2024 (12) TMI 1169 - AT - Income Tax

Disallowance of exemption claimed u/s 10(34A) - AO while computing the assessed income also treated Long Term Capital Gain ( LTCG ) as income from other sources and thus denied benefit of special rate of tax available to LTCG u/s 112 - CIT(A) found merit in the plea of the assessee for wrongful denial of special rate of tax available u/s 112 of the Act towards LTCG arising to the assessee - HELD THAT - CIT(A) has examined the issue threadbare and concluded in favour of the assessee after due consideration of facts and law. In order to avail benefit u/s 10(34A) the conditions therein need to be satisfied which was found to have been met. Thus, based on alleged manipulations on issue price in some earlier concluded years, the benefit of exemption u/s 10(34A) of the Act on transaction recorded in the books and subjected to assessment process in the past, could not be denied by any stretch of imagination. We find no infirmity in the order of the CIT(A) in this regard. Hence, we decline to interfere. Taxation offered by the assessee as LTCG - CIT(A) found the reasoning of the AO that some unaccounted money was converted into legitimate the money as baseless and unfounded. The assessee has not claimed any benefit of exemption u/s 10(38) of the Act on such LTCG and has merely applied special rate of tax @ 20% as prescribed u/s 112 at LTCG. The purchase transactions carried out in the earlier years could not be disturbed in a subsequent year to deny the concessional rate of tax claimed by the assessee as available under the provisions of the Act. The findings of the Ld.CIT(A) in our view, is based on sound footing and thus, does not call for any interference. The appeal of the Revenue is thus, liable to be struck down on both counts.

Summary

Issues Involved:

1. Denial of exemption under Section 10(34A) of the Income Tax Act.
2. Assessment of Long Term Capital Gains (LTCG) under Section 112.
3. Validity and jurisdiction of the assessment proceedings.

Issue-wise Detailed Analysis:

1. Denial of Exemption under Section 10(34A):

The primary issue in this case was whether the assessee was entitled to claim an exemption under Section 10(34A) of the Income Tax Act for the profits earned from a buyback of shares. The Revenue contended that the exemption was incorrectly allowed by the Ld. CIT(A) since the buyback transaction occurred after the introduction of Sections 115QA and 10(34A), and the company buying back its shares had not paid distribution tax under Section 115QA. The Assessing Officer (AO) had disallowed the exemption on the grounds that the original allottees of the shares were non-existent and the transactions were a means to convert unaccounted money into legitimate funds. However, the Ld. CIT(A) found that the transactions were legitimate and within the purview of tax planning as supported by the Supreme Court's decision in Azadi Bachao Andolan. The Tribunal upheld the Ld. CIT(A)'s decision, noting that the conditions for exemption under Section 10(34A) were met and there was no violation of the provisions. The Tribunal found no infirmity in allowing the exemption, dismissing the Revenue's appeal on this count.

2. Assessment of Long Term Capital Gains (LTCG) under Section 112:

The second issue was the taxation of LTCG amounting to INR 1,63,92,653/-. The AO had treated these gains as income from other sources, alleging that the transactions were sham and aimed at converting unaccounted money into legitimate funds. The Ld. CIT(A) disagreed, noting that the assessee had not claimed an exemption under Section 10(38) for these gains but had instead opted for a special tax rate under Section 112. The Tribunal affirmed the Ld. CIT(A)'s decision, concluding that the AO's reasoning was unfounded and the LTCG should be taxed at the concessional rate as claimed by the assessee. The Revenue's appeal was thus dismissed on this issue as well.

3. Validity and Jurisdiction of the Assessment Proceedings:

The assessee had filed a cross-objection challenging the validity of the assessment proceedings, claiming that the assessment was void ab initio due to non-compliance with Section 143(2) of the Income Tax Act. However, during the hearing, the assessee's counsel conceded that these objections need not be adjudicated if the Tribunal found no merit in the Revenue's appeal. Consequently, with the dismissal of the Revenue's appeal, the cross-objection by the assessee was deemed infructuous and dismissed.

Conclusion:

In conclusion, the Tribunal dismissed both the Revenue's appeal and the assessee's cross-objection. The Tribunal upheld the Ld. CIT(A)'s decision to allow the exemption under Section 10(34A) and the application of the special tax rate under Section 112 for LTCG, finding no legal basis for the Revenue's challenge. The order was pronounced in open court on December 20, 2024.