2019 (6) TMI 1211 - AT - Income Tax

Reopening of assessment u/s 147 - allegations forwarded by a Member Of Parliament and Chairman, standing committee on Finance - addition made on sale of 6,25,000 shares of NDTV limited considered by AO as short term capital gain - whether reopening of the assessment has been carried out at the instance of the investigation wing wherein it has been dictated by them to the AO to initiate reassessment proceedings? - HELD THAT - In the present case, the AO is merely advised to take any remedial actions in accordance with the law. Therefore, the discretion was with the assessing officer to whether to issue notice u/s 148 of the income tax act or not In the present case the authority, indicating the information was of the equal rank and not a higher authority. Further, the advice was clearly on the facts of the case of the information received. In view of this, we do not find that the reopening has been made at the instance of or at the dictate of higher authorities. There is a clear-cut indication and discretion of the assessing officer that he has verified the information received and after that he found that a sum of ₹ 12,700,000 that should have been shown as a short-term capital gain by the assessee have not been disclosed in her return of income. Therefore, we do not agree with the argument of AR that reopening is at the instance of or at the dictate of the informing authority. No live link between the information received (tangible material) and formation of belief - In the present case the reasons for the reopening were recorded by the learned assessing officer though extracting the information that has been received from the investigation wing in preamble of the letter, and also noting that the assessee has filed return of income declaring income he further noted that that the return of income was perused where neither the long-term capital gain nor short-term capital gain have been disclosed. Such belief was formed after looking at the return of income in schedule CG that is shown as nil. Long-term capital gain shown in the tangible material is ₹ 108,00,00,000, which is far less than the amount that has been shown by the assessee in annexure EI. Therefore, it is not the mere reproduction of the report of the investigation wing but clear-cut finding recorded by the learned assessing officer that he has perused the return of income and on verification of that return has given a live link to the learned assessing officer to form a belief that assessee has understated the short-term capital gain - there is a live link between the tangible material and formation of the belief and it is not merely the reproduction of the report of the investigation wing but the finding of the assessing officer himself also in such reasons - we confirm the finding of the learned CIT A in holding that there is no infirmity in the reassessment proceedings initiated by the learned assessing officer. - Decided against assesse. Capital gain computation - LTCG OR STCG - sale of shares from the joint demat account of the assessee - cost of acquisition of those shares which were considered as sold on the basis of FIFO method of that demat account - applicability of FIFO method in each demat account separately of jointly - what is the cost of acquisition and period of holding of shares in joint demat account - HELD THAT - After introduction of section 45(2A) of the Income-tax Act, 1961, and Depositories Act, 1996, those participating in the depositories mechanism will have to accept FIFO as a way of maintaining securities. In a depositories mechanism, where individual shares lose their identity and lose themselves in the wilderness of a homogenous mass, it is mandatory to follow FIFO method. When the profits on sale of shares in different circumstances is taxed at different rates, under different heads, non application of standard FIFO method to each account would lead to tax anarchy. Precisely the same is the case of the assessee. Hence we hold that FIFO method will be applied in case of multiple accounts to each of the demat account. Issue before us is not whether the assessee loses any enjoyment of possession of such shares but how if such shares are transferred in the joint account but the issue is whether the sales sold from the joint account have the period of holding for determination of its character as short-term capital asset are long-term capital asset would be considered from the date when the assessee originally purchased shares in her individual demat account or not. The provisions of section 45 (2A) and the circular is issued by the central board of direct taxes provides otherwise. Commissioner of Income Tax (Appeals) has not erred upholding an addition representing alleged short term capital gain on sale of shares of M/s. NDTV Ltd by the appellant in the year under consideration - Decided against assessee. Income from house property - AO assumed that the assessee s share of rent of the above property would be 0.8% of the cost of property being ₹ 6 535315/ - assessee submitted that the annual letting value taken by the cantonment board at Mussoorie was Rs. ₹ 30,000 per annum for the whole house - HELD THAT - With respect to the Mussoorie property the learned assessing officer in the remand report has submitted that the basis of the fair rental value has not yet been received by AO and therefore could not be submitted before the learned CIT A. Thus, there is no information available with AO of fair rent of the property. Contrary to that assessee has submitted annual let out value of such property that is claimed to not to exceed ₹ 30,000 as mentioned by cantonment board. Therefore, the learned CIT A should not have substituted the same on hypothetical