ORDER
Per: SHRI JAGADISH, A.M.:
1. This appeal by the assessee is directed against the order dated 25.11.2025 passed by the National Faceless Appeal Centre, Delhi [hereinafter referred to as "Ld. CIT(A)"], arising from the assessment order dated 30.12.2016 passed under section 143(3) of the Income-tax Act, 1961 ("the Act") by the Income Tax Officer-17(3)(5), Mumbai, for the assessment year 2014-15.
1
2
2. The assessee has raised the following grounds of appeal:
"1. The learned CIT(A) has erred in upholding the action of the AO in substituting the sale price of 79,625 9% non-cumulative preference shares of M/s M. Manifold Pvt. Ltd. at Rs.325 per share as against the actual price of Rs.100 per share while computing long-term capital gain on redemption of the said preference shares. On the basis of the facts and circumstances of the case, the sale price per share ought to be accepted at Rs.100 per share and the addition made by the Ld. AO and confirmed by the CIT(A) ought to be deleted.
2. The appellant craves leave to add, alter, amend and/or rescind any grounds of appeal during the course of hearing."
3. The assessee has also sought admission of the following additional ground:
"On the facts and in the circumstances of the case and in law, the Ld. AO and the Ld. CIT(A) erred in restricting the cost of acquisition to Rs.79,62,500, being the amount claimed in the return, and ought to have allowed the correct cost of acquisition of Rs.1,59,25,000 in respect of the 9% non-cumulative preference shares of M/s M. Manifold Pvt. Ltd. while computing income/loss under the head 'Capital Gains'."
4. Brief facts of the case are that the assessee, a trust, filed its return of income on 31.07.2014 declaring total income of Rs.1,13,576/-. During the relevant previous year, M/s M. Manifold Pvt. Ltd. redeemed 79,625 9% non-cumulative preference shares held by the assessee at their face value of Rs.100/- per share and paid redemption proceeds of Rs.79,62,500/-. In the same year, the assessee acquired 24,500 equity shares of that company at Rs.325/- per share, comprising face value of Rs.100/- and premium of Rs.225/-. The AO treated the equity shares and preference shares as being on the same footing and substituted Rs.325/-
3
per share for the redemption value of Rs.100/- per share. He consequently adopted the full value of consideration at Rs.2,58,78,125/- and made an addition of Rs.1,79,15,625/- under the head capital gains. The AO also made a separate addition of Rs.4,85,550/- in respect of 1,494 equity shares.
5. The Ld. CIT(A) upheld the substitution of Rs.325/- per share on the reasoning that the value of a share of the same company could not vary merely because it was described as an equity share or a preference share and that different yardsticks could not be adopted for contemporaneous acquisition and redemption. The Ld. CIT(A), however, directed the AO to grant indexation on the cost of acquisition and apply the tax rate of 20%. The separate addition of Rs.4,85,550/- was restored to the AO for verification. The assessee is in appeal only against the confirmation of the substituted redemption value.
6. The Ld. Authorised Representative submitted that equity shares and preference shares are commercially and legally distinct instruments. Preference shareholders are ordinarily entitled only to a fixed dividend and repayment in accordance with the terms of issue, whereas the residual value and participation rights belong to equity shareholders. It was submitted that section 48 requires adoption of the consideration actually received or accruing and does not permit substitution by a notional fair market value. The assessee had admittedly received only Rs.100/- per preference share and there was no material suggesting receipt of any amount over and above it. The Ld. AR further submitted that section 50CA, which specifically deems fair market value to be the full value of consideration in certain transfers of unquoted shares, was inserted by the Finance Act, 2017 with effect from 01.04.2018 and was, therefore, not applicable to A.Y. 2014-15. Reliance was placed, inter alia,
4
on CIT v. George Henderson & Co. Ltd. [66 ITR 622 (SC)], K.P. Varghese
v. ITO [131 ITR 597 (SC)], ACIT v. Golden Line Studio (P.) Ltd. [98 taxmann.com 299 (Mumbai-Trib.)] and DCIT v. Piramal Realty (P.) Ltd. in ITA No.2317/Mum/2017.
7. On the additional ground, the Ld. AR submitted that the preference shares had undergone capital reduction and consolidation and, therefore, the correct cost attributable to 79,625 shares was Rs.1,59,25,000/- as against Rs.79,62,500 claimed in the return. It was contended that the ground went to the correct computation of income and should be admitted in view of the decision of the Hon'ble Supreme Court in National Thermal Power Co. Ltd. v. CIT [229 ITR 383 (SC)].
