Shri. B.M. Jayeshankar, Bengaluru V. Deputy Commissioner Of Income Tax, Central Circle- 2(1), Bangalore

CO 10/BANG/2020

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3392 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 16 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 30-05-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 11-08-2020
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NAGIN KHINCHA
• Keywords: Share purchase agreement; Cost of acquisition; Valuation report; Capital Gains
• Section: 48; 13; 22

Judgement Text

ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER ITA No.479/Bang/2020 Assessment Year: 2013-14 Deputy Commissioner of Income-tax Central Circle-2(1) Bangalore Vs. Shri B.M. Jayashankar No.10, Vittal Mallya Road Bengaluru 560 001 PAN NO : ABLPJ3453C APPELLANT RESPONDENT C.O. No.10/Bang/2020 (Arising out of ITA No.479/Bang/2020) Assessment Year: 2013-14 Deputy Commissioner of Income-tax Central Circle-2(1) Bangalore Vs. Shri B.M. Jayashankar No.10, Vittal Mallya Road Bengaluru 560 001 PAN NO : ABLPJ3453C APPELLANT RESPONDENT Appellant by : Smt. Susan Dolores George CIT(OSD), DR Respondent by : Shri Nagin Khincha, A.R. Date of Hearing : 31.05.2022 Date of Pronouncement : 29.07.2022 O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER: This appeal by revenue is directed against order of CIT(A) dated 27.2.2020 and the Cross Objections by the assessee. At the ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 2 of 25 time of hearing, CO is not pressed. Accordingly, CO is dismissed as not pressed. The revenue raised following grounds of appeal:- 1. “The order of the learned CIT(A) is opposed to law and facts of the case. 2. The CIT(Appeals) has erred in not appreciating the fact that the working sheets relied upon by the Assessing Officer in the assessment order was prepared for making payment to the assessee and not to the company M/s Adarsh Prime Project Pvt. Ltd. of which he was a share holder. 3. The CIT(Appeals) has erred in not appreciating the fact that the transaction of sale of shares was between RMZ Ecoworld Infrastructure Pvt. Ltd., the buyer and the assessee, Sri B.M. Jayashankar, the seller in the capacity of a share holder, and not between RMZ Ecoworld Infrastructure Pvt. Ltd. and M/s Adarsh Prime Projects Pvt. Ltd. whose shares were subject matter of this transaction. 4. The CIT(Appeals) has erred in not correctly interpreting the recordings made in the working sheet from the point of computation of income in the hands of the assessee. 5. The CIT(A) has erred in not considering the fact that the liabilities of the company in which the assessee was a share holder would not be an admissible deduction to compute the value of the shares held by the assessee in this company which were transferred to M/s RMZ Ecoworld Infrastructure Pvt. Ltd. by the assessee.” 2. Facts of the case are that the Respondent was holding 99.95% of the shares of M/s. Adarsh Prime Project Pvt. Ltd., (‘M/s APPPL’). The company was in the business of real estate development and was developing a special economic zone for IT/ITES in Bengaluru. 2.1 The Respondent had on 02.07.2012 entered into an agreement with M/s. RMZ Infotech Pvt. Ltd., Raj Menda and Manoj ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 3 of 25 Menda, to sell the Respondent’s share-holding in M/s APPPL to M/s. RMZ Infotech Pvt. Ltd., Copy of the share purchase agreement is available at page nos. 75 to 139 of the paper book. The shares were sold by the Respondent during the previous year relevant to year under appeal and for the sale of such shares, the Respondent had computed capital gains as under: Total Sale consideration 7,80,62,14,368 Less: Indexed cost of acquisition 89,68,17,989 Cost of Transfer 1,53,50,075 --------------------- Capital Gains (LTCG) 6,89,40,46,304 -------------------- This calculation is available at internal page 16 of the assessment order. 2.2. As against the above computation, the Assessing Officer has in the assessment order dated 29/12/2017 computed capital gain on sale of shares as under: Total Sale consideration 12,02,85,55,366 Less: Indexed cost of acquisition 77,72,99,708 Cost of Transfer 1,53,50,075 --------------------- Capital Gains (LTCG) 11,23,59,05,583 -------------------- 2.3 From the above, it could be seen that the Assessing Officer, while computing capital gains, increased the total sale consideration and also reduced the indexed cost claimed. 