2014 (9) TMI 651 - AT - Income Tax

Tribunal upholds Commissioner's decision, deems reopening assessment as 'change of opinion.' Expenditure allowed, capital gains taxed.

Asstt. Commissioner of Income Tax Versus M/s. Infrastructure Leasing & Financial Services Ltd.,

The Tribunal dismissed the Revenue's appeal, upholding the learned Commissioner (Appeals)'s findings. The assessment reopening was considered a 'change of ... Computation of capital gain - Clim of deduction of expenditure from sale / Transfer of shares offloaded in public issue u/s 48(1) – Held that:- Disallowance of the claim of expenditure in computation of capital gain which was on account of expenditure incurred in connection with the transfer of capital asset resulting into long term capital gain - the computation of the income as well as the expenditure were submitted before the AO at the time of original assessment proceedings - While completing the assessment under section 143(3), the AO has not made any computation in the assessment order - in the proceedings u/s 154, he has accepted the computation as shown by the assessee - the assessee had offered sale of shares to the public which was part of the entire lot of shares offered to the public - The IL&FS has incurred the expenditure for the said IPO i.e., the public offer for the entire shares including that of the assessee - the proportionate expenditure which has been paid by the assessee to the IL&FS was assessee’s liability and directly relates to sale of shares i.e., transfer of capital asset - the finding recorded by the CIT(A) after verifying the entire records is factually and legally correct and there is no reason to deviate from findings - allowing the claim of deduction of an expenditure u/s 48 by the CIT(A) in the computation of long term capital gain is upheld. Rate of taxability of LTCG on shares allotted – 10% or 20% - Held that:- The long term capital gain was in respect of listed securities and, therefore, the rate of tax should be 10% and not 20% as per section 112 because for a public issue, the shares have to be listed at the stock exchange and then only they are allotted to the public in the ratio approved by the stock exchange - It is after listing the public receives the shares and is also entitled to sell the shares in the stock exchange – the order of the CIT(A) is upheld – Decided against revenue. Issues Involved:1. Legality of reopening the assessment under Section 147 of the Income Tax Act, 1961.2. Allowability of expenditure of Rs. 1,60,03,911 claimed under Section 48(1) of the Income Tax Act, 1961.3. Applicability of tax rate on long-term capital gains at 10% versus 20%.Issue-wise Detailed Analysis:1. Legality of Reopening the Assessment under Section 147:The Revenue challenged the reopening of the assessment under Section 147, claiming it was not a 'change of opinion.' The Tribunal noted that during the original assessment, the Assessing Officer (AO) had already scrutinized the details of capital gains and the related expenses. The reopening was based on the same set of facts, which the AO had previously considered. The learned Commissioner (Appeals) concluded that the reopening was indeed a 'change of opinion,' referencing the Supreme Court's decision in CIT v/s Kalvinator of India, which states that reopening on the basis of a change of opinion is impermissible even within four years from the end of the relevant assessment year.2. Allowability of Expenditure of Rs. 1,60,03,911 under Section 48(1):The assessee claimed the expenditure of Rs. 1,60,03,911 as incurred wholly and exclusively in connection with the transfer of shares in a public issue. This expenditure was reimbursed to IL&FS Investmart Ltd., which had incurred it for the IPO. The AO disallowed this expenditure, arguing it was not incurred by the assessee. However, the learned Commissioner (Appeals) found that the expenditure was proportionate to the assessee's share of the public issue and was necessary for realizing the share price of Rs. 125 per share. The Tribunal upheld this finding, agreeing that the expenditure was directly related to the transfer of shares and thus allowable under Section 48(1).3. Applicability of Tax Rate on Long-term Capital Gains:The assessee argued that the long-term capital gains on the sale of shares should be taxed at 10% as per Section 112 of the Act, given that the shares were listed securities. The AO had applied a 20% tax rate, arguing the shares were unlisted at the time of the IPO. The learned Commissioner (Appeals) accepted the assessee's contention, noting that the shares were listed before being allotted to the public. The Tribunal upheld this view, confirming that the correct tax rate should be 10% for listed securities.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the learned Commissioner (Appeals)'s findings on all counts. The reopening of the assessment was deemed a 'change of opinion' and thus invalid. The expenditure of Rs. 1,60,03,911 was correctly claimed under Section 48(1), and the long-term capital gains were rightly taxed at 10%.