TaxTMI 
TaxTMI 
2026 (8) TMI 1815
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....he respondent-assessee and assisted by Shri Prateek Mehta, made elaborate submissions assailing the very foundation of the assessment order and supporting the findings recorded by the learned CIT(A). The learned Senior Counsel took us through the complete paper book comprising the contemporaneous documentary evidence, the Definitive Agreement executed amongst the parties, the valuation reports prepared under Rule 11UA, the demat records, the delivery instructions, the ledger accounts, the bank statements and the detailed written submissions filed before us. The learned CIT-DR, on the other hand, relied upon the reasoning contained in the assessment order and submitted that the learned CIT(A) had erred both on facts and in law in interfering with the additions made by the Assessing Officer. We have carefully considered the rival submissions, examined the orders of the authorities below and perused the entire material placed before us. 3. The material facts giving rise to the present appeal are that the assessee held substantial equity shareholding in Bharat Serums and Vaccines Limited (BSVL), an unlisted company. The controversy arises out of two transfers of equity shares effect....
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....sing Officer called upon the assessee to furnish complete particulars relating to the computation of capital gains arising from the transfer of unlisted shares. In response, the assessee furnished detailed replies from time to time together with voluminous documentary evidence, including the delivery instructions acknowledged by HDFC Bank, demat statements evidencing the transfer of shares, valuation reports prepared under Rule 11UA, the Definitive Agreement, bank statements, ledger accounts and detailed computation of capital gains. After examining the material so furnished, the Assessing Officer issued a show-cause notice proposing, inter alia, to recompute the capital gains by adopting the consideration of Rs. 1,894.09 per share received in relation to the transfer effected on 07.02.2020 even in respect of 5,95,500 shares transferred on 30.09.2019, thereby proposing an addition of Rs. 97,01,23,095/-. Besides the aforesaid adjustment, a further addition of Rs. 1,37,161/- was proposed on account of an alleged variation in the sale price adopted in relation to the transfer effected on 07.02.2020. Another proposed addition relating to clubbing of income in respect of shares gifted t....
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....ions advanced before him, the learned CIT(A.) deleted the entire addition holding that the Assessing Officer was not justified in substituting the actual consideration arising from the transfer effected on 30.09.2019 with the consideration received in relation to an altogether different transaction concluded on 07.02.2020. The Revenue, being aggrieved by the relief so granted, is in appeal before us. It is in the backdrop of the aforesaid factual matrix that the rival contentions fall for our consideration. 9. We have given our thoughtful consideration to the rival submissions and carefully examined the entire material placed before us. Upon such consideration, we find that the dispute raised in the present appeal does not involve any controversy regarding the genuineness of the transfer of shares, the identity of the parties, the execution of the Definitive Agreement, the valuation report prepared under Rule 11UA, or the actual transfer of shares through the depository mechanism. Equally, it is not the case of the Revenue that the impugned transactions are sham, fictitious, colourable or unsupported by contemporaneous documentary evidence. The controversy essentially arises fro....
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....tal by Anasamira Limited into ADPL and the eventual closing of the transaction. It is only after these contractual milestones were achieved on 06.02.2020 that ADPL ceased to remain a closely held family-controlled entity and came under the control of the Advent Group. Consequent upon such closing, the final consideration became determinable in accordance with the agreed formula and, on 07.02.2020, the assessee transferred 12,56,053 equity shares at the contractual price of Rs. 1,893.98 per share. Therefore, the material on record unmistakably demonstrates that the transfer effected on 07.02.2020 was governed by an altogether different contractual framework, different commercial circumstances and a different ownership structure of the purchaser than those prevailing on 30.09.2019. 12. The learned Senior Counsel, while taking us through the documentary evidence, submitted that the entire approach adopted by the Assessing Officer proceeds on an incorrect appreciation of both the facts and the law. According to him, as on 30.09.2019, there was neither any concluded agreement with Anasamira Limited nor any certainty regarding the eventual sale consideration which could ultimately eme....
