Income Tax Appellate Tribunal - Delhi
Joint Commissioner Of Income Tax, Delhi vs Spank Management Services Pvt. Ltd, ... on 6 May, 2026
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH, 'B': NEW DELHI
BEFORE SHRI SUDHIR KUMAR, JUDICIAL MEMBER
AND
SHRI MANISH AGARWAL, ACCOUNTANT MEMBER
ITA No.490/Del/2025
[Assessment Year: 2016-17]
Spank Management Services The Deputy Commissioner of
Private Limited, income Tax, Circle-22(2),
B-6/17, Safdarjung Enclave, Vs C.R. Building,
New Delhi-110029 New Delhi-110002
PAN-AAICS5637G
Assessee Revenue
ITA No.1283/Del/2025
[Assessment Year: 2016-17]
The Deputy Commissioner of Spank Management Services
income Tax, Circle-22(2), Private Limited,
C.R. Building, Vs B-6/17, Safdarjung Enclave,
New Delhi-110002 New Delhi-110029
PAN-AAICS5637G
Revenue Assessee
Assessee by Dr. Rakesh Gupta, Adv. and
Shri Saksham Agarwal, CA
Revenue by Ms. Pooja Swaroop, CIT(DR) and
Ms. Kanchan Garg, Sr. DR
Date of Hearing 12.02.2025
Date of Pronouncement 06.05.2025
ORDER
PER MANISH AGARWAL, AM,
This Cross appeals by the assessee as well as by the Revenue are directed against the order of National Faceless Appeal Centre/Ld. Commissioner of Income (Appeals), New Delhi, having DIN No. 2 ITA No.490/Del/2025 ITA No.1283/Del/2025 ITBA/NFAC/S/250/2024-25/1071728032(1) dated 31.12.2024 pertaining to Assessment Year 2016-17, arising out of assessment order dated 30.12.2018 passed under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as 'the Act').
2. Brief facts of the case are that the assessee is a company engaged in the business of providing project consultancy services and also having income from sale of investment. The Return of Income for the year under appeal was e-filed on 13.10.2016, declaring total income at Rs.2,94,52,620/- under normal provisions of the Act and book profit of Rs.13,51,52,500/- was declared u/s 115JB of the Act. The case of the assessee was selected for scrutiny under CASS and notice under section 143(2) of the Act was issued on 11.08.2017. Thereafter, notice under section 142(1) along with questionnaires were issued from time to time, which were duly replied by the assessee and considered by the Assessing Officer. During the year under appeal, assessee has sold part of the investment i.e. 1,57,25,000 shares of Lemon Tree Hotels Ltd. to M/s APG Strategic Real Estate Pool NV, a Netherland based company in terms of share purchase agreement dated 20.04.2025 for a sum of Rs. 37.50 per shares, wherein, for the purpose of computing the profits, assessee has reduced cost price taken on Lot-to-Lot basis i.e. specific cost method and declared Long Term Capital Gain of Rs.1,93,85,522/- and Short-Term Capital Gain of Rs.10,91,52,234/- and further declared book profit at Rs. 13,51,52,500/-. The Assessing Officer rejected specific cost method of the assessee and held weighted average cost as most appropriate method (MAM) and recomputed the capital gain where Short Term Capital Gain was computed at Rs.20,57,19,502/- and Long Term Capital Gain was computed at Rs.18,82,88,838/- as against Rs.10,91,52,234/- and Rs.1,93,85,522/- respectively, declared by the assessee. The Assessing Officer also re-compute book profit and made addition of Rs. 34,46,56,807/-
3 ITA No.490/Del/2025 ITA No.1283/Del/2025to the book profit of the assessee. Besides this, the Assessing Officer made disallowance out of business promotion expenses claimed towards purchases of luxury watches of Rs.62,13,000/- and further disallowed foreign travelling expenses of Rs.21,94,000/- by holding the same as not incurred for the purpose of business.
