CIT-7 Vs. Paville Projects Pvt ltd (Supreme Court)
Date-6th April 2023
Sub-Whether payment to shareholders out of sale proceeds of a property belonging to the company, to end dispute amongst the shareholder can be cost of improvement for computation of capital gains ?

The Apex court in this case was dealing with the deduction which was claimed by the company towards payment made to shareholders to settle disputes amongst the shareholders in relation to a property belonging to the company which was sold and the claim was made towards cost of improvement. The original assessment was completed as per the return but later on proceedings were initiated u/s 263. The Supreme Court while allowing the SLP of the department relied on the landmark decision in the case of Malabar Industrial where thread bare discussion was made regarding when an order can be said to be erroneous and prejudicial to the interest of revenue. There was not much discussion in the judgement on the facts but what would have weighed in the mind of judges was the argument by the department that the dispute had nothing to do with the property belonging to the company and as such there was no question of allowing deduction towards cost of improvement.

This judgement would be latest in relation to 263 proceedings.

Ramesh Patodia
07-04-2023