By TIOL News Service

MUMBAI, AUG 20, 2016: THE ISSUE IS - Whether mere fact that the vendors of shares to the assessee had neither disclosed the receipt of consideration of sale in their returns nor had offered the same for taxation, can lead to a conclusion that no consideration was received by them. NO IS THE ANSWER.

Facts of the case:

The assessee, an individual, was owner of the 1665 shares in Lavasa Corporation Ltd. and had sold the said shares along with other shares in the company during the subject A.Y. During assessment, the AO 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 found unreliable. This for the reason that the vendors had not shown any receipt on account of sale of 1665 shares in its returns for A.Y 2001-02. On the basis of the above, the AO concluded that as date of acquisition of the shares was not known, the entire receipt on sale of the shares had to be treated as short term capital gain and not at the value claimed by the assessee but at value worked out by him. On appeal, the CIT(A) held that the basis of the AO not accepting the cost and the date of purchase of 1665 equity shares from Mr. and Mrs. Bhale was not acceptable in view of explanation offered by the assessee. On further appeal, the Tribunal noted that the assessee could not be held responsible for the failure of the vendors of the shares, to show the receipts on sale of shares in its return for paying tax on the same. It noted the fact that all payments made for the purchase of shares from vendors were made through account payee cheques and further there were confirmation letters filed by the vendors. In above view, the Tribunal upheld the order of the CIT(A)

Having heard the parties, the High Court held that,

1. It is found that the assessee has originally in its computation of capital gains indicated the amount of Rs.1.38 crores as consideration paid to acquire 1665 shares of Lavasa Corporation Ltd. from Mr. and Mrs. Bhale. The same was explained by the assessee to the CIT(A) that while computing the capital gains it had inadvertently included payment of Rs.1 crore made to acquire 5,00,000 preference shares which merged in the consideration paid to acquire 1665 shares of Yashomala. This explanation was found satisfactory by the CIT(A) as well as by the Tribunal. The fact that the vendors of 1665 shares to the assessee had not disclosed the receipt of consideration of sale in their returns and had not offered the same for tax cannot lead to the conclusion that no consideration was received by them. This is an issue which the Revenue is to take up with Mr. and Mrs.Bhale. 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.

2. It is also to be borne in mind that the AO 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. It is also pertinent to note that before the Tribunal the grievance of the revenue is that the CIT(A) has accepted explanation of the assessee. It has been correctly observed by the Tribunal that the explanation given by any party has to be taken into consideration and if the same is found to be acceptable and correct, the authority has to accept the same. In view of the fact that there are concurrent findings of fact recorded by the CIT(A) and the Tribunal accepting the purchase of 1665 shares of Lavassa Corporation Ltd. for a consideration of Rs.41.25 lakhs as claimed by the assessee. Nothing has been shown which would lead to a conclusion that the finding of fact arrived at by the CIT(A) and the Tribunal are perverse.

(See 2016-TIOL-1777-HC-MUM-IT)