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....ideration relating to the first transfer on 07.02.2020, simultaneously with the completion of the second transaction, constituted a significant circumstance indicating that the transactions formed part of one composite arrangement. It was further contended that the contemporaneous newspaper reports regarding the proposed acquisition of BSVL clearly demonstrated that negotiations for sale had commenced much earlier and, therefore, the consideration ultimately received on 07.02.2020 represented the real consideration even for the shares transferred on 30.09.2019. On this basis, it was urged that the Assessing Officer had correctly recomputed the capital gains by adopting the higher value. 15. Having carefully examined the rival submissions, we are unable to persuade ourselves to accept that the controversy can be resolved merely by comparing the sale prices prevailing on two different dates or by attaching determinative significance to the date on which the monies were ultimately received. The issue, in our considered opinion, has necessarily to be examined within the statutory framework governing the charge and computation of capital gains under the Act. The determination of the ....
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....le prescribing the mode of computation, specifically employs the expression "the full value of the consideration received or accruing as a result of the transfer of the capital asset." The legislative emphasis, therefore, is on the consideration which actually accrues or is received as a consequence of a particular transfer. It is no longer res integra that the expression "full value of consideration" occurring in section 48 does not authorise the Assessing Officer to substitute the actual contractual consideration by any amount which, according to him, ought to have been received, unless the statute itself expressly creates such a deeming fiction. The learned Senior Counsel has rightly relied upon the decisions of the Hon'ble Supreme Court in CIT v. George Henderson & Co. Ltd. (1967) 66 ITR 622 (SC) and CIT v. Gillanders Arbuthnot & Co. Ltd. (1973) 87 ITR 407 (SC), wherein it has been held that the expression "full value of consideration" refers to the consideration actually received or accruing to the transferor as a result of the transfer and not the market value or any notional value which may be attributed to the asset transferred. These principles have consistently governed t....
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....nevertheless proceeded to substitute the consideration of Rs. 265 per share by Rs. 1,894.09 per share, not under any provision of the Act, but on the premise that such amount represented the "real" consideration. In our considered opinion, such an exercise travels far beyond the statutory framework governing computation of capital gains. 20. Equally significant is the fact that the assessment order nowhere identifies any charging or computation provision authorising such substitution. The entire reasoning proceeds on perceived commercial probabilities and surrounding circumstances without first identifying the statutory source of power enabling the Assessing Officer to disregard the consideration actually accruing from the transfer. Tax liability under the Income-tax Act cannot rest upon equitable considerations or commercial perceptions divorced from the statutory provisions. The authority of the Assessing Officer to compute taxable income must necessarily emanate from the Act itself. Once the Legislature has consciously enacted a specific mechanism under section 50CA dealing with transfer of unquoted shares and has prescribed the circumstances in which the declared considerati....
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.... was ultimately received on 07.02.2020, the transfer itself should also be regarded as having effectively taken place on that date and, consequently, the consideration applicable to the second transfer should equally govern the first transfer. In our considered opinion, the aforesaid premise proceeds on a complete misconception of the statutory concept of "transfer" embodied in the Act. The incidence of capital gains is attracted upon the transfer of a capital asset and not upon the subsequent receipt of the sale proceeds. Once a transfer satisfying the requirements of section 2(47) has taken place, the accrual of capital gains is determined with reference to that transfer itself. The subsequent mode, manner or timing of discharge of the consideration agreed between the parties cannot alter either the date of transfer or the legal consequences flowing therefrom. If the proposition canvassed by the Revenue were to be accepted, it would necessarily follow that in every case where the consideration is deferred or paid in instalments, the transfer itself would stand postponed till the last instalment is received. Such an interpretation not only runs contrary to the scheme of the Act bu....
