2012 (2) TMI 507 - AT - Income Tax

Tribunal rules against capital gains assessment based on company land value.

The Tribunal allowed the appeal, ruling that assessing capital gains based on the land value owned by the companies was unjustified. The Tribunal found no ... Capital gains on sale of shares - Imputation of underlying company property value to shareholder for assessment - Assessment by adopting market value of company property - Requirement of evidence to infer undervaluation of share saleCapital gains on sale of shares - Imputation of underlying company property value to shareholder for assessment - Requirement of evidence to infer undervaluation of share sale - Whether the Assessing Officer could compute capital gain on sale of shares by adopting the market value of the company's immovable property and treat that as the assessee's capital gain arising from transfer of shares. - HELD THAT: - The Tribunal found that the assessee had sold shares of private companies and not the companies' immovable property. The Assessing Officer treated the share transfers as transfer of the underlying offices by adopting a DLC rate to arrive at market value of the properties owned by the companies and computed capital gains in the hands of the assessee on that basis. The Court held there is no provision in the Income-tax Act which permits imposition of capital gains on a shareholder by attributing the market value of a company's land or office to the shareholder simply because shares were transferred. If any adjustment is to be made it must be on the basis of the value of the shares themselves or on evidence demonstrating the consideration shown for the share sale was incorrect. No material was placed before the AO to show that the shares were sold below market price. In absence of evidence to justify treating the transaction as transfer of company property or to demonstrate undervaluation of the share sale, the basis adopted by the AO for making the addition was unsustainable. The addition confirmed by the Commissioner (Appeals) was therefore deleted. [Paras 4, 5]The addition made by the AO by imputing value of the companies' properties to compute capital gains in the hands of the assessee was deleted and the appeal was allowed.Final Conclusion: The Tribunal allowed the assessee's appeal for Assessment Year 2006-07, deleted the capital gain addition computed by imputing the companies' property values to the share transfers, and held that absent evidence of undervaluation the AO could not compute capital gain on that basis. Issues:1. Addition in estimating selling price of shares of two companies.2. Assessment of capital gains based on the value of land owned by the companies.Analysis:1. The appeal was against the order of ld. CIT (A) regarding the addition in estimating the selling price of 1100 shares of M/s. Unique Propcon Pvt. Ltd. and 100 shares of M/s. Marudhara Propcon Pvt. Ltd. The AO made an addition of &8377; 1,16,960/- on account of the sale of these shares. The AO computed capital gains based on the market value of the offices owned by the companies whose shares were sold by the assessee. The ld. CIT (A) confirmed the AO's action.2. The Tribunal found that the addition made by the AO and confirmed by ld. CIT (A) was unjustified. The assessee had sold shares of the companies, not the land owned by these companies. The Tribunal emphasized that there is no provision under the IT Act to assess capital gains in the hands of the assessee based on the land or office owned by the company whose shares were transferred. The Tribunal highlighted that any addition should be based on the value of the shares or evidence proving incorrect sale consideration, which was lacking in this case. The Tribunal concluded that the basis for the addition by the AO was incorrect, and hence, the ld. CIT (A) erred in confirming the order. Consequently, the Tribunal deleted the addition made and confirmed.Conclusion:The Tribunal allowed the appeal of the assessee, emphasizing that assessing capital gains based on the land value owned by the companies was not justified. The Tribunal ruled in favor of the assessee, deleting the impugned addition.