2.4 Against such re-computation of capital gains, the Respondent filed an appeal before the Commissioner of Income tax (Appeals) and Commissioner of Income tax (Appeals) in the appellate order sustained the variation in the indexed cost as done ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 4 of 25 by the Assessing Officer but allowed the appeal as regards the issue of total consideration. 3. The Ld. D.R. submitted that during the course of assessment proceedings the assessee has submitted the legal opinions, valuation reports, analyses of the financials, share transfer agreement and other details called for. 3.1 The indisputable facts of the case are — a. M/s. Adarsh Prime Projects Pvt Ltd (APPPL) is a company, with substantial shareholding by Shri. B.M. Jayashankar (BMJ), who held 99.95% of the beneficial shares. The company is a real estate developer. It was developing a Software Technology Park in Bangalore. b. During the FY 2012-13, Sri BMJ entered into an agreement with M/s. RMZ Infotech Private Limited (RMZ), vide agreement dated: 02.07.2012 c. The share purchase agreement determined that the sale consideration for the transfer of shares is Rs. 780,62,14,368/-. d. Accordingly, the assessee has determined his capital gains as per the sale consideration determined in the share purchase agreement. e. However, during the course of the survey proceedings u/ s. 133A dated 04.12.2015 as a part of the search action in the case of the assessee, in the premises of M/s BSR Associates a sheet (Exhibit 1) was accessed from the electronic data in relation to RMZ group. M/s. BSR was the auditor for the RMZ group companies, the sheet showed the sale consideration of the transaction discussed ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 5 of 25 between the assessee and RMZ group was assigned at gs.1138,89,79,526/-. g- However, as discussed above the assessee has declared a capital gains on a sale consideration of Rs.1138,89,79,526/-. 3.2 Ld. D.R. stated that the assessee’s explanation is not acceptable for the following reasons: • The words used in the discussion paper are: "sale consideration" which is clearly mentioned as Rs. 1138,89,79,526/ -. Further after the additional consideration and other additions and deletions made the total consideration payable was determined at Rs. 1202,85,55,366/ - • Though the deal is stated to be for a lesser amount in the share purchase agreement, there are some hidden aspects therein which have the underlying effect of increasing the overall amount of the transaction. The company M/s. APPPL had a loan of Rs.325 cr. from India Bulls and other financial institutions with BMJ as a guarantor. As per Articles 8.1 to 8.3 of the Share Purchase Agreement (the said loan stands completely transferred to the purchaser (RMZ) with no liability of repayment being left on BMJ. • As per the sheet (exhibit 1) which was prepared on the basis of the valuation of the transferred company), the sale consideration is Rs.1138 Cr. (the total consideration after considering the additional consideration is Rs. 1202,85,55,366/-). However, when the final deal was signed the loan amount has been camouflaged in the agreement and the aggregate ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 6 of 25 purchase price is stated at only Rs.723 Crores (approx.) {Consideration after accounting the additional consideration is Rs.780 Crores (approx.). • However, as per the valuation of APPPL the same has been computed at Rs.1138 crores and from this amount payable by RMZ to BMJ, RMZ has sought to deduct the amounts already paid earlier to BMJ pertaining to the said asset, security deposit from lessees, labour cess for the entire development excluding the hotel component, some other expenditure incurred/to be incurred by RMZ and the amount of takeover of loan from India Bulls. As a result the final payment has been arrived at Rs 723 crores. • Despite the sale consideration being actually Rs.1138 crores(approx.), the final agreement has been done for only Rs.723 crores(approx.) and the reasons thereof have been left unmentioned in Share Purchase Agreement deliberately. • This figure has been erroneously arrived at by deducting some unallowable amounts like liabilities of M/s. APPPL etc. It may be mentioned here that as a result of the deal, BMJ has not only been able to sell all the shares of the APPPL but also has transferred all his liabilities to RMZ. The transfer of liabilities which is a hidden gain of Rs.325 Cr. Along with some other payments as discussed, thereby giving BMJ a gain of an overall amount of Rs.1138 Cr. From the seller in lieu of the sale of APPPL. • As per the loan agreement submitted by the assessee, the assessee has given personal guarantee