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2022 (4) TMI 746 - HC - Income TaxRevision u/s 264 - Refund of excess tax paid - computation of capital gain - Assessment completed taxing the capital gains at higher amount on the basis of sale consideration and without reducing the consideration - HELD THAT:- In the present case, the real income (capital gain) can be computed only by taking into account the real sale consideration, i.e., sale consideration after reducing the amount withdrawn from the escrow account. Respondent no.1 has proceeded on an erroneous understanding that the arrangement between the seller and buyer which results in some contingent liability that arises subsequently to the transfer, cannot be reduced from the sale consideration as per Section 48 - We say this because the liability is contemplated in SPA itself and certainly the same should be taken into account to determine the full value of consideration. Therefore, if sale consideration specified in the agreement is along with certain liability, then the full value of consideration for the purpose of computing capital gains under Section 48 of the Act is the consideration specified in the agreement as reduced by the liability. For respondent no.1 to say that from the sale consideration only cost of acquisition, cost of improvement and cost of transfer can be reduced and the subsequent contingent liability does not come within any of the items of the reduction and the same cannot be reduced, is erroneous because full value of consideration under Section 48 would be the amount arrived at after reducing the liabilities from the purchase price mentioned in the agreement. Even if the contingent liability is to be regarded as subsequent event, then also the same ought to be taken into consideration in determining capital gain chargeable under Section 45 of the Act. We do not agree with respondent no.1 that the contingent liability paid out of escrow account does not affect the amount receivable as per the agreement for the purpose of computation of capital gains under Section 48 of the Act. Respondent no.1 has failed to understand or appreciate that the promoters have received only net amount of ₹ 125,00,00,000/- plus ₹ 20,82,95,760/- (₹ 30,00,00,000/- - ₹ 9,17,04,240/-). Such reduced amount should be taken as full value of consideration for computing capital gains under Section 48 of the Act. For respondent no.1 to hold that in the absence of specific provisions by which an assessee can reduce returned income filed by it voluntarily, the same cannot be permitted indirectly by resorting to provisions under Section 264 of the Act, is also erroneous. Certainly, assessee could file revised returned of income within the prescribed period, to reduce the returned income or increase the returned income. Petitioner filed an application under Section 264 because the assessment under Section 143 had been completed by the time the amount of ₹ 9,17,04,240/- was deducted from the escrow account. Section 264 of the Act in our view, has been introduced to factor in such situation because if income does not result at all, there cannot be a tax, even though in book keeping, an entry is made about hypothetical income which does not materialize. Section 264 of the Act does not restrict the scope of power of respondent no.1 to restrict a relief to an assessee only upto the returned income. Where the income can be said not to have resulted at all, there is obviously neither accrual nor receipt of income even though an entry that might, in certain circumstances, have been made in the books of account. Therefore, respondent no.1 ought to have directed the Assessing Officer to recompute income as per the provisions of the Act, irrespective of whether the computation results in income being less than returned income. It is the obligation of the revenue to tax an assessee on the income chargeable to tax under the Act and if higher income is offered to tax, then it is the duty of the revenue to compute the correct income and grant the refund of taxes erroneously paid by an assessee. As regards the stand of respondent no.1 that the income returned by petitioner is sacrosanct and cannot be disturbed, the only thing that is sacrosanct is that an assessee can be asked to pay only such amount of tax which is legally due under the Act and nothing more. If returned income shows a higher tax liability than what is actually chargeable under the Act, then the assessee is entitled to refund of excess tax paid by it.We, therefore, quash and set aside the order dated 13th February 2015 passed by respondent no.1. Admittedly, petitioner has paid more capital gains than what should have been paid. Capital gains has to be calculated on the basis of what actual consideration has been received. Certainly, petitioner has not received his proportionate share to the extent from ₹ 9,17,04,240/- that was reduced from the escrow account.In the circumstances we hold that petitioner be entitled to refund of excess tax paid on the excess capital gains shown earlier. Assessing Officer is directed to pass fresh assessment order within 6 weeks from the date this order is uploaded on the basis that the capital gains on the transfer of the shares of the company should be computed after reducing proportionate amount withdrawn from the escrow account from the full value of the consideration and allow the refund of additional tax paid with interest.
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