By Ajay R. Singh, Advocate
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Cost of Acquisition of Shares –Vendor not disclosing the
receipt in their return – Assessee cannot be held responsible – for default
made by the vendors – Consideration for
the sale of shares by account payee cheques is also significant:
The Assessee
sold 7,49,000 equity shares and 29,97,867 6% redeemable preference shares of
Lavasa Corporation Pvt. Ltd in the year under consideration, to Hindustan
Construction Corporation Ltd.. The Assessee disclosed long term capital gains
on sale of 7,49,000 equity shares and 24,97,867 6% redeemable preference shares
of Lavasa Corporation Ltd and short term capital gains on sale of 5,00,000 6%
redeemable preference shares of Lavasa Corporation Ltd.
The Assessee
had obtained 12,48,750 equity shares and 26,64,000 6% redeemable preference
shares of Lavasa Corporation on the merger of Yashomala Leasing & Finance
(P) Ltd. with Lake City Corporation (former name Lavasa Corporation) on the
basis of scheme of amalgamation approved by the Bombay High Court dated 1st
Aug. 2002. The assessee further purchased 5,00,000 6% redeemable preference
shares in the year 2003.
As far as the long term capital gains was
concerned the assessee had considered the investment in the shares of the
company, Yashomala Leasing & Finance (P) Ltd. as the cost of acquisition as
he had obtained the shares sold, on the merger of the Yashomala Finance & Leasing
(P) Ltd with Lake City Corporation Ltd. The assessee purchased 1665 shares of
Yashomala Leasing Finance Pvt. Ltd on April, 2001 from Mr. Arvind Bhale and Mrs.
Jyoti Bhale. Yashomala had directly allotted one share to the assessee.
The
Assessing Officer does not dispute that the
assessee was owner of the 1665 shares in Lavasa Corporation Ltd. and had
sold the shares along with other shares in the company during the previous year
relevant to the subject assessment year. However, during the assessment
proceedings the Assessing Officer by order dated 31st December, 2007 held that
the assessee had failed to establish the purchase of 1665 shares in 2001. In
particular he noted that the consideration claimed to have been paid by the assessee
to the vendors of the 1665 shares viz. Mr. and Mrs. Bhale was not found
unreliable. This was for the reason that the vendors had not shown any receipt
on account of sale of 1665 shares in its returns of income for Assessment Year
2001-02. On the basis of the above, the Assessing Officer concluded that as
date of acquisition of the shares is not known, the entire receipt on sale of
the shares has to be treated as short term capital gain and not at the value
claimed by the assessee but at an value worked out by him.
The CIT(A) allowed the assessee’s appeal on
consideration of facts .. It held that the basis of the Assessing Officer not
accepting the cost and the date of purchase of 1665 equity shares from Mr. and
Mrs. Bhale was not correct in view of explanation offered by the assessee. In
the explanation, the assessee’s claim of having purchased the shares during the
assessment year 2002-03 and the cost of acquisition was taken at Rs.41.25 lakhs
for computation of capital gains on its sale.
Being
aggrieved, the Revenue carried the issue in appeal before the Tribunal. The
Tribunal upheld the order of the CIT(A). In particular, it noted that the
assessee could not be held responsible for the failure of the vendors of the
shares i.e. Mr. and Mrs. Bhale to show the receipts on sale of shares in its
return of income for paying tax on the same. It noted the fact that all
payments made for the purchase of shares from Mr. and Mrs. Bhale were made
through account payee cheques. Further there were confirmation letters filed by
the vendors Mr. and Mrs. Bhale which were not even considered by the Assessing
Officer. The ITAT order also found that the order of the CIT(A) accepting the
explanation of the assessee for the discrepancies in its return of income could
not be found fault with. The Tribunal upheld the order of the CIT(A).
Being aggrieved, the Revenue filed a appeal before High Court. The Hon. High court held that the
purchasers of shares cannot be held responsible for default made by the vendors
of shares in filing their return of income and not disclosing consideration
received by them for sale of their shares. It was further observed that the
Assessing Officer completely ignored the confirmation letter given by vendors
of 1665 shares. Further fact that the assessee had paid the consideration for
the sale of 1665 shares by account payee cheques is also significant .. The
view taken by both authorities on the basis of evidence and explanation made
available before them was a possible and reasonable view. In the above view the
question raised does not give rise to any substantial question of law. High
court upheld the Tribunal order and dismissed the Revenue appeal.
