Brief of the Case
ITAT Delhi held In the case of ACIT vs. Smt. Divya Jain that the adoption of Fair Market Value of share in lieu of value of sale consideration as declared by the assessee is not valid . There is no provision under the law to include prospective benefit in the ambit of the word “income”. Accordingly order of CIT (A) is being upheld.
Facts of the Case
The return of income for AY 2008-09 was filed on 29.9.2009 declaring total income at Rs.11,39,98,430/-. The case was selected for scrutiny on CASS and assessment proceedings was initiated so as to complete assessment under section 143(3) of the Act. The AO completed the assessment by making addition including addition by way of disallowing claim of assessee of loss on sale of securities by treating it as long term capital loss instead of business loss at Rs.3,39,79,600. The AO relied on the judgment of Pari Mangaldas Girdhardas vs. CIT (1997) CTR 647 (Guj) while making these additions.
Contention of the Assessee
The Original return declaring net taxable income of Rs.6,69,800/- was filed on 30.7.2007. The return was duly processed u/s 143(1) of the l.T. Act. She is one of the directors of M/s Mahagun (India) Pvt. Ltd. The search was conducted on 26.8.2008 at the business premises. At the time of search, certain documents pertaining to the assessee were found and seized. Accordingly, after recording of the satisfaction within the meaning of section 153C , the case was taken up and notice was issued on 08.11.2010.
As per the return filed; the assessee derives salary income in her capacity as director of Mahagun Group of companies, income from capital gain and income from other sources. During the year, the assessee has sold 3000 shares of Mahagun Realtors Pvt.Ltd. @ Rs.100/- per share. On 01.12.2006, these shares have been sold outside the normal market channels amongst the members of the group only. The AO observed that the value of each share of Mahagun (India) Pvt. Ltd. On 31.3.2006 was Rs.250/- and on that basis the fair market value of 3000 shares of Mahagun Realtors Pvt. Ltd. comes to 1,35,000 x 250 = Rs.3,37,50,000/-. Therefore, in view of the close nit family connections and intersee transactions, it is held that the assessee received sale proceeds of Rs.3,37,50,000/- and not Rs.3,OO,OOO/- as declared by her. Accordingly, the total income was assessed at Rs. 3,41,17,363/- vide order dated 29.12.2010 passed u/s. 153C read with Section 143(3).
Contention of the Revenue
The ld counsel of the revenue supported the order of Assessing Officer.
Held by CIT (A)
CIT (A) partly allowed the appeal of the assessee. It was held that the adoption of Fair Market Value of share in lieu of value of sale consideration as declared by the appellant is not valid particularly when there is no provision under the law to include prospective benefit in the ambit of the word “income”.
The expression “full value of consideration” is not the same as “fair market value” as appearing in section 55A of the Act. Thus for the purpose of computing capital gain there is no necessity to determine the fair market value unless it is specifically provided in the Act. Reliance is placed on the following authorities:- Moral Trading & Investment Ltd. vs. DCIT (2011) 007 ITR (Trib) 0548 (Delhi), CIT vs. I.P. Chaudhari (2010) 328 ITR0007 (Del), CIT v. Lake Palace Hotels and Motels Ltd. 321 ITR 165 (Raj) CIT vis. Ni/ofar I Singh (2009) 309 ITR 0233 (Del), Rupee Finance Vs ACIT( Mumbai ITAT) (2009) 310 ITR 403, Dev Kumar Jain vis. ITO (2009) 309 ITR 0240(Del), Commissioner of Income Taxrge Henderson and Co. Ltd. (1967) 066 ITR 0622 (SC), Commissioner of Income Tax vis. Gilliander Arbuthnot and Co. Gillanders Arbuthnot and Co. v/s. Commissioner of Income Tax (1973) 087 ITR 0407 (SC), CIT v/s Shivakami Co. P Ltd. 159 ITR 0071, CIT v. Vania Silk Mills P. Ltd. 107 ITR 300 (Guj).
Held by ITAT
We are of the considered view that the Ld. CIT(A) has deleted the addition in dispute by observing that the law does not permit the A.O. to substitute “Fair Market Value” in place of “Actual Sale Consideration” received for the purpose of calculation of capital gain is fairly valid. In the present case the A.O. has not produced any evidence found either during search proceeding on the group company’s business premises u/s 132 or post search proceedings of the assessee which may establish that the assessee has received the consideration more than what she has declared in her I.T. Return for the year under review.
A combined reading of section 45(1)(a) and section 48 of the Act shows that when a sale of capital assets take place the capital gain arising out of such transfer has to be computed by looking at full value of consideration received or accruing as a result of such transfer. The expression “full value of consideration” is not the same as “fair market value” as appearing in section 55A of the Act. Thus for the purpose of computing capital gain there is no necessity to determine the fair market value unless it is specifically provided in the Act.
In this case the assessee was allotted 3000 shares of M/s MRPL on 29.09.2004 at its face value of Rs. 10/- each. The same has been sold on 01.12.2006 to its group company. The merger scheme in which the exchange ratio of shares Of MIPL & MRPL was formulated was on 26.02.2007 and the exchange ratio so determined was further subject to approval of Delhi High Court, which came on 10.09.2007 i.e. after a gap of 9 months (approx) from the date of sale of shares. The assessee kept the shares and he would have got 1,35,000 equity shares of MIPL only on 08.04.2008 i.e. the date of allotment of shares after merger as stated above or in other words after 18 months from the date of sale. In other words, it was only prospective benefit attached with the shareholding of the assessee in the MRPL as on date of sale. We find that the case law referred by the CIT(A) in his impugned order of the Hon’ble Apex Court decision in the case of CIT v/s. Infosys Technologies Ltd. (2008) ITR167 supports the case of the assessee wherein it was held that if prospective benefit is in the nature of income or specifically included, by the legislature as part of income, the same is not taxable.
In the background of the aforesaid discussions and the precedent relied upon by the CIT(A) in his impugned order, we are of the considered opinion that the adoption of Fair Market Value of share in lieu of value of sale consideration as declared by the assessee is not valid particularly when there is no provision under the law to include prospective benefit in the ambit of the word “income”. Therefore, the CIT(A) has rightly allowed this ground and deleted the addition.
Accordingly appeal of the revenue dismissed.