2023 (8) TMI 819 - AT - Income Tax

LTCG on sale of listed share - increase in sale consideration of Shares - HELD THAT - The share price of M/s Axis IT T Limited was Rs. 11.21/- per share on the date of signing the term sheet on 30.11.2007 showing share price from the website moneycontrol.com. Payments were made as per agreement to sell and the same is verifiable from the bank statements. It is crystal clear that the transaction was an off market transaction of listed shares held by the assessee as an investment in its balance sheet and assessee has entered into a share purchase agreement on 11.01.2008 and the transfer of shares actually took place on 28.4.2008 and consideration of the shares was taken Rs. 13.50 per share i.e. the price prevailing on the date of share purchase agreement. As per clause B of the aforesaid agreement the sellers are inter alia the owners of 12,113,184 fully paid up equity shares, representing 60.69% of the issued, subscribed and paid up equity shares capital of the company as more fully specified in Annexure-A. They have an absolute right to sell the shares, free from all liens, charges and encumbrances. Therefore, it is established that the adoption of value by the AO as on the date of transfer was only a hypothetical value i.e. the price as on 28.4.2008. Hence, the resulting addition is not tenable. It is settled law that full value of consideration used in section 48 does not have any reference to market value but only to consideration referred to in sale deeds as sale price of assets which have been transferred, as laid down in the case of CIT vs. Gillanders Arbuthnot Co. ( 1972 (9) TMI 13 - SUPREME COURT ) It is settled law that an agreement always has to be taken to be correct if the assessee has acted in bonafide manner, unless AO has brought evidence on record that it is fraudulent. In this case the Revenue has not been able to establish malafide on the part of the assessee. We note that decision of SA Builders Ltd. 2006 (12) TMI 82 - SUPREME COURT wherein, it has been held that AO cannot step in the shoes of the businessman and decide as to how affairs of business were to be run and wasteful or excessive expenditure was to be curtailed is very much applicable in the case of the assessee, as the lower authorities have ignored the principle as laid down above. Lower authorities have been completely wrong in making and sustaining the addition on account of increase in sale consideration of shares, which needs to be deleted. Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the order dated 12.02.2020 passed by the Ld. CIT(A) is erroneous and bad in law.
2. Whether the Ld. CIT(A) erred in sustaining the addition of Rs. 1,07,66,220/- made by the AO on account of increase in sale consideration of shares.

Summary:

Issue 1: Erroneous and Bad in Law Order
The appellant argued that the order passed by the Ld. CIT(A) was erroneous and bad in law. The Tribunal reviewed the case facts, noting that the assessee company declared Long Term Capital Gain (LTCG) from the transfer of shares sold on 28/4/2008 at Rs. 13.50 per share, while the market rate was Rs. 20.50 per share. The AO questioned the valuation method and concluded that the full value of consideration should be Rs. 20.50 per share, leading to an addition of Rs. 1,07,69,220/-. The Ld. CIT(A) upheld this addition.

Issue 2: Addition of Rs. 1,07,66,220/- on Sale Consideration of Shares
The Tribunal examined whether the addition of Rs. 1,07,66,220/- was justified. The assessee contended that the sale price was based on an agreement dated 11.01.2008, where 60.69% shareholders agreed to sell their holdings at Rs. 13.50 per share, complying with SEBI regulations. The Tribunal noted that the transaction was an off-market deal, and the consideration was as per the agreement, not the market price on the transfer date. The Tribunal referenced multiple case laws, including CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC), which established that the full value of consideration in section 48 refers to the consideration in the sale deed, not the market value. The Tribunal found no evidence of malafide intent or fraud by the assessee.

The Tribunal concluded that the adoption of the share value by the AO was hypothetical and not tenable. The addition of Rs. 1,07,66,220/- was deemed incorrect, and the appeal was allowed.

Conclusion:
The Tribunal held that the lower authorities erred in making and sustaining the addition of Rs. 1,07,66,220/-. The appeal of the assessee was allowed, and the addition was deleted. The order was pronounced on 14th August 2023.