Law:

Section:

Section 263, read with section 52, of the Income-tax Act, 1961 - Revision - Of orders prejudicial to interest of revenue - Assessee transferred certain partly paid shares at cost price - Shares were not quoted in market and there were no ready buyers for said shares - Commissioner, by his order under section 263, directed Income-tax Officer, to redo assessment by assessing capital gains arising out of sale of shares by applying provisions of section 52 - Whether in absence of any material to show that transferee of shares was directly or indirectly connected with assessee, nor that transfer was effected with object of avoidance or reduction of liability of assessee under section 45, Commissioner could not have come to conclusion that Income-tax Officer had committed an error by not applying provisions of sub-section (1) of section 52 - Held, yes - Whether, further, when Commissioner had not recorded any finding to effect that fair market value as estimated by him was more than 15 per cent of value declared, so as to attract provisions of sub-section (2) of section 52, impugned order of Commissioner could not be sustained - Held, yes FACTS For the relevant assessment year, an assessment order was made by the ITO on certain income which included share of profits from various firms and also dividends and interest on securities. Subsequently, the assessee had sold certain partly paid 'B' class ordinary shares of Rs. 10 each (Rs. 7.50 paid) at the cost price. The Commissioner issued under section 263 a notice requiring the assessee to show cause as to why the assessment order, should not be revised and the ITO asked to redo the assessment by assessing capital gains arising out of the sale of the shares by applying the provisions of section 52. The assessee contended that the provisions of sub-section (1) of section 52 were not applicable to the instant case and that the provisions of sub-section (2) of the said section were also not applicable in view of the fact that partly paid up shares were not quoted in the market and they also did not find ready buyers and, therefore, there was no basis to hold that their fair market value on the date of transfer was Rs. 16.90…

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