2022 (12) TMI 1005 - AT - Income Tax

Capital gain computation - transfer expenses as per Section 48 - Transfer expenses were not incurred wholly exclusively for the purpose of transfer of shares - HELD THAT - In the present case, the service of M/s Signal Hills has been utilized for sale of share s of private limited company shares exclusively; further the payment has been made by banking channel as against the invoice raised by M/s Signal hills. There is nothing on record to suggest or no material brought on record by the A.O. to suggest that that transfer expenses were not incurred wholly exclusively for the purpose of transfer of shares held by the Assessee in companies M/s. Knowlarity Communications Pvt. Ltd. (Singapore) M/s. Knowlarity Communications Pvt. Ltd. (India). On the other hand the Ld. CIT(A) has partly agreed with the Assessee by not doubting the transaction per se. By following the ratio laid down by the Jurisdiction High Court in the case of Kausalya Devi 2018 (4) TMI 1137 - DELHI HIGH COURT we are of the opinion that, the expenses incurred by the Assessee is allowable transfer expenses as per Section 48 of the Act and both the Lower authorities have committed an error in disallowing the expense incurred by the Assessee. - Decided in favour of assessee.

Summary

Issues:
Disallowance of transfer expenses for long term capital gains

Analysis:
The appellant challenged the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of expenses amounting to Rs. 25,92,818 incurred in relation to earning long term capital gains. The Assessing Officer disallowed the expenses, considering them as fees for advisory service and management consulting, not eligible as transfer expenses under Section 48 of the Income Tax Act, 1961. The CIT(A) allowed only a partial amount of Rs. 1,50,000, leading to the present appeal.

The appellant contended that the expenses were paid for seeking management consultancy from M/s. Signal Hill for the transfer of shares valued at Rs. 13,75,84,941. The agreement with M/s. Signal Hill outlined specific duties and responsibilities related to the transaction. The appellant agreed to pay a service fee of 1.83% of the transaction value to M/s. Signal Hill, which was duly paid from the regular bank account. The payment was supported by invoices and the genuineness of the transaction was not doubted by the CIT(A).

The Tribunal referred to Section 48 of the Act, emphasizing that expenditure incurred wholly and exclusively in connection with the transfer of a capital asset is deductible from the consideration received. Citing a judgment by the Delhi High Court, it was noted that authorities cannot question the commercial expediency of expenditure once it has been genuinely incurred and paid. In this case, the services provided by M/s. Signal Hill were exclusively for the sale of shares, and the payment was made through legitimate channels, without any evidence to suggest otherwise.

Consequently, the Tribunal held that the expenses of Rs. 25,92,818 were allowable transfer expenses under Section 48 of the Act. Both the Assessing Officer and the CIT(A) erred in disallowing the expenses, and the appellant's appeal was allowed.