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2015 (11) TMI 539 - ITAT DELHI

2015 (11) TMI 539 - ITAT DELHI - TMI - Computation of capital gain - adoption of Fair Market Value of share in lieu of value of sale consideration - Held that:- In this case the assessee was allotted 3000 shares of M/s MRPL on 29.09.2004 at its face value of ₹ 10/- each. The same has been sold on 01.12.2006 to its group company. The merger scheme in which the exchange ratio of shares Of MIPL & MRPL was formulated was on 26.02.2007 and the exchange ratio so determined was further subject to .....

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the Ld. CITA(A) in his impugned order in the case of CIT v/s. Infosys Technologies Ltd. (2008 (1) TMI 17 - SUPREME COURT OF INDIA) supports the case of the assessee wherein it was held that if prospective benefit is in the nature of income or specifically included, by the legislature as part of income, the same is not taxable.

We are of the considered opinion that the adoption of Fair Market Value of share in lieu of value of sale consideration as declared by the assessee is not valid .....

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, the assessment made is without jurisdiction and proceedings initiated u/s. 153C is null and void. See CIT vs. Kabul Chawla [2015 (9) TMI 80 - DELHI HIGH COURT] - Decided in favour of assessee. - I.T.A. No. 4315/Del/2011, C.O. No. 355/Del/2011 - Dated:- 9-10-2015 - Shri H. S. Sidhu, Judicial Member And Shri L. P. Sahu, Accountant Member For the Petitioner : Md. Mohsin Alam, CIT (DR) For the Respondent : Dr. Rakesh Gupta, Advocate ORDER Per H. S. Sidhu, JM The appeal filed by the Revenue and Cro .....

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pellant craves leave to add, alter or demand any / all of the grounds of appeal before or during the course of hearing of appeal. 3. The grounds raised in the Assessee s Cross Objection being CO No. 355/Del/2011 (A.Y. 2007-08) read as under:- 1. That having regard to the facts and circumstances of the case Ld. CIT(A) has rightly deleted the addition of ₹ 2,34,47,563/-, which was made by AO on the ground of alleged sale proceeds of shares received by the appellant as against ₹ 3,00,00 .....

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Act. She is one of the directors of M/s Mahagun (India) Pvt. Ltd. The search was conducted on 26.8.2008 at the business premises i.e. Plot No.A-19, Sector-63, Noida. Consequent upon search, the case was centralized with Central Circle-5, New Delhi vide order dt.06.11.2009. At the time of search, certain documents pertaining to the assessee were found and seized. Accordingly, after recording of the satisfaction within the meaning of section 153C of the l.T. Act, the case was taken up and notice u .....

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is notice, the proceedings were attended by the Authorised Representatives of the assessee from time to time as per order sheet and the information filed has been examined and placed on record. 4.1 As per the return filed; the assessee derives salary income in her capacity as director of Mahagun Group of companies, income from capital gain and income from other sources which includes bank interest and interest on loan advanced to Mahagun (India) Pvt.Ltd. and Mahagun Developers Ltd. During the ye .....

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ord, Mahagun Realtors Pvt. Ltd. had merged with Mahagun (India) Pvt. Ltd. w.e.f. 01.4.2006 though the orders of the court sanctifying this merger was passed only on 10.9.2007 and was supposed to take effect from 01.4.2006. The High Court had approved the merger scheme without any modification. Both the companies i.e. Mahagun Realtors Pvt. Ltd. and Mahagun (India) Pvt.Ltd. are family owned concerns. As per the Merger Scheme approved by the court, the shareholders of Mahagun Realtors Pvt. Ltd. wer .....

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he. following shares at the rate and premium mentioned below.- Name of the Share Applicant No. of shares Face Value (per share) Share Premium (per share) Total amount received Mahagun Developers Ltd. 280000 10/- 240/- 7,00,00,000/- Mahagun Realtors Pvt. Ltd. 236000 10/- 240/- 5,90,00,000/- ADR Home Décor Pvt. Ltd. 11600 10/- 240/- 29,00,000/- 4.4 Thus, there is independent evidence that the value of shares of Mahagun (lndia) Pvt.Ltd. was ₹ 250/- per share after including premium of .....

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that the assessee received sale proceeds of ₹ 3,37,50,000/- and not ₹ 3,00,000/- as declared by her. Accordingly, the total income was assessed at ₹ 3,41,17,363/- vide order dated 29.12.2010 passed u/s. 153C read with Section 143(3) of the I.T. Act, 1961. 5. Aggrieved with the aforesaid assessment order, assessee appealed before the Ld. CIT(A), who vide impugned order dated 07.7.2011 has partly allowed the appeal of the assessee. 6. Now the Revenue is in Appeal and Assessee ha .....

