DCIT CIRCLE-13, PUNE vs. SHRI AJAY BHALCHANDRA PATHAK, PUNE

ORDER

Per S.S.Godara, JM:

Heard both the parties. Case file perused.

A.Y. 2008-09 (R) Shri Ajay Bhalchandra Phatak order, we note that the latter’s detailed discussion to this effect reads as under: “8.4.8 Issue no. 7 - Till the date of passing assessment order, the shares of Jopasana Software were not transferred. According to the AO, till date of the assessment order was passed, the shares of Jopasana Software were not transferred. Here, the AO is contradicting himself with his other findings. For capital gains u/s 45 of the IT Act, 1961 two ingredients i.e. transfer u/s 2(47) and consideration amount are necessary. Here, the AO himself accepted that the transfer did not take place till the passing of the assessment order. The appellant consistently taking stand that the shares were not transferred however, for advance of the future share transactions was received on 10/04/2007 and in this regard capital gains does not attract in the hands of the appellant in the year under consideration. During the appeal proceedings, the appellant vide letter dated 11/10/2013 stated as under:- “I also wish to place on record that as per the Share Purchase Agreement dated 4/4/2007 and its amendment on 30th July 2010 the share price was renegotiated and amount was received by the appellant in August 2010. /Is such FC-TRC is submitted to Authorised dealers of RBI i.e. Bank of Maharashtra on 20th October 2010 and on receipt of its consent shares have been physically transferred to the investor i.e. Core Objects Inc by signing the physical share transfer form of which copy is already submitted with you. I am attaching copies extracted by me after payment of inspection fees from official website of Ministry of Company Affairs for transfer in Form 20B and Annual Return made upto 30th September 2010 which indicate the above fact of share transfer.” It is evident that the assessment order was passed by the Assessing Officer on 28/12/2010, however, an intimation to the to the RBI in Form FC-TRC for actual share transfer was submitted on 20/10/2010 and a copy of the share transfer form bearing si no. 013642 was submitted to the office of the ACIT Cir-1 (1), Pune on 05/01/2011 in this regard. A copy of the letter submitted to the Bank of Maharashtra is reproduced as under for better clarity:

A.Y. 2008-09 (R) Shri Ajay Bhalchandra Phatak XXXXXXX……………. 8.4.8.2 This stand of the appellant also clarifies from the submission dated 11/10/2013, however for better clarity, the same is reproduced again as under:- “6. As a consequence the appellant has included the capital gain in his ITR in Saral Form 2 for AY 11-12 after making due payment of taxes. Thus as agreed in 4/4/2007 shares are physically transferred in FY 10-11 and capital gain actually reported in ITR. I am submitting a copy of the acknowledgment of return for AY 11-12 alongwith copy of return filed by the appellant for your verification. A copy of share transfer form executed in October 2010 is also attached for record and verification.” 8.4.8.3 Therefore, in view of the above stated facts and documentary evidences, it is clear that as per the SPA dated 04/04/2007 and Form 20B dated 31/08/2010, the actual physical share transfer was taken place in F.Y. 2010- 11. 8.4. 9 Issue no. 8 - Not mentioned about the details of the amount credited in the computation of income. In this regard, it is evident that the appellant filed ITR-2 for the year under consideration on 26/06/2008 declaring total income at Rs. 44,47,432/- and a revised return on 30/07/2008 declaring total income at Rs. 32,62,670/-. During the appeal proceedings, the AR of the Appellant argued that the alleged foreign remittance was considered as an advance for future transactions and also there was no column in the ITR-2 form to inform the authority about the said transactions. However, ITR-2 filled for the A.Y. 2011-12, the appellant mentioned about the alleged foreign remittances in a corner of the form. Therefore, it is concluded that there was no failure on the part of the appellant. 8.4.10. In view of the above facts, discussion and documentary evidences, it is clear that the alleged foreign remittance of Rs. 2,39,69,099/- is an advance only for the future sale of shares to the foreign company. The Assessing Officer erred in considering the alleged amount as undisclosed and illegal transfer of foreign remittances from undisclosed sources, as the appellant has already undergone the necessary steps as per the procedures laid down by A.Y. 2008-09 (R) Shri Ajay Bhalchandra Phatak the Govt of India, FIPB and RBI. The actual physical transfer of shares for which the appellant received the advance remittances/payments was taken place on 20/10/2010 on receipt of the consent from FC-TRC. Also, as per Section 45 of the IT Act, 1961, any profits or gains arising from the transfer of a capital asset effected shall be deemed to be the income of the P.Y. in which the transfer took place. Thus, in the present case, the actual transfer took place in the F.Y. 2010-11, therefore, the profits/gains so arose shall be taxed in A.Y. 2011-12. The appellant has also furnished document to show that long term capital gains of Rs 1,78,51,118/- has been declared in the AY 2011-12. The appellant claimed deduction of Rs 50,00,000/- on account of investment as per provisions of the Sec 54EC. Total income of Rs 1,70,03,161/- was declared in AY 2011-12 and tax of Rs 40,59,487/- was paid. In view of the above, the Assessing Officer is directed to consider the alleged foreign remittance at Rs. 2,39,69,099/- as an advance for the A.Y. 2008-09. Therefore, ground nos. 2 to 4 are treated as ALLOWED.”

A.Y. 2008-09 (R) Shri Ajay Bhalchandra Phatak was in the nature of advance consideration in lieu of transfer of shares. The Assessing Officer went for much a lengthy discussion that the impugned transfer had not been completed after obtaining all necessary approvals even upto assessment. All this resulted in the impugned addition made in assessee’s hands which stands reversed in the CIT(A)’s order.

3.1 We have given our thoughtful consideration to Revenue’s arguments and find no merit therein. It is made clear that the assessee has filed both his computation return pertaining to assessment year 2011-12 (pages 128 to 138) not only suggesting finalisation of the foregoing share transfer agreement but also the fact that the impugned remittance of US $ 559659 stood very well accounted included therein as per his request made to the Ministry of Finance, Department of Economic Affairs, FIPB Unit, New Delhi as well the necessary finalisation furnished to the bank authorities etc., This is indeed coupled with the fact that he has also placed on record Form No.20B as per the provisions of Company Law to this effect. We thus hold in light of these clinching facts that once the department has itself accepted the assessee’s stand in A.Y. 2011-12 regarding transfer of the very shares involving the impugned foreign remittance as consideration thereof, there is hardly reason to adopt a divergent stand in A.Y. 2008-09 treating advance amount as