3. Aggrieved by the said order, the assessee filed appeal before the ld. CIT(A) who vide impugned order dated 31.12.2024 deleted the additions made in book profits recomputing the profit from sale of shares and further deleted the addition of Short Term Capital Gain and Long Term Capital Gain made by applying weighted average method. Besides this, the disallowance made out of expenses incurred on luxury watches of Rs.62,13,000/- is reduced to Rs.51,35,000/- and disallowance on account of foreign travelling of Directors is upheld.
4. Aggrieved by the said order, both the parties are in appeal before the Tribunal, wherein, the assessee has raised following grounds of appeal:-
1(a). That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in confirming the disallowance of business promotion expenses amounting to Rs. 51,35,000/- incurred wholly and exclusively for the business purpose of the appellant company. The Ld. CIT(A) has failed to appreciate that the appellant company has given gifts to business associates to nurture relationships and to generate more business and the AO cannot step into the shoes of the businessman to decide how the business is to be conducted and what expenses need to be incurred.
b). The Ld. CIT(A) has totally ignored the evidences/ explanations/ submissions filed during the assessment and appellate proceedings that the expenses were incurred towards business purposes and fully allowable u/s 37 of the Income Tax Act.
2(a). That on the facts and in the circumstances of the case the Ld. CIT(A) has erred in confirming disallowance of Foreign Travelling expense amounting to Rs. 21,94,000/- incurred wholly 4 ITA No.490/Del/2025 ITA No.1283/Del/2025 and exclusively for the business purpose of the appellant company.
(b). The Ld. CIT(A) has failed to appreciate that the directors and associates have made business trips for the purpose of business exigencies of the appellant company and the AO cannot step into the shoes of the businessman to decide how the business is to be conducted and what expenses need to be incurred.
(c). The Ld. CIT(A) totally ignored the evidences/explanations /submissions filed during the assessment and appellate proceedings that expenses were incurred towards business purposes and fully allowable u/s 37 of the Income Tax Act.
5. The Revenue has taken following grounds of appeal:-
1. Whether on facts and circumstances of the case and in law, Ld. CIT(A) has erred in deleting the addition of Rs. 32463139 under the head Capital Gain.
2. Whether on facts and circumstances of the case and in law, Ld.CIT(A) has erred in deleting the addition of Rs.34,46,56,807 in the income computed u/s 115JB of the Act.
6. First, we take up assessee's appeal in ITA No.490/Del/2025.
ITA No.490/Del/2025 (Assessee's Appeal)7. The ground of appeal No.1 of the assessee is with respect to the confirmation of disallowance of Rs. 51,35,000/- incurred on the purchase of watches claimed under the head business promotion expenses.
8. Before us, ld. AR of the assessee submits that assessee is engaged in the business of providing project consultancy services and also having large investment in Lemon Tree Hotels Ltd., and on various occasions, gifts were given in the shape of luxury watches to the customers/persons who has provided business to the assessee. The ld. AR submits that the expenses were incurred wholly and exclusively for the purposes of business and the Assessing Officer cannot walk into the issue of the businessman to decide 5 ITA No.490/Del/2025 ITA No.1283/Del/2025 how the business is to be conducted. The ld. AR submits that in the business of consultancy, such type of customary gifts played a major role in procuring new business avenues and to maintain good and healthy relationship and thus in the interest of business, assessee purchases and, which were gifted to important customers. Ld. AR submits that during the course of assessment proceedings, assessee filed copy of ledger account of business promotion expenses and submits that since the expenses were incurred wholly and exclusively for the business and under business expediency, therefore, the same deserves to be allowed.
