cogent material. Accordingly, in the facts and circumstances of the case, we are of the view that the AO was not legally justified in tinkering with the Full value of consideration declared by the assessee and accordingly arriving at long term capital gains and short term capital gains. Accordingly, we set aside the order passed by the AO on this issue and direct him to accept the full value of consideration declared by the assessee and accordingly compute the capital gains/loss. Decided in favour of assessee.

Summary

Issues involved:
The judgment deals with the computation of capital gain by the Assessing Officer, challenged by the appellant, based on the discrepancy between the value of shares declared by the assessee and the value computed by the AO.

Capital Gain Computation:
The appellant, a Singapore company, acquired an Indian company and subsequently sold its holdings, resulting in long term capital gain and short term capital loss. The AO questioned the decrease in share value within a short period, proposing to re-compute capital gain using Fair Market Value (FMV) of shares. The appellant argued that the sale value was based on a valuation report, exceeding the FMV determined under Rule 11UAA. The AO rejected the valuation report, adopting a higher sale consideration per share.

Legal Arguments:
The appellant contended that only under sec.50CA could the AO substitute the declared value, emphasizing that the sale price exceeded the FMV. Citing case laws, the appellant argued against the AO's adjustment of the sale consideration. The absence of a Tax Residency Certificate was noted, with the appellant asserting no need for DTAA benefits due to capital loss.

Counter Arguments:
The Department highlighted discrepancies in the valuation date and methodology used by the appellant, questioning the reliability of the valuation report. Suggesting a reassessment of FMV, the Department referenced a similar case for reconsideration.

Judgment and Conclusion:
The Tribunal found the AO unjustified in altering the declared value, as the sale price exceeded the FMV. Rejecting the AO's reasoning for disregarding the valuation report, the Tribunal directed acceptance of the declared value for capital gain computation. The appeal by the assessee was allowed, emphasizing the validity of the declared full value of consideration.

Key Takeaways:
The judgment clarifies the importance of adhering to valuation methods and dates for determining capital gains, emphasizing the need for justification when deviating from declared values. The case underscores the significance of substantiating valuation reports and respecting the declared sale prices unless FMV considerations warrant adjustments.