CIT V. KANAK LATA

ITA/547/2011

AI Insights

The case involves two appeals by the Commissioner of Income Tax, Kota, against Smt. Kanaklata Jain and Smt. Priti Jain, concerning the assessment of undisclosed investments in shares and long-term capital gains. The primary legal issues revolved around the correct valuation of shares and the appropriate tax treatment of capital gains under the Income Tax Act, 1961. The tribunal and CIT(A) had previously ruled in favor of the respondents, leading to the current appeals. The High Court's decision focused on the legal interpretations of Sections 69 and 48 of the Income Tax Act, particularly concerning the valuation of shares and the calculation of capital gains.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 720188 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 30-08-2017
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: GUNJAN PATHAK; ISHITA RAWAT
• Assessee Lawyers: PARINITOO JAIN
• Keywords: Assessment Year; Fair market value; Income escaped assessment; Long Term Capital Gain; Undisclosed investment
• Section: 48; 69; 2(22B)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 547 / 2011 COMMISSIONER OF INCOME TAX, KOTA ----Appellant Versus SMT. KANAKLATA JAIN W/O SHRI RAJENDRA JAIN, MEHTA BHAWAN, CHANDRA PRABJUJI KI GALI, JAHLARAPATAN, (RAJ) ----Respondent Connected With D.B. Income Tax Appeal No. 548 / 2011 COMMISSIONER OF INCOME TAX, KOTA ----Appellant Versus SMT PRITI JAIN W/O SHRI ANIL JAIN, MEHTA BHAWAN, CHANDRA PRABJUJI KI GALI, JHALARAPATAN, (RAJ) ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain For Respondent(s) : Mr. Gunjan Pathak with Ms. Ishita Rawat _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Judgment 30/08/2017 (2 of 5) [ITA-547/2011] 1. In both these appeals, common question of law and facts are involved hence they are decided by this common judgment. 2. By way of these appeals, the appellant has assailed the judgment and order of the tribunal whereby tribunal has allowed the cross objection of the assessee and dismissed the appeal of the department. 3. This court while admitting the appeals framed following substantial questions of law:- 3.1 Appeal No.547/2011 admitted on 3.7.2013 “(1) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the order of the CIT(A) and deleting the addition of Rs.99,00,000/- which was made on account of undisclosed investment in shares under Section 69 of the Income Tax Act, 1961 based on the fair market value of shares as provided under Section 2(22B) of the Act and determined on the basis of company’s worth as per the balance-sheet? (2) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the order of the CIT(A) and deleting the addition of Rs.1,23,70,604/- which was made on account of long term capital gain under Section 48 of the Income Tax Act, 1961 arising out of the sale of the shares by adopting the price at which the shares were allotted by the company to others during the year and the indexed cost of acquisition?” 3.2 Appeal No.548/2011 admitted on 3.7.2013 “(1) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the order of the (3 of 5) [ITA-547/2011] CIT(A) and deleting the addition of Rs.99,00,000/- which was made on account of undisclosed investment in shares under Section 69 of the Income Tax Act, 1961 based on the fair market value of shares as provided under Section 2(22B) of the Act and determined on the basis of company’s worth as per the balance-sheet? (2) Whether on the facts and in the circumstances of the case, the Tribunal was legally justified in upholding the order of the CIT(A) and deleting the addition of Rs.1,11,51,472/- which was made on account of long term capital gain under Section 48 of the Income Tax Act, 1961 arising out of the sale of the shares by adopting the price at which the shares were allotted by the company to others during the year and the indexed cost of acquisition?” 4. The facts of the case are that return of income declaring total income of Rs.47,650/- was filed on 1.11.2004 which was processed on 24.02.2005. Later on, it was noticed that the income escaped assessment hence notice u/s 148 was issued on 2.3.2007 and requested to consider the return filed on 1.11.2004 in response to notice u/s 148. Further a notice u/s 143(2) alongwith notice u/s 142(1) and questionnaire was issued on 18.09.2007 and 9.10.07 to attend on 15.10.07. In response to this notice Sh. Arvind Gupta CA & A/R and Sh. Rajendra Jain Husband of assessee time to time and filed details which are placed on record. The case was discussed with them. 4.1 During the course of assessment proceedings of M/s Patan Finance & investment Company Ltd., Mumbai it was noticed by the AO of company that during the previous year relating to assessment year 2004-05 the company allotted 2 lacs shares to (4 of 5) [ITA-547/2011] 120 persons @ Rs. 10/- per share and formed share capital of Rs.20 Lacs. In the same financial year the then director of company Smt. Kanak Lata Jain purchased 1 Lac share from these allottees @ Rs.1/- per share for total cost of Rs.1 Lac. Further, in the same financial year the company has issued 4 Lac equity shares of Rs.10 each at a premium of Rs. 90 per share. In this way the assessee has shown less purchase value of Rs.99/- per share totaling to Rs.99 lacs (1 Lac x 99/-) which has been incurred from the income of assessee from undisclosed sources. 4.2 Further the assessee sold 138000/- shares of M/s Patan Finance and Investment Co. Ltd. @ Rs. 1 per share inspite of the same fact that the company allotted 4 Lac equity shares of Rs.10 each at premium of Rs.90 per share during the same F.Y. related to assessment year under consideration. 5. Counsel for the appellant contended that AO while assessing the value instead of @ Rs.1 purchase price has assessed on the ground that new management has disposed of the shares and therefore, the calculation made by the AO is required to be accepted. 6. We have heard counsel for the parties. 6.1 Taking into consideration the basic concept of the appreciation of the price and the fact that the subsequent price which has been adopted by the new management cannot be looked into and apart from that long term capital gain is always to (5 of 5) [ITA-547/2011] be considered on the different between purchase and sale price of the shares which has been paid through account payee cheque. 7. In that view of the matter, the issues are answered in favour of the assessee and against the department. 8. The appeals stand dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 20-21. "