for the loan and is ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 7 of 25 mentioned as Co-borrower of the loan from M/s. India Bulls. • It may be „noticed that the total consideration payable for the deal is Rs.1138 Cr. which is actually the correct price. This fact is also visible from the stated aggregate purchase price from the agreement which is the same amount as Rs.1138 Cr. minus liabilities/expenditures which have been claimed by the assessee. • The amounts that have been sought to be reduced from the actual total consideration to arrive at the stated total consideration have nothing to do with the cost of acquisition of shares and accordingly not deductible from the LTCG in the hands of BMJ. However, these liabilities are nothing but an overall gain for BMJ arising out of the sale. It may be noticed that certain amounts have been deducted from the overall consideration which ought not to have to be reduced from the sale consideration as per the Income Tax Act, 1961. 3.3 It is clear from the sworn statements of Shri Raj Menda and Shri. Arvinda Maiyya above, that the sale consideration was for Rs.1203 crores (approximately) and they also explain the mode of payment of the total consideration. 4. The Ld. A.R. submitted that the subject matter of the sales for computing capital gains was sale of shares held by Respondent in APPPL. For the purpose of valuation, the shares can be valued in different ways and in this case, the valuation was done based on net asset method i.e., value of assets of the company minus liabilities of the company. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 8 of 25 4.1 It may be submitted here that the company APPPL owned a valuable immoveable property and also the company APPPL owned various liabilities including loans due to India Bulls financial services Limited. The copies of financial statements of the company APPPL for the year ending 31.03.2012 were submitted in the course of hearing. 4.2 While negotiating sale price for the transaction, the Respondent (Seller) and the buyers of the shares, agreed to a price based on net value of the company in which the shares were held by the Respondent and for the purpose of sale, a detailed share purchase agreement was entered into. 4.3. The total consideration for sale of shares (of which the assessee’s shares was 99.5%). 4.4. The basis for the adaptation of total sale by the Assessing Officer is as under: (a) In the course of proceedings by the Investigation Wing, at the premises of Auditor of the buyers some information was found in the computers of the auditor and the printout thereof is at internal Page 5 of the assessment order and a free narration of this printout is at Page Nos. 6 & 7 of the assessment order. Further, some extract from the statement in the form of question and answers recorded from the Auditor are available at internal page nos.7 and 8 of the assessment order and these questions and answers as extracted in the assessment order are as under: ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 9 of 25 “Q6. Do you know of any transaction between RMZ Group and Adarsh Group ? A.6 Yes, as per information received in the course of my audit work. In July 2012 RMZ Infotech Private Ltd acquired the company Adrash Prime Projects Pvt Ltd (M/s. APPPL). The acquisition was by way of purchase of the shares of the promoters of M/s. APPPL by RMZ Infotech Pvt Ltd and its Directors Raj Menda and Manoj Menda. Subsequently M/s. APPPL was renamed as RMZ Ecowrold Infrastructure Private Limited. Q7. Please give details of the above acquisition. A7. As per information received in the course at my audit work 5Crore shares of M/s APPPL were held by its promotions namely B M Jayashankar, Sudha Shanker, B M Karunesh and Pratibha Karunesh at face value of Rs. 10 per share. All the shares were acquired by RMZ Infotech Pvt Ltd., and its Directors Raj Menda and Manoj Menda in July 2012 for a total amount of Rs. 796.36 Crores. Q8. Where are the documents and audit papers and details of RMZ group ? A8. Our office is totally automated the audit team carries out the audit on site at the client’s premises based on the information provided by the client and stores the audit working papers and documentation on the internal audit tool of our firm in electronic format. Therefore, we do not have my hard copies of any clients. In the case of RMZ group all the audit reports are in the same tool in electronic format. Copies of the audit report in hard copy have been signed and delivered to the client also at the appointed time frames. Q9. With your help, we have