Recently on December 13, the Income Tax Appellate Tribunal (ITAT two-member) bench of Yogesh Kumar U.S. (Judicial Member) and B.R.R. Kumar (Accountant Member) allowed the expenses incurred during the transfer of shares. 

The bench also observed that the assessee's expenses are allowable transfer expenses under Section 48 of the Income Tax Act, and that both lower authorities made an error in denying the assessee's expenses.

The assessee filed a return for the fiscal year 2016-17, declaring an income and deducting transfer expenses from the sale consideration. The assessee's case was chosen for review under CASS. The assessment proceedings were initiated, and during the assessment proceedings, the assessee contended that the expenses were incurred solely for the transfer of shares, and that the expenses are allowable under Section 48 of the Income Tax Act of 1961.

The assessee filed an A.O., and the CIT(A) erred by not allowing all expenses related to earning long-term capital gains. The aforementioned expenses were paid to Signal Hill for management consultancy in connection with a share transfer, but they were disallowed on the grounds that management consultancy expenses cannot be considered eligible transfer expenses under Section 48 without bringing any material on record. Though CIT(A) did not call the assessee's service into question, it made a mistake by limiting the expenses to only 0.1% of the transaction cost. 

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

The tribunal found that M/s Signal Hills' services were solely used to sell private limited company shares. When compared to M/s Signal Hills' invoice, payment was made through the banking channel. There was nothing on record, or no material brought to the AO's attention, to suggest that transfer expenses were not incurred solely with the intention 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)

Link:https://itat.gov.in/files/uploads/categoryImage/1670918704-ita%20no.%207387%20Pallav%20Pandey.pdf