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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 ..... 1.11.2010 and treating the MOU as mere agreement between two parties and an unregistered document. iii) Calculating the Cost of Acquisition of Flat at Market value of the shares while ignoring 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 Rs. 17952000/-. v) Rejecting the circle rate of Rs. 8429300/- of flat as provided by the Appellant without mentioning any sound reason, whereas the sale consideration of flat is Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010, MOU was executed between the assessee-company, M/s. Yashraj Containers Ltd. and M/s. VAS infrastructure Ltd., which was signed 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 Rs. 1,07,00,000/- and booked Long Term Capital Loss of Rs. 1,31,21,677/-. The assessee has taken the cost of acquisition of flat at Rs. 1,80,37,500/- which was 50% of sum of Rs. 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en how and why assessee company had purchased shares @ Rs. 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 Rs. 42,07,500/- on which stamp duty was computed at Rs. 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 Rs. 4,27,50,000/- and sold to M/s. VAS Infrastructure and exchange for demand draft of Rs. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Rs. 91,45,33,060/- which has been reduced during the year to Rs. 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 Assessing Officer shall be deemed to be erroneous in so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ater on a settlement was agreed between the parties, wherein it was agreed that settlement amount is Rs. 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 Rs. 1 crore which was to be paid to the assessee by way of demand draft; and balance amount of Rs. 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 Rs. 1,07,00,000/-. The computation of Long-Term Capital Loss shown by the assessee was in the following manner: Long Term Capital Gain Flat at Mumbai sold on 11.03.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ese 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. Here, the nature of transaction is not an exchange of one asset with the other rather it is a sale of asset in lieu of settlement in which the whole settlement amount has been fixed. In fact, it is akin purchase of two flats from M/s. VAS Infrastructure for total consideration of Rs. 3,60,75,000/- which has been adjusted against the sale of two flats. This fact has also been noted by the ld. CIT in paragraph 2.3. also. Here, it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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