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TMI Blog2019 (1) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... tant loss subject to indexation would be Rs.(-)3,38,80,000/-. For the second transfer (of flats), the computation of capital gain would be full value of consideration of the flat price in which it has been sold is ₹ 1,07,00,000/- and if the cost of acquisition as determined by the ld. CIT is ₹ 10,97,500/-, then the resultant capital gain would be ₹ 96,02,500/-. Thus, in this year there would be capital loss on sale of shares of ₹ 3,38,80,000/- and capital gain of ₹ 96,02,500/-, resultantly, there would be a Long- Term Capital Loss. Hence it cannot be held that it is prejudicial to the interest of revenue. Thus we hold that the order of the ld. CIT cannot be sustained, as the assessment order accepting the claim of Long-Term Capital Loss by the AO is not prejudicial to the interest of revenue as the assessee has rightly taken the cost of acquisition as per the actual consideration settled by the parties at the time of acquisition of flat. The reason being that it is not in dispute that the flat has not been acquired under the settlement but by some other means for which the cost of acquisition of the flat needs to be determined. The price of acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the vital facts that settlement was made after filing of four suits and four complaints to recover the money. iv) Ignoring and not finding any infirmities in the valuation Report from Registered Valuer which provides the Fair Market Value of Flat at ₹ 17952000/-. v) Rejecting the circle rate of ₹ 8429300/- of flat as provided by the Appellant without mentioning any sound reason, whereas the sale consideration of flat is ₹ 1.07 Crores. Therefore, the Provisions of Sec. 50C has been fully complied by the Appellant. vi) Initiating/ Applying the provisions of Sec. 14A of the Income Tax Act, 1961 and without appreciating that Principle of Apportionment of Expenditure is not applicable as Appellant has not earned any Exempt income. vii) Violating the settled principle that where the AO adopted one of the courses permissible in law or where two views are possible and he has taken one view with which the Commissioner does not agree, it cannot be treated that the assessment order is erroneous so as to be prejudicial to the interest of revenue unless the view taken by AO is unsustainable in law. B. Without prejudice above, the order U/s 263 da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned and registered in the office of Sub-Registrar. The Hon'ble Calcutta High Court in the suit filed by the assessee against M/s. Yashraj Containers Ltd. (in suit no.105/2008) had duly acknowledged that the disputes have been settled between the parties and the plaintiff does not wish to pursue suit. During the year under consideration, the assessee company has sold one of the flat for a total consideration of ₹ 1,07,00,000/- and booked Long Term Capital Loss of ₹ 1,31,21,677/-. The assessee has taken the cost of acquisition of flat at ₹ 1,80,37,500/- which was 50% of sum of ₹ 3,60,75,000/- which as per the settlement/MOU was the value of the flats transferred to the assessee. In view of the settlement agreement, the ld. Assessing Officer in his order passed u/s.143(3) dated 20.06.2016 has accepted the computation of Long-Term Capital Loss. 5. Later on, the ld. CIT in his revisionary jurisdiction, noted the following facts after examining the assessment records:- During the year under consideration, the assessee has sold a flat at Mumbai for a total sale consideration of ₹ 1.07 Crores. The assessee has submitted that the flat was acquired ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urchased shares @ ₹ 95 per share. He also noted that when this company was already going in BIFR then why the assesseecompany would apply for the shares on such huge premium. He also observed that if one of the flat admeasuring 935 sq. ft. carpet area and two parking spaces which was sold and allotted to the assessee was assessed at the market value for the purpose of stamp duty at ₹ 42,07,500/- on which stamp duty was computed at ₹ 1,93,000/-, then under what circumstances M/s. VAS Infrastructure has agreed to transfer two flats and two parking spaces on 01.10.2010 without receipt of any proper consideration. He held that here in this case there are two distinct transactions, firstly, transfer of 4,50,000 equity shares of M/s. Yashraj Containers Ltd. acquired by assessee company for ₹ 4,27,50,000/- and sold to M/s. VAS Infrastructure and exchange for demand draft of ₹ 1 crore and two flats with four parking spaces which amounts to transfer u/s.2(47) in view of the judgment of Hon'ble Kerala High Court in the case of CIT vs. P.P. Thomas, 235 ITR 191; and secondly, transaction of sale of two flats, out of which one flat was sold in the financial yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nclusion which is erroneous in so far as it is prejudicial to the interest of revenue. 