2015 (11) TMI 539 - AT - Income Tax

Tribunal upholds deletion of addition for capital gain, emphasizes actual sale consideration & need for incriminating evidence

ACIT, Central Circle-03, New Delhi Versus Smt. Divya Jain And Vica-Versa

The Tribunal dismissed the Revenue's appeal challenging the deletion of an addition based on actual sale consideration for long-term capital gain. It also ... Computation of capital gain - adoption of Fair Market Value of share in lieu of value of sale consideration - Held that:- In this case the assessee was allotted 3000 shares of M/s MRPL on 29.09.2004 at its face value of ₹ 10/- each. The same has been sold on 01.12.2006 to its group company. The merger scheme in which the exchange ratio of shares Of MIPL & MRPL was formulated was on 26.02.2007 and the exchange ratio so determined was further subject to approval of Delhi High Court, which came on 10.09.2007 i.e. after a gap of 9 months (approx) from the date of sale of shares. The assessee kept the shares and he would have got 1,35,000 equity shares of MIPL only on 08.04.2008 i.e. the date of allotment of shares after merger as stated above or in other words after 18 months from the date of sale. It was only prospective benefit attached with the shareholding of the assessee in the MRPL as on date of sale. We find that the case law referred by the Ld. CITA(A) in his impugned order in the case of CIT v/s. Infosys Technologies Ltd. (2008 (1) TMI 17 - SUPREME COURT OF INDIA) supports the case of the assessee wherein it was held that if prospective benefit is in the nature of income or specifically included, by the legislature as part of income, the same is not taxable. We are of the considered opinion that the adoption of Fair Market Value of share in lieu of value of sale consideration as declared by the assessee is not valid particularly when there is no provision under the law to include prospective benefit in the ambit of the word 'income'. Therefore, the Ld. CIT(A) has rightly allowed this ground and deleted the addition in dispute, which does not need any interference on our part - Decided in favour of assessee. Assessment u/s 153C - Held that:- We find considerable cogency in the assessee’s counsel submission that if no incriminating material belonging to the assessee were found during search period, the assessment made is without jurisdiction and proceedings initiated u/s. 153C is null and void. See CIT vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] - Decided in favour of assessee. Issues Involved:1. Deletion of addition on account of long-term capital gain.2. Validity of jurisdiction under Section 153C of the Income Tax Act.Issue-wise Detailed Analysis:1. Deletion of Addition on Account of Long-term Capital Gain:The Revenue's appeal contested the deletion of an addition of Rs. 3,34,47,563/- made by the Assessing Officer (AO) on account of long-term capital gain. The AO had determined that the assessee sold 3000 shares of Mahagun Realtors Pvt. Ltd. at Rs. 100 per share, declaring a sale consideration of Rs. 3,00,000/-. However, the AO argued that due to a subsequent merger with Mahagun (India) Pvt. Ltd., the shares' fair market value should have been Rs. 3,37,50,000/- (3000 shares x 45 shares of Mahagun India x Rs. 250 per share).The CIT(A) deleted the addition, reasoning that the law does not permit substituting 'Fair Market Value' for 'Actual Sale Consideration' in computing capital gains. The CIT(A) emphasized that the sale occurred before the High Court's approval of the merger scheme, and the assessee received only Rs. 3,00,000/-. The Tribunal upheld this view, noting that the AO failed to provide evidence that the assessee received more than declared. The Tribunal cited several case laws, including CIT vs. Infosys Technologies Ltd. (297 ITR 167), to support that capital gains should be computed based on actual sale consideration, not fair market value unless specified by law.2. Validity of Jurisdiction under Section 153C of the Income Tax Act:The assessee's cross-objection challenged the AO's jurisdiction under Section 153C, arguing that the documents found during the search were already disclosed and not incriminating. The Tribunal noted that the jurisdiction under Section 153C requires documents to be of incriminating nature. Since the documents found were already disclosed in the return, the Tribunal held that the assessment under Section 153C was invalid. The Tribunal referenced the Delhi High Court's decision in CIT vs. Kabul Chawla, which stated that no additions could be made if no incriminating material was found during the search for already assessed years.Conclusion:The Tribunal dismissed the Revenue's appeal, upholding the CIT(A)'s deletion of the addition based on actual sale consideration. It also allowed the assessee's cross-objection, quashing the assessment under Section 153C due to lack of incriminating material. The judgment emphasizes the importance of actual sale consideration in computing capital gains and the necessity of incriminating evidence for invoking Section 153C.