MICROCHIP INFOTEL PVT. LTD.,MUMBAI vs. INCOME TAX OFFICER-12(3)(4), MUMBAI

The assessee has raised the following grounds of appeal:

When the appeal was called for hearing, none appeared on behalf of the assessee. The learned Departmental Representative, on the other hand, relied upon the orders of the Assessing Officer and the learned CIT(A). He took us through the factual background of the case and, in particular, invited our attention to paragraph 4 and its various sub-paragraphs of the assessment order. He submitted that repeated opportunities were granted to the assessee to furnish the primary documents relating to the acquisition and sale of shares and to substantiate the cost of acquisition claimed by it, but the assessee failed to furnish the requisite material. According to the learned DR, the addition of Rs.37,00,000/- was therefore rightly made and subsequently confirmed by the first appellate authority.

Since the assessee has chosen not to appear and the material necessary for adjudication is available on record, we proceed to dispose of the appeal ex parte qua the assessee and on merits in terms of Rule 24 of the Income-tax (Appellate Tribunal) Rules, 1963. Rule 24 permits the Tribunal, where the appellant does not appear when the appeal is called for hearing, to dispose of the appeal on merits. We have accordingly examined the assessment order, the impugned appellate order and the material forming part of the record.

The assessee is a company stated to be engaged primarily in investments in shares, bonds and debentures. The assessment was completed under section 143(3) of the Act on 26.12.2019. The returned income was Rs.1,28,698/-, whereas the total income was assessed at Rs.38,28,698/- after making an addition of Rs.37,00,000/- as Long Term Capital Gain.

The controversy arises from certain transactions in unquoted shares. During the assessment proceedings, the Assessing Officer examined the bank account and financial statements of the assessee and noticed receipt of an aggregate amount of Rs.3,66,90,000/- stated to represent consideration received on sale of share investments. The receipts included amounts received in 7. The Assessing Officer further observed from Note No.2.5 forming part of the balance sheet that investment in unquoted shares stood at Rs.15,88,03,500/- as on 31.03.2016 and Rs.12,58,13,500/- as on 31.03.2017. On this basis, the Assessing Officer observed that shares having a value of Rs.3,29,90,000/- had gone out of the investment portfolio during the relevant previous year, whereas the receipts stated to be on account of sale of such shares aggregated to Rs.3,66,90,000/-. The difference worked out to Rs.37,00,000/-.

However, the Assessing Officer did not straightaway proceed to make the addition. As is evident from paragraph 4 and its sub- paragraphs of the assessment order, the assessee was specifically called upon to furnish the material necessary to verify the share transactions and the resultant capital gain. The Assessing Officer required following documents for verification: (i) copies of the share transfer forms relating to purchase and sale of shares; (ii) the financial year in which the shares were originally purchased; (iii) copies of the relevant share certificates; (iv) the basis on which the value of the shares was arrived at at the time of transfer; (v) copies of share sale agreements; (vi) working of capital gain in respect of the shares sold; (vii) minutes of the relevant Board meetings relating to the sale of shares; and (viii) complete particulars of the consideration received, date and cost of acquisition and resultant capital gain.

The record shows that an opportunity in this regard was initially afforded to the assessee and thereafter another specific notice dated 09.12.2019 was issued calling upon the assessee to furnish the aforesaid particulars. The Assessing Officer also required a company-wise working containing, inter alia, the number of shares sold, date, face value, premium, total consideration, date and cost of acquisition and capital gain.

In response, the assessee stated that the purchase price and the sale price of the shares were the same. The Assessing Officer, however, recorded that no supporting details were furnished in respect of this assertion. In particular, despite further opportunity, the assessee did not furnish the complete particulars required for establishing the cost of acquisition of the shares sold. The Assessing Officer also noted that no capital gain had been disclosed either in the computation of income or in the capital gain schedule accompanying the return of income.

In these circumstances, the Assessing Officer took the sale consideration of Rs.3,66,90,000/- and, with reference to the diminution in the investment appearing in the balance sheet, took the value of the shares sold at Rs.3,29,90,000/-. The difference of Rs.37,00,000/- was accordingly brought to tax as Long Term Capital Gain. The total income was consequently assessed at Rs.38,28,698/-.

Before the learned CIT(A), the assessee challenged the aforesaid addition and contended, in substance, that the shares had been sold at their cost and, consequently, there was no capital gain. The assessee also placed reliance upon ledger accounts and a reconciliation of the share transactions. The impugned appellate order contains the reconciliation furnished by the assessee and records its contention that the Assessing Officer had incorrectly computed the difference of Rs.37,00,000/-. The learned Addl./JCIT(A), however, was not satisfied with the explanation. He observed that the assessee had not placed sufficient independent material to substantiate its contention and referred, inter alia, to the principles laid down by the Hon'ble Supreme Court in CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), Sumati Dayal v. CIT [1995] 214 ITR 801 (SC), and PCIT v. NRA Iron & Steel Pvt. Ltd. [2019] 412 ITR 161 (SC). He ultimately upheld the addition of Rs.37,00,000/- and dismissed the appeal.

We have carefully considered the submissions of the learned Departmental Representative and perused the material available on record. The short question for our consideration is whether, on the material brought on record, the assessee has been able to establish that the cost of acquisition of the shares sold during the relevant previous year was equal to the sale consideration of Rs.3,66,90,000/-, so that no capital gain arose therefrom.

At the outset, we consider it appropriate to clarify that the controversy can be adjudicated without proceeding on the broader premise that the sale transactions themselves were sham or non- genuine. The principal issue arising from the assessment order is much narrower. The assessee claims that the shares were sold at cost. Therefore, even assuming the sale transactions to be genuine, it was incumbent upon the assessee to establish, by cogent material, the cost of acquisition of the particular shares which were transferred during the year.

