2023 (9) TMI 435 - ITAT PUNE

Income under the head “Capital gains” by considering the cost of acquisition of debentures - HELD THAT:- It is during the year under consideration, namely, financial year ending 31-03-2016, that the assessee sold the debentures and reduced the amount of investments shown in the balance sheet at Rs. 56.00 crore from the full amount of consideration for computing the amount of long term capital gain. It is ostensible that the assessee never claimed deduction towards interest of Rs. 6.00 crore in the past, but capitalized it to the value of investment initially acquired at Rs. 50.00 crore.

Naturally, when the debentures were sold in the year under consideration, the amount of interest capitalized along with the purchase cost, was also liable to be deducted from the full value of consideration for computing the amount of long term capital gain. It is this principle of law which was followed by the AO in the computation of capital gain. In fact, the interest cost was capitalized in an earlier year and represented a part of the opening balance of debentures for the year under consideration. Ergo, the opinion canvassed by the ld. CCIT that the interest of Rs. 6.00 crore could not have been added to the cost of debentures, in our considered opinion, is not tenable. We, therefore, set-aside the impugned order on this score.

Deduction towards remuneration to partners with reference to Long term capital gain offered on sale of debentures, which was not allowable in terms of section 40(b)(v) of the Act - assessee was selected for Limited scrutiny (CASS) and the reason assigned for such scrutiny, as u/s. 143(2) by the AO, is: “Whether capital gains/loss is genuine and has been correctly shown in the return of income” - As entire focus has been on the grant of deduction towards remuneration to partners at Rs. 22.50 crore, which, in his opinion, was not deductible in view of income under the head “Profits and gains of business or profession” being Nil.

Reasons for Limited scrutiny (CASS) - case of converting ‘limited scrutiny’ into ‘complete scrutiny’ - DR argued that the AO ought to have converted ‘limited scrutiny’ into ‘complete scrutiny’ to cover the aspect of remuneration to partners and this act of non-conversion per se made the assessment order erroneous and prejudicial to the interest of the Revenue - The scope of arguments by the DR is restricted to the issues decided in the impugned order. He cannot travel beyond such issues and step into the shoes of the authority(ies) which passed the order(s). Coming to the revision, the DR cannot characterize the assessment order to be erroneous and prejudicial to the interest of the Revenue on a new count other than those taken note of in the revisionary order. Such an attempt, if allowed, would clothe the DR with the power of revision, which obviously, is not feasible. As the ld. CCIT did not make out any case of converting ‘limited scrutiny’ into ‘complete scrutiny’ as a ground for revision, we are afraid that the contention of the ld. DR on this score cannot be entertained. It is, therefore, held that the ld. CCIT was not justified in branding the assessment order erroneous and prejudicial to the interest of the Revenue on this ground as well.