9. On the other hand, the ld. CIT-DR vehemently supported the order of the lower authorities and submits that assessee had purchased six Rolex Watches on various dates ranging between Rs. 5.00 lakhs to Rs.21.00 lakhs each and assessee never filed the details of the person to whom these watches were given. Ld. CIT DR further submits that assessee has filed to establish that the business advantages received by extending expensive gifts such as luxury watches. As per ld. CIT DR, it appears that these watches were purchased for personal uses of the Directors' and claimed the business promotion expenses in the books of accounts. As the assessee has failed to establish the business nexus with the expenses incurred therefore ld. CIT-DR, requested to confirm the order of the lower authority who has rightly confirmed the disallowance.
10. Heard both the parties and perused the material available on record. The issue in this ground of appeal is with respect to the genuineness of the business promotion expenses of Rs. 51,35,000/- disallowed by the Assessing Officer of purchase of luxury watches. Originally total disallowance of Rs.62,13,000/- was made by the Assessing Officer, out of which ld. CIT(A) observed that Rs. 10,78,000/- was reversed and thus deleted the same and 6 ITA No.490/Del/2025 ITA No.1283/Del/2025 remaining disallowance of Rs. 51,35,000/- was confirmed. It is observed that assessee has failed to even provide name of persons to whom the gifts in the shape of Rolex watches were given by the assessee nor any details were filed with respect to the business expediency of giving such expensive gifts. The assessee also failed to file the details of benefits received by the assessee company by making expensive gifts. Once the assessee has failed to establish the business expediency and nexus between the expenses claimed and the benefits received by making such expenses more particularly when they were claimed under the head business promotion expenses. The assessee has also not furnished any substantial evidence as to the persons to whom such benefits provided were actually fruitful towards promoting the business of the assessee company. It is the duty of the assessee to provide all the necessary details in support of claim that the expenses have been incurred wholly and exclusively for the purpose of business to claim the expenses under section 37(1) of the Act which has not been established in the instant case. Therefore, we find no error in the order of the lower authority in confirming the disallowance made. Accordingly, ground no.1 raised by the assessee is dismissed.
11. Ground no.2 of the appeal raised by the assessee is with respect to the disallowance of Rs.21,94,000/- made out of foreign travelling expenses of Directors
12. Heard both the parties and perused the material available on record. The Assessing Officer by observing that Director as well as employee had undertaken foreign visits and expenses were incurred on their boarding and lodging expenses, disallowed the same by alleging that the assessee has failed to establish the business expediency of such expenses which was confirmed by ld. CIT(A). From the perusal of the details filed of the foreign travelling 7 ITA No.490/Del/2025 ITA No.1283/Del/2025 expenses as provided in paper books pages 35 to 37, it is observed that majority of trips were carried out by the Director of assessee company and on two occasions, Chief Design Officer of Lemon Tree Hotels Ltd. has visited along with Director. It was the claim of the assessee that these visits were undertaken to get latest interior and exterior designs and to gain the knowledge of technical advantages and eco-friendly practices in the field of hotels business. It is observed that both the Director of the assessee company namely Mr. Patanjali Govind Keswani and Mrs. Saranita Keswani have travelled separately to various countries and they were never travel together. Therefore, it cannot be said that the trips are personal visits or pleasure trips. On some occasions, the Chief Designer of M/s Lemon Tree Hotels, main clients of the assessee had gone for trips to Germany and Spain. From these facts, it could be evident that majority of the travelling was carried out for the purpose of business as the assessee is in the business of consultancy and its main client M/s Lemon Tree Hotels. In order to gain the knowledge about the latest technological advancements in hotel business, visits were under taken to various countries which cannot be doubted. In view of these facts, we are of the considered view that the expenses incurred by the assessee on the foreign travelling of Director on multiple occasions cannot be held as non- business expenditure however, as the assessee has failed to provide complete details of each individual trip coupled with the advantages/purposes of visits, therefore in the larger interest of justice, disallowance @ 25% of the total expenses is confirmed and balance is deleted. Accordingly, Ground of appeal No. 2 of the appeal is partly allowed.
