2012 (12) TMI 331 - AT - Income Tax

Tribunal rules entire sale consideration taxable in year of transfer

The ITO-21(1) (2), Mumbai Versus Ms. Indira R. Shete

The ITO-21(1) (2), Mumbai Versus Ms. Indira R. Shete - TMI Issues Involved:1. Deletion of addition made in respect of Long Term Capital Gains.2. Applicability of Section 45(5) of the Income Tax Act.3. Admission of additional evidence by CIT(A) without allowing AO a reasonable opportunity to examine such evidence.Issue-wise Detailed Analysis:1. Deletion of addition made in respect of Long Term Capital Gains:The Revenue appealed against the CIT(A)'s order, which deleted the addition of Rs. 6,19,26,831/- made by the AO concerning Long Term Capital Gains. The assessee had sold shares of UIPL and claimed exemption on the Long Term Capital Gain by investing in Capital Gain Bonds. The AO computed the capital gain tax based on the total consideration of Rs. 20 crores, as per the agreement, attributing Rs. 6.90 crores to the assessee's share. The CIT(A) held that only the initial consideration was received, and the deferred consideration was dependent on future events, hence could not be taxed in the year under consideration. The CIT(A) also noted that the transaction closed in 2009 with a final consideration of Rs. 4.81 crores and that capital gains declared in subsequent years were accepted by the department in other family members' cases.2. Applicability of Section 45(5) of the Income Tax Act:The Revenue contended that the entire consideration of Rs. 20 crores should be taxed in the year of transfer, relying on Section 45(1) of the Act, which deems gains from the transfer of a capital asset to be income of the year in which the transfer took place. The assessee argued that only the received consideration should be taxed, and any future consideration would be covered under Section 45(5). However, the Tribunal noted that Section 45(5) applies only to compulsory acquisitions under any law, not private transactions. The Tribunal emphasized that the entire consideration must be considered in the year of transfer, as per Section 45(1), irrespective of deferred payments.3. Admission of additional evidence by CIT(A) without allowing AO a reasonable opportunity to examine such evidence:The Revenue raised an additional ground, arguing that CIT(A) erred by relying on the Termination Agreement dated 26.3.2009, which was not presented before the AO, violating Rule 46A. The Tribunal acknowledged that CIT(A) admitted additional evidence without giving the AO an opportunity to examine it. Therefore, the Tribunal restored the issue to the AO to verify the Termination Agreement and recompute the capital gains tax liability based on the provisions of Section 45(1), ensuring a fair opportunity for the assessee to be heard.Conclusion:The Tribunal concluded that the entire sale consideration should be taxed in the year of transfer, as per Section 45(1), and not just the received amount. The Tribunal also found that the CIT(A) erred in admitting additional evidence without allowing the AO to examine it. Consequently, the Tribunal restored the issue to the AO for a fresh examination and recomputation of the capital gains tax liability, ensuring compliance with the principles of natural justice and fair play. The appeal filed by the Revenue was allowed for statistical purposes.