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egards the issue involved in the Revenue appeal is concerned, the Ld. CIT(DR) relied upon the order passed by the AO and the contention raised in the Grounds of Appeal filed by the Revenue. On the contrary, the Ld. Counsel for the assessee relied upon the order passed by the Ld. CIT(A). Ld. Counsel of the assessee in support of his contention has also filed the Brief Synopsis in Revenue s Appeal as well as Assessee s Cross Objection which is reproduced as under:- The only issue in the department .....

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., there was merger of Mahagun Realtors (P) Ltd with Mahagun India (P) Ltd subsequently and as per the court's order dated 10.09.2007, the shareholders of Mahagun Realtors (P) Ltd were to receive 45 shares of Mahagun India (P) Ltd. for each share and that too of the worth @ ₹ 250 per shares. Therefore, according to Ld. A.O., assessee ought to have received sale proceeds equal to ₹ 3,37,50,000/- (3000x45x250) and not ₹ 3,00,000/- as claimed by the assessee and computed the c .....

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ideration in the hands of the assessee is the sole determining factor 'for computing the capital gain. Assessee sold her shares on 01.12.2006 on "as is where is" basis @ ₹ 100/shares. If by subsequent order of High Court dated 10.09.2007, some more consideration in the form of shares were to be received, it was to be received and in fact was received by the holder of shares on the date of the order of High Court which in any case was not the assessee. Therefore, there was no .....

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Company are not freely transferable and therefore, such sale has got nothing to do with the merger scheme. PB 12-21 are the submission before Ld. CIT (A) submitting that sale of these shares already took place on 01.12.2006 and even the petition was filed in Delhi High Court for merger only on 26.02.2007 i.e. after the date of sale and the capital gain is taxable u/s 48 on the basis of full value of the consideration received by the assessee and not on the basis of fair market value and relying .....

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d Co. Ltd. (1967) 066 ITR 0622 (SC) Commissioner of Income Tax vs. Gillianders Arbuthnot and Co. GilIanders Arbuthnot and Co. vs. Commissioner of Income Tax (1973) 087 ITR 0407 (SC) CIT vs. Shivakami Co. P. Ltd. (1986) 159 ITR 0071 CIT vs. I.P. Chaudhari (2010) 328 ITR 0007, jurisdiction Delhi-High Court Moral Trading & Investment Ltd. vs. DCIT (2011) 0007 ITR (Trib) 0548 (Delhi) Rupee Finance vs. ACIT (Mumbai ITAT) (2009) 120 ITD0539 CIT vs. Vania Silk Mills P. Ltd. (1977) 107 ITR 300 (Guj. .....

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)(vii). Therefore, there is no infirmity in the order of Ld. CIT(A). Assessee's Cross Objections The only issue in Cross Objection is regarding assumption of jurisdiction u/s 153C (wrongly mentioned as 153A in the grounds of appeal). Submission of the assessee is that for assuming jurisdiction u/s 153C, not only the documents of the assessee should be found and seized but those documents found and seized must be of incriminating nature. To treat a person as searched u/s 153C is very harsh an .....

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or ₹ 11,72,959/- (being half share of the assessee, inclusive of expenses). PB 34-40 are the submission before Ld. A.O. submitting that the document was not incriminating and was disclosed in the return and relying upon the following decision:- Saraya Industries vs. UOI 306 ITR 189 (Delhi) Jurisdiction is bad on this reason also that the assessment of the assessee was not pending and therefore, could not be reopened up 153C in view of the following decisions reported at PB 37:- Anil P. Khi .....

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that, that the only basis was the document relating to B-66, Vivek Vihar, which was already disclosed. PB 46-47 are the reply to remand report giving few more judicial decisions which are reproduced as under:- LMJ International Ltd. vls. DCIT (2008) 119 TTJ 214 (Kol) Sinhgad Technical Education Society vls. ACIT 140 TTJ 233 (Pune) Bharati Vidya Peeth vts. ACIT 119 TTJ 0261 (Pune) ACIT vts. Srj Peety Steels P Ltd. 137 TTJ 0627 (Pune) Ld. CIT(A) has also wrongly interpreted section 153C which is n .....

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.O. to substitute "Fair Market Value" in place of "Actual Sale Consideration" received for the purpose of calculation of capital gain is fairly valid. Moreover, the A.O. has not, adduced any evidence found either during search proceeding on the group company's business premises u/s 132 or post search proceedings of the appellant which may establish that the appellant has received the consideration more than what she has declared in her I.T. Return for the year under revie .....

