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Income Tax Appellate Tribunal - Delhi

Arun Kirpal, New Delhi vs Acit, New Delhi on 17 May, 2017

            IN THE INCOME TAX APPELLATE TRIBUNAL
                  DELHI BENCH: 'A', NEW DELHI

            BEFORE SH. C.M. GARG, JUDICIAL MEMBER
                              AND
              SH. O.P. KANT, ACCOUNTANT MEMBER

                         ITA No. 2335/Del/2014
                       Assessment Year: 2008-09

Sh. Arun Kirpal, D-429, Defence Vs. ACIT, Circle-32(1), New Delhi
Colony, New Delhi
PAN : AAAPK5533G
         (Appellant)                         (Respondent)

             Appellant by  Sh. S.K. Bajaj, CA & Sh. R.R. Maurya,
                           Advocate
             Respondent by Sh. S.K. Jain, DR

                         Date of hearing                 13.04.2017
                         Date of pronouncement           17.05.2017

                                 ORDER

Per O.P. KANT, A.M.:

This appeal by the assessee is directed against order dated 10/02/2014 of the Ld. Commissioner of Income Tax(Appeals)-19, New Delhi, (in short 'the CIT-A') for assessment year 2008-09, raising following grounds of appeal:

"That on the facts and in the circumstances of the case:-

1.a That the Ld. CIT(Appeal) erred both in facts and in law while sustaining addition of long term capital gains of Rs.6,06,424/- arising on sale of shares of M/s. Dera Farmindale Private Limited made by the Assessing Officer.

1.b That the Ld. CIT(A) erred both in facts and in law while accepting the value of shares adopted by the Assessing Officer of M/s. Dera Farmindale Pvt. Ltd. of Rs.393.76/- as against the agreed sale price of Rs.270/- per share.

That the Ld. CIT(A) erred both in facts and in law while sustaining the adhoc disallowance of Rs.52,312/- @ 20% made on estimate basis out of Repairs, Telephone expenses and depreciation on Car.

That the appellant craves the leave to add, alter, amend or withdraw all or any ground of appeal either before or at the time of hearing of the appeal."

2. The facts in brief of the case are that the assessee, an individual, was engaged in the business of trading of eatable items like chicken, bakery products etc. through a proprietary concern, namely, M/s. Dera farms. During the year, the assessee also sold shares of a unlisted company. For the year under consideration, the assessee filed return of income on 13/03/2009, declaring total income of Rs.14,45,530/-, which included income from long-term capital gains on sale of unlisted shares. The case was selected for scrutiny and notice under section 143(2) of the Income Tax Act, 1961 (in short 'the Act') was issued and served within the stipulated period. In the assessment completed under section 143(3) of the Act on 10/12/2010, the Assessing Officer made addition of Rs.6,06,424/- under the head 'income from long-term capital gains' and made disallowance of Rs.52,312/- on account of personal expenses under the head profit and gains of business/profession. The Ld. Commissioner of Income-tax (Appeals) upheld the additions/disallowances made by the Assessing Officer. Aggrieved, the assessee is in appeal before the Tribunal raising the grounds as reproduced above.

3. In ground No. 1, the assessee is aggrieved with the addition of long-term capital gain of Rs.6,06,424/-. The facts in respect of the addition are that during the year, the assessee sold 4900 shares of M/s. Dera Farmindale Private Limited i.e. a company in which assessee and his wife were the substantial shareholders, at a sale consideration of Rs.13,23,000/- having rate of Rs. 270 per share. This company was not 3 ITA No.2335/Del/2014 listed on any stock exchange. The assessee contested that the sale consideration received was higher than the fair market value of the equity shares sold. The assessee submitted the computation of Rs.270/- per share received as sale consideration as under:

Sale Price of 4900 Equity Shares @ Rs.270 per shares Rs.13,23,000 Calculation of F.M.V. of shares of Dera Farmindale (P) Ltd.

