INCOME TAX ACT, 1961

Section 263

Revision under section 263 - Conditions precedent - AO's order not being prejudicial - Allowability of long-term capital loss

Assessee had paid Rs. 4,27,50,000 to M/s. YC as share application money for preferential allotment of certain equity shares in the financial year 2007-08 and also paid certain sums for share warrants in the same year. Later on, serious dispute arose between the assessee and M/s. YC and assessee rescinded from agreement to subscribe the shares for which various civil suits were filed before the Calcutta High Court and also criminal cases against M/s. YC. It is also not disputed that later on a settlement was agreed between the parties and the said 4,50,000 equity shares were sold to M/s. VAS Infrastructure, and the consideration was in two parts, one was Rs. 1 crore which was to be paid to the assessee by way of demand draft; and balance amount of Rs. 3,60,75,000 was to be adjusted against sale of two flats with four parking spaces in a building in Borivali (West), Mumbai. One of the flats was sold in the year 2011-12 and another was sold in this year for sum of Rs. 1,07,00,000. On the basis of actual cost price of shares acquired by assessee was estimated by CIT at 1,21,95,000 and after deducting cash amount received by assessee from YC Rs. 10,00,00,000 the value of two flats was determiend at Rs. 21,95,000 thus the cost of acqisition had tinkered by him by replacing the amount shown by the assessee at Rs. 1,80,37,500 with Rs. 10,97,500 and accordingly passed order under section 263 being AO's order as erroneous and prejudicial order.Held: It was not in dispute that the flat had not been acquired under the settlement but by some other means for which the cost of acquisition of the flat needs to be determined. The price of acquisition under the facts and circumstances could not be changed at all and accordingly, the resultant computation of capital gain would result in long- term capital loss which had rightly been allowed by the AO. Assessment order may be termed as erroneous as he may not have conducted detailed inquiry on the points raised by him, but it could not be held that such an assessment order was prejudicial to the interest of revenue and therefore, if one of the condition was not satisfied, then the assessment order could not be cancelled or set aside under section 263.

Applied:Malabar Industries Company Ltd. v. CIT (2000) 243 ITR 83 (SC) : 2000 TaxPub(DT) 1227 (SC) and CIT v. Max India Limited, (2007) 295 ITR 282 (SC) : 2007 TaxPub(DT) 1548 (SC).

REFERRED : CIT v. P.P. Thomas, (1999) 235 ITR 191 (Ker-HC) : 1999 TaxPub(DT) 287 (Ker-HC) and A. Ghosh v. CIT (1983) 141 ITR 45 (Cal-HC) : 1983 TaxPub(DT) 878 (Cal-HC).

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 14A

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