basis. Accordingly, we direct the ld AO to take the let out value of the property as per the determination of same by cantonment board for this year to determine the annual fair rent of the property and then decide the issue afresh. - Decided in favour of assessee. Capital gain calculation on sale of shares to RRPR Holdings Pvt Ltd (RRPR) - Dr Roy and Mrs. Roy are the only shareholders of the above company holding 50% share each - assessee sold share at ₹ 4/- per share to RRPR against rate of share in BSE were within the range of ₹ 134.95 to ₹ 141.50 Per share. - AO determined consideration accruing to the assessee on transfer of 5781842 shares at the rate of INR 135 amounting to INR 78,05,48,670/ for the purpose of calculation of capital gain thereon - CIT (A) deleted the above addition stating that the market value cannot be deemed to be the full value of the consideration of assets in this case and therefore he did not find any force in the argument of the AO that accrual phrase introduced in the provision refers to the market value of the capital asset - applicability of Section 50D - Impact of interest free loan given by company to assessee HELD THAT - In the present case, fact shows that by transferring shares to RRPR Holdings private limited at ₹ 4/- per share, the assessee has transferred everything which can be said to vested in those shares at price which is equivalent to market price to lender, through RRPR Holdings Pvt Ltd. In fact, the value is also realized by considering the loan and sum, which is free of interest and coupled with call option agreement, at INR 140 per share only. Assessee has got the consideration in transfer of shares of NDTV limited through RRPR Holdings private limited by obtaining interest free loans for a long tenure coupled with call option agreements which is based on the traded price of the shares of the NDTV limited, the actual consideration received by the assessee is not ₹ 4/- per share but the sums realized by RRPR Holdings Ltd , over which the assessee has complete control. Even otherwise, as stated herein above, the full consideration has not been replaced by the market value of the shares transferred but through series of agreements entered into by the assessee along with RRPR Holdings private limited with the lenders clearly showed that the assessee realized the consideration for transferring the shares and further pledge in favour of the lenders. Facts before us shows that assessee entered into complex agreements with the lenders by creating the layer of RRPR Holdings private limited to pledge the shares and realize the sale consideration in guise of loans from lenders. We reverse the finding of the learned CIT(A) and hold that full value of the consideration of accrued to the assessee on sale of the shares of NDTV limited to RRPR Holdings private limited has resulted into understatement of capital gain to the extent of ₹ 55,88,73,564/ . Accordingly, ground of the appeal of the learned Deputy Commissioner Of Income Tax, New Delhi are allowed. Income from house property - as per DR CIT A has deleted the addition without granting any opportunity of hearing to the AO - HELD THAT - CIT capital has not admitted any additional evidences but has considered the explanation of the assessee against the assessment order passed by the learned assessing officer. Further with respect to the certain properties the assessing officer could not produce the relevant information available with respect to the annual rent of those properties. Therefore, now revenue cannot argue that learned assessing officer was not given proper opportunity of hearing before deleting the above addition. In view of this ground number 5 of the appeal of the learned assessing officer is dismissed. Addition u/s 69 by AO - CIT (A) confirmed the same u/s 56 (2) (vii) ( C ) - purchased of 3478925 shares of NDTV limited at the rate of ₹ 4/- per share from M/S RRPR - whether the learned CIT (A) has a right to confirm the addition under altogether a different section under the provisions of section 251 (1) (a) of the act? - HELD THAT - In plain reading of the provisions of section 251 of the income tax act the Commissioner of income tax has a wider power however such part by the power cannot serve the powers vested u/s 147, 154 and, 263 of the income tax act. Admittedly, there is no new source of income, which has not been considered by the ld CIT(A). In present case, ld AO has already considered the taxability of sum being difference between the market value of shares and purchase price of the shares. Therefore, it cannot be said that, CIT (A) has discovered a new sources of Income. The impugned asset that has been transferred in this transaction in shares, which is covered under the definition of property as per clause (d) of the second proviso to the above section. Further fair market value of such transaction is also required to be determined under section 11 UA of the income tax rules according to which the fair market value in respect of a court in shares are the quoted price on the recognized stock exchange. Therefore the impugned transaction satisfied all the ingredients of the provisions of section 56 (2) (Vii) of the act. Therefore we do not find any infirmity in the order of the learned CIT (A) in invoking that provision with respect to the about transaction. No infirmity in the order of the learned CIT(A) in enhancing the income of the assessee by invoking the provisions of section 56 (2)(vii) of the act by making an addition of INR 4 38170604/ on account of difference between the purchase price of the shares of NDTV limited and the market price of those shares quoted on recognized stock exchange. Accordingly ground number 1 of the appeal of the assessee is dismissed.

