Income Tax Appellate Tribunal - Mumbai
Raju R. Shete (Huf), Mumbai vs Assessee on 30 April, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "D", MUMBAI
Before Shri P.M.Jagtap, Accountant Member
& Shri Amit Shukla, Judicial Member.
I.T.A. No. 2902/Mum/2011.
Assessment Year : 2006-07.
Shri Raju Shete, Dy. Commissioner of
74 Lohtse Ruia Park, Vs. Income-tax-3,
Juhu Tara Road, Juhu, Thane.
Mumbai-400 049.
PAN AALPS9355D
Appellant. Respondent.
I.T.A. No.2904/Mum/2011
Assessment Year : 2006-07.
Shri Raju Shethe (HUF), Dy. Commissioner of
Mumbai. Vs. Income-tax-3, Mumbai.
Appellant. Respondent.
Appellant by : Shri M.A. Gohel.
Respondent by : Ms. Rupinder Brar.
Date of Hearing : 30-04-2012
Date of Pronouncement : 06-06-2012
ORDER
Per P.M. Jagtap, A.M. :
These two appeals filed by the two assessees against two separate orders passed by learned CIT-II, Thane on 08-03-2011 involve common issues and the same, therefore, have been heard together and are being disposed of by this single consolidated order for the sake of convenience.
2 ITA No.2902/Mum/2011 ITA No. 2904/Mum/20112. The assessees in the present cases were holding shares along with two other persons in a company known as Unisol Infraservices Pvt. Ltd. as under :
1) Raju Shete 1,19,000 shares (39.66%)
2) Raju Shete (HUF) 2,500 shares (.84%)
3) Indira R. Shete 1,03,500 shares (34.50%)
4) Hemant Shete 95,000 shares (25%)
During the year under consideration, M/s Radhakrishna Hospitality Services Pvt. Ltd. purchased all the shares of Unisol Infraservices Pvt. Ltd. from the four shareholders including the assessees in the present cases. As per the agreement for sale of shares, Radhakrishna Hospitality Pvt. Ltd. paid initial consideration of Rs.2.70 crores to all the four owners of the said shares including the assessees. Taking into consideration their respective shares in the said initial consideration, the assessees computed long term capital gains arising from sale of shares of Unisol Infraservices Pvt. Ltd. and declared the same in the returns of income filed for the year under consideration claiming exemption u/s 54EC. In the assessments completed u/s 143(3) on 24-12-2008, the AO accepted the long term capital gains as declared by the assessees in their returns of income. The records of the said assessments came to be examined by the learned CIT and on such examination, he found that as per clause 3.2 of the agreement for sale of shares, the consideration for sale of shares was fixed at Rs.20 crores out of which Rs.2.70 crores was paid as initial consideration and balance amount was to be paid in a deferred manner as provided in the said agreement. Since the capital gain was declared by the assessee on sale of shares taking into consideration initial consideration of Rs.2.70 crores only and the said declaration was accepted by the AO in the assessment completed u/s 143(3), the learned CIT was of the view that the assessment orders passed by the AO u/s 143(3) in the cases of the assessees were erroneous as well as 3 ITA No.2902/Mum/2011 ITA No. 2904/Mum/2011 prejudicial to the interest of the Revenue. He, therefore, issued notices u/s 263 to the assessees requiring them to show cause as to why the said assessments should not be set aside and capital gain should not be computed by taking sale consideration of shares at Rs.20 crores. In reply, it was submitted by the assessee that interpretation as sought to be given by the learned CIT to clause 3.2 of the agreement for sale of shares was erroneous. It was submitted that initial consideration of Rs.2.70 crores only was agreed for sale of entire share capital of Unisol Infraservices Pvt. Ltd. and the deferred consideration was to be paid depending on the financial position of the said company for the subsequent four financial years ending on 31st March,2007, 31st March, 2008, 31st March, 2009 and 31st March, 2010. It was submitted that deferred consideration thus was not certain and clause 3.2 of the agreement merely provided that initial consideration and the deferred consideration shall not exceed Rs.20 crores. It was submitted that the amount of Rs.20 crores indicated in clause 3.2 of the agreement thus was not the consideration agreed upon but the same was the maximum amount payable against sale of shares including initial consideration and deferred consideration. It was pointed out that the total consideration received by the four owners of the shares as per the formula given in the agreement was Rs.12.81 crores including initial consideration and not Rs.20 crores. It was submitted that the deferred consideration received by the assessee in the subsequent years was offered to tax in those years in consonance with the provisions of section 45(5) and there was thus no under assessment of capital gain. It was also contended that the view taken by the AO while accepting the declaration of capital gain made by the assessee, in any case, was a possible view which could not be substituted by the learned CIT by his own view u/s 263.
