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Issues Involved:
1. Whether the CIT(A) was justified in confirming the action of the Assessing Officer under section 143(1)(a) of the Act. Issue-wise Detailed Analysis: 1. Justification of CIT(A) in Confirming AO's Action under Section 143(1)(a): Facts of the Case: The assessee filed an income-tax return for the assessment year 1997-98, declaring a total income of Rs.1,37,98,740, which included capital gains of Rs.1,12,56,915. The capital gains were from the sale of 3069 shares of Hotel Amir Pvt. Ltd. to M/s. Bhojwani Hotels Pvt. Ltd. for Rs.4,59,76,689. The assessee claimed deductions for service charges paid to Dr. Bhojwani (Rs.22,98,334) and a liability of Hotel Amir Pvt. Ltd. (Rs.2.41 crores). The cost of acquisition was taken at the fair market value as of 1-4-1981. The Assessing Officer (AO), while processing the return under section 143(1)(a), disallowed the Rs.2.41 crores deduction, stating it was not an expenditure incurred wholly and exclusively in connection with the transfer of the assets. Arguments by the Assessee: The assessee argued that the Rs.2.41 crores was not claimed as an expenditure incurred wholly and exclusively in connection with the transfer but as a cost of improvement. The value of shares in a private limited company is affected by the liabilities of the company, and by taking over the liability, the value of the shares improved. The assessee cited various case laws to support the claim that if an issue is debatable, it cannot be considered prima facie inadmissible. Arguments by the Department: The Department contended that the total liability of Hotel Amir Pvt. Ltd. should be spread over the entire shareholding of 12,000 shares, not just the 3069 shares sold by the assessee. The note in the annexure did not specify whether the liability was for the cost of acquisition or improvement. The Department also pointed out that the assessee filed a revised return withdrawing the Rs.2.41 crores deduction, indicating the original claim was false. Tribunal's Analysis: The Tribunal noted that under section 143(1)(a), adjustments could be made if the claim was prima facie inadmissible based on the information available in the return. The AO's adjustment was based on the view that the liability was not an expenditure incurred wholly and exclusively in connection with the transfer. However, the assessee's claim was related to the cost of improvement, which the AO did not consider. The Tribunal found that the CIT(A) had exceeded his jurisdiction by considering information not available in the return. The Tribunal emphasized that the issue of cost of improvement is debatable and cannot be decided without further inquiry. The Tribunal referred to the decision of the Madras High Court in the case of V. Ramaswamy Mudaliar, which allowed training expenses on a mare as a cost of improvement. The Tribunal concluded that the AO's adjustment was not justified as the issue was debatable and required further inquiry under sections 143(2) and 143(3). Dissenting Opinion: The Accountant Member dissented, arguing that the claim was prima facie inadmissible due to lack of supporting evidence and clarity in the return. The assessee's note was vague and misleading. The Accountant Member cited various case laws supporting the disallowance of patently inadmissible claims under section 143(1)(a). Third Member's Opinion: The Third Member agreed with the Judicial Member, stating that the issue was debatable and could not be resolved through prima facie adjustment under section 143(1)(a). The Third Member emphasized that the AO should have issued a notice under section 143(2) for further inquiry. Conclusion: The Tribunal, in accordance with the majority view, held that the adjustment of Rs.2.41 crores claimed by the assessee as a liability of Hotel Amir Pvt. Ltd. on transfer/sale of shares to M/s. Bhojwani Hotels Pvt. Ltd. could not be made by the AO while processing the return under section 143(1)(a). The appeal of the assessee was allowed.
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