      Particulars                             Book Value (Rs.)      Fair Market Value (Rs.)
      Cost of Agriculture Land at Rajgarh     4,98,400                     8,50,000
      Building under construction             9,38,245
      Mutual Fund                             16,00,000                    8,50,000
      Bank Balance                            3,15,000                     3,15,000
                                                                           20,15,000


      Fair Market Value of 7500 Equity Shares                       268.67 Per Share
      Fair Market Value of one Equity Share     Rounded off (Rs.)   270.00 Per share

3.1 The assessee further submitted that expenses shown as "building under construction" amounting to Rs.9,38,245/- for computing fair market value of the equity shares, were incurred until March, 2002, towards making fencing, wall construction and rooms etc., which was mitigated and not in use till the date of sale of shares and did not have any market value. Accordingly, the assessee computed fair market value of said expenses towards building under construction at nil. 3.2 The Assessing Officer disputed above contention of the assessee that said expenses on construction were undertaken in 2002 on the ground that the site development expenses as appearing under the head miscellaneous expenditure in the balance sheet as on 31/03/2006 was Rs.11,51,280/- which was further reduced for written off at Rs.9,90,828/-

after adjustment of dividend amount. He further stated that no evidence in support that said building under construction was not having any market value, was filed by the assessee. The Assessing Officer took the book value of said expenses of building under construction amounting to 4 ITA No.2335/Del/2014 Rs.9,38,245/- and computed the fair market value of the shares at Rs.393.76 per share as against Rs.270 per share by the assessee and accordingly made addition of Rs.6,06,424/- under long terms capital gain for sale of 4900 shares.

3.3 The Ld. CIT-A observed that the boundary walls did not cease to have any value in short period of five years. He further observed that the assessee did not file any evidence in support of its arguments. In view of the observations, of the Ld. CIT-A upheld the finding of the Assessing Officer.

4. Before us, the Ld. counsel of the assessee submitted that according to the provisions of capital gains during relevant period, for computing capital gain on transfer of shares, the cost of acquisition of shares and expenditure incurred in connection with transfer of such shares, was required to be deducted from the full value consideration received or accrued as a result of transfer of such shares. The Ld. counsel submitted that consideration received on sale of such shares was of Rs.270 per share, and therefore, the action of the Assessing Officer in replacing the full value consideration received by the assessee by the fair market value, was not in accordance with law. In support of the contention, the Ld. counsel relied on the decision of the Tribunal in ITA No. 1461/Del/2002 for assessment year 1998-99 in the case of Smt. Gurinderjeet Kaur.

5. On the other hand, the Ld. Senior DR, supported the orders of the lower authorities.

6. We have heard the rival submissions and perused the relevant material on record. In the facts of the instant case, the issue in dispute before us is that for computing the capital gain on sale of shares, can full value consideration on sale of shares be substituted by the fair market value of the shares as on date of sale. Section 45(1) of the Act provides 5 ITA No.2335/Del/2014 that any profit gains arising from the transfer of a capital asset effected in previous year shall be chargeable to tax under the head "capital gains". The manner and mode of computation of capital gain has been provided in section 48 of the Act. It is provided therein that the income chargeable under the head "capital gain" shall be computed by deducting from the full value consideration received or accruing as a result of transfer of the capital assets, the expenditure connected with such transfer and cost of the asset under transfer. Thus, a bare reading of the provisions manifest that the starting point of computation of the capital gain is the "full value of consideration" received or accruing. The expression cannot be understood to mean a notional consideration or a consideration, which has not actually been received or accrued to the assessee. To replace the full value consideration with the fair market value, the Act has been amended by finance Act 2017 w.e.f. 01/04/2018 by introducing section 50CA of the Act, which reads as under:

"Special provision for full value of consideration for transfer of share other than quoted share.

50CA. Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer.

Explanation.--For the purposes of this section, "quoted share"

means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business."

7. The above Section 50CA was not in operation during relevant period and it is operative only from 01.04.2018.

8. We find that the issue in dispute has been discussed at length in the order of the Tribunal (supra) and it has been held that the expression "full value consideration" in section 48 cannot be understood as market price of the asset under transfer. The relevant finding of the Tribunal is reproduced as under:

"6. In this context, a gainful reference can be made to the decision of the Apex Court in the case of CIT vs. George Hinderson & Co. Ltd. 66 ITR 622. The Hon'ble Apex Court was considering the meaning of the expression "full value of consideration" in the context of section 12-B of the Indian Income-tax Act, 1922. Section 12-B(2) of the erstwhile Income-tax Act is pari materia to sec. 48 of the present Act with which we are dealing. The following observations of the Apex Court are worthy of notice as under:

