TaxTMI 
TaxTMI 
2017 (12) TMI 357
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....t of sale of shares is bad in law and against the facts and circumstances of the case and without following the principles of natural justice. 3. That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in not allowing the benefit of carry forward of losses of Rs. 1,63,84,566/- while passing the impugned assessment order. 4. That the appellant craves the leave to add, modify, amend or delete any of the grounds of appeal at the time of hearing and all the above grounds are without prejudice to each other. " 3. During the course of hearing, detailed arguments were made by both the sides and after hearing both the parties and perusing the orders passed by the lower authorities and having gone through the material placed before us, we proceed to decide the appeal ground wise hereunder. Ground Nos.1 & 2: 4. In these grounds, the assessee has challenged the action of lower authorities in making addition of Rs. 2.60 Crores as short term capital gain on sale of shares of M/s Dudheshwar Steel and Alloys Ltd. The brief background of the impugned addition is that during the course of assessment procee....
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.... of the Transfer of Property Act because where an agreement is arrived at between the parties and possession is delivered, such transaction is deemed to be transfer. Hence the capital gain arising on transfer of shares will be charged to tax. Further, since the date of acquisition of the shares is not ascertainable as the same has not been provided by the assessee despite specific query to furnish computation of capital gains, the shares will be treated as short term capital asset and capital gain will be computed accordingly. Action u/s 271(1) (c) is being taken". 5. Thereafter, the AO computed the taxable amount of capital gain in the assessment order as under:- INCOME FROM CAPITAL GAINS: Short term capital gains: Deemed sale consideration being 17% of Rs. 30 Crores 5,10,00,000 Less: Cost of acquisition as per books 2,50,00,000 2,60,00,000 6. Being aggrieved, assessee carried the matter before the CIT (A). However, no relief was given by him and findings of the AO were confirmed without making any further discussion on the issue. Still being aggrieved, assessee brought the matter before the Tribunal. 7. During the course of hearing before us, it was arg....
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....e page no.11 of the Paper Book which reads as under: 'The company has made investment of Rs. 2,50,00,000/- in earlier years in Shares of M/s Dudheshwar Steels & Alloys Private Limited. Net Assets Value of these shares as on 31.03.2010 (as per audited Balance Sheet of M/s Dudheshwar Steels & Alloys Private Limited) is Rs. 10192405/-(the value as on 31.3.2011 not available). During the year these shares were sold & Rs. 2500000/- received against it but as per explanation & information provided by the management the sale consideration amount is under dispute & case is pending in court. Pending said decision/dispute, the investments have been shown at book value after deducting Rs. 2500000/-in the financial statements. The consequential effect on the profit/ (loss) of the company has neither been ascertained nor disclosed in the financial statement of the company'. 8. The perusal of the above shows that the assessee had received as advance a sum of Rs. 25 Lakhs. However disputes took place and transaction of sale did not take place. Under these circumstances, there was no basis at all to draw inference from this note that the impugned transaction of sale has been completed by the ....
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....issioner of Income Tax v. Excel Industries, (2014) 13 SCC 459 at 463-464 referred to various judgments on the expression "accrues", and then held: "First of all, it is now well settled that income tax cannot be levied on hypothetical income". In CIT v. Shoorji Vallabhdas and Co. [CIT v. Shoorji Vallabhdas and Co., (1962) 46 ITR 144 (SC)] it was held as follows: (ITR p. 148) "... Income tax is a levy on income. No doubt, the Income Tax Act takes into account two points of time at which the liability to tax is attracted, viz., the accrual of the income or its receipt; but the substance of the matter is the income. If income does not result at all, there cannot be a tax, even though in bookkeeping, an entry is made about a 'hypothetical income', which does not materialize. Where income has, in fact, been received and is subsequently given up in such circumstances that it remains the income of the recipient, even though given up, the tax may be payable. Where, however, the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income, even though an entry to that effect might, in certain circumstances, have been made in the book....
