N.DHEENADHAYAALAN,CHENNAI vs. ITO NON CORPORATE WARD 16(5), CHENNAI

The assessee has raised the following grounds of appeal:

1 The Assessment Order of the Income Tax Officer Non Corporate Ward 16(5) and appellate order of CIT (Appeal-4) Chennai is contrary to the facts and circumstances of the case hence bad in law. 2. The CIT Appeal has not considered the agreement of sale of shares and adopted sale consideration of equity shares Rs.4,00,40,384/- instead of Rs.3,03,74,383/- actually received by the assessee.

The Inflated Index Value Rs.1,18,56,770/- as calculated by the Assessing Officer himself was not considered while completing the Assessment but taken Rs.1,00,51,440/- as wrongly calculated by the Assessee.

Assessing Officer has disallowed 50% of the renovation expenses which was not contested by the Assessee but the CIT Appeal has only allowed Rs.4,50,000/- as renovation Expenses and enhance the Assessed Income, which is against the law. 5. The CIT Appeal wrongly enhance the income by Rs.36,74,206/-. 6. The Assessee craves the leave adducing additional grounds of appeal

The Ld.Counsel for the assessee submitted that the Ld.CIT(A) erred in upholding the action of the AO in adopting sale consideration transfer of equity shares at Rs.4,00,40,384/- instead of Rs.3,03,74,383/- actually received by the assessee. The Ld.Counsel for the assessee referring to recitals of Share Purchase Agreement submitted that the parties have reduced in writing revised consideration for transfer of shares and as per which, the agreed consideration for transfer of shares is Rs.8,28,47,887/-.

The Ld.DR, on the other hand, supporting the order of the Ld.CIT(A), submitted that the assessee could not adduce any evidences except letter from the buyers that the consideration has been restricted to Rs.6,28,47,887/-. Further, when the assessee has agreed to transfer the shares for consideration Rs.8,28,47,887/-, how it has been reduced to 6.28 Crs. has not been explained, except stating that parties have agreed to reduce the sale price for non-fulfillment of certain conditions. Therefore, the AO has rightly adopted consideration as agreed between the parties and computed capital gains after allowing indexed cost of acquisition and expenses of transfer and their orders should be upheld.

We have heard both the parties, perused the materials available on record and gone through orders of the authorities below. There is no dispute with regard to the fact that as per MoU between the assessee and M/s.Tecpro Systems Ltd., dated 30.06.2011, the parties have agreed to transfer 100% equity share capital of M/s.Ambica Projects (India) Pvt. Ltd. for a consideration of Rs.10,28,47,887/-. It was also not in dispute as per Share Purchase Agreement that said consideration has been reduced in writing, to an amount of Rs.8,28,47,887/- for the reasons stated in Share Purchase Agreement vide Clause-2.1(a). It was also not in dispute as per Share Purchase Agreement Clause-2.3 that the purchaser has paid an amount of Rs.6,28,47,887/- only. Further, as per Clause-2.2 of Share Purchase Agreement, a sum of Rs.2 Crs. will be payable by the Purchaser to sellers as variable consideration on fulfilling certain conditions. It was the arguments of the assessee before the AO and the Ld.CIT(A) that because of non-fulfillment of conditions prescribed in Share Purchase Agreement, the final price for transfer of shares has been restricted to Rs.6,28,47,887/- only. To this effect, the assessee has filed a letter from M/s.Tecpro Systems Ltd., dated 14.05.2012, where it was confirmed that final sale consideration stands reduced to Rs.6,28,47,887/- after reducing the conditional variable payment of Rs.2 Crs. for non-fulfillment of certain conditions. From the above, it appears that the parties have finally agreed to reduce the price for transfer of equity shares of M/s.Ambica Projects (India) Pvt. Ltd., to Rs.6,28,47,887/- only. But, fact remains that whether letter from the buyer M/s.Tecpro Systems Ltd., was made available to the AO or not, is not forthcoming from the records. Therefore, we are of the considered view that the matter needs to be re-examined by the AO to ascertain correct amount of sale consideration and thus, we set aside the issue to the file of the AO and direct the AO to re-consider the issue of computation of capital gains from sale of shares after ascertaining correct amount of consideration from the buyer and if necessary, the AO may obtain all information by exercising his powers conferred u/s.131 & 133(6) of the Act. As regards deduction towards indexed cost of acquisition, we find that the AO as well as the Ld.CIT(A) did not dispute the fact that the correct amount of indexed cost of acquisition works out to Rs.1,18,56,770/- . However, restricted deduction to the extent of amount claimed by the assessee at Rs.1,00,51,440/-. We find that the AO and the Ld.CIT(A) grossly erred in not allowing correct amount of indexed cost of acquisition, even though, both admitted the fact that what was claimed by the assessee is not correct amount of indexed cost of acquisition. In our considered view, the AO while computing capital gains should allow deduction towards correct amount of cost of acquisition, even in a case, where the assessee has made an incorrect claim of cost of acquisition and thus, we direct the AO to allow correct amount of cost of acquisition at Rs.1,18,56,770/- instead of amount claimed by the assessee at Rs.1,00,51,440/-. As regards deduction towards expenses of transfer being brokerage, although, the AO has allowed assessee’s share of expenses of Rs.9,11,231/-, but the Ld.CIT(A) enhanced the assessment and disallowed 100% of expenses at Rs.18,85,437/-, even though, the assessee has submitted necessary evidences to prove the claim of expenses of transfer and thus, we direct the AO to allow brokerage expenses incurred by the assessee in connection with share transfer while computing long term capital gains.

In the result, appeal filed by the assessee is allowed for statistical purposes.