Summary

Issues Involved:
1. Validity of Reassessment Proceedings under Section 147.
2. Determination of Capital Gains on Sale of Shares.
3. Addition under Section 56(2)(vii) for Shares Purchased Below Market Value.
4. Income from House Property.

Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 147:
The Tribunal upheld the reassessment proceedings initiated by the Assessing Officer (AO) under Section 147 of the Income Tax Act. The AO received information from the Deputy Director of Income Tax (Investigation) regarding the non-disclosure of capital gains by the assessee. The AO verified the return of income and noted discrepancies in the disclosure of long-term and short-term capital gains. The Tribunal found that the AO had applied his mind to the information received and the return of income, forming a reason to believe that income had escaped assessment. Hence, the reassessment proceedings were validly initiated.

2. Determination of Capital Gains on Sale of Shares:
The Tribunal examined the sale of shares by the assessees to RRPR Holdings Pvt Ltd at ?4 per share when the market value was ?135 per share. The AO had taken the market value as the full value of consideration for computing capital gains. The Tribunal upheld the AO's view, stating that the full value of consideration received or accrued to the assessee should be based on the market value of the shares, given the complex structure of agreements indicating that the transaction was essentially a sale of shares at market value. The Tribunal reversed the CIT(A)'s decision, which had accepted the transaction value of ?4 per share, and restored the addition made by the AO.

3. Addition under Section 56(2)(vii) for Shares Purchased Below Market Value:
The Tribunal upheld the addition made by the CIT(A) under Section 56(2)(vii) of the Income Tax Act, which deals with the receipt of property for inadequate consideration. The assessees had purchased shares from RRPR Holdings Pvt Ltd at ?4 per share when the market value was ?140 per share. The CIT(A) had invoked Section 56(2)(vii) to tax the difference between the market value and the purchase price as income from other sources. The Tribunal found that the conditions of Section 56(2)(vii) were met and upheld the addition, rejecting the assessees' arguments that the transactions were conditional and on escrow account.

4. Income from House Property:
The Tribunal dealt with the determination of annual value for properties owned by the assessees. The AO had made additions based on deemed rental income from properties in New Delhi, Dehradun, and Mussoorie. The CIT(A) had partly upheld these additions. The Tribunal directed the AO to adopt the annual value as determined by the municipal authorities for the Mussoorie property and confirmed the additions for the properties in New Delhi and Dehradun based on the fair rental value determined by the AO and CIT(A).

Conclusion:
The Tribunal upheld the reassessment proceedings and the additions made by the AO and CIT(A) regarding the capital gains on the sale of shares and the addition under Section 56(2)(vii). The Tribunal also directed the AO to adopt the municipal valuation for the Mussoorie property while confirming the additions for the other properties. The appeals were disposed of accordingly.