4 ITA No.2902/Mum/2011 ITA No. 2904/Mum/20113. The submissions made by the assessee as above were not found acceptable by the learned CIT. According to him, the total consideration for sale of shares by the Shete family had been fixed at Rs.20 crores as per the agreement for sale of shares and there being nothing mentioned in the said agreement that the sale consideration would be less than Rs.20 crores, the capital gain chargeable in the hands of the assessees was required to be worked out by taking into account the sale consideration of Rs.20 crores. As regards the reliance of the assessee on the provisions of section 45(5), the learned CIT held that the said provisions were applicable in case of the compulsory acquisition of property where compensation is enhanced subsequently and the same, therefore, were not applicable in the facts of the assessee's case. He held that the assessment orders passed by the AO u/s 143(3) accepting the capital gain as declared by the assessees thus were erroneous and prejudicial to the interest of the Revenue and setting aside the assessments, he directed the AO to recompute the income of the assessee from capital gain on sale of shares by adopting proportionate amount of sale consideration of Rs.20 crores by the orders passed u/s 263, which are impugned by the assessees in the present appeals filed before the Tribunal.
4. The learned counsel for the assessees invited our attention to the relevant clause 3 of the agreement for sale of shares to show that the initial consideration agreed to be paid for sale of shares was only Rs.2.70 crores. He submitted that the deferred consideration was payable depending on the financial position of M/s Unisol Infraservices Pvt. Ltd. for the subsequent four years and such consideration as well as initial consideration was agreed to be maximum upto Rs.20 crores. He contended that the amount of Rs.20 crores as indicated in clause 3.2 was thus the maximum consideration agreed to be paid for sale of shares and not the agreed fixed consideration as presumed by the learned CIT. He invited our attention to the 5 ITA No.2902/Mum/2011 ITA No. 2904/Mum/2011 relevant details placed at page No.28 of his paper book to point out that all the four owners of the shares including two assessees finally received deferred consideration of Rs.2,79,94,320/- only in the subsequent years relevant to assessment years 2008-09 and 2009-10 and the same was offered to tax as capital gains in those years. He contended that the revision made by the learned CIT u/s 263 thus was based on erroneous interpretation of clause 3.2 of the agreement for sale of shares and since the capital gains declared by the assessees in the returns of income filed for the year under consideration was in accordance with the provisions of section 45, there was no error in the assessment orders passed by the AO u/s 143(3) accepting the declaration made by the assessees in their returns. He submitted that similar additions were made on account of capital gain arising from sale of shares of Unisol Infraservices Pvt. Ltd. in the cases of other two owners, namely, Indira R. Shetea and Hemal Shete taking into consideration the total sale consideration at Rs.20 crores and the addition so made has been deleted by the learned CIT(Appeals) in the cases of both these persons. He invited our attention in this regard to the relevant orders of the learned CIT(Appeals) placed at page No.29 to 34 and 35 to 46 of his paper book to show that a similar issue has been decided in favour of the assessee by the learned CIT(Appeals) on merit.
