AI Drafter 
TaxTMI 
TaxTMI 
2024 (2) TMI 487
X X X X Extracts X X X X
X X X X Extracts X X X X
....se and in law, the Hon'ble PCIT has erred in setting aside the Assessment Order without deciding the preliminary objection raised by the Appellant vide letters dated 15.3.2023 and 18.3.2023 in regard to the validity of the notice, (c) That on the facts and circumstances of the case and in law, the Hon'ble PCIT erred in holding that the assessment order passed is erroneous and prejudicial to the interest of revenue, without considering relevant material and without making enquiry by himself. 2. (a) That on the facts and circumstances of the case and in law, on the issue of Long Term Capital Loss, while holding that the Assessment order is erroneous and prejudicial to the interest of the revenue, the Hon'ble PCIT failed to appreciate that there was no sale of shares with regard to the transaction in question but it is a case of redemption of preference shares of foreign company as submitted by the Appellant in its letter dated 18.3.2023. (b) That on the facts and circumstances of the case and in law, on the issue of Long Term Capital Loss arising on redemption of preference shares of foreign company, the Hon'ble PCIT has erred in holding tha....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f the Income Tax (Appellate) Tribunal Rules, 1963. On perusal of the grounds, it is evident that the primary grievance of the assessee is against the order of the ld.CIT(A) in exercising his revisionary power under section 263 of the Act and thereby setting aside the order of the ld.AO passed under section 143(3) of the Act. Keeping this core issue in mind, with the consent of both the parties, we proceed to adjudicate the issue forthwith. 3. We have heard both the parties, and have also carefully gone through the documents referred to before us. A perusal of the order of the ld.Pr.CIT reveals that he assumed jurisdiction for revision of the assessment order noting that the AO had failed to make proper inquires with respect to two issues - (i) the assessee's claim of loss on sale of preferential shares wherein as per the ld.Pr.CIT the records revealed an anomaly/difference in the value of shares sold by the assessee as reflected in the balance sheet/profit & loss account as opposed to that reflected in the computation of income, and (ii) dividend received from foreign company though taxable under the Act but apparently not returned to tax by the assessee and cl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s stated and that the figures completely tallied. Also with respect to the dividend income received from foreign company, the assessee categorically pointed out that the same had been returned to tax. The reply of the assessee is reproduced at para-4 of the order as under: "In connection to the observation of your good honour that while as per Note 5 of audited balance sheet it shows that during the year the Assessee has sold shares valued at Rs. 15,94,39, 522/-, however on verification of Income computation sheet of AY 2018-19, it is noticed that Assessee has declared sales consideration of 'Preference shares not listed' as Rs. 14,77,58,824/-; the Assessee most humbly would like to bring to your notice that the difference of Rs. 1,16,80,699 (15,94,39,522 - 14,77,58,824) refers to the realized forex loss on sale of preference shares of Lambda Therapeutic Research Inc, Canada. The said realized forex loss has been recognized in the profit and loss account and forms part of Note 28 Other expenses under the head 'Net foreign exchange (gain)/loss. 'In support of the same, reference is invited to Note L - Foreign Currency Transactions in Significant Accounting p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isfied with the reply of the assessee, and taking note of the explanation offered by the assessee with respect to both the issues, he still went on to hold that the assessment was erroneous in having allowed the claim to the assessee without proper inquiry, since he noted that the assessee had not submitted any supporting evidence with regard to the preferential shares sold and dividend received from foreign company. His finding in this regard at para-5 to 6 of his order is as under: "5. The submission of the assessee has been considered very carefully but not found tenable. It is noticed that the assessee had sold some preference shares and claimed long term capital loss of Rs. 6,77,68,381/- for the year under consideration. As per audited Balance Sheet, the value shares that assessee has sold during the year is of Rs. 15,94,39,522/-. However, on verification of statement of income for AY 2018-19, submitted by the assessee, it is noticed that assessee has declared sales consideration of 'Preference shares not listed' as Rs. 14,77,58,824/-. The assessee, vide submission filed before me , has explained that the difference in the value of preference