2018 (8) TMI 1760 - AT - Income Tax

Addition u/s 48 - capital gain computation - applicability of provisions of Section 48 while computing long term capital gains - Held that - Assessee has duly discharged its burden cast under provisions of 1961 Act by producing all relevant evidences to substantiate its claim that the payments were made towards share of cost which the assessee was obligated under an agreement to pay towards fees/expenses of these legal and financial professionals and advisors for rendering services in connection with transaction of induction of Nomura as strategic investor in LICMF and consequently complete exit of assessee by way of sale of its shareholding in LICMF AMC to Nomura and we also hold that these services are inextricably linked to aforesaid sale of shares by assessee to Nomura and these expenses are wholly and exclusively incurred in relation to transfer/sale of shares by assessee to Nomura which satisfied the mandate of Section 48 as transfer/sale of shares of LICMF-AMC by assessee to Nomura which is compliant with all applicable laws rules and regulations could not have been possible without these services rendered by qualified experienced and independent professionals and hence these costs are allowable as cost within provisions of Section 48 while computing long term capital gains earned by the assessee. The assessee succeeds in this appeal. Non allowability of long term capital loss suffered by assessee - non allowance to be set off by AO against long term capital gains earned by the assessee during the previous year under consideration - Held that - As observed that in one of the correspondence filed by the assessee with revenue vide letter dated 26.12.2013 which is post assessment order the assessee has claimed that this long term capital loss of Rs. 75, 83, 082/- was incurred on sale of shares of M/s Ramanasekhar Steels Limited in Ay 2009-10 which was duly declared in the return for AY 2009-10 as also the same was duly claimed in the return of income for impugned AY 2011-12 by way of set off against long term capital gains earned on sale of shares of LICMF-AMC. These contention of the assessee need verification from the records available with Revenue and we are of the considered view that the matter need to be set aside and restored to the file of the AO for verification of the claim of the assessee on merits in accordance with law and allow relief if contentions of the assessee are found to be correct and the said loss is otherwise eligible for set off against long term capital gains earned by the assessee within mandate of provisions of the 1961 Act in accordance with law. AO shall grant proper and adequate opportunity of being heard to the assessee while verifying the claim of the assessee on merits in accordance with law and evidence filed by the assessee in support of its contentions shall be admitted by the AO which shall thereafter be evaluated by the AO on merits in accordance with law while adjudicating claim of the assessee. This ground of the assessee is allowed for statistical purposes

Summary

Issues Involved:
1. Disallowance of expenditure incurred in connection with the sale of shares.
2. Non-allowance of set-off of unabsorbed long-term capital loss from previous years.

Issue-wise Detailed Analysis:

1. Disallowance of Expenditure Incurred in Connection with the Sale of Shares:

The primary issue revolves around the disallowance of Rs. 43,47,723/- out of the total expenditure of Rs. 96,73,108/- claimed by the assessee under Section 48 of the Income-tax Act, 1961. The expenditure was incurred in connection with the sale of shares of LIC Mutual Fund Asset Management Co. Limited and LIC Mutual Fund Trustee Co. Limited. The Assessing Officer (AO) disallowed the entire expenditure, arguing that it was not incurred wholly and exclusively in connection with the transfer of shares. The CIT(A) partly upheld the AO’s decision, allowing only part of the expenditure and disallowing Rs. 43,47,723/-.

The Tribunal examined various documents, including agreements, invoices, and correspondences, to determine whether the expenses were incurred wholly and exclusively in connection with the transfer of shares. The Tribunal noted that the expenses were for legal and financial advisory services, valuation, and regulatory compliances, all of which were necessary for the successful completion of the transaction. The Tribunal emphasized that the services rendered by professionals were inextricably linked to the transaction and were essential for ensuring compliance with various laws and regulations.

The Tribunal also addressed the Revenue's contention regarding the use of code names for projects and the lack of detailed descriptions in invoices. It held that the use of code names and the absence of detailed descriptions were justifiable to maintain confidentiality and avoid the leakage of price-sensitive information. The Tribunal concluded that the assessee had discharged its burden of proof by providing sufficient evidence to substantiate that the expenses were incurred in connection with the transfer of shares. Consequently, the Tribunal allowed the entire expenditure of Rs. 96,73,108/- as deductible under Section 48 of the Act.

2. Non-Allowance of Set-off of Unabsorbed Long-Term Capital Loss from Previous Years:

The second issue pertains to the non-allowance of set-off of long-term capital loss amounting to Rs. 75,83,082/- incurred in the assessment year 2009-10 against the long-term capital gains earned in the assessment year 2011-12. The CIT(A) observed that the AO had not denied the set-off and that if the loss was genuine, the AO was duty-bound to allow it.

The Tribunal noted that the assessee had claimed the set-off of the long-term capital loss in its return for the assessment year 2011-12. However, the matter required verification from the records to ascertain the genuineness of the claim. The Tribunal set aside the issue to the AO for verification of the assessee's claim on merits. The AO was directed to grant proper and adequate opportunity of being heard to the assessee and to admit the evidence filed by the assessee in support of its claim. The AO was instructed to evaluate the evidence on merits and allow the set-off if the claim was found to be correct.

Conclusion:

The Tribunal allowed the appeal of the assessee, granting the entire expenditure of Rs. 96,73,108/- as deductible under Section 48 of the Act. The issue of non-allowance of set-off of long-term capital loss was remanded to the AO for verification and adjudication on merits.