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Income Tax Appellate Tribunal, “D” BENCH, MUMBAI
Before: S/SHRI B.R.BASKARAN & SHRI SANDEEP GOSAIN
PER B.R.BASKARAN,AM:
The appeal filed by the assessee is directed against the order dated 21.5.2012 passed by the ld. CIT(A)-28, Mumbai and it relates to the assessment year 2004-05.
Grounds of appeal urged by the assessee relate to the following issues : a) Computation of capital gain on sale of shares of Vivimed Labs Ltd; b) Rejection of claim of indexation while computing the Long Term Capital Gain (LTCG) on sale of shares.
3. We heard the parties and perused the record. The first issue relates to the computation of LTCG on sale of shares of Vivimed Labs Ltd. During the year under consideration, the assessee had sold 160000 shares of Vivimed Labs Ltd at its face value, i.e. at Rs.10/- per share to Mr.Subhash Varalwar, Director of the same company. The assessee had purchased these shares in the year 1996 at the cost of Rs.10/- per share. The shares of the above said company were not listed in the Stock Exchange and further it has also not declared any dividend till 31.3.2004. During the course of assessment proceedings, the AO asked the assessee to furnish Balance sheet of the above said company as on 31.3.2003 and 31.3.2004. The AO noticed that the book value of the shares of the above said company shown at Rs.20.93 per share as on 31.3.2003. The AO further noticed that the assessee had sold the shares to the Director of the Company as per the Memorandum of Understanding dated 2.8.2003 entered between them. The AO further noticed that the shares of M/s Vivimed Lab Ltd were listed subsequently in the Stock Exchange during the year 2005 and the market price of the same was ranging between Rs.115/- per share to Rs.234/- per share. Accordingly, the AO came to the conclusion that the claim of the assessee that she had sold the shares at price of Rs.10/- per share is not acceptable. Accordingly, the AO estimated the share value of shares at Rs.21.69 per share and computed the LTCG. The ld.CIT(A) also confirmed the same and hence the assessee is in appeal before us.
The ld. Counsel appearing for the assessee submitted that the Income Tax Act, 1961 does not give power to the AO to substitute the sale value of shares declared by the assessee without bringing any corroborative material on record to show that the sale price has been understated. Inviting our attention to the various documents filed in the paper book, the ld. Counsel submitted that the assessee along with other
Directors of the above said company about better prospects. However, since the conduct of the company was not up to the satisfaction of the assessee and her relatives, they started persuading the directors of the company to refund the amount invested in shares. He submitted that the assessee started communicating with the company way back from 3.12.1996 onwards. Subsequently, the assessee also sent a legal notice dated 4.11.1998 through her Advocate M/s Malvi Ranchoddas and Co.(regd). Upon continuously pursuing the matter, the directors of the company came forward to purchase shares at its face value. At that point of time, the shares of Vivimed lab Ltd was not listed in the stock exchange and hence the shares did not have market demand. Hence the assessee was constrained to sell the shares to the director of the company. Accordingly the shares were sold by the assessee at the face value as per Memorandum of Understanding dated 2.8.2003 entered between the assessee and director of the company. The Ld A.R further submitted that the assessee has produced all the correspondences before the assessing officer. But the AO, without finding fault with those documents and without bringing any other material on record chose to substitute the sale value of shares with his own value and accordingly computed the capital gain. The Ld A.R, by placing reliance on the decision of Hon’ble Supreme Court rendered in the case of K.P.Varghese (131 ITR 597), submitted that the assessing officer is not entitled to substitute any value without bringing any material on record. The Ld A.R also placed reliance on various other case laws to support his arguments.
The Ld D.R, on the contrary, submitted that the book value of shares was about Rs.20/- per share and further the assessee has failed to show that the same was a distress sale. Accordingly he submitted that the AO
was constrained to substitute the sale value, since no prudent person would not have sold the shares at its par value after expiry of about eight years.
We have heard the rival contentions and perused the record. The documents furnished in the paper book filed by the assessee shows that the assessee and her relatives were pursuing the matter of claiming refund of investment made in the shares of M/s Vivimed lab Ltd since Dec., 1996 onwards. Further, it is an undisputed fact that the shares of the above said company was not listed at that point of time. In the absence of listing of shares in the stock exchange, it should have been difficult for the assessee to sell the shares. Hence, the assessee had no other option, but to take up the matter with the directors of the above said company. When the directors have come forward to purchase the shares at its face value, it appears that the assessee thought it to be wise to sell them at the face value of shares in 2003, since she was following up the matter from 1996 onwards. The documents furnished by the assessee would show that she and her family members were behind the directors of the company for recovery of investments, which included lawyer’s notice sent to them. These documents also show that there is truth in the submissions of the assessee that she was constrained to sell the shares at its face value, since the shares did not have market demand.
On the contrary, we notice that the assessing officer has not brought any material on record to show that the assessee has understated the sale consideration. Though the assessing officer has placed reliance on the Balance sheet to arrive at the book value of shares, yet no material was brought on record to show that the assessee has received any consideration over and above the face value of shares. Hence, in our view, it should be taken as a transaction entered between a willing seller
and a willing purchaser. Hence, we agree with the contentions of Ld A.R that the assessing officer was not justified in substituting the sale value without any corroborative material. For that reason, the Ld CIT(A) was also not justified in confirming the order of the AO. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to recompute the capital gains on sale of shares of Vivimed Labs Ltd by adopting the sales rate at the amount declared by the assessee.
The next issue relates to the rejection of claim of indexation benefit in the computation of long term capital gain on sale of shares. The assessee did not claim indexation benefit at the time of filing return of income, but claimed the same during the course of assessment proceedings by filing revised computation. The AO rejected the same by citing the decision of Hon’ble Supreme Court rendered in the case of Goetz (India) Ltd (284 ITR 323) and the Ld CIT(A) did not adjudicate the said ground. At the time of hearing, the Ld A.R submitted that the assessee is making a claim, which she is legally entitled to. We find merit in the submissions of Ld A.R. Accordingly, we set aside this matter to the file of the AO with the direction to recompute the capital gains by considering the revised computation filed by the assessee.
In the result, appeal of the assessee is treated as allowed for statistical purposes.
Order pronounced in the open court on 9th Dec,2015.
Sd sd (संदीप गोसधई/SANDEEP GOSAIN) ( बी.आर.बास्करन/ B.R.BASKARAN) न्याययक सदस्य/Judicial Member ऱेखा सदस्य /Accountant Member मुंबई Mumbai; ददनांक Dated 9th, Dec,2015 व.नि.स./ SRL, Sr. PS