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2024 (2) TMI 487

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..... have been duly considered and accounted for in the return of income. We completely agree with assessee that there was no error in the assessment order on account of non-inquiry/inadequate inquiry relating to the issue of preferential shares sold during the year. CIT s found the assessment order erroneous for the reason that the assessee did not furnish evidence regarding sale of shares, whether they were sold to the related parties or not, and whether intimation was made to the ROC for the sale of such shares. This was not the anomaly which was noted by him, while exercising jurisdiction under section 263 of the Act, nor do we find, that was ever confronted to the assessee during the revisionary proceedings. Even otherwise no reasoning in CIT s order, as to how the inquiry on the aspect of the shares being sold to the related parties, and/or the intimation of the shares having sent to ROC, would have in any way resulted in the assessment order being erroneous causing prejudice to the Revenue. There is nothing in the ld.Pr.CIT s order pointing out the adverse impact of non-explanation of these two aspects of the sale of unlisted preferential shares on the computation of income .....

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..... ase and in law, the Hon'ble PCIT erred in holding that the assessment order passed is erroneous and prejudicial to the interest of revenue, without considering relevant material and without making enquiry by himself. 2. (a) That on the facts and circumstances of the case and in law, on the issue of Long Term Capital Loss, while holding that the Assessment order is erroneous and prejudicial to the interest of the revenue, the Hon'ble PCIT failed to appreciate that there was no sale of shares with regard to the transaction in question but it is a case of redemption of preference shares of foreign company as submitted by the Appellant in its letter dated 18.3.2023. (b) That on the facts and circumstances of the case and in law, on the issue of Long Term Capital Loss arising on redemption of preference shares of foreign company, the Hon'ble PCIT has erred in holding that the Assessment order is erroneous and prejudicial to the interest of the revenue as the Appellant failed to furnish necessary supportive evidences with regard to sale of preference shares as to whether such shares have been sold to related parties or not. (c) That on the facts and circumstanc .....

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..... he Act. Keeping this core issue in mind, with the consent of both the parties, we proceed to adjudicate the issue forthwith. 3. We have heard both the parties, and have also carefully gone through the documents referred to before us. A perusal of the order of the ld.Pr.CIT reveals that he assumed jurisdiction for revision of the assessment order noting that the AO had failed to make proper inquires with respect to two issues (i) the assessee s claim of loss on sale of preferential shares wherein as per the ld.Pr.CIT the records revealed an anomaly/difference in the value of shares sold by the assessee as reflected in the balance sheet/profit loss account as opposed to that reflected in the computation of income, and (ii) dividend received from foreign company though taxable under the Act but apparently not returned to tax by the assessee and claimed as exempt. These facts find mention at para 2 and 2.1 of the Ld.Pr.CIT s order as under: 2. On perusal of Note No.5 of audited balance sheet for FY 2016-17, it is noticed that assessee had shares of Lambda Therapeutic Research Inc. Canada of Rs. 25,41,93,567/-, however, the assessee has shown the value of such sha .....

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..... Note 5 of audited balance sheet it shows that during the year the Assessee has sold shares valued at Rs. 15,94,39, 522/-, however on verification of Income computation sheet of AY 2018-19, it is noticed that Assessee has declared sales consideration of 'Preference shares not listed' as Rs. 14,77,58,824/-; the Assessee most humbly would like to bring to your notice that the difference of Rs. 1,16,80,699 (15,94,39,522 - 14,77,58,824) refers to the realized forex loss on sale of preference shares of Lambda Therapeutic Research Inc, Canada. The said realized forex loss has been recognized in the profit and loss account and forms part of Note 28 Other expenses under the head 'Net foreign exchange (gain)/loss. 'In support of the same, reference is invited to Note L - Foreign Currency Transactions in Significant Accounting policies provided in the signed financials, wherein it is stated that Exchange differences on settlement are charged to profit and loss Account. The said realized forex loss being capital in nature is disallowed while computing the business income and can be verified from the Statement of total income submitted vide Annexure-1 to submission dated .....

