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TMI Blog2002 (1) TMI 291X X X X Extracts X X X X X X X X Extracts X X X X ..... sed prior to such date. A note was appended below the computation of capital gains stating that the shares were sold under purchase agreement dated 26-5-1996. It was further stated that the assessee had entered into a family settlement agreement dated 6-5-1996 whereby the assessee was required to pay off the liability amounting to Rs.2.41 crores of Hotel Amir Pvt. Ltd. on transfer/sale of shares to M/s. Bhojwani Hotels Pvt. Ltd. and was entitled for net consideration after such payment. It further stated that an opportunity be given to him to compute the capital gains based on the market value of the shares as on 1-4-1981 as per the provisions of section 55(2)(b) of the Act. The Assessing Officer while processing the return under section 143(1)(a) made an adjustment by disallowing the claim of the assessee amounting to Rs.2.41 crores for the reasons given by him in para 2 of the separate sheet enclosed to the intimation sheet. The said para 2 is reproduced as under: "The mode of computation of capital gains is provided under section 48 of the Income-tax Act. Under section 48 besides cost of acquisition of the asset and cost of improvement thereto, expenditure incurred wholly an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that this was the only reason for making adjustment while processing the return. He then drew our attention to the Annexure to show that the assessee had never claimed deduction of Rs.2.41 crores on account of expenditure incurred wholly and exclusively in connection with the transfer of shares. He drew our attention to the provisions of section 48 to contend that the deduction is referable to the cost of improvement. According to him, the value of shares in a private limited company would vary on the basis of increase or decrease in the liability of the company. He also drew our attention to Rule 1-D of the Wealth-tax Rules which provides the principle for valuing the unquoted shares on the basis of break-up method, According to this rule, the total liability of the company are deducted from the total value of the assets and the balance amount is divided by the total number of shares of the company. According to this formula, if the liability of the company is taken away, then definitely, the value of the shares would go up. Therefore, there was definitely improvement in the value of the shares by taking over the liability of the company. According to him, if the assessee had not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... culars of the claim are given by the assessee. He referred to Form No. 3, in which return is filed, which provides for various requirements in connection with the income arising as capital gains. According to him, the assessee must point out the details of deduction i.e. whether it is cost of acquisition or cost of improvement or the expenditure incurred wholly and exclusively in connection with such transfer of the asset. Lastly, he drew our attention to the revise return filed by the assessee withdrawing the deduction of Rs.2.41 crores. It was pointed out by him that in the revised return this liability has been taken against the sale of shares belonging to his sons. According to him, the assessee made a false claim in the original return. 6. In reply, the learned counsel for the assessee seriously objected to the reference of the revised return filed much after the orders of the lower authorities i.e. 31-3-1999 and could not be taken into consideration as it was not a part of the return on the basis of which the adjustment was made by the Assessing Officer. Alternatively, it was contended by him that in the revised return the assessee had not give up his original claim. In thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional information. Therefore, we have to restrict ourselves to the information available before the Assessing Officer. In these premises, it is not permissible for us to consider either the material produced before us for the first time by the learned counsel for the assessee or revised return filed by the assessee recently on 31-3-1999 to which our attention was invited by the learned D.R. since all these materials were not available in the original return. Therefore, we will restrict ourselves to the statement of the income along with the Annexure filed by the assessee along with the return as held by the Bombay High Court in the case of Khatau Junkar Ltd. 8. In the present case, the return was accompanied by all papers which included 7 TDS certificates, two advance-tax challans and two papers relating to computation of total income as mentioned above. The statement of the total income refers to the computation of various incomes under various heads. We are only concerned with the income falling under the head 'Capital gains'. Under this head, the assessee has computed the capital gains at Rs.1,12,56,915 the details of which are given in Annexure 'A'. For the benefit of ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in connection with the transfer of assets. It has never been the claim of the assessee that the liability taken over by the assessee was the expenditure incurred wholly and exclusively in connection with the transfer of shares. If that is so, then the Assessing Officer was not justified in making the adjustment since the only reason given by him was that taking over of the liability could not be considered as expenditure incurred wholly and exclusively in connection with the transfer of shares. No other reason has been given by him. He has not considered the claim of the assessee, vis-a-vis the cost of improvement. Therefore, the adjustment made by him for the reasons given by him in his order cannot be upheld. 10. As far as the order of the CIT(A) is concerned, he has rejected the claim of the assessee vis-a-vis the cost of improvement by holding that the assessee would have received more consideration if he had not taken the liability of Amir Hotels Pvt. Ltd. In coming to this conclusion, he has taken into consideration the entire shareholding of Amir Hotels Pvt. Ltd. i.e. 12000 shares held by the entire family of the assessee as well as entire sale consideration of 12000 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unquoted equity share for the purposes of this Act." In view of the above principle, the value of shares would vary according to the quantum of assets and liabilities. Lesser the liabilities more the value of shares is the principle in short. This is also the criteria in the commercial world for valuing the unquoted shares. Therefore, the contention of the learned counsel for the assessee that by taking over the liability of Amir Hotel, the value of shares improved cannot be brushed aside. If such liability had not been taken the shares could not have been sold at a higher price. In other words, it can be said that if such liability had not been taken over then the consideration would have been received lesser at least by Rs.2.41 crores. It is also apparent from the note in Annexure 'A' that there was a dispute between the family members which was resolved on 6-5-1996 and under the settlement the assessee was compelled to takeover such liability. That means the shares could not have been sold unless the family dispute was settled. It was a case of a change of management which could not have been affected unless the family disputes were settled. Therefore, on the face of it, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laim of the assessee was not prima facie inadmissible. The order of the CIT(A) is therefore, set aside and the adjustment made by the Assessing Officer and sustained by the CIT(A) is hereby deleted. Consequently, the levy of additional tax is also cancelled. 