By Jagdish D. Shah | Jagdish T. Punjabi
Chartered Accountants
14. ACIT vs. Manoj Arjun Menda George George K. (J.M.) and B.R. Baskaran (A.M.) ITA No. 1710/Bang/2016 A.Y.: 2012-13 Date of order: 4th January, 2021 Counsel for Revenue / Assessee: Rajesh Kumar Jha / V. Srinivasan
Sections 45, 48 and 50CA – There is no provision in the Act authorising the A.O. to refer valuation of shares transferred for the purpose of calculating capital gains – Sale consideration disclosed in the share purchase agreement ought to be adopted for calculating the long-term capital gains in the case of transfer of shares – Section 50CA of the Act inserted w.e.f. 1st April, 2018 clearly indicates that prior to that date there was no provision under the Act authorising the A.O. to refer for valuation of shares for the purpose of calculating capital gains
FACTS
The assessee, an individual, filed his return of income for A.Y. 2012-13 declaring a total income of Rs. 7,22,25,230. Vide Share Purchase Agreement dated 20th October, 2011, the assessee along with other shareholders sold their entire shareholding in Millennia Realtors Private Limited (MRPL) to Ambuja Housing & Urban Infrastructure Company Limited (AHUIC) for a consideration of Rs. 66.81 crores. The purchasers also agreed to pay Rs. 17.76 crores as accrued interest on debentures. Thus, the total amount payable by AHUIC to the shareholders of MRPL worked out to Rs. 84.58 crores. The assessee held 13.29% of the shareholding in MRPL and hence received Rs. 11.24 crores for his portion of the shares sold. In his return of income, he computed long-term capital loss and carried forward the same.
In the course of the assessment proceedings, the assessee submitted copies of the share purchase agreement and the valuation report dated 20th October, 2011 referred to in the share purchase agreement. The A.O., based on the information sought by him u/s 133(6) from Oriental Bank of Commerce, the bankers of MRPL, and also the property consultant who facilitated the transfer of shares of MRPL, came to the conclusion that the fair market value of the shares of MRPL disclosed in the share purchase agreement was on the lower side. Therefore, he held that to arrive at the correct FMV the shares need to be valued and said that the most appropriate way to value them is the Net Asset Valuation method (NAV).
After adopting valuation under the NAV method, the A.O. held that the sale consideration of the shares transferred by the assessee and the other shareholders has to be taken as Rs. 166.72 crores against Rs. 66.81 crores as agreed upon in the sale / purchase agreement dated 20th October, 2011 and the assessee’s share in the consideration works out to Rs.24.52 crores against Rs. 11.24 crores. Accordingly, the A.O. arrived at the long-term capital gain of Rs. 3,33,23,661 as against the loss of Rs. 9,94,59,651 as calculated by the assessee.
Aggrieved, the assessee preferred an appeal to the CIT(A) who, following the judgment of the Apex Court in the case of George Henderson & Co. Limited [66 ITR 622 (SC)] and other judicial pronouncements, held that there is no provision under the Income-tax Act empowering the A.O. to refer a matter for valuation in relation to the transfer of a capital asset, being transfer of shares. The CIT(A) allowed the appeal of the assessee.
But the aggrieved Revenue preferred an appeal to the Tribunal where, on behalf of the assessee, it was contended that the issue in question is squarely covered by the decision of the Tribunal in the case of another shareholder, viz., Raj Arjun Menda, in ITA No. 1720/Bang/2016 (order dated 20th February, 2020).
HELD
The Tribunal observed that the co-ordinate bench in the case of
Raj Arjun Menda (Supra) has decided an identical issue in favour of the assessee. The Tribunal held that the transfer of the assets being the shares of a company, there is no provision under the Act for referring the matter for valuation. Accordingly, the Tribunal in that case confirmed the order of the CIT(A) and held that the consideration disclosed in the share purchase agreement dated 20th October, 2011 should be adopted for the purpose of computation of long term-capital gains on the sale of shares.
Following the decision in the same case, viz., Raj Arjun Menda (Supra), the Tribunal held that the CIT(A) is justified in holding that the sale consideration disclosed in the sale purchase agreement ought to be adopted for calculating the long-term capital gains in the case of transfer of shares. It also mentioned that section 50CA inserted w.e.f. 1st April, 2018 would have no application to the instant case since it was dealing with A.Y. 2012-2013. In other words, section 50CA inserted w.e.f. 1st April, 2018 clearly indicates that prior to that date there was no provision authorising the A.O. to refer the shares for valuation for the purpose of calculating capital gains.