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..... s sold and dividend received from foreign company. His finding in this regard at para-5 to 6 of his order is as under: 5. The submission of the assessee has been considered very carefully but not found tenable. It is noticed that the assessee had sold some preference shares and claimed long term capital loss of Rs. 6,77,68,381/- for the year under consideration. As per audited Balance Sheet, the value shares that assessee has sold during the year is of Rs. 15,94,39,522/-. However, on verification of statement of income for AY 2018-19, submitted by the assessee, it is noticed that assessee has declared sales consideration of 'Preference shares not listed' as Rs. 14,77,58,824/-. The assessee, vide submission filed before me , has explained that the difference in the value of preference shares sold during the year as mentioned above for Rs. 1,16, 80, 699/-(15,94,39,522 - 14,77,58,824) refers to the realized forex loss on sale of preference shares of Lambda Therapeutic Research Inc, Canada and the same has been recognized in the profit and loss account, as the said realized forex loss being capital in nature is disallowed while computing the business income. However the as .....

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..... our attention to the value of the shares sold during the year as appearing in the audited balance sheet and stated that he had no dispute with regard to the same. With regard to the figure of sale consideration of the said preferential shares as listed in the computation income, he drew our attention to the computation of the same as under: 7. Referring to the above, he pointed out that the ld.Pr.CIT had picked up the figure of sale consideration of unlisted preference shares of Rs. 98 lakhs and Rs. 137.93 lakhs and arrived at the figure of Rs. 147.75 lakhs of preferential shares sold during the year. He contended that firstly this figure represented, as is evident from the computation of income reproduced above, only the sale consideration of the shares sold. He stated, therefore, that the ld.Pr.CIT was comparing the cost of preferential shares sold during the year as reflected in the balance sheet of Rs. 159.43 lakhs to sale consideration of these shares at Rs. 147.75 lakhs. He stated that this tantamounted to comparing apples with oranges, and no adverse inference with respect to the assessment order being in any way erroneous for not having examined the issue, the .....

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..... t and that as reflected in the computation of income. The error noted by the ld.Pr.CIT, we find has been arrived at by comparing cost of acquisition of these preferential shares as stated in the Balance Sheet with its sale consideration reflected in the computation of income. This fact clearly comes out from para 2.1 of the ld.Pr.CIT which is reproduced by the ld.Pr.CIT in his show cause notice. We are in complete agreement with the ld.counsel for the assessee that this comparison made by the ld.Pr.CIT for arriving at a finding of error in the assessment order is of no consequence. There could be no comparison between the cost of acquisition and the sale consideration of shares to arrive at any finding of anomaly in the amounts of shares sold by the assessee, as reflected in the audited balance sheet, and as reflected in the computation of income. The ld.Pr.CIT clearly has compared the value of shares sold during the year reflected at cost in the balance sheet with the sale consideration of these shares reflected in the return of income. This comparison, we hold, could not have lead to the finding of any error in the assessment on account of proper inquiry not being done by the .....

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..... r on account of non-inquiry/inadequate inquiry relating to the issue of preferential shares sold during the year. 13. We further note from the ld.Pr.CIT s order that after considering the assessee s explanation, as noted by us above, on the issue, he goes to hold the assessment order erroneous for a totally different aspect of the issue. That is, he found the assessment order erroneous for the reason that the assessee did not furnish evidence regarding sale of shares, whether they were sold to the related parties or not, and whether intimation was made to the ROC for the sale of such shares. This was not the anomaly which was noted by him, while exercising jurisdiction under section 263 of the Act, nor do we find, that was ever confronted to the assessee during the revisionary proceedings. Even otherwise we do not find any reasoning in the ld.Pr.CIT s order, as to how the inquiry on the aspect of the shares being sold to the related parties, and/or the intimation of the shares having sent to ROC, would have in any way resulted in the assessment order being erroneous causing prejudice to the Revenue. There is nothing in the ld.Pr.CIT s order pointing out the adverse impact of non .....

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