13. In the result, the appeal of the assessee is partly allowed.
14. Now coming to the appeal of the Revenue in ITA No.1283/Del/2025.
8 ITA No.490/Del/2025 ITA No.1283/Del/2025 ITA No.1283/Del/2025 (Revenue's Appeal)15. In Revenue's appeal, both the grounds of appeal are with respect to the deletion of addition made towards in the Capital Gains of Rs. 3,24,63,139/- and addition under the book profit of Rs.3,44,65,807/-. It is observed that the revenue has challenged the addition towards capital gains of only 3,24,63,139/- which is the final figure of income computed by the AO under the head "Income of capital Gains" after claiming set off of the brought forwards unabsorbed long term and short terms capital loss. The AO has computed total income under the head capital gains of Rs. 39,50,46125 comprising of Short Term Capital Gains (STCG) (Non STT Paid) of Rs.20,57,19,502/-; Short Term Capital Gains (STCG) (STT Paid) of Rs. 10,37,785/- and Long Term Capital Gain (LTCG) of Rs. 18,82,88,838/- as against Rs.10,91,52,234/-, Rs. 10,37,785/- and Rs.1,93,85,522/- respectively, declared by the assessee.
16. As observed above, during the year under appeal, assessee has sold shares of M/s Lemon Tree Hotels Ltd., wherein the cost of acquisition was taken by the assessee as specific cost method, where assessee has taken actual cost of purchases of shares sold on the basis of distinctive number of shares and number of shares certificate. The Assessing Officer alleged that cost of shares is to be taken by following FIFO method and per share cost of acquisition was computed by taking weighted average and addition of Rs.34,46,56,807/- was made under section 115JB of the Act in book profits. Further for the purpose of computing LTCG and STCG, same analogy was adopted by the AO and recompute the capital gain where the Short Term Capital Gain was computed at Rs. Rs.20,57,19,502/-/- as against Rs.10,91,52,234/- resulting into an addition of Rs.9,65,67,268/-. Likewise, for the Long Term Capital Gain, the Assessing Officer computed the same at Rs.18,82,88,838/- as against Long Term Capital declared by the assessee at 9 ITA No.490/Del/2025 ITA No.1283/Del/2025 Rs.1,93,85,522/- it resulting into an addition of Rs. 16,89,03,316/-. The Assessing Officer by allowing the set off of brought forward of unabsorbed of Long Term Capital Gain and Short Term Capital Gain of Rs.36,25,82,986/- and computed total taxable income under the head Income from Capital Gain at Rs.3,24,63,139/ under normal provisions of the Act. In the first appeal, the ld. CIT(A) has deleted both the additions and accepted the cost of acquisition declared by the assessee on specific cost method. Thus, the Revenue is in appeal before the Tribunal.
17. Before us, the ld. CIT-DR vehemently supported the order of the AO and submits that section 45(2A) provides that cost of acquisition and period of holding of any security shall be determined on the basis of first in first out method (FIFO). The ld. CIT-DR submits that the CBDT also in terms of Circular No.704 dated 28.04.1995 held that where securities are acquired in several lots at different points of time, FIFO method shall be adopted to reckon the period of holding of security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips. Accordingly, ld. CIT-DR submits that assessee has wrongly computed the period of holding as well as cost as per distinctive number of shares and share certificates number of each individual lot sold as against which FIFO method is to be applied. It is, therefore, humbly prayed that the action of the Assessing Officer in computing the period of holing by following the FIFO method and for the purpose of cost of acquisition in terms of section 45(2A) of the Act is correct and the same deserves to be upheld.