14. In the result, the appeal of the assessee is allowed. Per Shri B.L. Chhibber, Accountant Member: 15. Regretting my inability to persuade myself to the view taken in the order of my learned Brother, I proceed to write a dissenting order. 16. The vital issue before this Tribunal is whether the sum of Rs.2.41 crores claimed by the assessee as liability of M/s Hotel Amir Pvt. Ltd. is prima facie disallowable under section 143(1)(a) of the Act. It is settled position that under section 143(1)(a) only those sums can be disallowed, which on the basis of information available in the return or in the accounts are prima facie inadmissible. The assessee was one of the shareholders of M/s. Hotel Amir Pvt. Ltd. - a closely-held company. He was holding 3069 shares of the said company. However, other shares of the said company were held by two sons of the assessee and other relatives. According to the assessee, there was a dispute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crores either in clause (i) or (ii) of section 48 of the Income-tax Act. The facts of the case thus reveal that the appellant in the guise of family settlement has claimed unjustified deduction for a non-tax deductible item that too not of his own, but of a company of which he was one of the shareholders." 18. It is an admitted fact that the assessee did not file a copy of the settlement deed dated 6-5-1996 along with the return before the Assessing Officer. It has also not been filed before this Tribunal. Before this Tribunal, the assessee has filed a copy of application for recording a settlement reached between the parties and disposal of the Company Petition (pages 31 to 38 of the paper book). From the perusal of these documents, it is noted that it was signed by the parties to the settlement on 26-5-1996 i.e., on the very date of sale of shares of M/s Amir Hotels Pvt. Ltd. to M/s Bhojwani Hotels Pvt. Ltd. It is also an admitted fact that a copy of this application was also not filed along with the return of income and accordingly it was not before the Assessing Officer at the time of passing the order under section 143(1)(a) of the Act. The Company Law Board approved the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer can disallow a claim for deduction if he is satisfied, on the basis of the material which is before him, that the assessee is not entitled to such a deduction. In the instant case, the only material before the Assessing Officer was a note given by the assessee reproduced by my learned Brother as already pointed out above. It was a vague/dubious note and it was made for hoodwinking the Department. In fact, in this case, the Assessing Officer has been vigilant enough in not taking the said note on its face value and rightly saw through the game of the assessee to hoodwink the Department. The fact that the claim was a bogus one is further established by assessee's conductin filing the revised return on 31-3-1999 (i.e. after the intimation was sent to him) withdrawing the deduction of Rs.2.41 crores. This vital fact cannot be ignored and this clearly shows that in the note appended to the return of income a patently inadmissible claim had been made. In the case of Singareni Collieries Co. Ltd. v. Dy. CIT[1995] 52 TTJ (Hyd.) 311, the Hon'ble Hyderabad Bench 'B' of ITAT have held that the claim, which is patently inadmissible, can be disallowed by way of prima facie adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tually incurred by the assessee, the assessee had merely taken over the liability of Hotel Amir Pvt. Ltd. It is also pertinent to note that the assessee assumed the entire liability of Rs.2.41 crores while his holding was only of 3069 shares out of the total family holding of 12000 shares of Hotel Amir Pvt. Ltd. 21. I do agree with the arguments of the learned counsel Shri Pathak and the observations of my learned Brother that a debatable issue cannot be the subject matter of prima facie adjustment under section 143(1)(a) but in this case, where is the debatable issue? The only issue before this Tribunal is whether the deduction, the nature of which is not even clear to the assessee and which deduction on the face of it was contrary to the provisions of law; as the same was not supported by any evidence documentary or otherwise and which deduction later on was withdrawn by the assessee by way of a revised return could be allowed while finalising intimation under section 143(1)(a). In my considered opinion, the claim of Rs.2.41 crores was a dubious claim made to hoodwink the Assessing Officer and the Assessing Officer while framing the assessment, under section 143(1)(a) rightly d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 3. Adverting to the provision of section 48 of the Act, Dr. Pathak described that there is no mandate in the section to furnish all the relevant informations connected with the claim along with the return of income. Reference was made to the decision of the jurisdictional High Court rendered in the case of Khatau Junkar Ltd. The Hon'ble High Court has held at page 59 as under: "In the absence of any specific provision in the Income-tax Act which disallows a deduction because a specific document specified in that section is not annexed to the return, the ITO cannot, under clause (iii) of the proviso to section 143(1)(a), disallow a claim or a deduction merely because, in his view, adequate evidence in support of such a claim or deduction is not before him." The aforesaid remark was made by the Hon'ble High Court in the context of claim in regard to which it is not obligatory on the part of assessee to furnish the evidence, and document along with the return. However, where the statute or rules requires furnishing of certain details and documents, the non-furnishing of such details or documents would disentitle the assessee to make the claim and it would be open for the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ified. If a deduction has been claimed under the head capital gains under section 54F, and if there is information in the return of income or the accompanying accounts or documents to show that the unutilised net consideration had not been deposited in an account specified in the notified scheme as stipulated under section 54F(4), prima facie adjustment is possible for making the disallowance. 5. In the present case, the assessee made the claim under section 48. Originally, it was said to be under section 48(ii). Alternately it was stated that it could be allowed under section 48(i) also. 6. Stating compendiously the requirement for filing the revised return, Dr. Pathak submitted that it was filed Ex Abundanti Cautela, the assessee alternatively claimed that in this deal he incurred a short-term capital loss of Rs.2.41 crores. This was without prejudice to the assessee's main stand in the original return. The Note appended along with the revised return was placed before me. On that basis, it was submitted that the observation of the learned Accountant Member that the assessee withdrawn the deduction by way of revised return was not correct. 7. I have also examined the Note wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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