Trak Services (P) Limited Vs ITO (ITAT Delhi)
Introduction: The case of Trak Services (P) Ltd. vs. ITO (ITAT Delhi) revolves around the dispute over the calculation of Long Term Capital Gain (LTCG) on the sale of shares of M/s Axis IT&T Ltd. The Assessing Officer (AO) contested the declared LTCG, leading to a legal battle.
1. Background of the Case Trak Services (P) Ltd. declared LTCG from the sale of shares of M/s Axis IT&T Ltd. However, the AO questioned the declared sale price, arguing that the market value on the transfer date should be considered. The dispute centered around whether the agreed-upon price or the market value should determine the LTCG.
2. Assessee’s Position The assessee argued that a share purchase agreement was executed on January 11, 2008, where 60.69% of shareholders agreed to sell their shares at an agreed rate of Rs. 13.50 per share. The agreement complied with SEBI regulations, and all necessary approvals were obtained. The consideration was received in two installments as per the agreement.
3. Legal References The assessee relied on several legal precedents, emphasizing that the full value of consideration for tax purposes should be based on the sale price agreed upon in the transaction documents. This position was supported by various court decisions, including those from the Supreme Court and High Courts.
4. AO’s Role The ITAT order highlighted that an AO cannot act as a businessman and decide how business affairs should be conducted or how expenses should be managed. The ITAT noted that the AO’s decision to adopt the market value as on the date of transfer was hypothetical, as the sale price was predetermined in the agreement.
Conclusion: In conclusion, the ITAT Delhi’s order in the case of Trak Services (P) Ltd. vs. ITO emphasizes the importance of honoring agreements when determining the full value of consideration for tax purposes. It highlights that an AO cannot substitute their judgment for that of a businessman when assessing business transactions. As a result, the addition made by the AO was deleted. This case serves as a reminder of the significance of legally executed agreements in tax assessments.
FULL TEXT OF THE ORDER OF ITAT DELHI
This appeal by the assessee is directed against the order of the Ld. CIT(A)-33, New Delhi, dated 12.02.2020 pertaining to Assessment Year 2009-10.
2. The grounds of appeal reads as under:-
“1. That on the facts and circumstances of the case and in law, the order dated 12.02.2020 passed by the Ld. Commissioner of Income-tax (Appeals) (“CIT (A)”) is erroneous and bad in law.
2. The Ld. CIT(A) has erred in law and on facts in sustaining the addition of Rs.1,07,66,220/- made by the Ld. AO on account of increase in sale consideration of Shares.”
3. Brief facts of the case are that the assessee company has declared Long Term Capital Gain (In short LTCG) of Rs. 13134996/- from the transfer of 1538460 shares of M/s Axis IT&T Ltd. sold on 28/4/2008. The assessee company has declared the sale price of these shares at Rs. 13.50 per share on the date of transfer. However, the rate of share of M/s Axis IT&T Ltd. as on 28/4/2008(date of transfer) is Rs. 20.50 per share, since it a quoted share. The transfer of these shares was on off market transaction. The assessee was asked as to why the shares value on the date of transfer be not taken at Rs. 20.5 per share. To this, the assessee pleaded that in this case 61% of the shareholders of Ms Axis AT&T Ltd. came together and decided to sell their holdings to one party. A written agreement to this effect was executed on 11/1/2008. Since there is a bar for sale of shares in the stock exchange as per which only 5% of the shares, could be transacted in a single day. However, this plea does not hold water as this was an off-market transaction and hence there was no bar to transfer any number of shares as one liked.
4. The AO further noted that it is not clear as to how the assessee has calculated or adopted the value of shares of this company at Rs.13.50 per shares as on 28/4/2008 when the transfer actually took place. That the value of a share has got to be adopted on the date of transfer, since that is the only relevant date when the capital gain accrues. That the assessee has itself admitted the date of sale as 28/4/2008 since it has been shown in the year under consideration. That there is no dispute with regard to the fact that the price of share of this company as on 28/4/2008 was Rs.20.50 per share. In view of the above, AO held that full value of consideration in respect of this transaction is adopted at Rs. 50.50 per share & the sale value of 1538460 shares would work on to Rs. 3,15,38,430/-. The assessee has declared the full value of consideration at Rs. 20769210/- and hence the AO made addition of Rs.1,07,69,220/-.
5. Upon assessee’s appeal, the Ld. CIT(A) confirmed the action of the Assessing Officer.
6. Against this order, the assessee is in appeal before the Tribunal. We have heard both the parties and perused the records.
7. The Ld. Counsel for the assessee submitted that original return was filed on 18.03.2009 and revised return filed on 17.09.2010 declaring loss of Rs.16,68,409/-. After taking sale consideration of Rs.2,07,69,210/-(Rs.13.5/- per share) as per date of agreement, the assessee declared long term capital gain on sale of listed share of M/s Axis IT&T Limited. The assessee further referred to page 50 to 103 of the paper book and submitted that the shares purchase agreement dated 11.01.2008, where 60.69% shares holders came together and agreed to sell their holding to one party at an agreed rate of Rs.13.5/- per share. All conditions mentioned in agreement were complied with and the agreement was in accordance with the terms of Regulation 22(16) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The assessee further submitted that all corporate, regulatory and statutory approvals, consents given by the stock exchanges on which the Company is listed and acknowledgement from SEBI in respect of the transaction were to be obtained by the seller and delivered to the purchaser. A public announcement and offer to purchase minimum of 20% of voting capital of the company from all the shareholders was required to be made by the Purchaser in accordance with SEBI and only after the conclusion of the open offer, the purchase price, share certificates, share transfer forms, etc was to be released in favour of the seller. Subsequent to this, resolution was to be passed to approve the transfer, necessary filings were to be made with the Registrar of Companies. The assessee further submitted that the advance of Rs.40,13,824/- and balance payment of Rs.1,62,88,660/- was received on 24/01/2008 and 29/04/2008 respectively after deducting transaction fee. The assessee vide letter dated 04/011/2011 has also filed the ledger of the purchaser in books. The assessee referred to the paper book page 109 where it was mentioned that the share price of M/s Axis IT&T Limited was Rs.11.21/- per share on the date of signing the term sheet i.e. on 30/11/2007 and showing share price from the website moneycontrol.com. The assessee submitted a chart showing “payment as per agreement to sell” and “payment as per bank statement” which reads as under:-