8. Another point raised by him was that assessee has invested fund in the shares of group companies which is evident from the fact that opening balance of the inventory was ₹ 91,45,33,060/- which has been reduced during the year to ₹ 78,01,58,060/-. The Assessing Officer has not examined the applicability of Section 14A read with Rule 8D, and therefore, to this extent also assessment order is erroneous. The relevant observation and the finding of the Ld. CIT reads as under: 3.1 I have considered the facts of the case. Earning of exempt income in the impugned year is not a pre-requisite for making the disallowance u/s.14A of the Act. The CBDT vide Circular No. 5/2014 dated 11.02.2014 in exercise of its powers under section 119 of the Act has clarified that Rule 8D r/w section 14A of the Act provides the disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income. Further, such disallowance can be made even if the shares are held as stock in trade. Explanation 2 to section 263 of the Act also provides that an order passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... minal cases against M/s. Yashraj Containers. It is also not disputed that later on a settlement was agreed between the parties, wherein it was agreed that settlement amount is ₹ 4,60,75,000/- and the said 4,50,000 equity shares were sold to M/s. VAS Infrastructure, and the consideration was in two parts, one was ₹ 1 crore which was to be paid to the assessee by way of demand draft; and balance amount of ₹ 3,60,75,000/- was to be adjusted against sale of two flats with four parking spaces in a building in Borivali (West) Mumbai. This agreement was duly acted upon by the parties. After the registration of the aforesaid two flats, the assessee withdrew all the civil suits and criminal complaints. Thus, two flats acquired by the assessee was under the settlement process and by way of MOU executed between the assessee-company, M/s. Yashraj Containers and M/s. VAS infrastructure Ltd. This factum of settlement of dispute has also been admitted by the parties before the Hon'ble Calcutta High Court. One of the flats was sold in the year 2011-12 and another was sold in this year for sum of ₹ 1,07,00,000/-. The computation of Long-Term Capital Loss shown by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... odged civil suit and criminal complaints for misrepresentation by M/s. Yashraj Containers for allotting the share at such a higher price concealing the various facts. This factum of concealment by Yashraj has been acknowledged by the Hon'ble Calcutta High Court also wherein the Hon'ble Court has acknowledged that the defendant had concealed the factum of reference to the BIFR from the plaintiff. The assessee has sold these shares to M/s. VAS Infrastructure on the same amount in lieu of allotment of the flats. There is no co-relation between the share price of M/s. Yashraj Containers and the amount settled between the parties. Even if it is to be accepted that the value of the flat could have been less then also one has to keep in mind that the assessee was virtually on the verge of suffering loss of the whole of the amount and if assessee could recover some of the amount in the form of an asset (here flats), then it is wholly a decision of the assessee company which cannot be judged by the Department. Once, the authenticity and genuineness of the Settlement Agreement and MOU has not been disputed, then terms of consideration agreed between the parties cannot be questioned. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cquisition of flat. The reason being that it is not in dispute that the flat has not been acquired under the settlement but by some other means for which the cost of acquisition of the flat needs to be determined. The price of acquisition under the facts and circumstances cannot be changed at all and accordingly the resultant computation of capital gain would result in Long Term Capital Loss which has rightly been allowed by the Assessing Officer. 15. In so far as observation of the ld. CIT that the Assessing Officer has not made disallowance u/s.14A, it has been admitted by both the parties that there was no dividend income earned by the assessee which has been claimed as exempt, and therefore, there would be no triggering factor of disallowance under section 14A in view of the judgment of Hon'ble Delhi High Court in the case of Cheminvest Ltd vs. CIT [2015] 378 ITR 33 (Del.) 16. Thus, on merits, we hold that assessment order may be termed as erroneous as he may not have conducted detailed inquiry on the points raised by him, but it cannot be held that such an assessment order is prejudicial to the interest of revenue and therefore in one of the condition is not satisfie ..... 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