2019 (12) TMI 1198 - AT - Income Tax

Long term capital gain or short term capital gain - period of holding - characterization of shares held by assessee in Scorpio beverages private limited whether long-term capital asset or a short-term capital asset - HELD THAT - Following the decision of the coordinate bench in the case of Mr. Analjit Singh 2017 (12) TMI 306 - ITAT DELHI we also hold that the gain on transfer of shares of Scorpio beverages P Ltd would be taxable as long-term capital gains' and not short-term capital gains' as assessee has held those shares for more than 12 months. Thus, ground number 4 8 of the appeal of the assessee is allowed to above extent. Sales consideration received accrued to the assessee - HELD THAT - on one side, preference share capital invested has been considered in the investment in total asset of that company whereas preferential capital issued by the company has not been included in the liability. This resulted in to including that value twice in the valuation of equity shares of that company. Therefore, there is an apparent misinterpretation of the financial statements of the subsidiaries. Therefore, the learned assessing officer is directed to correct the valuation of above five companies by including the value of preference share capital issued by these companies in the total liabilities. Such total liability is to be reduced from total assets of those companies to derive at the value of equity shares. Further, the Assessing Officer is also directed to verify all other figures from the audited balance sheets of all these companies as submitted by assessee and correct it, if it is found that they have been wrongly plotted, compute the value accordingly. Assessee is directed to put before AO such errors and which shall be rectified, if found in order. Capitalization of interest expenditure - HELD THAT - Cordinate bench has dealt with this issue in case of husband of appellant thus we dismiss ground of the appeal and confirm the orders of the lower authorities in not allowing the capitalization of interest cost of INR 1 00902358/ as part of the cost of acquisition while calculating capital gain on sale of shares of Scorpio beverages private limited. Allowance of brought forward long-term capital loss brought forward from assessment year 2011 12 - HELD THAT - Above loss was inadvertently claimed by the assessee at INR 2 49822064. Even in the grounds of appeal mentioned the assessee in ground number 23 has mentioned an astronomical figure, which is not the correct fact. Despite this assessee may be granted the brought forward long-term capital loss of INR 2 4982206/ if found in accordance with the law. Similar is the ground number 26 of the appeal where the claim of the assessee is about set off the brought forward long-term capital loss of INR 15336932/ for assessment year 2011 12. Assessee is directed to file requisite details before the assessing officer and the AO may examine the same and grant set off of the brought forward long-term capital losses, if found in accordance with the law Grant of credit for tax deduction at source and advance tax - HELD THAT - CIT A has correctly held that if the above amount has been shown in form number 26AS, then AO is directed to grant the credit for tax deduction at source and advance tax paid. No infirmity can be found in such a direction given by the learned CIT A. Assessee is further directed to submit the requisite details before the learned assessing officer about the tax deduction at source as well as the advance tax paid and reconcile the same with form number 26AS. AO may verify the same and grant credit for the same in accordance with the law. Accordingly, ground number 29 of the appeal of the assessee is allowed with above direction.

Summary

Issues Involved:

1. Long-term vs. Short-term Capital Gains
2. Share Valuation
3. Capitalization of Interest Costs
4. Disallowance of Brought Forward Long-term Capital Loss
5. Business Income
6. Allowance of Capital Loss
7. Disallowance of TDS and Advance Tax
8. Brought Forward Capital Loss

Detailed Analysis:

1. Long-term vs. Short-term Capital Gains:

The primary issue was whether the gains from the sale of unlisted shares of M/s. Scorpio Beverages Pvt. Ltd. should be treated as long-term or short-term capital gains. The assessee argued that the shares were held for more than 12 months, thus qualifying as long-term capital assets under section 2(42A) of the Income Tax Act, 1961, as applicable during the assessment year 2014-15. The CIT(A) disagreed, treating the gains as short-term capital gains, stating that the holding period should be 36 months for unlisted shares. The Tribunal, following the precedent set in the assessee's husband's case, ruled that the gains should be treated as long-term capital gains, as the shares were held for more than 12 months.

2. Share Valuation:

The assessee contested the CIT(A)'s decision to substitute the actual sale consideration with a notional fair market value of INR 131.86 per share, as determined by the Tribunal in the husband's case. The Tribunal upheld the CIT(A)'s reliance on the earlier decision but noted errors in the valuation method used by the AO. Specifically, the AO failed to include preference share capital in the liabilities, which is required under Rule 11UA of the Income Tax Rules, 1962. The Tribunal directed the AO to correct these errors and recompute the valuation accordingly.

3. Capitalization of Interest Costs:

The assessee claimed the capitalization of interest costs incurred on borrowed funds used to acquire the shares. The CIT(A) and the Tribunal, following the decision in the husband's case, held that interest costs could not be considered as part of the cost of acquisition or improvement under section 48 of the Income Tax Act. The Tribunal dismissed the assessee's claim for capitalization of interest costs.

4. Disallowance of Brought Forward Long-term Capital Loss:

The assessee claimed a brought forward long-term capital loss of INR 24,98,22,064, which was disallowed by the AO, who found the actual loss to be INR 2,49,82,206. The Tribunal directed the AO to verify the details and allow the set-off of the brought forward long-term capital loss if found in accordance with the law.

5. Business Income:

The CIT(A) dismissed the ground relating to the treatment of exempt income earned by the assessee as partnership profits as "income from business or profession." The Tribunal did not provide a detailed analysis on this issue, effectively upholding the CIT(A)'s decision.

6. Allowance of Capital Loss:

The assessee contested the inclusion of capital gains/losses on the sale of capital assets other than shares of Scorpio Beverages Pvt. Ltd. The CIT(A) allowed minimal relief, and the Tribunal did not provide a detailed analysis, effectively upholding the CIT(A)'s decision.

7. Disallowance of TDS and Advance Tax:

The assessee claimed credit for tax deducted at source (TDS) amounting to INR 11,06,907 and advance tax amounting to INR 48,16,27,800. The CIT(A) directed the AO to grant credit if the amounts were reflected in Form 26AS. The Tribunal upheld this direction, instructing the assessee to provide the requisite details for verification.

8. Brought Forward Capital Loss:

The assessee claimed set-off of brought forward capital losses from assessment years 2010-11 and 2011-12. The Tribunal directed the AO to verify the details and allow the set-off if found in accordance with the law.

Conclusion:

The Tribunal's decision largely followed the precedent set in the assessee's husband's case, providing relief on the characterization of capital gains but upholding the CIT(A)'s decisions on share valuation, capitalization of interest costs, and other issues. The Tribunal directed the AO to correct valuation errors and verify the details of brought forward losses and tax credits.