Consideration used in section 48 does not have any reference to market value

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

ABCAUS Case Law Citation:
ABCAUS 3791 (2023) (08) ITAT

Important Case Laws relied upon:
Commissioner of Income tax vs Gillanders Arbuthnot & Co. [1973] 87 ITR 407 (SC)
Commissioner of Income tax vs George Henderson and Co. Ltd. [1967} 66 ITR 622 (SC)
CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC
K.P. Varghese vs Income Tax Officer [1981] 131 ITR 597 (SC)
Commissioner of Income tax vs Smt. Nilofer I. Singh [2009] 309 ITR 233 (Delhi)
Dev Kumar Jain vs Income Tax Officer [2009] 309 ITR 240 (Delhi)
Arjun Malhotra vs Commissioner of Income Tax {2018} 403 ITR 354 (Del)
Anurag Jain. [2005] 277 ITR 1 (AAR) Delhi

Principal Commissioner of Income-tax vs. Quark Media House India (P.) Ltd. [2017] 391 ITR 145
Commissioner of Income-tax v. Rikadas Dhuraj [1976] 103 IT 111 (Madras)
Commissioner of Income-tax v. P. Suryanarayana [1973] 88IT321 (MAD.)
Commissioner of Income-tax v. Smt. Nandini Nopany [1998] 230 IT 679 (Calcutta)
Commissioner of Income-tax v. Texspin Engg, & Mfg. Works [2003] 263 IT 345 (Bombay)
Industrial Development Corpn. Of Orissa Ltd. vs Commissioner of Income tax [2004] 268 ITR 130 (Orissa)
CIT vs George Williamson (Assam) Ltd. [2004] 265 ITR 626 (Gauhati)
Premier Housing & Industrial Enterprises [2008] 24 SOT 236 (Chennai ITAT)

In the instant case, the assessee had challenged the order passed by the CIT(A) in sustaining addition made by the Assessing Officer (AO) on account of increase in sale consideration of Shares.

The appellant assessee company sold quoted share in an off market transaction and declared resulting Long Term Capital Gain (LTCG). However, the rate of share of the company as on the date of transfer was much higher since it was a quoted share.

The assessee was asked as to why the shares value on the date of transfer be not taken at market rate.

To this, the assessee pleaded that in this case 61% of the shareholders of the company came together and decided to sell their holdings to one party and a written agreement to this effect was executed. Since there is a bar for sale of shares in the stock exchange as per which only 5% of the shares, could be transacted in a single day.

Not satisfied with the reply, the AO made the impugned addition for the difference in the price of the shares.

The Tribunal observed that all the conditions mentioned in agreement were complied with in accordance with and the agreement in accordance with the terms of Regulation 22(16) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In the agreement, it was also mentioned that there are no related party transactions.

Further, it was noted that the payments were made as per agreement to sell and the same was verifiable from the bank statements. In view thereof, it was crystal clear that the transaction was an off market transaction of listed shares held by the assessee as an investment in its balance sheet. Further, the assessee had an absolute right to sell the shares, free from all liens, charges and encumbrances.

The Tribunal opined that the adoption of value by the Assessing Officer as on the date of transfer was only a hypothetical value. Hence, the resulting addition was not tenable.

The Tribunal observed 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 Hon’ble Supreme Court of India.

The Tribunal stated that 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. The Tribunal opined that in the instant case, the Revenue had not been able to establish malafide on the part of the assessee.

Further, the ITAT observed the decision of the Hon’ble Supreme Court of India wherein, it has been held that AO cannot step in the shoes of the businessman and decide as to how affairs of business were to be run and wasteful or excessive expenditure was to be curtailed is very much.

Accordingly, the Tribunal deleted the addition.

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