2014 (6) TMI 666 - AT - Income Tax

Tribunal rules in favor of assessee in capital gains appeal

The tribunal ruled in favor of the assessee in an appeal against the order of the Ld. CIT(A)-40, Mumbai for the Assessment Year 2009-10. The AO's ... Recalculation of LTCG and sale of shares - Treatment of difference between sale of value and books value – Income treated as income from other sources – Held that:- The assessee for the purpose of acquiring controlling ITL Industries Ltd by ITL Embellishments i.e., the purchasers entered into the transaction of selling the shares - the full value consideration received is at the rate of Rs.21 for 1,00,000/- shares - there are no provisions under the Income Tax Act available to the AO to determine or adopt the full value consideration at a value different from the actual sales consideration - wherever the legislature intends to give authority to AO to replace the value i.e., the sale consideration, specific provision have been provided for - In the absence of specific provision, the AO cannot chose to replace the value – Relying upon ACIT Cir. 16(3) Mumbai Versus M/s. B. Arunkumar & Co. [2014 (6) TMI 462 - ITAT MUMBAI] - once it is found that shares are sold at a particular price it is not possible for the AO to disturb the figure without bringing any material facts contradictory to the calculation made by the assessee - the AO does not have power under the Income Tax Act to substitute fair market value for full value of consideration – CIT(A) was not justified in confirming the addition made by the AO – Decided in favour of Assessee. Issues:1. Recalculation of long term capital gains and sale of shares at a different price than declared.2. Treatment of difference between sale value and book value of shares as income from other sources.Analysis:1. The appeal was filed against the order of the Ld. CIT(A)-40, Mumbai for the Assessment Year 2009-10 concerning the recalculation of long term capital gains and sale of 1,00,000 shares of ITL Industries Ltd. The AO calculated the book value per share at Rs.4.51 instead of Rs.21 as declared by the assessee, resulting in the balance amount being assessed as income from other sources. The Ld. CIT(A) upheld this action. However, the tribunal noted that the AO cannot substitute the value of consideration without material facts contradicting the assessee's calculation. Referring to previous judgments, the tribunal held that the AO cannot replace the sale consideration value unless specific provisions exist. Hence, the Ld. CIT(A) was deemed unjustified in confirming the addition made by the AO, and the claim of the assessee was allowed.2. The assessee, engaged in the business of manufacturing garments/accessories, had shown long term capital gains in its return. The AO recalculated the capital gains based on the sale of shares of ITL Industries Ltd. The AO considered the book value per share at Rs.4.51, leading to the balance amount being treated as income from other sources. The tribunal emphasized that the AO lacks the authority to substitute fair market value for the full value of consideration unless specific provisions exist. Citing relevant case laws, the tribunal ruled in favor of the assessee, allowing the appeal.