2007 (9) TMI 262 - HC - Income Tax

Dealer in shares - Additions to the income of assessee on account of the high price paid for the purchase of shares of erstwhile HCL assessee had some special knowledge about the joint venture and the scheme of arrangement and was therefore, willing to pay a higher price to corner the shares - Explanation given by assessee was a plausible explanation and could not be termed perverse ITAT and CIT (A) were right in examining the explanation and concluding that transactions were not sham therefore amount could not be disallowed - in respect of valuation of closing stock, assessee rightly valued it at cost price or market price whichever is lower

Summary

Issues:
1. High price paid for the purchase of shares of the erstwhile HCL.
2. Valuation of the closing stock of shares held by the assessee.

Analysis:
1. High Price Paid for Shares:
The assessee, a private limited company dealing in shares, purchased a significant number of shares of the erstwhile HCL, which were later exchanged as per a joint venture agreement with Hewlett Packard. The Assessing Officer added Rs. 89,29,635 to the assessee's income due to the high purchase price of the shares. The Commissioner of Income-tax (Appeals) concluded that the transactions were legitimate, considering the purchase from the Delhi Stock Exchange, confirmation by brokers, and payment through account payee cheques. The Commissioner held that the addition was incorrect and deleted it. The Tribunal upheld this decision, emphasizing that the explanation provided by the assessee was plausible, and no evidence suggested any wrongdoing or that funds came back to the assessee.

2. Valuation of Closing Stock:
Regarding the valuation of the closing stock of shares, the assessee valued the shares of HCL HP Ltd. at Rs. 55.82 per share, while the Assessing Officer valued them at Rs. 100 per share. The Commissioner of Income-tax (Appeals) noted the scheme of arrangement splitting the shares and allowed the assessee to value the shares at cost price, as per section 49(2) of the Income-tax Act, rather than market value. The addition of Rs. 1,40,94,839 was deemed untenable and was rejected. The Tribunal confirmed this decision, citing the Supreme Court's ruling on valuing closing stock at cost or market price, whichever is lower. The Tribunal found no error in the Commissioner's decision and dismissed the appeal, stating that no substantial question of law arose.

In conclusion, both issues were thoroughly analyzed by the Commissioner of Income-tax (Appeals) and upheld by the Tribunal. The explanations provided by the assessee were deemed valid and in compliance with relevant tax laws. The Tribunal found no reason to interfere with the decisions, and the appeal was dismissed as no substantial question of law was identified.