5. The learned DR, on the other hand, strongly relied on the impugned orders of the learned CIT passed u/s 263 in support of the Revenue's case and submitted that the same are sufficient to show how the assessment orders passed by the AO u/s 143(3) were erroneous and prejudicial to the interest of the Revenue calling for revision u/s 263.
6. We have heard the rival submissions and also perused the relevant material on record including the relevant clauses of the agreement for sale of shares entered into between four owners of the shares and M/s Radhakrishna Hospitality Services 6 ITA No.2902/Mum/2011 ITA No. 2904/Mum/2011 Pvt. Ltd. which purchased the shares from the said owners. As per the relevant terms of the said agreement, consideration for sale of shares was agreed to be paid in two stages. The initial consideration of Rs.2.70 crores was to be paid at the time of agreement whereas the deferred consideration was to be paid in the subsequent years depending on the financial position of Unisol Infraservices Pvt. Ltd. in the subsequent four years upto 31st March, 2010 as per the formula given in the agreement. The amount of deferred consideration thus was uncertain and it was not possible to quantify the same since it was to be determined in future on the basis of financial position of Unisol Infraservices Pvt. Ltd. of subsequent four years. The aggregate consideration including initial and deferred consideration, however, was capped at Rs.20 crores less debt plus cash as per clause 3.2 of the agreement and thus maximum amount of consideration, in our opinion, was erroneously taken by the learned CIT as agreed total consideration for sale of shares for treating the assessments made by the AO u/s 143(3) as erroneous as well as prejudicial to the interest of the Revenue. As submitted by the learned counsel for the assessee, the total deferred consideration of Rs.2.80 crores only was finally received for sale of shares from Radhakrishna Hospitality Services Pvt. Ltd. in subsequent two years relevant to assessment years 2008-09 and 2009-10 by all the four owners of the shares including the assessees as per the formula given in the agreement which was based on financial position of Unisol Infraservices Pvt. Ltd. for the subsequent four years and the same was offered to tax as capital gain by them in those years which, in our opinion, was as per the provision of section 45(5) although the same applicable in case of compulsory acquisition of assets is not strictly applicable in the case of the assessee. In any case, only the initial consideration of Rs.2.70 crores was certainly payable as consideration for sale of shares and that alone, in our opinion, could be taken into consideration for computing profits or gains arising 7 ITA No.2902/Mum/2011 ITA No. 2904/Mum/2011 from the sale of shares which was chargeable to tax in the year under consideration and the deferred consideration, the receipt of which was neither certain nor the quantum thereof was ascertainable with any reasonable certainty, could not be taken into consideration. The capital gains declared by the assessee on sale of shares of Unisol Infraservices Pvt. Ltd. by taking into consideration the initial consideration alone, therefore, was righty accepted by the AO in the assessment completed u/s 143(3) and, in our opinion, there was no error in the said assessments as alleged by the learned CIT calling for revision u/s 263. The amount of Rs.20 crores capped as maximum consideration including the deferred consideration which was payable in future depending on financial position of the subsequent years thus could not be said to have accrued to the assessee by virtue of agreement for sale of shares and the learned CIT, in our opinion, was not justified in revising the assessments made by the AO u/s 143(3) by taking the said amount as consideration for computation of capital gains. The impugned orders of the learned CIT passed u/s 263, therefore, are set aside and the assessment orders made by the AO u/s 143(3) are restored.
7. In the result, the appeals of the assessees are allowed.
Order pronounced on this 6th day of June, 2012.
Sd/- Sd/-
(Amit Shukla) (P.M. Jagtap)
Judicial Member Accountant Member
Mumbai,
Dated: 6th June, 2012
8
ITA No.2902/Mum/2011
ITA No. 2904/Mum/2011
Copy to :
1. Appellant
2. Respondent
3. C.I.T.
4. CIT(A)
5. DR, D-Bench.
(True copy)
By Order
Asstt. Registrar,
ITAT, Mumbai Benches,
Mumbai,
Wakode