accessed today the electronic data in respect of RMZ group. Printout of the finance of RMZ Infotech Private Ltd for the FY ending 31.03.2013 has been taken. The printout of the pages has been ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 10 of 25 numbered serially from 1 to 82 . Please confirm and certify that all the papers pertain to RMZ Infotech Private Ltd and are correct A9. I have seen the pages and I confirm and certify that all the pages pertain to RMZ Infotech Private Ltd and are correct. Q10. Please see page no. 82. Please explain the entries on this page with specific reference to the sale consideration between M/s. APPPL and RMZ Infotech Private Ltd., A10. Page 82 contains the working of financial details of the sale transaction between M/s. APPPL and RMZ Infotech Private Ltd., which took place in July 2012. The workings are as provided by our client RMZ Infotech Private Ltd. The sale consideration is Rs. 1202.84 Crores. The consists of Rs. 1138.82 Crores Payable immediately and Rs. 63.95 Crores payable on occurrence of certain future events such as reduction in property tax. However, the net consideration is after reducing liabilities. The details of net consideration are as under; (Fig in Crores) Sale consideration as stated above 1202.84 Less: Rs. 63.8 Crores payable on occurrence Of certain future events as explained above 63.95 Balance 1138.89 Less : Loans taken over 370.00 Balance 768.89 Less; Payable to other than the promoters of M/s. APPPL such as KIADB BBMP and inter company loans 44.60 Net consideration 724.29 Crores ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 11 of 25 Q11 You have explained that the sale consideration is Rs. 1202.85 Crores. Please produce the valuation report in this regard. A11. We have not done the valuation nor are we in possession of any valuation report in this regard, The above workings are as per the details furnished by our client RMZ Infotech Pvt Ltd., to us such as share purchase agreement. Therefore, our stand is that the same are factually admitted / provided by our client to us, and accordingly audited by us. Q12. In answer no. 7, you have explained that all the shares were acquired by RMZ Infotech Pvt Ltd., and its Directors Raj Menda and Manoj Menda in July 2012 for a total amount of Rs. 796.36 Crores, Please reconcile this figure with the amount of Rs. 724.29 Crores mentioned in your answer no. 10. A12 Income tax refund of R.s 3.62 Crores was received by M/s. APPPL after it was acquired by RMZ Infotech Pvt Ltd., As a result equivalent amount was paid as additional consideration by the new share- holder to the old share-holder as per agreement. This is reflected on page 82 of the extract bundle taken by you. An amount of Rs. 53.83 Crore was withheld by the new share-holder pending resolution of property tax dispute. This amount is reflected in two rows as Rs. 46.64 Crores and Rs. 7.19 Crores on page 82 of the extract bundle taken by you. On resolution of the dispute the amount became payable. Additionally, an amount of Rs. 2.52 Crores was kept with the escrow agent in relation to a tax matter. This also was subsequently paid. This is also reflected on page 82. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 12 of 25 Further amount of Rs. 12.44 Crores was incurred by RMZ Infotech Pvt Ltd., towards brokerage, bank guarantee charges and stamp paper charges. This is reflected in Page 77 of the extract bundle taken by you. Thus, the total addition on account of the above is Rs. 72.41 Crores. This figure added to Rs. 724.29 Crores works out to a total of Rs. 796.7 Crores. 4.5 It is relevant to note that in answer to question No. 7 of the Auditor as extracted in assessment order, the auditor in his reply stated that the shares were acquired for a total amount of Rs. 796.36 Crores. This figure is sale consideration for the 100% share holding. 4.6 Even to Answer to Question No. 10 of the Auditor it is stated the net consideration is Rs.724.29 Crores. 4.7 In Answer to Question No. 12, the Auditor has reconciled the figure of Rs.796.36 Crores mentioned in Answer to Question No. 7 with figures of Rs.724.29 mentioned in Question No. 10 4.8 It can be seen from the answers to questions No. 10, the noting has started from gross consideration against which a figure of Rs. 1202.84 Crores is written. This figure of Rs.1202.84 crores is adopted by Assessing Officer as figure of gross consideration for consideration for sale of shares. 4.9 The question answer extracted above and also the computer printout clearly show the loan liabilities of the company are to be deducted from value of building, while computing the value of shares of the company. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 13 of 25 4.10 The Assessing Officer has not considered or deducted the loan liabilities and payables which figures are available also in the question answer referred to above as also in the computer printout referred to at Page Nos. 5 / 6 / 7 of the assessment order and considered the sale consideration at Rs.1202.87 crores. In support of this sale consideration, the Assessing officer had made the following observations at para 5.5 and 5.7 of the assessment order: At para 5.5: a) Loan is not allowable as a deduction in working the capital gains. b) Sale receipt is a credit entry in the income and expenditure statement and deductions claimed are balance sheet items of the Respondent. c) Repayment of loan is application of sale consideration and cannot be reduced from sale consideration for the purpose of computing capital gains. d) As a result of share transfer the Respondent has not only been able to sell the shares but also has transferred all liabilities. e) Liability repaid out of sale proceeds cannot be reduced from the sale consideration for computing capital gains. At Para 5.7: a) Words used in the discussion paper are ‘Sale consideration’ which is clearly mentioned as Rs. 1,138.89 crores. ( Details of which are available at Page 5 of this submissions). b) There are some hidden aspects in the share purchase agreement which have the underlying effect of increasing the overall amount of the transaction. M/s APPPL had a loan of Rs. 325 Cr. from India Bulls and other financial institutions with the Respondent as a guarantor. As per the share purchase agreement the liability stands completely transferred to the purchaser with no liability of repayment being left on the Respondent. c) The loan amount has been camouflaged in the share purchase agreement. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 14 of 25 d) Despite the sale consideration being actually Rs. 1138 crores the final agreement has been done for only Rs. 723 crores and the reasons are left unmentioned in the share purchase agreement. e) The Respondent has not only been able to sell all the shares of M/s APPPL but has also transferred all his liabilities to M/s RMZ. Such transfer of liabilities is a hidden gain of Rs. 325 crores. f) The Respondent has given his personal guarantee for the loan and is mentioned as co-borrower of loan from M/s India Bulls. 4.11 To sum up, the primary contention of the learned assessing officer is that the loans owed by the company are also liabilities of the Respondent. Such loans and liabilities in the understanding of the assessing officer stood transferred to the buyer of shares and is therefore a ‘hidden benefit’ to the Respondent. As per the learned assessing officer such benefits in addition to the actual sums received by the Respondent have to be taxed as income in the hands of the Respondent and therefore the sale consideration should include the above loans and liabilities. 4.12. In this regard the Respondent submitted that the learned assessing officer has failed to understand the very nature of transaction. The transaction was of the shares held by Respondent in the company APPPL and the basis for arriving at the consideration of such sales as per the normal accepted principle was based on the assets and liabilities held by the company. The assets were held by the company and liabilities were also the liabilities of the company APPPL and they remained as the liability in the books of the company itself. The net assets as per the balance sheet of the company have served as a basis for arriving at the value of equity shares of the company and at no point of time loan has been claimed as deduction by the Respondent in ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 15 of 25 computing taxable gains in the hands of the Respondent. However, the Assessing Officer has wrongly understood or assumed that the loan liability shown in the Balance Sheet of the company were the personal liabilities of the Respondent Shareholder. As a consequence to the wrong presumptions, the Assessing Officer arrived at wrong conclusions. Once the misunderstanding is cleared, the loan liabilities are not personal liabilities of the present assessee so as to add back the same to the agreed consideration shown in Share Purchase Agreement. 