ITAT Kolkata: AO Cannot Alter Cost of Acquisition in Year of Sale if Purchase Accepted in Earlier Assessment

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has delivered a significant ruling regarding the computation of Long Term Capital Gains (LTCG) and the applicability of exemption under Section 10(38) of the Income Tax Act 1961. In the case of ACIT Vs Roselife Enclave LLP, the Tribunal held that the Assessing Officer (AO) acts beyond his jurisdiction if he attempts to modify the cost of acquisition of shares during the assessment of the sale year, particularly when the purchase transaction was scrutinized and accepted in the relevant year of acquisition.

Factual Background of the Case

The dispute arose from the assessment of Roselife Enclave LLP for the Assessment Year (AY) 2017-18. The assessee, a Limited Liability Partnership, filed its return of income declaring a total income of Rs. 1,20,79,480. During the scrutiny proceedings, the AO examined the assessee’s claim regarding the sale of equity shares.

During the financial year relevant to the assessment year in question, the assessee sold 7,06,000 shares of a listed entity, M/s Skipper Limited. These transactions were executed on recognized stock exchanges (BSE and NSE) for a total consideration amounting to Rs. 10,90,17,795. The assessee claimed the resulting gain of Rs. 9,48,97,795 as exempt LTCG under Section 10(38).

The assessee submitted that these shares were originally acquired on April 30, 2014 (Financial Year 2014-15) from two private entities, M/s Edessa Commercial Pvt Ltd and M/s Rebecca Suppliers Pvt Ltd, at a rate of Rs. 20 per share. The shares were subsequently dematerialized in March 2015. Based on the purchase price of Rs. 20, the total cost of acquisition was calculated at Rs. 1,41,20,000.

The Assessing Officer’s Contention

The AO challenged the legitimacy of the purchase price. While the AO issued summons to the sellers which were not complied with, the primary basis for the AO's adverse order was the timing of the dematerialization.