2021 (1) TMI 159 - AT - Income Tax

Share Purchase Agreements Impact on Capital Gains & Losses Decision

The Tribunal upheld the CIT(A)'s decision for both assessment years, emphasizing the importance of using the disclosed consideration in share purchase ... Addition being long term capital gains arrived at after recomputing Fair Market Value (FMV) of sale consideration being sale of shares - HELD THAT:- As relying on SHRI. RAJ ARJUN MENDA 2020 (2) TMI 1406 - ITAT BANGALORE] we hold that the CIT(A) is justified in holding that the sale consideration disclosed in the sale purchase agreement ought to be adopted for calculating the long term capital gains in the case of transfer of shares. It would be relevant to mention that Sec.50CA inserted w.e.f. 01.04.2018, would not have application to the instant case, since we are dealing with assessment year 2012-2013. In other words, Sec.50CA of the I.T.Act inserted w.e.f. 01.04.2018 clearly indicates prior to 01.04.2018, there was no provision under the I.T.Act authorizing the A.O. to refer for valuation of shares for the purpose of calculating capital gains. Set off of brought forward capital loss against the capital gain reported for the year in appeal - HELD THAT:- Since we have decided the issue for assessment year 2012-2013 in favour of the assessee, we hold that the assessee is entitled to set of capital loss. It is ordered accordingly. Issues:1. Whether the CIT(A) was justified in deleting the addition of Rs. 3,33,23,661 as long term capital gains after recomputing Fair Market Value (FMV) of sale consideration for shares.2. Whether the assessee is entitled to set off Rs. 9,94,59,651 as capital loss for the assessment year 2013-2014.Issue 1 - Assessment Year 2012-2013:The appeal revolved around the deletion of the addition of Rs. 3,33,23,661 as long term capital gains by the CIT(A) after recalculating the FMV of sale consideration for shares. The Assessing Officer (A.O.) had substituted the sale consideration for valuation purposes, resulting in a higher capital gains figure than what the assessee had declared. However, the CIT(A) relied on legal precedents, including the case of George Henderson & Co. Ltd., to assert that there was no provision empowering the A.O. to refer the matter for valuation in share transfers. The Tribunal referenced a similar case involving Sri Raj Arjun Menda where it was held that the consideration disclosed in the share purchase agreement should be used for computing capital gains in share transfers. The Tribunal dismissed the Revenue's appeal, emphasizing the absence of a provision pre-2018 authorizing valuation of shares for capital gains calculation.Issue 2 - Assessment Year 2013-2014:For the subsequent assessment year 2013-2014, the A.O. disallowed the set off of brought forward capital loss of Rs. 9,94,59,651 against the capital gain reported. This disallowance was based on the conversion of the capital loss for the previous year into income, as per the order for the assessment year 2012-2013. However, following the decision in favor of the assessee for the 2012-2013 assessment, the Tribunal ruled that the assessee was entitled to set off the capital loss, allowing the claim of Rs. 9,94,59,651. Consequently, the Department's appeal for the 2013-2014 assessment year was dismissed.In conclusion, the Tribunal upheld the CIT(A)'s decision for both assessment years, emphasizing the importance of using the disclosed consideration in share purchase agreements for computing capital gains and allowing the set off of capital losses as per the applicable provisions. The judgments were delivered on January 4, 2021.