Section 48 of the Act provides the mode of computation of capital gains. Broadly stated, capital gain is to be computed by reducing from the full value of consideration received or accruing as a result of transfer, the expenditure specified therein and the cost of acquisition and cost of improvement, as applicable. Therefore, once the receipt of sale consideration is established, a claim that there is no taxable gain because the cost of acquisition is equal to such consideration necessarily requires the cost claimed to be demonstrated by reliable evidence.

In the present case, the receipt of Rs.3,66,90,000/- towards sale of shares was noticed from the assessee's own bank account and was also accepted by the assessee before the Assessing Officer. The dispute is, therefore, not regarding the factum of receipt. The dispute concerns the corresponding cost attributable to the shares sold.

It is at this stage that paragraph 4 and the sub-paragraphs of the assessment order, to which the learned DR specifically drew our attention, assume significance. The Assessing Officer had not merely called upon the assessee to furnish a general explanation. He required specific primary evidence capable of identifying the shares sold and correlating them with their acquisition, namely share transfer forms, share certificates, dates of purchase, sale agreements, valuation particulars and a company-wise computation showing the cost of acquisition. These were matters peculiarly within the knowledge and possession of the assessee.

Despite such specific requisition, the assessee confined its explanation substantially to the assertion that the shares had been sold at the same price at which they were purchased. An assertion that the “sale price equals purchase price”, by itself, is not a substitute for proof of the cost of acquisition. If that assertion were correct, the assessee could reasonably have substantiated it by producing the documents expressly called for by the Assessing Officer.

We have also considered the reconciliation and ledger extracts which were subsequently relied upon before the learned CIT(A). Those documents may explain the accounting entries made by the assessee, but they do not, by themselves, establish the cost of acquisition of the particular shares sold unless the entries are correlated with the underlying acquisition documents, share certificates, transfer records and other primary evidence. Significantly, no such material has been placed before us either.

In CIT v. Durga Prasad More [1971] 82 ITR 540 (SC), the Hon'ble Supreme Court explained that the taxing authorities are not required to accept documentary recitals mechanically and are entitled to examine the surrounding circumstances. The relevant observation is: “The taxing authorities were not required to put on blinkers while looking at the documents produced before them.” (para 8)

The principle continues to govern appreciation of evidence in income-tax proceedings. In Sumati Dayal v. CIT [1995] 214 ITR 801 (SC), the Hon'ble Supreme Court reiterated that: “The matter has to be considered in the light of human probabilities.” (para 6)

The Court further recognised that surrounding circumstances may legitimately be examined while deciding whether the apparent represents the real state of affairs.

However, even dehors the aforesaid principles, the present matter turns essentially upon a straightforward evidentiary deficiency. The assessee seeks deduction of a particular cost of acquisition while computing the capital gain, yet the primary evidence necessary to establish such cost was not furnished despite repeated and specific opportunities.

We also find substance in the distinction that the assessee seeks to draw in Ground No.1 between genuineness of the transaction and computation of capital gain. The addition made by the Assessing Officer was not framed as an addition under section 68 of the Act. Therefore, the question before us is not whether the assessee proved the creditworthiness of purchasers in the manner ordinarily examined in proceedings under section 68. To that extent, the observations of the learned CIT(A) regarding identity or creditworthiness are not determinative of the controversy before us. Nevertheless, this does not assist the assessee because the fundamental deficiency noticed by the Assessing Officer remains unanswered, namely, failure to establish the cost of acquisition of the shares actually sold.

The Assessing Officer found from the balance sheet that the value of investment in unquoted shares decreased from Rs.15,88,03,500/- as on 31.03.2016 to Rs.12,58,13,500/- as on 31.03.2017, reflecting a difference of Rs.3,29,90,000/-. Against this, sale consideration aggregating to Rs.3,66,90,000/- had been received. The assessee could certainly have displaced the computation made by the Assessing Officer by furnishing a proper scrip-wise or company-wise reconciliation duly supported by the acquisition documents. However, despite being specifically called upon to do so, the assessee did not furnish such primary material.

Even in the present appellate proceedings before us, the assessee has neither appeared to explain the alleged error in the computation nor produced any material from which it can be demonstrated that the cost attributable to the shares sold was Rs.3,66,90,000/- instead of Rs.3,29,90,000/- adopted by the Assessing Officer. A ground of appeal, howsoever elaborately worded, cannot by itself substitute evidence necessary to dislodge a factual determination made on the basis of the material available on record.

In our considered view, therefore, the assessee has failed to discharge the burden of establishing its claim that the entire sale consideration of Rs.3,66,90,000/- represented merely recovery of the cost of the shares and that no capital gain arose. The contemporaneous record demonstrates that adequate and specific opportunities were granted by the Assessing Officer, yet the relevant primary evidence was not produced. The same deficiency remained substantially unremedied before the learned CIT(A) and remains so before us.

In these circumstances, we find no material warranting interference with the ultimate conclusion reached by the learned Addl./JCIT(A) in sustaining the addition of Rs.37,00,000/-. We accordingly uphold the addition, though for the reasons elaborated hereinabove, principally founded upon the assessee's failure to substantiate the cost of acquisition and to rebut the computation made by the Assessing Officer.

Accordingly, Grounds Nos.1 to 3 raised by the assessee are dismissed. Ground No.4 is general in nature and does not require separate adjudication.

In the result, the appeal filed by the assessee is dismissed.

Mumbai गाड" फाईल / Guard file.

ABHINAV ABHINAV ANANT ANANT स"ािपत "ित //// GAVANDE Date: 2026.10.13 GAVANDE 16:11:08 +05'30' उप/सहायक पंजीकार ( Asst.