2023 (8) TMI 145 - AT - Income Tax

Tribunal Upholds Revenue's Appeal Dismissal, Expenses Valid, Capital Gains Taxable

The Tribunal dismissed both appeals by the Revenue, upholding the decisions of the Commissioner (Appeals) on all contested grounds. The relief granted for ... Capital gain computation - disallowance of expenses claimed u/s 48(1) - HELD THAT:- When the assessee has furnished supporting documentary evidences to establish on record that it had incurred expenditure in connection with transfer of shares, such claim of the assessee cannot be rejected/disallowed on conjectures and surmises. FAA has examined the issue with proper application of mind and having found that a part of the expenditure was actually incurred by the assessee for facilitating the transfer of shares, has allowed the expenditure. No contrary evidence has been brought on record by the Revenue for enabling us to disturb the factual finding of learned first appellate authority. Decided against revenue. Income from other sources or LTCG - as per the Escrow Agreement at the time of sale of shares the value per share was shown less as compared value in the computation of capital gain the assessee has shown total sale consideration of shares - HELD THAT:- As extra payment made to the assessee does not find place in the Escrow Agreement is due to the fact that in addition to the assessee, there are other share holders, who are party to the Escrow Agreement. Therefore, the excess payment made to the assessee could not have formed part of the Escrow Agreement. However, undeniably, the assessee was holding the controlling block of shares of EKPL When documentary evidences indicate that both the vendor and the vendee, i.e., the assessee and DLF Ltd. have treated the payment of Rs. 7.20 crores as control premium on sale of shares, there is no occasion for the Assessing Officer to rewrite the terms of agreement between the parties unilaterally. Moreover, the Assessing Officer has observed that the amount of Rs. 7.20 crores was paid to the assessee for some other purpose. The aforesaid observation of the Assessing Officer clearly indicates that he himself was not sure for what purpose the payment was made. Thus, when the Assessing Officer had no other material in his possession to disprove the claim of the assessee that the amount was received towards sale consideration of shares, he could not have disallowed the claim - Decided against revenue. Accepting the Fair Market Value (FMV) of the shares as declared by the assessee - CIT accepted FMV of the shares as on 01.04.1981 as claimed by the assessee. - HELD THAT:- It is well known that valuation is a highly technical subject, hence, has to be dealt by the experts. Therefore, when the Departmental Valuation Cell is available, the Assessing Officer, instead of referring the valuation process to the Valuation Cell, should not have taken the burden of valuation himself. Assessing Officer has observed that the nature and character of land is dairy farming land, however, the facts on record reveal that EKPL has applied for conversion of dairy farming use to residential use in the year 1970, which was eventually allowed in the year 1992. Therefore, the FMV of the lease hold rights has to be ascertained based on its character of residential use. It is further observed, though, the Assessing Officer has alleged that the Accurate Surveyors in their valuation report has not considered the value of land in same locality, however, the observation is factually incorrect. We may also observe, merely because the assessee purchased shares of EKPL over a period of 20 years at the same face value of Rs. 10 per share, it cannot be said that the FMV of the shares as on 1st April, 1981 would be Rs. 10 per share. This is so because, the actual cost of acquisition cannot be the FMV as provided under section 55(2)(b) of the Act. Decided against revenue. Issues Involved:1. Disallowance of expenses claimed under Section 48(1).2. Inclusion of Rs. 7.2 crore as part of the sale consideration.3. Determination of Fair Market Value (FMV) of shares as on 01.04.1981.Summary:Issue 1: Disallowance of Expenses Claimed Under Section 48(1):The Revenue contested the relief granted by the CIT(A) of Rs. 23,62,750/- out of expenses claimed under Section 48(1), arguing that the expenses were excessive and unjustified. The Tribunal noted that the assessee had incurred expenses for professional services from reputed firms such as M/s. Grant Thornton and M/s. Luthra & Luthra, among others. The Assessing Officer (AO) had allowed only Rs. 12,000/- on an estimate basis, disallowing the remaining amount. The Tribunal found that the AO did not dispute the incurrence of expenses but only their reasonableness. The CIT(A) had allowed Rs. 23,62,750/- towards payment made to M/s. Luthra & Luthra, and the Tribunal upheld this decision, finding no contrary evidence from the Revenue.Issue 2: Inclusion of Rs. 7.2 Crore as Part of the Sale Consideration:The Revenue challenged the deletion of the addition of Rs. 7.20 crores made by the AO as income from other sources. The AO had argued that the payment was not related to the sale of equity shares but was for some other purpose. The assessee contended that the amount was paid as a 'control premium' for the controlling block of shares in EKPL. The Tribunal noted that the payment was mutually agreed upon by both parties, supported by letters exchanged between the assessee and DLF Ltd. The Tribunal found that the AO's conclusion was based on conjectures and surmises and upheld the CIT(A)'s decision that the amount was part of the sale consideration, taxable under long-term capital gain.Issue 3: Determination of Fair Market Value (FMV) of Shares as on 01.04.1981:The Revenue contested the CIT(A)'s acceptance of the FMV of shares at Rs. 1,675/- per share as declared by the assessee. The AO had determined the FMV at Rs. 10/- per share, referring to Rule 1D of the Wealth Tax Rules and the balance sheet of EKPL. The Tribunal noted that the assessee had furnished a valuation report from a Chartered Accountant, which was based on the valuation of leasehold rights in land and building by Accurate Surveyors. The Tribunal found that the AO had erred in law by referring to Rule 1D, which was omitted from the statute, and by not referring the valuation to the Departmental Valuation Officer (DVO). The Tribunal upheld the CIT(A)'s decision, noting that the valuation was a technical subject and the FMV determined by experts should be accepted.Conclusion:Both appeals by the Revenue were dismissed, and the decisions of the learned Commissioner (Appeals) were upheld on all contested grounds.