18. On the other hand, ld. AR of the assessee support the order of ld. CIT(A) and submits that figures noted in Ground of appeal No.1 of the Revenue needs to corrected to the extent that the Revenue has challenged the deletion of addition of Rs.3,24,63,139/- under the head Capital Gain, which 10 ITA No.490/Del/2025 ITA No.1283/Del/2025 was the figure after reducing the brought forward unabsorbed losses and the correct figure of the addition made by the Assessing Officer and deleted by the Ld. CIT(A) was of Rs. 9,65,67,268/- on account of Short-Term Capital Gain and Rs.16,89,03,316/- on account of Long-Term Capital Gain. With respect to the merits of the addition, the ld. AR drew our attention to the fact that the assessee was having investment in the shares of M/s Lemon Tree Hotels Pvt. Ltd., which were sold during the year under appeal. The assessee purchased these shares on various occasions and was in possession of precise details of cost incurred at the time of purchases/ subscribe each individual share and also have the details of distinctive Nos and corresponding Share certificate Number. Therefore, while computing the capital gain, assessee has taken actual purchases cost of each share sold on the basis of the share certificate number transferred coupled with the corresponding distinctive numbers such shares sold. In other words, since cost of each individual share certificate was available with the assessee thus actual cost of that particular share certificate transferred was taken as the cost of acquisition for taking the period of holding as well as computing the amount of capital gains. The relevant details of share certificates, corresponding Distinctive Nos. and cost of each share certificate and the amount of capital gains as computed by the assessee were filed before the Assessing Officer in terms of letter dated 27.12.2018, paced at paper book pages 103 onwards. The ld. AR drew our attention to page 110 onwards which contains the lotwise details of each shares certificate transferred having distinctive number of shares transferred and date of transfer as per share transfer deed. In support of the same, assessee also filed copies of share transfer deeds and relevant copy of the shares certificate having distinctive numbers for every share transferred during the year. The ld. AR submits that on each occasion, when the shares were purchased/allotted to the assessee company, it was recorded in the books of account and thus when these shares were sold, cost price as well as 11 ITA No.490/Del/2025 ITA No.1283/Del/2025 the period of holing was taken as recorded in the books of account on the basis of distinctive number. The ld. AR submits that the Board Circulars relied upon by the Revenue also states that in case where the specific details of datewise purchases and sales with specific numbers of scripts is not available, the FIFO method should be applied. However, in the instant case, the assessee was having complete and precise details of cost of each individual share purchased at different point of time and has been able to establish the nexus between the share certificate purchase and transferred during the year, therefore, in terms of Board circular, assessee was not to follow FIFO method for calculating the period of holding and computation of capital gains. Ld. AR thus, requested for the confirmation of the order of the ld. CIT(A) in this regard who after appreciating these facts has deleted the addition made by the AO.
19. With respect to the deletion of addition of book profit of Rs.34,46,56,807/-, the ld. AR submits that when the assessee has followed regular method of accounting for the purpose of recording the cost of investment and to compute book profits from the sale of such investment. Once the assessee has claimed cost of acquisition on the basis of cost recorded in the books of each individual share certificate transferred during the year, therefore, the book profit computed by the assessee is in accordance with the accepted accounting principle and therefore requested for the confirmation of the order of the ld. CIT(A) in deleting the addition made. He prayed accordingly.
20. We have heard both the parties and perused the material available on record. There are two issues with respect to the sale of shares, first is towards the addition of Rs.34,46,56,807/- was made by the Assessing Officer in the book profits for the purposes of computing tax under section 115JB of 12 ITA No.490/Del/2025 ITA No.1283/Del/2025 the Act. Another addition of Rs. 9,65,67,268/- was made towards Short Term Capital Gain and of Rs.16,89,03,316/- was made under Long Term Capital Gain by holding that the cost of acquisition declared by the assessee is not proper and it should be taken by following FIFO method. The ld. CIT(A) while deleting the additions made in the book profit had given specific finding in para 5.5 of the order, which are reproduced as under:-
"..The appellant is the promoter company of M/s. Lemon Tree Hotels Ltd. The appellant has maintained a separate ledger account for each lot of share purchased by it. The assessee has submitted these ledger accounts of investment in shares of M/s. Lemon Tree Hotels Ltd. for Financial Year 2015-16 showing that separate ledger account have been maintained for each lot of share. The appellant held the shares in physical form and it has adopted specific share sale method for ascertaining cost for each sale of share during the year i.e. separate cost have been identified for each share sold based on the distinctive number and certificate number of shares sold and purchased.