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ine the fair market value unless it is specifically provided in the Act. Reliance is placed on the following authorities:- Moral Trading & Investment Ltd. vis. DCIT (2011) 007 ITR (Trib) 0548 (Delhi) CIT vis. I.P. Chaudhari (2010) 328 ITR0007 (Del) CIT v. Lake Palace Hotels and Motels Ltd. [2010]321 ITR 165 (Raj) CIT vis. Ni/ofar I Singh (2009) 309 ITR 0233 (Del) Rupee Finance Vs ACIT( Mumbai ITAT) (2009) 310 ITR 403 Dev Kumar Jain vis. ITO (2009) 309 ITR 0240(Del) Commissioner of Income Tax .....

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roup company. The merger scheme in which the exchange ratio of shares Of MIPL & MRPL was formulated was on 26.02.2007. The exchange ratio so determined was further subject to approval of Delhi High Court, which came on 10.09.2007 i.e. after a gap of 9 months (approx) from the date of sale of shares. Had ,the appellant kept the shares, he would have got 1,35,000 equity shares of MIPL only on 08.04.2008 i.e. the date of allotment of shares after merger as stated above or in other words after 1 .....

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ances and legal authorities cited by the AR, the adoption of Fair Market Value of share in lieu of I value of sale consideration as declared by the appellant is not valid particularly when there is no provision under the law to include prospective benefit in the ambit of the word "income". The appellant succeed on this ground appeal. 9.1 After going through the aforesaid relevant findings of the impugned order on the issue involved in Ground No. 1 raised by the Revenue, we are of the c .....

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may establish that the assessee has received the consideration more than what she has declared in her I.T. Return for the year under review. A combined reading of section 45(1)(a) and section 48 of the Act shows that when a sale of capital assets take place the capital gain arising out of such transfer has to be computed by looking at full value of consideration received or accruing as a result of such transfer. The expression "full value of consideration" is not the same as "fair .....

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[2010]321 ITR 165 (Raj) CIT vis. Nilofar I Singh (2009) 309 ITR 0233 (Del) Rupee Finance Vs ACIT( Mumbai ITAT) (2009) 310 ITR 403 Dev Kumar Jain vis. ITO (2009) 309 ITR 0240(Del) Commissioner of Income Taxrge Henderson and Co. Ltd. (1967) 066 ITR 0622 (SC) Commissioner of Income Tax vis. Gillianders Arbuthnot and Co. Gillanders Arbuthnot and Co. v/s. Commissioner of Income Tax (1973) 087 ITR 0407 (SC) CIT v/s Shivakami Co. P Ltd. [1986]159 ITR 0071. CIT v. Vania Silk Mills P. Ltd. [1977]107 ITR .....

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t the shares and he would have got 1,35,000 equity shares of MIPL only on 08.04.2008 i.e. the date of allotment of shares after merger as stated above or in other words after 18 months from the date of sale. In other words, it was only prospective benefit attached with the shareholding of the assessee in the MRPL as on date of sale. We find that the case law referred by the Ld. CITA(A) in his impugned order of the Hon'ble Apex Court decision in the case of CIT v/s. Infosys Technologies Ltd. .....

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icularly when there is no provision under the law to include prospective benefit in the ambit of the word "income". Therefore, the Ld. CIT(A) has rightly allowed this ground and deleted the addition in dispute, which does not need any interference on our part, hence, we uphold the action of the Ld. CIT(A) on this ground and dismissed the ground no. 1 raised by the Revenue in its Appeal. In the result, the Appeal filed by the Revenue stands dismissed. ASSESSEE S CROSS OBJECTION 10. With .....

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no. 2 of the Cross Objection regarding the assumption of jurisdiction u/s. 153(C) (wrongly mentioned as 153A in the ground of appeal) is concerned. Ld. Counsel of the assessee has stated that certain documents belonging to the assessee were seized by the Search Party of the Department, which the assessee has already disclosed while filing the return of income for the assessment year in dispute. Therefore, no incriminating material belonging to the assessee were found during search period. Theref .....

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Hon ble Jurisdictional High Court in the case of CIT vs. Kabul Chawla (Supra), which shall be followed in the present case of the assessee. In this behalf, he draw our attention towards the relevant para no. 38 of the order, which is reproduced hereunder:- 38. The present appeals concern AYs 2002-03, 2005-06 and 2006-07. On the date of the search the said assessments already stood completed. Since no incriminating material was unearthed during the search, no additions could have been made ot the .....

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