2023 (2) TMI 530 - HC - Income Tax

Correct head of income - gain on sale of shares - LTCG or income from other sources - AO has treated the LTGC said to have been earned by the petitioner, as income from other sources, and, accordingly, brought it to tax u/s 56 - AO was of the view that mandatory steps for transfer of shares had not been taken by the petitioner i.e., the assessee AND no responses to notices being issued under Section 133(6) - HELD THAT - The record shows that insofar as Mr. Pradeep Sharma Petitioner shareholder was concerned, the very same transaction, which involved almost the same number of shares and the same price, was accepted, and the said person was allowed to claim deduction/exemption under Section 54F - Furthermore, even in Mr. Pradeep Sharma s case, consideration was received prior to the aforementioned execution of the sale purchase agreement. It seems. rather curious that, in the petitioner s case, the AO has taken a decision that because part of the consideration was received before the agreement to sell, the income had to be treated as income from other sources, whereas in Mr. Pradeep Sharma s case, the income earned was not only been offered for tax under the head capital gains , but deduction was also claimed under Section 54F of the Act; a position which was accepted by the respondent/ revenue. A perusal of the impugned assessment order does not reveal that, the fact that RTPL and ISL did not respond to the notices issued under Section 133(6) of the Act, was put to the petitioner. The least that the AO could have done is that he could have brought this aspect to the notice of the petitioner, who could then, perhaps, have them represented via their authorized representative before the AO. We are inclined to set aside the impugned order, with liberty to the AO to pass a fresh order after giving due opportunity to the petitioner. AO will issue a notice in this behalf to the petitioner, which would indicate the date and time, when hearing would be accorded in the matter.

Summary

Issues:
Challenge to assessment order under Income Tax Act, 1961 regarding treatment of Long Term Capital Gains (LTCG) from sale of shares, denial of deduction under Section 54F, discrepancy in treatment compared to another shareholder, failure to communicate non-response from relevant entities to petitioner.

Analysis:
The High Court addressed the challenge to the assessment order under the Income Tax Act, 1961 concerning the treatment of Long Term Capital Gains (LTCG) arising from the sale of shares by the petitioner along with other shareholders. The petitioner contended that the LTCG amounted to Rs.12,63,23,160/- and claimed a deduction under Section 54F of the Act, totaling Rs.11,23,54,962/-. However, the Assessing Officer (AO) treated the LTCG as income from other sources and taxed it under Section 56 of the Act. The AO based this decision on two main grounds: first, a portion of the consideration was received before the sale agreement date, and second, no response was received from the entities involved despite notices issued under Section 133(6) of the Act.

In analyzing the situation, the Court noted that a similar transaction involving another shareholder, Mr. Pradeep Sharma, was treated differently, with Mr. Sharma being allowed to claim deduction/exemption under Section 54F of the Act despite receiving part of the consideration before the sale agreement date. This disparate treatment raised questions about the AO's reasoning and application of the law. Moreover, the Court observed that the AO failed to communicate to the petitioner the non-response from the relevant entities to the notices issued under Section 133(6), depriving the petitioner of an opportunity to address this aspect.

Consequently, the High Court set aside the impugned order and granted the AO the opportunity to pass a fresh order after providing the petitioner with a fair hearing. The Court directed the AO to issue a notice to the petitioner for the same, ensuring due process is followed. After the fresh assessment order is passed, the petitioner retains the right to pursue legal remedies within the framework of the law. The writ petition and the pending application were disposed of accordingly, with the parties instructed to comply with the digitally signed copy of the order for further actions.