4.13 . Admittedly few of the loans of the company were guaranteed by the Respondent. However, such guarantee of repayment by the Respondent does not alter the fact that the primary liability to repay the loan was always that of the company. The liability of the Respondent would arise only upon default in repayment by the company. In the present case there was no such default by the company. 4.14 Thus the loans availed by the company which is an independent legal entity with perpetual existence is clearly distinct from the loans of its shareholders. The debt owed by the company to M/s India Bulls and others constitutes exclusively an obligation of the company and cannot under any stretch of imagination be construed as the debt of the Respondent shareholder. 4.15 In fact, ground no. 5 raised by the department clearly states that the loans/liabilities are of the Company APPPL only and not of the Respondent. 4.16 Further, a statement was recorded from Sri Raj Menda director of the buyer company and an affidavit was also filed by ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 16 of 25 Shri Raj Menda during the course of assessment proceedings. The copy of the affidavit is available at page 141 to 144 of the paper book. In affidavit, Sri Raj Menda, had clarified that the total amounts paid to the share holders of the Company was Rs.781.62 (of which the Respondent had 99.95% shares) only and not 1202.85 Crores ( at Page 142). This affidavit was never controverted by the department. There are various judicial pronouncements to the effect that the affidavit is a valid piece of evidence and supporting case laws on this point. 4.17 Thus the sale consideration adopted by the respondent was duly supported by the following documentary evidences. a) Share purchase Agreement. b) Statement of Auditor of the buyer company c) Print out of information retrieved by Investigating Authority from Auditor’s Office d) Affidavit of director of buyer company Sri. Raj Menda. 4.18 However, without considering these documents, the Assessing officer had relied upon only the first line of print out which was not even signed and obtained from the office of the auditors of the buyer company and adopted the sale consideration at Rs. 1202.85 Crores. It is also pertinent to note that in the statement recorded, the auditor clearly stated that the consideration to shareholders is only Rs. 781.62 Crores only and even in the print out there is mentioned of deductions to be made. 5. We have heard the rival submissions and perused the materials available on record. The assessee computed the sales consideration at Rs.780,62,14,368/- as below:- ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 17 of 25 5.1 However, the AO computed the total consideration at Rs.1,202.84 crores on the basis of answer to question No.10 of Sri Aravind Maiyya of BSR Associates as recorded in earlier page No.10 of this order. However, the assessee explained that the net consideration was only Rs.724.29 crores even if considered Rs.1203.81 crores as total consideration as below:- Figures in Crores Sale consideration as stated above 1202.84 Less: Payable on occurrence of certain future events as explained above 63.95 Balance 1138.89 Less: Loans taken over 370.00 Balance 768.89 Less: Payable to other than the promoters of M/s. APPPL such as BBMP and inter-company loans 44.60 Net consideration 724.29 ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 18 of 25 5.2 The Ld.AR submitted that the actual consideration received by assessee is as follows:- Actual As per MOU Consideration received as per clause 3(1) of Share Purchase Agreement (SPA) 723,57,69,574/- 723,93,89,269/- Additional consideration (1) as per clause 3(2) of SPA 54,17,00,000/- Actual received 46,64,49,493/- Additional consideration (2) as per clause 3(2) of SPA 7,19,08,691/- 11,55,00,000/- Total 777,41,27,758/- 789,65,89,269/- 5.3 Thus, according to the Ld. A.R., the assessee has received actual amount of Rs.777,41,37,753/-. In addition assessee also received Rs.3,84,39,350/- on account of IT refund. Total consideration is Rs.781,25,67,108/- and assessee also spent following expenditure:- Income tax for the period to the take over date 15,09,710/- Corporation tax 21,91,602/- Further Corporation tax 26,51,428/- Total 63,52,740/- 5.4 It was also on record in the assessment order that total consideration which was received by the parties as below:- Consideration received by Mr. Jaya Shankar 780,62,14,368/- Consideration received by other shareholders 36,19,695/- Total 780,98,34,063/- ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 19 of 25 5.5 This is supported by the actual computation made by AO in his assessment order as below:- Particulars Book value Transaction value Additional consideration Total consideration