1990 (4) TMI 93 - AT - Income Tax

Issues Involved:
1. Deletion of addition on account of understatement of purchase consideration of shares.
2. Acceptance of assessee's contentions and rejection of documentary evidence by CIT(A).
3. Ignoring the transfer of shares at face value shortly before the assessee's purchase.

Detailed Analysis:

1. Deletion of Addition on Account of Understatement of Purchase Consideration of Shares:
The Revenue's appeal contested the deletion of an addition of Rs. 81,989 made by the ITO due to the alleged understatement of purchase consideration of shares of Angoora Wool Combers (P) Ltd. The shares were claimed to have been purchased at Rs. 8 per share by the assessee, while the Revenue asserted that the face value was Rs. 100 per share. The ITO had calculated the value per share at Rs. 149.36, leading to the addition. However, the CIT(A) deleted this addition, accepting the assessee's version of the purchase price.

2. Acceptance of Assessee's Contentions and Rejection of Documentary Evidence by CIT(A):
The CIT(A) was criticized for accepting the assessee's contentions and disregarding detailed facts and documentary evidence gathered during search operations. The assessee argued that the company was heavily indebted and non-operational, justifying the low purchase price. The CIT(A) found these arguments credible, noting that the company's financial distress and inability to start production supported the lower valuation of shares. The balance sheet as of 31st Dec., 1980, showed significant liabilities and minimal assets, reinforcing the assessee's position.

3. Ignoring the Transfer of Shares at Face Value Shortly Before the Assessee's Purchase:
The Revenue highlighted that shares were transferred at Rs. 100 per share to family members of J.C. Gupta shortly before the assessee's purchase, questioning the substantial drop in value. However, the Tribunal noted that the ITO's computation of share value at Rs. 149 per share was based on an inflated valuation of the company's land and machinery, which was not justified given the company's non-operational status and financial troubles. The Tribunal found no evidence to support the Revenue's claim and upheld the CIT(A)'s decision.

Additional Considerations:

Assessment and Reassessment:
The Tribunal observed that the ITO's reassessment in the case of J.C. Gupta, which valued the shares at Rs. 149 per share, was not upheld by the CIT(A) in New Delhi, who determined the sale consideration at Rs. 139 per share. This inconsistency further weakened the Revenue's position.

Prosecution Proceedings:
The Tribunal noted that prosecution proceedings initiated against the J.C. Gupta Group were stayed by the Delhi High Court, and the Revenue's evidence related to these proceedings was deemed irrelevant to the current case.

Conclusion:
The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition of Rs. 81,989 and rejecting the Revenue's arguments. The Tribunal emphasized that the assessee's version of the purchase price was credible and supported by the company's financial condition and the lack of substantive evidence from the Revenue.

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