2013 (12) TMI 958 - AT - Income Tax

Tribunal Upholds Capital Gains Tax on Share Sale by Hindu Undivided Family

The Tribunal upheld the addition of long-term capital gains tax on the sale of shares by the Hindu Undivided Family to DLF Retail Developers Limited. The ... Long term capital gain on sale of shares – Assessee contended that in the case of the assessee since all the MOU were cancelled and the sale consideration kept in the Escrow account had been appropriated by DRDL, therefore no transfer can be said to have taken place. - Held that:- The transfer of shares is complete in all respects from the assessee to the DRDL as there is extinguishment of rights of the assessee over the concerned shares - The conduct of the parties in executing the transfer forms by the sellers in favour of the buyer recording of transfers in the share certificates and books of accounts of the respective companies and the annual return filed before ROC clearly demonstrate that the intention of the assessee was to transfer the shares to the buyer DRDL for a consideration and the transaction is complete on delivery of share certificates and executing the instrument of transfer - In pursuance to the transfer of shares, control and management of all 13 companies were handed over to the buyer DRDL - Not only there are entries in the books of accounts of the transferor companies and transferee company but all other formalities under the provisions of the companies Act, 1956 like execution of instrument of transfer, recording of transfer in share certificates handing over the share certificates, books of accounts, all other records and documents as well as control and management of the companies have been carried out which proves that there is transfer of shares to the buyer DRDL - There was an extinguishment of assessee's rights over the shares – Decided against assessee. Advance from several persons – Held that:- The assessee failed to explain the deposits by furnishing the names and addresses, amounts received etc., and even confirmation letters were also not produced by the assessee - Before the CIT (A), the assessee submitted that the sum was refund of advance previously made and has been duly disclosed in the books of accounts – The assessee failed to substantiate his claim – The issue was restored for fresh adjudication. Unsecured loan taken – Held that:- The assessee has failed to furnish any evidence to prove the source of creditor's past savings – The assessee has not submitted PAN and Bank statement of the creditor before the lower authorities - The assessee has submitted the PAN and bank statement of loan creditor before the CIT (A) - The CIT (A) has confirmed the addition without considering the evidences submitted by the assessee – The issue was remitted back to the file of the Assessing Officer for fresh adjudication after taking into account the evidences produced by the assessee. Issues Involved:1. Charging of long-term capital gains on the sale of shares.2. Addition of unexplained credit of Rs. 19,58,156.3. Addition of Rs. 5 lakhs as unexplained cash credit.Issue-wise Detailed Analysis:1. Charging of Long-Term Capital Gains on Sale of Shares:The primary issue revolves around whether the assessee transferred shares to M/s. DLF Retail Developers Limited (DRDL) and if such a transfer is liable for long-term capital gains tax. The assessee, a Hindu Undivided Family (HUF), filed its return for the assessment year 2009-10 declaring an income of Rs. 8,51,090. However, the Assessing Officer (AO) noticed that the assessee had entered into a transaction of selling shares to DRDL, which was not reflected in the return filed. The AO issued a show cause notice to the assessee, who argued that no capital gains accrued due to several reasons, including the conditional nature of the sale and the non-receipt of consideration.The AO rejected these arguments, noting that the Memorandum of Understanding (MOU) dated 23-05-2008 indicated the transfer of shares and the completion of all formalities, including the delivery of share certificates and the transfer of management to DRDL. The AO thus held the assessee liable for long-term capital gains of Rs. 58,69,95,045.On appeal, the CIT (A) upheld the AO's decision, stating that the transfer of shares was complete and final, as evidenced by the MOUs and the registration of the transfer with the Registrar of Companies (ROC). The CIT (A) referred to various legal precedents, including the Income-tax Appellate Tribunal's decision in Max Telecom Ventures Ltd. v. Asstt. CIT, which supported the view that the transfer of shares was complete upon the execution of the MOU and the delivery of share certificates.The Tribunal confirmed the CIT (A)'s findings, emphasizing that the transfer of shares was complete as per the provisions of Section 2(47) of the Income Tax Act, 1961. The Tribunal noted that the intention of the parties, as evidenced by the MOUs, was to transfer the shares, and all necessary formalities were completed. Hence, the assessee was liable for long-term capital gains tax.2. Addition of Unexplained Credit of Rs. 19,58,156:During the assessment proceedings, the AO noticed certain credits totaling Rs. 19,58,156 in the assessee's cash book, which the assessee failed to explain. Consequently, the AO treated the amount as unexplained credit and added it to the total income. The CIT (A) confirmed the addition, observing that the assessee did not substantiate its claim that the amount represented the refund of advance previously made.The Tribunal remitted the issue back to the AO, directing the AO to provide the assessee an opportunity to explain the source of Rs. 19,58,156 and decide the issue in accordance with the law.3. Addition of Rs. 5 Lakhs as Unexplained Cash Credit:The AO added Rs. 5 lakhs to the assessee's income, treating it as unexplained cash credit because the assessee failed to furnish the PAN and bank statement of the loan creditor, K. Suvarna. The CIT (A) upheld the addition, noting that the assessee did not provide a reason for not submitting the PAN and bank statement earlier.The Tribunal remitted the matter back to the AO, instructing the AO to consider the additional evidence provided by the assessee, including the PAN and bank statement of the loan creditor, and decide the issue afresh.Conclusion:The appeal was partly allowed for statistical purposes, with the Tribunal upholding the addition of long-term capital gains on the sale of shares while remitting the issues of unexplained credit and the loan from K. Suvarna back to the AO for reconsideration. The Tribunal emphasized the need to consider all relevant evidence and follow due process in assessing the unexplained credits.