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....upported by the contemporaneous accounting records but also harmonises with the sequence of events emerging from the documentary evidence. The Assessing Officer has neither demonstrated that the ledger account is fabricated nor brought any independent material to discredit the entries recorded therein. Merely describing the accounting treatment as a "book entry" does not, by itself, render the transaction fictitious or non-existent. Every commercial transaction necessarily finds reflection in the books of account and, unless such entries are shown to be sham or contrary to the contemporaneous evidence, they cannot be discarded merely because they do not support the inference sought to be drawn by the Revenue. 26. Equally important is the independent documentary evidence evidencing the transfer itself. The delivery instructions executed by the assessee in favour of the depository participant, duly acknowledged by HDFC Bank, together with the corresponding debit reflected in the demat account, constitute third-party records maintained in the ordinary course of business over which the assessee has no control. These documents unmistakably establish that the shares stood transferred ....
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....luded that both transfers were identical in their commercial character or were required to carry the same valuation. 28. Another significant aspect which completely undermines the reasoning adopted by the Assessing Officer is the Definitive Agreement itself. A careful reading of the agreement unmistakably demonstrates that even on 18.11.2019, when the agreement was executed, the final consideration payable for the shares had not crystallised. The parties had merely agreed upon the methodology by which the consideration would eventually be determined upon fulfilment of the stipulated conditions and completion of the agreed due diligence. The closing itself took place only in February 2020 after satisfaction of the contractual conditions. If the final consideration itself remained indeterminate even on the date of execution of the Definitive Agreement, it becomes difficult to appreciate the basis on which the Assessing Officer concluded that the same consideration had already stood predetermined on 30.09.2019, nearly seven weeks before the Definitive Agreement came into existence. Such an inference is directly inconsistent with the contractual documents themselves, which constitut....
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.... borne out from the documentary evidence nor supported by the statutory provisions governing computation of capital gains. Having reached the aforesaid conclusion, we shall now examine the other principal circumstance relied upon by the Assessing Officer, namely, the reliance placed upon certain newspaper reports to infer that the sale consideration had already been predetermined much prior to the transfer effected on 30.09.2019. 31.The other principal circumstance relied upon by the Assessing Officer to support the impugned addition is the reference made to certain newspaper reports appearing in June, 2019, from which an inference has been drawn that the sale of BSVL had already been negotiated and, therefore, the consideration ultimately received on 07.02.2020 represented the true consideration even for the transfer effected on 30.09.2019. We find ourselves unable to endorse the aforesaid approach for more than one reason. In the first place, the assessment order itself reveals that the newspaper reports were not made the basis of the original show-cause notice in the manner in which they have ultimately been relied upon while framing the assessment. More importantly, the Asse....
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....effected on 30.09.2019. Commercial negotiations, preliminary discussions, expressions of interest and even non-binding term sheets are common features of complex corporate acquisitions. They do not create enforceable rights nor do they determine the consideration ultimately payable unless and until the parties reduce their obligations into a binding contractual arrangement. The material placed before us clearly demonstrates that the Definitive Agreement itself contemplated several conditions precedent, extensive due diligence and a contractual mechanism for computation of the final consideration. The closing took place only in February, 2020. Had those contractual conditions remained unfulfilled, the transaction itself might not have culminated. Therefore, to hold that the consideration stood irrevocably fixed as early as September, 2019 would not only be contrary to the contractual documents but would amount to rewriting the commercial arrangement consciously entered into between the parties. 34. We also find that the learned CIT(A.) has meticulously analysed each of these aspects while examining the documentary evidence produced before him. The findings recorded by the learned....
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....commercial transaction could retrospectively be imported into an earlier and independent transfer merely because the payment was ultimately received on the same date and because both transactions formed part of a larger commercial objective. Such an assumption, however, finds no support either from the contemporaneous documentary evidence or from the statutory framework governing capital gains. The independent documentary evidence establishes the transfer of 5,95,500 shares on 30.09.2019; the contractual documents unequivocally demonstrate that the consideration under the Definitive Agreement itself had not crystallised even on 18.11.2019; the admitted Rule 11UA valuation excludes the applicability of section 50CA; and no provision of the Act has been brought to our notice authorising the Assessing Officer to substitute the actual consideration accruing from one transfer with the consideration arising from another independent transaction. The assessment, therefore, proceeds more on perceived commercial probabilities than on the statutory mandate contained in the Act. 37. In view of the foregoing discussion, we are of the considered opinion that the impugned addition is unsustain....