The appellant filed lot-wise details of shares held by it of M/s. Lemon Tree Hotels Ltd. and also filed copy of share certificates and share transfer deeds duly mentioning the certificate number and distinctive numbers of each lot of shares sold.
During the year the appellant company has sold 15725000 shares of M/s. Lemon Tree Hotels Ltd. for which it has computed cost at Rs.434350709/- sale price at Rs.583287500/- and profit of Rs.148936791/-. The book profit has been credited to the profit and loss account. The AO in the assessment order has computed the cost of shares sold at Rs.8,96,93,901/-by using weighted average cost method and has consequently increased the net profit of the company by a sum of Rs. 344656807/-.Accordingly, AO has computed tax on enhanced book profit u/s 115JB of the Income Tax Act. The appellant maintains that it has prepared its financial statement in accordance with Indian Generally Accepted Accounting Principles (IGAAP) as has been certified by the Statutory Auditors in the audited accounts. The AO while passing the assessment order has mentioned that the appellant as per AS-13 was required to adopt the average weighted cost method for computing the cost of the shares sold whereas the assessee has instead adopted specific share sold method which is not an accepted method. The AO has also mentioned that while following specific share cost method, the appellant has picked up the shares in arbitrary manner without following any accounting principles.13 ITA No.490/Del/2025 ITA No.1283/Del/2025
According to the Assessing Officer there are only two methods for valuation of the cost of investments, one is FIFO and another is weighted average cost method. In his opinion the assessee has not followed any of the two methods. On this basis the AO has made an addition of Rs.34,46,56,807/- to the book profit of the appellant. I have gone through the brief submissions filed by the appellant and also the observations of the AO in the assessment order. The appellant is holding the shares in physical form. The share certificates are available for each lot of shares purchased by him which were duly filed before the AO. The appellant at the time of sale of shares has handed over the share certificates to the purchaser of shares. The specific share certificates sold can be correlated with the certificate numbers and distinctive numbers of shares. The appellant has computed the cost of each shares sold based on the certificate number of the shares sold and the distinctive numbers. The appellant has maintained separate ledger account for each lot of shares held by him. This clearly demonstrate that each lot of shares of M/s. Lemon Tree Hotels Ltd. purchased by the appellant company at different rates in various financial years represents a separate investment for the purpose of the assessee. Since a separate ledger account is maintained for each such investments, accordingly, the appellant has correctly identified the cost of shares sold on the basis of distinctive numbers of shares and certificate number of shares from the individual lot sold and has duly complied with the provisions ofAS-13 as prescribed by the Institute of Chartered Accountants of India. Therefore, I do not find any irregularity in the method of computation of cost made by the appellant and there is no occasion to alter the net profit as computed by the appellant company in its audited accounts.
Before concluding the above issue, It is imperative to note that the accounts of the appellant were duly audited by Statutory Auditors of the company and were duly approved by the Board of Directors and shareholders of the company and were also filed with the Registrar of Companies.
The appellant has also filed the extract of minutes of its AGM from which it is seen that the audited accounts were adopted by the shareholders on 16.09.2016.
