2011 (9) TMI 1010 - AT - Income Tax

ITAT rules on market value exclusion for business loss computation.

Cura Finstock Pvt. Ltd., Baroda. Versus ACIT, Cir. 1 (1) Baroda

The Income Tax Appellate Tribunal (ITAT) allowed the assessee's appeal, holding that the market value of shares should not be considered for computing ... Sale of shares - adoption of share value - Held that:- We find that the identical issue is considered by the ITAT ‘B’ Bench, Ahmedabad in the case of Allure Investments & Finance Pvt. Ltd. Vs. ACIT, [ 2011 (8) TMI 1085 - ITAT AHMEDABAD] wherein the shares of the same company i.e. Market Creators were sold by the assessee on the same date i.e. 10-2-2004 at the rate of Re.0.26per share. The AO re-worked the loss applying the sale rate of ₹ 1.52 per share as per the quotation of BSE on 9-2-2004. Admittedly, the facts of the assessee’s case are identical because the assessee has sold the shares of the same company on the same date and in fact at a better price than the Allure Investments and Finance Pvt. Ltd. The assessee sold the shares at Re.0.79 per share while Allure Investments & Finance Pvt. Ltd. had sold the shares at Re.0.26 which was held to be reasonable by the ITAT. In view of the above, we respectfully following the above decision of the ITAT direct the AO to accept the loss as disclosed by the assessee. Issues:- Computation of business loss on sale of shares based on market value.- Interpretation of Section 48 of the Income Tax Act, 1961 for capital gain calculation.Analysis:1. Computation of Business Loss: The appeal involved a dispute regarding the computation of business loss claimed by the assessee on the sale of shares. The Assessing Officer re-calculated the loss based on the market value of the shares, resulting in a reduction of the claimed loss. The CIT(A) upheld this decision, leading to the appeal by the assessee.2. Interpretation of Section 48: The ITAT considered the interpretation of Section 48 of the Income Tax Act, 1961, which outlines the method for calculating capital gains. The ITAT referred to a previous case involving similar circumstances where the market value of shares was in question. The ITAT emphasized that Section 48 does not require consideration of market value for computing capital gains, but rather focuses on the consideration received for the transfer of the capital asset. The ITAT highlighted a judgment of the Hon'ble Gujarat High Court, which clarified that the sale consideration received or accrued should be used for capital gain computation, without necessitating a reference to the market value of the asset.3. The ITAT further explained that the type of capital asset, whether quoted shares or landed property, does not alter the legal position regarding capital gain computation under Section 48. The ITAT rejected the argument that market value should be considered, emphasizing that the law mandates using the actual consideration received for the transfer of the asset. The ITAT also distinguished cases of tax planning or avoidance, stating that the facts of the present case did not indicate any deliberate tax evasion.4. In light of the above analysis and considering the identical nature of the case with a previous judgment, the ITAT directed the Assessing Officer to accept the loss as disclosed by the assessee. The ITAT concluded that the sale price at which the shares were transferred by the assessee should be the basis for computing the business loss, in accordance with the provisions of Section 48 of the Income Tax Act, 1961.5. Ultimately, the ITAT allowed the assessee's appeal, emphasizing the importance of following legal provisions for capital gain computation and rejecting the use of market value as a basis for determining losses on the sale of shares.