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2023 (2) TMI 565 - AT - Income TaxShort Term capital Gains - premium received by assessee for transferring Redeemable Cumulative Convertible Preference Share and Fully Compulsory Convertible Preference Shares to equity shares - CIT Allowed the appeal filed by the assessee on this issue and held that the transfer in respect of preference shares is in the hand of the shareholder - HELD THAT:- Redemption of preference shares will result in transfer within the meaning of section 2(47) of the Act was held to be in the hands of the shareholder, which in the present case is M/s Satguru Constructions. In Anarkali Sarabhai [1997 (1) TMI 5 - SUPREME COURT] upheld the findings of the Hon’ble Gujarat High Court[1982 (6) TMI 50 - GUJARAT HIGH COURT] Further, the aforesaid decision of the Hon’ble Gujarat High Court was followed in Kartikeya V. Sarabhai vs CIT [1997 (9) TMI 2 - SUPREME COURT] which was affirmed by the Hon’ble Supreme Court in Kartikeya V. Sarabhai vs CIT [1997 (9) TMI 2 - SUPREME COURT] relied upon by the learned DR. In the present case, it is to be appreciated that the conversion of preference shares into equity shares is in the hands of the shareholder, i.e. M/s Satguru Constructions. Thus, gain, if any, arising from such a conversion will only be taxable in the hands of the shareholder. Therefore, in view of the above, we find no infirmity in the findings of the learned CIT(A) on this issue. As a result, ground No. 1 raised by the Revenue is dismissed. Addition on account of unrealised foreign exchange gain - HELD THAT:- From the perusal of the financial statement of the assessee, forming part of the paper book, we find that during the year, the assessee has only accounted for gain arising from foreign exchange fluctuation. Finding of the AO that loss on foreign exchange valuation was claimed as a deduction is contrary to the material available on record. Further, as per the provisions of section 43A of the Act, as amended by Finance Act 2002, w.e.f. 01/04/2003, the actual payment of the decreased /enhanced liability, due to a change in the rate of exchange subsequent to the acquisition of the asset in foreign currency, is a condition precedent for making adjustment in the cost of the fixed asset. Since the foreign exchange fluctuation gain, in the present case, is only due to the reinstatement of the accounts at the end of the year by considering the year-end rate of exchange, therefore, the same can neither be considered for computing the cost of the fixed assets for which loan was availed in foreign currency, nor any question arises for considering the said gain as income of the assessee for the year under consideration. Therefore, we find no infirmity in the impugned order passed by the learned CIT(A) on this issue deleting the addition made by the AO. As a result, ground No. 2 raised in Revenue’s appeal is dismissed.
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