InmyopiniontheAOhastravelledbeyondhisjurisdictionformakingadjust mentinthebooks profit which were duly accepted by the general body of shareholders in the AGM. For the purposes of section 115JB, the adjustment to net profit can be made only on the basis of items enumerated in Explanation I of Section 115JB of the Income Tax Act.14 ITA No.490/Del/2025 ITA No.1283/Del/2025
The AO cannot go behind the net profit as shown in the audited accounts and make alterations to such net profit. The aforesaid issue is squarely covered by the ruling of the Hon'ble Supreme Court in the case of Appollo Tyres Vs. CIT (253ITR273) and the findings of the Hon'ble Supreme Court is as under:-
"The Assessing Officer, while computing the book profits of a company under section 115J of the Income-tax Act, 1961, has only the power of examining whether the books of account are certified by the authorities under the Companies Act as having been properly maintained in accordance with the Companies Act. The Assessing Officer, thereafter, has the limited power of making increases and reductions as provided for in the Explanation to section 115J. The Assessing Officer does not have the jurisdiction to go behind the net profits shown in the profit and loss account except to the extent provided in the Explanation. The use of the words " in accordance with the provisions of Parts II and III of schedule VI to the Companies Act" in section 115J was made for the limited purpose of empowering the Assessing Officer to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the Assessing Officer has to accept the authenticity of the accounts with reference to the provisions of the companies Act, which obligate the company to maintain its accounts in a manner provided by that Act and the same to be scrutinized and certified by statuary auditors and approved by the company in general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and be satisfied that the accounts of the company are maintained in accordance with the requirements of the Companies Act. Sub-section (1A) of section 115J does not empower the Assessing Officer to embark upon afresh enquiry in regard to the entries made in the books of account of the company.
Held accordingly, that, while determining the "book profits"
under section115J, the Assessing officer could not re-compute the profits in the profit and loss account by excluding provisions made for arrears of depreciation."
Similar findings have been given in various other orders of Supreme Court / various other High Courts and the matter is squarely covered in favor the appellant. In view of the aforesaid jurisdiction pronouncements, it is held that the AO has erred in making an addition of Rs.344656807/- and re computing the book 15 ITA No.490/Del/2025 ITA No.1283/Del/2025 profit while computing the tax u/s 115JB of the Income Tax Act and the aforesaid addition made by the AO is hereby deleted. Hence, ground Nos 1 to 5 are allowed..."
21. Likewise, with respect to the additions made under normal provisions of tax for computing Long Term Capital Gain and Short Term Capital Gain, ld. CIT(A) has deleted the additions by making following observations:-
The facts of Grounds No. 6 to 11 is similar to the fact of grounds No. 1 to 5. The appellant has sold 15725000 shares of M/s. Lemon Tree Hotels Ltd. The appellant has received total considerationofRs.583287500/-on sale of the shares and the appellant in its computation of income has shown short term capital gain of Rs.109152234/- and long term capital gain of Rs. 19385522/-. The appellant held the shares in physical form and has adopted specific share sale method for ascertaining cost of shares sold i.e. specific cost have been identified for each shares sold on the basis of distinctive number and certificate number of shares sold and shares purchased.
The Assessing Officer while passing the assessment order has held that the cost of the shares should have been ascertained on FIFO basis and has considered the cost of shares at Rs.150219782/-as against cost of Rs.434350709/- computed by the appellant. It is strange to note that the AO himself has computed the cost of shares sold at Rs. 89693901/- while computing the book profit u/s115JB of the Income Tax Act and at Rs.150219782/- while computing the long term capital and short term capital gain as per normal provisions of the Income Tax Act.
I have gone through the submissions of the appellant and also the findings of the AO. The assessee has held the shares of Lemon Tree Hotels Ltd. in physical form wherein each share is evidenced by a share certificate. The cost of acquisition of the shares has to be computed as per provision of section 45(2)(a)of the Income Tax Act. As per Circular No.704 dated 28.04.1995 issued by the CBDT, it has been clarified that in case where the date /cost of purchase and sales cannot be correlated with the specific number of scrips where securities are acquired in different lots at different part of time, then in such cases FIFO method should be adopted. In the case of the appellant, the purchase and sale of shares can be correlated through distinctive number of shares and the certificate numbers. As a result, it is possible to ascertain the cost of individual shares sold. The appellant has computed the cost of 16 ITA No.490/Del/2025 ITA No.1283/Del/2025 acquisition on this basis only. Further, CBDT vide circular No. 768 dated 24.06.1998 has further clarified that where the shares are in Demat form, then the certificate number and distinctive number of shares are no longer available and therefore in such cases cost of shares the shares sold should be considered on FIFO basis. The aforesaid CBDT circulars squarely covers the case of the appellant and it appears that the appellant has ascertained profit on sale of shares on sound basis. Therefore, the calculation of capital gain made by the appellant are duly accepted and the addition of Rs.96567268/- and Rs.168903316/- made by the Ld. AO towards short term capital gain and long term capital gain respectively are deleted. Hence ground nos 6 to 11 are allowed...."