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....case, in the circumstances, there was no debt owed to the assessee by the developers and therefore, the assessee have not acquired any right to receive income under the JDA. This being so, no profits or gains "arose" from the transfer of a capital asset so as to attract Sections 45 and 48 of the Income Tax Act." 17. Coming back to the facts of this case, nothing has been brought before us to show that there was in substance of transfer of shares. In the case before us, there is neither 'de jure' nor 'de facto' transfer of impugned shares. No income has accrued in the favor of assessee. Apparently, the proposed transaction of sale fell through and did not materialize. Under these circumstances, it cannot be held at all that any capital gain was earned by the assessee on sale of impugned shares. Thus, addition made by the AO is illegal and factually incorrect and the same is here by directed to be deleted. As a result, Ground No. 1 & 2 are allowed. Ground No. 3 18. In this ground, the assessee is aggrieved with the action of lower authorities in not allowing benefit of carry forward of losses and depreciation aggregating to Rs. 1, 63, 84,566/-. During the course of hearing, both ....
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....t of Excise duty is pending to be paid, therefore, no further adjustment at all would be needed. Detailed working was submitted to the AO showing the effect of adjustment at NIL amount. However, AO was not satisfied and therefore he made the addition. 22. Being aggrieved, assessee carried the matter before CIT (A) and submitted detailed working that NIL adjustment is required to be made. The CIT (A) was satisfied with the submissions of the assessee and therefore, he deleted the addition. Still Being aggrieved, Revenue carried the matter before the Tribunal. 23. During the course of hearing before us, detailed arguments were made by both the sides. It was submitted by Ld. DR that compliance of provisions of Section 145A is mandatory. Therefore, AO has rightly made the addition and therefore, he heavily relied upon the order of the AO. 24. Per Contra, Ld. Counsel of the assessee vehemently relied upon the order of the Ld. CIT (A) and it was submitted by him that there is no denial to the fact that provisions of Section 145A are mandatory. However, the fact is that assessee has demonstrated before both the lower authorities that no adjustment would be needed even if the accounts a....
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.... effects of decrease in the profits by inclusion of excise & VAT in the opening stock & excise duty & VAT paid out of cash/bank not debited in P & L account made an addition of Rs. 12939052/- to the income of the assessee considering the same as deviation from the provisions of section 145A. In this regard, your goodself will appreciate that in present, assessee is a limited company. The financial statements are therefore required to be prepared as per provisions of Companies Act and accordingly valuation of inventories for Balance Sheet purposes are required to be made as per AS-2 (Accounting Standard-2) issued by the ICAI. Further, as per AS-2, the valuation of inventory should be made at lower of cost and net realizable value & the method of valuation should be consistently applied from year to year. Your goodself will appreciate that "inclusive method" (i.e. valuation of inventory as per provisions of section 145A) is not permitted by AS-2 and therefore assessee is bound to follow the "Exclusive method" in the financial statements and the fact is accordingly disclosed by the Tax-auditor at point no. 12(b) of form no. 3CD that assessee has deviated from the provisions of sect....
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....r, the AO disregarded the working and made the addition by giving his own working. It is noted by us that the difference in working of the assessee and working made by the AO is mainly due to the reason that AO has not given the benefit of corresponding adjustment in the value of opening stock by the amount of Excise duty and VAT and also did not give the adjustment on account of Excise duty and VAT paid out of cash/ Bank but not debited to the P & L Account. It is noted that Hon'ble Delhi High Court in case of CIT vs. Mahavir Aluminium Ltd., supra, it was held that if there is change in closing stock to give effect to Section 145A, there must necessarily be a corresponding adjustment in the opening stock of the year. Similar view has been expressed by the ICAI in the Guidance Note explaining the provisions of Section 145A. Further, on the basis of sense of justice and equity also same inference can be drawn that if Trading and P & L Account is to be converted from 'Exclusive' method to 'Inclusive' method, then corresponding adjustment will be required to be made in all relevant heads of Income and Expenditure including the opening stock. 28. Further, the adjustment on account of ....