Govt. Value (Gazetted) Total land holding (55.09 Acres) 55,93,99,981 11,46,22,60,280 Operational building 1,84,35,80,355 11,46,22,60,280 3,71,49,17,657 New building (as is where is basis) 2,31,42,49,321 Other Assets 14,71,18,664 14,71,18,664 14,71,18,664 Additional consideration received 57,67,97,534 57,67,97,534 Gross assets value 4,96,43,48,321 11,60,93,78,944 57,67,97,534 12,18,61,76,478 Less: Liabilities India Bulls Financial Services 3,25,41,33,169 3,25,41,33,169 Security Deposits 36,99,65,411 36,99,65,411 Short term borrowings 37,26,12,834 37,26,12,834 Other liabilities 14,77,68,501 14,77,68,501 Deferred tax liabilities 15,95,70,003 15,95,70,003 Sundry Creditors 6,59,39,757 6,59,39,757 Expenses directly relating to the transaction 63,52,740 63,52,740 Total of liabilities 4,36,99,89,675 4,36,99,89,675 4,37,63,42,415 59,43,58,646 7,23,93,89,269 7,80,98,34,063 ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 20 of 25 Particulars Book value Transaction value Additional consideration Total consideration Govt. Value (Gazetted) Value per share (5 crore equity shares of Rs.10/- each 11.89 144.78 Transaction value 7,23,93,89,269 Particulars Amount (Rs.) Consideration received by Mr. Jayeshankar 7,80,62,14,368 Balance consideration to other share holders 36,19,695 Total 7,80,98,34,063 5.6 In our opinion, the total amount mentioned by Mr. Arvind Maiyya of BSR Associates the gross value while determining the Share Purchase Agreement dated 2.7.2012 and this is for the purpose of quantification of valuation of an undertaking, which is prepared by BSR Associates as exhibit no.1 mentioned in assessment order page No.5. In other words, this is the base for fixing the value of share in Share Purchase Agreement at Rs.789,65,89,269/-. However, the AO has considered only one portion of the statement of Mr. Arvind Maiyya of BSR Associates overlooking the entire SharePurchase Agreement. Admittedly, value mentioned in Share Purchase Agreement has been reconciled by the assessee before the AO. However, he overlooked it and considered the only statement of Mr. Arvind Maiyya in isolation, which is incorrect. 5.7 The assessee has claimed various transaction related expenses to the tune of Rs.63,52,750/- which cannot be granted as this expenditure has nothing to do with the transfer of the shares. Accordingly, in our opinion, Ld. CIT(A) ought to have considered the ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 21 of 25 total consideration at Rs.789,65,89,269/- while holding so, we are not including the IT refund of Rs.3,84,39,350/- as this was not part of the share purchase agreement. We are considering the total consideration as enumerated in the Share Purchase Agreement only, which is reconciled with the statement of Mr. Arvind Maiyya of BSR Associates. However, Ld. CIT(A) failed to consider entire sale consideration mentioned in the SharePurchase Agreement and she considered only sale consideration as per clause 3(1) of SPA and she has not considered additional sales consideration mentioned in 3(2) as at Rs.54,17,00,000/- and Rs.11,55,00,000/-. Accordingly, we direct the A.O to consider the sale consideration as below: 5.8 The contention of the Ld. A.R. is that the actual sales consideration received by the assessee to be considered and not the gross sales consideration mentioned in SPA. This argument of assessee’s counsel has no merit in view of provisions of section 48 of the Act. As per this section 48 of the Act, any income chargeable under the head “Capital gains” shall be computed by deducting from the full value of sale consideration received or accruing as a result of transfer of capital asset after deducting the cost of acquisition and cost of transfer. Being so, the amount of consideration received or receivable to be considered as a total gross sales consideration. Accordingly, this argument of the assessee’s counsel is rejected. 1 Consideration received as per clause 3(1) of the SPA 723,93,89,269/- 2 Additional sales consideration (1) as per 3(2) 54,17,00,000/- 3 Additional sales consideration as per clause 3(2) 11,55,00,000/- Total 789,65,89,269/- ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 22 of 25 5.9 One more argument of the Ld. A.R. is that there was an affidavit from Raja Menda, Director of RMZ Infotech Ltd., where the total cost of acquisition of 100% shareholding of APP Pvt. Ltd. At Rs.796.36 crores. The Ld. A.R. explained that the total consideration even if considered at Rs.796.36 crores, out of this an amount of Rs.14.74 crores was to be deducted towards incidental expenditure and the net sales consideration works out at Rs.781.62 crores. However, the assessee offered Rs.780.62 crores. In our opinion, this argument is infructuous in view of our finding that the total consideration we have determined at Rs.789,65,89,269/- as against the offer made by the assessee at Rs.780,62,14,368/- and accordingly, the AO has to re-compute the long term capital gain on account of impugned transaction. 