ITAT Allows Expenses Incurred Towards Transfer Of Shares

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has allowed the expenses incurred towards the transfer of shares.

The two-member bench of Yogesh Kumar U.S. (Judicial Member) and B.R.R. Kumar (Accountant Member) has observed that the expenses incurred by the assessee are allowable transfer expenses as per Section 48 of the Income Tax Act, and both the lower authorities have committed an error in disallowing the expenses incurred by the assessee.

The assessee filed the return for the assessment year 2016–17, declaring an income and claiming transfer expenses against the sale consideration. The case of the assessee was selected for scrutiny under CASS. The assessment proceedings were initiated, and during the assessment proceedings, the assessee contended that expenses were incurred wholly and exclusively for the transfer of shares and that expenses are eligible as per Section 48 of the Income Tax Act of 1961.

The AO has disallowed transfer expenses on the basis that the transfer expenses claimed by the assessee are in the nature of fees for advisory services and management consulting. Therefore, it cannot be considered allowable transfer expenses as per Section 48 of the Income Tax Act.

The assessee has preferred an appeal before the CIT (A). The CIT(A) has allowed the transfer expenses to the extent of Rs. 1,50,000 (being 0.1% of the transaction cost), and the disallowance of the balance of Rs. 24,42,818 was confirmed.

The assessee submitted an A.O., and the CIT(A) erred in not allowing all expenses incurred in connection with earning long-term capital gains. The said expenses were paid for seeking management consultancy from Signal Hill in respect of a transfer of shares, but they have been disallowed on the basis that the management consultancy expenses cannot be considered eligible transfer expenses as per Section 48 without bringing any material on record. Though CIT(A) did not question the assessee's service, it made a mistake by limiting the expenses to only 0.1% of the transaction cost.

The department argued that CIT(A)'s order limiting the expenses to 0.1% of the transaction was reasonable and that the Tribunal should not intervene.

The tribunal determined that M/s Signal Hills' services were solely used for the sale of private limited company shares. When compared to the invoice raised by M/s Signal Hills, the payment was made through the banking channel. There was nothing on record to suggest or no material brought on record by the AO to suggest that transfer expenses were not incurred wholly and exclusively for the purpose of transferring shares held by the assessee.

Case Title: Pallav Pandey Versus ACIT

Citation: I.T.A. No. 7387/DEL/2019 (A.Y 2016-17)

Date: 13.12.2022

Counsel For Appellant: FCA P. S. Kashyap

Counsel For Respondent: Sr. D. R. Sanjay Nargas

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