AO cannot step in the shoes of businessman to decide curtailing of excessive expenditure unless brought evidence of fraud: ITAT deletes addition [Read Order]

The Delhi bench of the Income Tax Appellate Tribunal (ITAT) held that Adoption of value by AO on the date of transfer being hypothetical makes the addition non tenable under section 48 of the Income Tax Act.

The assessee company has declared Long Term Capital Gain of Rs. 13134996/- from the transfer of 1538460 shares of M/s Axis IT&T Ltd. so on 28/4/2008. The assessee company has declared the sale price of these shares at Rs. 13.50 per share on the date of transfer. However, the rate of share of M/s Axis IT&T Ltd. as on 28/4/2008(date of transfer) is Rs. 20.50 per share, since it a quoted share. The transfer of these shares was on off market transaction.

The assessee was asked as to why the shares value on the date of transfer be not taken at Rs. 20.5 per share. To this, the assessee pleaded that in this case 61% of the sharehoers of Ms Axis AT&T Ltd. came together and decided to sell their hoings to one party. A written agreement to this effect was executed on 11/1/2008. Since there is a bar for sale of shares in the stock exchange as per which only 5% of the shares, cou be transacted in a single day. However, this plea does not ho water as this was an off-market transaction and hence there was no bar to transfer any number of shares as one liked.

The AO further noted that it is not clear as to how the assessee has calculated or adopted the value of shares of this company at Rs.13.50 per shares as on 28/4/2008 when the transfer actually took place. That the value of a share has got to be adopted on the date of transfer, since that is the only relevant date when the capital gain accrues. That the assessee has itself admitted the date of sale as 28/4/2008 since it has been shown in the year under consideration. That there is no dispute with regard to the fact that the price of share of this company as on 28/4/2008 was Rs. 20.50 per share.

In view of the above, AO had held that full value of consideration in respect of this transaction is adopted at Rs. 50.50 per share & the sale value of 1538460 shares wou work on to Rs. 3,15,38,430/-. The assessee has declared the full value of consideration at Rs. 20769210/- and hence the AO made addition of Rs.1,07,69,220/-. Upon assessee’s appeal, the  CIT(A) confirmed the action of the Assessing Officer. Against this order, the assessee appealed before the tribunal.

After hearing both the parties, the tribunal noted that it is settled law that full value of consideration used in section 48 does not have any reference to market value but only to consideration referred to in sale deeds as sale price of assets which have been transferred, as laid down by the Supreme Court of India in the case of CIT vs. Gillanders Arbuthnot & Co. (1973).

It is settled law that an agreement always has to be taken to be correct if the assessee has acted in bonafide manner, unless AO has brought evidence on record that it is fraudulent. In this case the Revenue has not been able to establish malafide on the part of the assessee, the tribunal bench observed

The two member bench consisting of Astha Chandra (Judicial member) and Shamim Yahya (Accountant member) held that the lower authorities have been completely wrong in making and sustaining the addition of Rs. 1,07,66,220/- on account of increase in sale consideration of shares, which needs to be deleted. Thus the appeal was allowed.

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