6. To sum up, we dispose the grounds of appeal of Revenue as follows: 7. Ground No.2:- The CIT(Appeals) has erred in not appreciating the fact that the working sheets relied upon by the Assessing Officer in the assessment order was prepared for making payment to the assessee and not to the company M/s Adarsha Prime Project Pvt. Ltd. of which he was a share holder:- 7.1 The working sheets relied by the A.O in the Assessment order was prepared for the purpose of valuation of the undertaking viz. M/s. APPPL Ltd. wherein total assets and total liabilities has been considered and net assets has been arrived to fix the sales consideration on transfer of shares by the present assessee to RMZ Infotech Pvt. Limited. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 23 of 25 8. Ground No.3:- The CIT(Appeals) has erred in not appreciating the fact that the transaction of sale of shares was between RMZ Ecoworld Infrastructure Pvt. Ltd., the buyer and the assessee, Sri B.M. Jayashankar, the seller in the capacity of a share holder, and not between RMZ Ecoworld Infrastructure Pvt. Ltd. and M/s Adarsh Prime Projects Pvt. Ltd. whose shares were subject matter of this transaction. 8.1 The transaction of sale of shares was between RMZ Infotech Pvt. Ltd., the buyer and the assessee, Sri B.M. Jayashankar, the seller in the capacity of a shareholder, as evidenced by the share purchase agreement dated 2 nd July, 2012 placed at paper book page No.75 to 139, as such capital gain has to be charged in the hands of present assessee as one of the seller of shares. 9. Ground No.4:- The CIT(Appeals) has erred in not correctly interpreting the recordings made in the working sheet from the point of computation of income in the hands of the assessee. 9.1 The CIT(A) committed an error in arriving at the sales consideration as discussed in earlier para and the gross sales consideration in the hands of present assessee would be at RsRs.789,65,89,269/- as against the offer made by the assessee at Rs.780,62,14,368/- in his return of income and same to be substituted for the purpose of computation of capital gains in the hands of the assessee. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 24 of 25 10. Ground No.5:- The CIT(A) has erred in not considering the fact that the liabilities of the company in which the assessee was a share holder would not be an admissible deduction to compute the value of the shares held by the assessee in this company which were transferred to M/s RMZ Infotech Pvt. Ltd. by the assessee. 10.1 The liabilities of the company in which the assesse was a shareholder would not be an admissible deduction while computing the value of the shares held by assesse in this company which were transferred to M/s RMZ Infotech Pvt. Ltd. and others by the assessee. However, while arriving the valuation of the seller company, one has to consider the net worth i.e (Total assets minus total liabilities) of the seller company and the payment of consideration is relating to the net worth of the selling company and the worksheet is represents the basis of valuation of the selling company and the gross value mentioned therein cannot be the total consideration and only net consideration shown in the Share Purchase Agreement to be considered as sale consideration on transfer of shares to arrive at the correct tax liability of the present assessee. This can be seen from para 5.5 of this order, wherein details of net consideration based on net assets is reproduced. However, we have considered total consideration, which is accrued to the assessee on the basis of MOU cited (supra), which is more than the net value based on the net assets, which was at Rs.7,80,98,34,063/- as against the accrued consideration of Rs.789,65,89,269/-. ITA No.479/Bang/2020 & CO No.10/Bang/2020 Shri B.M. Jayashankar, Bangalore Page 25 of 25 11. In the result, the revenue’s appeal is partly allowed. Order pronounced in the open court on 29 th Jul, 2022 Sd/- (BeenaPillai) Judicial Member Sd/- (Chandra Poojari) Accountant Member Bangalore, Dated 29 th Jul, 2022. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The CIT(A) 5. The DR, ITAT, Bangalore. 6. Guard file By order Asst. Registrar, ITAT, Bangalore.