"For the reasons already stated, we are of the opinion that the expression "full value of the consideration" cannot be construed as the market-value but as the price bargained" for by the parties to the sale. The dictionary meaning of the word "full" is "whole or entire, or complete" (Shorter Oxford English Dictionary). The word "full" has been used in this section in contrast to "a part of the price". Consequently, the words "lull price" mean "the whole price". Clause (2) of section 12B itself clearly suggests that if no deductions are, made as 'mentioned in sub-clause '(ii) thereof, then that amount represents the full value of the consideration, or the full price. In other words, when deductions are made as specified in sub-clauses(i) and (ii), then that amount does not represent the full value. The expression "full value" means the whole price without any deduction whatsoever and it cannot refer to the adequacy or inadequacy of the price bargained for. Nor has it any necessary reference to the market value of the capital asset which is the subject-matter of the transfer."

7. To the similar effect is the judgment of the Supreme Court in the case of CIT vs. Gillanders Arbuthnot & Co. ( 87 ITR 407 ). Here also, the Apex Court explained the meaning of the expression "full value of consideration. In the case of sale transaction, according to the Apex Court, there was no question of assuming any market value, for the purposes of computation of capital gain.

8. Having regard to the aforesaid discussion, in our view, the expression "full value of consideration" in section 48 cannot be 7 ITA No.2335/Del/2014 understood as market price of the asset under transfer. Hence, in principle, the action of the Assessing Officer in adopting the fair market value instead of the stated consideration, for the purposes of computing capital gain is contrary to law."

9. In the instant case, the Assessing Officer has not been able to point out whether the assessee received any amount more than the consideration shown in the return of income or any amount accrued more than such consideration shown in the return of income. In such circumstances, respectfully following the decision of the coordinate bench of the Tribunal (supra), we hold that the full value consideration received by the assessee and shown in the return of income for computing the capital gain, cannot be replaced by the fair market value of shares computed by the Assessing Officer. As a result, we set aside the order of the Ld. CIT-A on the issue in dispute and direct the Assessing Officer to re-compute the capital gain on the basis of sale consideration declared by the assessee in the return of income. The ground of appeal is accordingly allowed.

10. In ground No. 2, the assessee has challenged disallowance of Rs.52,312/- @20% made on estimate basis out of repairs, telephone expenses and depreciation on car etc. 10.1 The Ld. counsel of the assessee submitted that disallowance made on ad-hoc basis need to be deleted.

10.2 On the other hand, the Ld. Senior DR submitted that the assessee did not provide details of phone calls maintained and log book of the cars etc. and, therefore, in absence of evidences whether the expenses incurred were wholly and exclusively for the purpose of business, the disallowance made by the Assessing Officer and upheld by the Ld. CIT-A was justified.

10.3 We have heard the rival submissions and perused the relevant material on record. We find that the assessee claimed expenses of Rs.1,54,059/- on the vehicle repair and maintenance including depreciation on car and Rs.1,07,403/- as the telephone expenses. The Assessing Officer made disallowances at the rate of 20% amounting to Rs.52,326/- on the ground that personal expenditure could not be ruled out. Before the Ld. CIT-A the assessee failed to substantiate its claim that expenses incurred were wholly and exclusively for the purpose of business. The Ld. CIT-A observed that the assessee had not claimed to have maintained details of phone calls made and log book of the cars and in view of those facts personal use could not be ruled out. In our opinion, the finding of the Ld. CIT-A on the issue in dispute is well reasoned and no interference on our part is required. Accordingly we uphold the finding of the Ld. CIT-A on the issue in dispute. The ground of appeal, is accordingly dismissed.

11. The ground No. 3 of the appeal being general in nature, we are not required to adjudicate upon and hence same is dismissed as infructuous.

12. In the result, appeal of the assessee is partly allowed. The decision is pronounced in the open court on 17th May, 2017.

            Sd/-                                         Sd/-
     (C.M. GARG)                                    (O.P. KANT)
  JUDICIAL MEMBER                              ACCOUNTANT MEMBER
Dated: 17th May, 2017.
RK/-(D.T.D)
Copy forwarded to:
1.     Appellant
2.     Respondent
3.     CIT
4.     CIT(A)
5.     DR
                                                     Asst. Registrar, ITAT, New Delhi