22. As observed above, while making additions, the Assessing Officer has applied FIFO method for the period of holding as well as for cost of acquisition for the purpose of computing Long Term Capital Gain and Short Term Capital Gain. The CBDT vide Circular No.768 dated 24.06.1998 has observed that section 45(2A) stipulates that where the shares were held as dematerialized form, the cost of acquisition and period of holding is to be taken as per FIFO method. This circular is applicable where the share are held under dematerialized form and its certificate number and distinctive numbers are not available. However, in the instant case, assessee has transferred the share in physical form where Share certificate number and corresponding distinctive number of each share transferred is available thus the Circular No. 704 dated 28.04.1995 issued by the CBDT is applicable where the CBDT observed that "where securities are acquired in several lots at different points of time, FIFO method shall be adopted to reckon the period of holding of security, in cases where the dates of purchase and sale could not be correlated through specific numbers of the scrips."
23. The assessee also filed detailed chart before the lower authorities placed in the paper book, wherein, details of each share certificate transferred with corresponding distinctive number and cost thereof incurred by the 17 ITA No.490/Del/2025 ITA No.1283/Del/2025 assessee is stated. The assessee also filed copies of respective share certificate and share transfer deed with respect to the shares sold/transferred during the year. All these documents are available in the pages 110 to 523 of the paper book filed before us. At pages 105 to 108, the assessee has given the details of lot wise cost of shares acquired old and sold during the year under appeal. In the said chart, the assessee has provided details of cost of each share certificate transferred and computed Short-Term Capital Gain and Long Term Capital Gain as per the period of holding.
24. Before us, Revenue has failed to controvert the findings of ld. CIT(A) who after appreciating all these facts and upon verification of the same held that the once the assessee has been able to demonstrate cost of acquisition taken on specific cost basis with the support of relevant share certificate with the corresponding cost recorded in the books of accounts and further able to co-relate the same with distinctive numbers of the shares sold, such method of accounting cannot be rejected in view of Board Circular No. 704 dated 28.04.1995 issued by the CBDT. In view of these facts, we find no error in the order of the Ld. CIT(A), who has appreciated the fact that the assessee has been able to demonstrate the method of accounting regularly followed to record the transactions of investment in shares and further computation of capital gain by placing on record every possible fact and evidence with respect to the period of holding and cost of acquisition of the respective share certificate transferred during the year as the share transferred deeds further placed on record. Therefore, the order of ld. CIT(A) is hereby upheld. Both the grounds of appeal of the Revenue are dismissed.
25. In the result, the appeal of the Revenue is dismissed.
18 ITA No.490/Del/2025 ITA No.1283/Del/202526. Finally, the appeal of the assessee in ITA No.490/Del/2025 is partly allowed and appeal of the Revenue in ITA No.1283/Del/2025 is dismissed.
Order pronounced in the open court on 06th May, 2026.
Sd/- Sd/-
[SUDHIR KUMAR] [MANISH AGARWAL]
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated 06.05.2025.
f{x~{tÜ
Copy forwarded to:
1. Assessee
2. Respondent
3. CIT
4. CIT(A)
5. DR
Asst. Registrar,
ITAT, New Delhi,