shares sold durin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....early to the ld.Pr.CIT that there was no anomaly as noted by him. The ld.counsel for the assessee, pointed out that the ld.Pr.CIT had noted that while the balance sheet of the assessee disclosed sale of preferential shares to the tune of Rs. 15,94,39,522/- , the computation of income for the impugned year showed sale consideration of the said shares of Rs. 14,77,58,824/-. He drew our attention to the value of the shares sold during the year as appearing in the audited balance sheet and stated that he had no dispute with regard to the same. With regard to the figure of sale consideration of the said preferential shares as listed in the computation income, he drew our attention to the computation of the same as under: 7. Referring to the above, he pointed out that the ld.Pr.CIT had picked up the figure of sale consideration of unlisted preference shares of Rs. 98 lakhs and Rs. 137.93 lakhs and arrived at the figure of Rs. 147.75 lakhs of preferential shares sold during the year. He contended that firstly this figure represented, as is evident from the computation of income reproduced above, only the sale consideration of the shares sold. He stated, therefore, that the ld.Pr.CIT....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o inadequate inquiry made by the AO on the income returned by the assessee under the head "capital gains" from sale of preferential shares, as stated in the assessment order. Undoubtedly, the error noted by the ld.Pr.CIT was that there was a difference in value of unlisted preference shares shown to be sold by the assessee during the year in its audited balance sheet and that as reflected in the computation of income. The error noted by the ld.Pr.CIT, we find has been arrived at by comparing cost of acquisition of these preferential shares as stated in the Balance Sheet with its sale consideration reflected in the computation of income. This fact clearly comes out from para 2.1 of the ld.Pr.CIT which is reproduced by the ld.Pr.CIT in his show cause notice. We are in complete agreement with the ld.counsel for the assessee that this comparison made by the ld.Pr.CIT for arriving at a finding of error in the assessment order is of no consequence. There could be no comparison between the cost of acquisition and the sale consideration of shares to arrive at any finding of anomaly in the amounts of shares sold by the assessee, as reflected in the audited balance sheet, and as reflected....
X X X X Extracts X X X X
X X X X Extracts X X X X
....deration of these shares reflected in the computation of income * and the assessee had gone on to explain even this difference between sale consideration and cost of acquisition to have been duly considered and accounted for in the return of income. In view of the same, we completely agree with the ld.counsel for the assessee that there was no error in the assessment order on account of non-inquiry/inadequate inquiry relating to the issue of preferential shares sold during the year. 13. We further note from the ld.Pr.CIT's order that after considering the assessee's explanation, as noted by us above, on the issue, he goes to hold the assessment order erroneous for a totally different aspect of the issue. That is, he found the assessment order erroneous for the reason that the assessee did not furnish evidence regarding sale of shares, whether they were sold to the related parties or not, and whether intimation was made to the ROC for the sale of such shares. This was not the anomaly which was noted by him, while exercising jurisdiction under section 263 of the Act, nor do we find, that was ever confronted to the assessee during the revisionary proceedings. Even other....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... passed by the ld.Pr.CIT, we hold, is not sustainable in law in the absence of any finding of error worth its while on both the aspects of preferential shares sold during the year, and dividend income earned from the foreign company not returned to tax. Therefore, substantive grounds of the appeal raised by the assessee on the issue, therefore, are allowed. 17. In the result, the appeal of the assessee is allowed. Order pronounced in the Court on 7th February, 2024 at Ahmedabad. ============= Document 1 2 INCOME FROM CAPITAL GAINS 2.1-Short Term Capital Gain - Securities 2.1.1 Units(Others) 1. Sale Consideration (Date of Transfer:31/03/2018) : 784500000 (MUTUAL FUND) Net Sale Consideration-(A) Acquisition Cost Net Aquisition Cost-(B) 2.2 Long Term Capital Gain -Securities 2.2.1 Preference Shares (Not Listed) 1.Sale Consideration (Date of Transfer: 31/03/2018) (Preference Shares (Not Listed)) Net Sale Consideration-(A) Acquisition Cost (2013-2014) Total Cost of Aquisition (A-B) 2. Sale Consideration (Date of Transfer: 31/03/2018) (Preference Shares (Not Listed)) 784500000 784500000 784500000 9823434 ....