THE ITO, WARD-1(2)(1), AHMEDABAD vs. SHRI BIPIN BABUBHAI PANCHAL, AHMEDABAD
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Income Tax Appellate Tribunal, AHMEDABAD “A” BENCH, AHMEDABAD
Before: Ms. SUCHITRA KAMBLE & SHRI NARENDRA PRASAD SINHA
PER SUCHITRA KAMBLE, JUDICIAL MEMBER:
This appeal is filed by the Revenue against order dated 11.03.2019 passed by the CIT(A)-10, Ahmedabad for the Assessment Year 2012-13.
The Revenue has raised the following grounds of appeal :-
“(1) The ld. CIT(A) has erred in law and/or on facts in deleting the addition without appreciating the facts that the assessee has earned artificial LTCG from the sales of the shares of a Private Limited Company under liquidation, having inadequate net worth and allowing excess deduction of Rs.37,54,273/- under Section 54F of the Act. (2) The ld. CIT(A) has erred in law and/or on facts in accepting the sale price of share/unit at Rs.2,85,770/- against value of share/unit at Rs.2,04,180/- adopted by the AO based on the net worth of Private Limited Company under liquidation.
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(3) On the facts and circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer. (4) It is, therefore, prayed that the order of ld. CIT(A) may be set aside and that of the Assessing Officer be restored.” 3. Return of income declaring total income at Rs.11,77,540/- was filed by the assessee on 31.07.2012. The return was processed under Section 143(1) of the Income Tax Act, 1961 and notice under Section 143(2) of the Act was issued on 12.08.2013 as well as notices under Section 142(1) of the Act were issued on 06.03.2014 & 24.11.2014 alongwith detailed questionnaire. In response to the said notice, the assessee filed details/evidences as well as the submissions. The assessee derives income from trading and commission business as well as income from other sources. The Assessing Officer observed that the assessee has debited expenses on the head of Depreciation Expenses, Petrol & Diesel expenses and Tea & Refreshment Expenses. The same was disallowed to the extent of 1/5th thereby making addition of Rs.31,424/- by the Assessing Officer. The Assessing Officer further made addition of Rs.1,190/- towards the Telephone Expenses. Thus, the Assessing Officer passed Assessment Order dated 23.03.2015 which was subsequently set aside by the PCIT under Section 263 of the Act. Subsequently, the Assessing Officer vide order dated 26.12.2017 passed under Section 143(3) read with Section 263 of the Act observed that the assessee has sold shares of M/s. Machinery & Equipments Manufacturers Pvt. Ltd. and earned Long Term Capital Gain (LTCG) from these unquoted shares. After taking cognisance of the submissions of the assessee, the Assessing Officer made addition of Rs.1,05,65,905/-.
Being aggrieved by the Assessment Order dated 26.12.2017, the assessee filed appeal before the CIT(A). The CIT(A) partly allowed the appeal of the assessee.
The Ld. DR submitted that the CIT(A) erred in deleting the addition without appreciating the fact that the assessee has earned artificial LTCG from the sales of shares of a Private Limited Company which was not liquidated and was not a listed Company. In fact, the CIT(A) is silent on Rule 11UA(c)(b) regarding the manner of valuation and in fact the Assessing Officer was right in invoking the valuation as envisaged in the Assessment Order thereby demonstrating that the assessee is showing excess LTCG and is claiming 54F deduction. In fact, the Assessing Officer
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became obliged as per the direction of Section 263 and PCIT’s invocation and, therefore, the CIT(A) should have taken cognisance of the same. Ld. DR further submitted that as relates to ground no.2, the CIT(A) erred in accepting the sale price of share/unit at Rs.2,85,770/- against value of share/unit at Rs.2,04,180/- adopted by the Assessing Officer based on the net worth of Private Limited Company under liquidation. Thus, the ld. DR prayed that the addition made by the Assessing Officer be confirmed.
The ld. AR submitted that the CIT(A) has categorically taken a view that the Assessing Officer has misdirected while observing that the company namely M/s. Machinery & Equipment Manufacturers Private Limited and its market valuation of the land thereby to ascertain value of share in the company for the simple reason that what is sold by the assessee in the instant case if not the company or its assets but the shares held by the said company under Section 50CA inserted by Finance Act, 2017 w.e.f. 01.04.2018 clearly set out that it is only where the consideration received or accruing as a result of transfer of unquoted share of a company is less than the fair market value, then value as determined in the prescribed manner shall be deemed to be full value of consideration. The CIT(A) further observed that the purchaser of the shares are the rival Cambatta Group who wanted to take steps earlier to remove the assessee group from management and they have assumed full control over the company after having purchased the shares of the assessee. Thus, the purchaser group not only considered all the facts including future value of the assets of the company but also the fact that after purchasing the shares of the assessee, they had uninterrupted and hindrance-free control of running or managing the company. The CIT(A), therefore, has given finding that the explanation offered by the assessee clearly indicate that the assessee derived capital gain and, therefore, restricted the said consideration to Rs.2,64,41,310/- as against actual sale consideration received of Rs.3,70,07,215/-. As regards to ground no.2 of Revenue’s appeal, the ld. AR submitted that the actual investment was rightly considered by the CIT(A) after deduction under Section 54AF of the Act and, therefore, the same is allowable. So, the disallowance of Rs.37,54,273/- was rightly deleted.
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We have heard both the parties and perused all the relevant material available on record. It is pertinent to note that the computation of fair market value of shares relating to land value alongwith factory building by the Assessing Officer in respect of paid up share capital of M/s. Machinery & Equipments Manufacturers Pvt. Ltd., the component of status of the company under liquidation as well as the interest of the Cambatta Group of the same company has been clearly and categorically demonstrated in the observation made by the CIT(A) in paragraph no. 4.4 of the order of the CIT(A). In fact, the CIT(A) categorically observed that the Assessing Officer made direct enquiry by issuing notices under Section 133(6) of the Act on the purchasers (Members of Cambatta Group) and the said reply clearly indicates that the purchased shares was agreed at the rate of Rs.2,85,770/- per share which included intrinsic value of the land as also by doing such purchase they have been able to take 100% control over the company and, therefore, the sale of those shares of the ongoing company was justifiable and cost of Rs.2,85,770/- per share was rightly paid by the assessee in respect of intrinsic value of the share. There is no need to interfere with the finding of the CIT(A). Hence, ground no.1 of the Revenues appeal is dismissed. As regards to ground no.2, the genuineness of the expenses was rightly proved by the assessee thereby giving the details related to brokerage paid, legal fees, as well as the other components and the claim of exemption by investment in new residential house was justified by the assessee. Thus, the disallowance was rightly deleted by the CIT(A). There is no need to interfere with the finding of the CIT(A). Hence, ground no.2 of the Revenue’s appeal is also dismissed.
In the result, appeal of the Revenue is dismissed.
Order pronounced in the open Court on this 27th August, 2024.
Sd/- Sd/- (NARENDRA PRASAD SINHA) (SUCHITRA KAMBLE) Accountant Member Judicial Member Ahmedabad, the 27th August, 2024 PBN/*
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Copies to: (1) The appellant (2) The respondent (3) CIT (4) CIT(A) (5) Departmental Representative (6) Guard File
By order UE COPY
Assistant Registrar Income Tax Appellate Tribunal Ahmedabad benches, Ahmedabad