8. The Ld. Departmental Representative supported the orders of the authorities below. In respect of the additional ground, the Ld. DR objected to its admission on the ground that the claim was not borne out of the record available before the lower authorities and required examination of fresh facts concerning the original acquisition, reduction of capital and consolidation of shares.
9. We have heard the rival submissions and perused the material available on record. The primary issue is whether, for A.Y. 2014-15, the actual redemption consideration of Rs.100/- per preference share could be replaced by Rs.325/-, being the price at which equity shares of the same company were acquired. Section 48, as applicable to the year under consideration, takes the full value of the consideration received or accruing as a result of the transfer as the starting point for computation. The expression is not synonymous with the fair market value of the capital asset. In the absence of a statutory deeming provision applicable to the asset and the relevant year, the consideration actually received or
5
accruing cannot be replaced merely because the AO considers another value to be more appropriate.
10. The specific deeming provision relating to transfer of unquoted shares, namely section 50CA, was inserted by the Finance Act, 2017 with effect from 01.04.2018 and applies from A.Y. 2018-19. The appeal before us concerns A.Y. 2014-15. Thus, section 50CA was not on the statute for the relevant year and cannot be applied retrospectively. The consideration in the present case was also clearly ascertainable at Rs.100/- per share; therefore, section 50D has no application.
11. Further, the AO's comparison itself proceeds on an incorrect premise. Equity shares and preference shares carry different rights and cannot be valued alike merely because they are issued by the same company. The coordinate bench in ACIT v. Golden Line Studio (P.) Ltd. (supra), in paragraph 9, held as under:
"We notice that the AO has failed to appreciate the fact that the Preference Shares and Equity shares stand on different footing, which has been explained by the assessee before the AO. We have extracted the submissions made by the assessee before the AO in the preceding paragraph explaining the difference between Equity shares and Preference shares. We notice that the AO has failed to appreciate the same. We agree with the submissions of the assessee that the Equity shares and Preference shares stand on different footing. While the equity share-holders are the real owners of the company, the preference share-holders are not in fact, the owners of the company. They get preference over the equity share-holders for payment of dividend and repayment of equity. Hence the Net asset value of the company really represents the value of Equity shares and not 'Preference shares'. Hence, in our view, the AO has misdirected himself in comparing the Net Asset value of the company with the Preference Shares."
6
12. In the present case, the company redeemed the 9% non- cumulative preference shares at their face value of Rs.100 each and the assessee received Rs.79,62,500/-. Neither the AO nor the Ld. CIT(A) has brought on record any evidence of consideration received or accruing beyond that amount. The mere fact that equity shares were acquired at Rs.325/- per share cannot authorise substitution of the redemption consideration of preference shares. We, therefore, direct the AO to adopt Rs.100/- per share, aggregating to Rs.79,62,500/-, as the full value of consideration for computing the capital gain. Ground No.1 is allowed.
13. We now consider the assessee's request to admit the additional ground claiming cost of acquisition of Rs.1,59,25,000/-. The claim made in the return and throughout the proceedings before the lower authorities was Rs.79,62,500/-. The enhanced claim is founded on an asserted historical sequence involving the original acquisition of 2,00,000 preference shares, reduction of their paid-up value, and subsequent consolidation. Determination of the claimed cost would require verification of the original acquisition documents, the terms and legal effect of the capital reduction and consolidation, the identity and continuity of the shares, and the consequential allocation of cost. These are factual matters and are not borne out of the record considered by the lower authorities.
14. In National Thermal Power Co. Ltd. v. CIT (supra), the Hon'ble Supreme Court recognised the Tribunal's jurisdiction to examine a question of law arising from facts found by the authorities below and having a bearing on the tax liability of the assessee. The present claim does not arise from facts already found; it requires a fresh factual inquiry into the computation of cost of acquisition. It is, therefore, not a pure question of law to which the ratio of National Thermal Power Co. Ltd.
7
applies. Accordingly, the additional ground is not admitted and is rejected.
15. In the result, the appeal filed by the assessee is allowed in terms indicated above.
Order pronounced in the open court on 06/08/2026. Sd/-
Sd/-
(NARENDER KUMAR CHOUDHRY)
Judicial Member
(JAGADISH)
Accountant Member Mumbai, Dated: 06/08/2026 Ashwani Rao
Sr. Private Secretary Copy of the order forwarded to:
1. Appellant
2. Respondent
3. The CIT
4. The CIT (Appeals)
5. The DR, I.T.A.T. By order
(Assistant Registrar) ITAT, Mumbai