Income Tax Appellate Tribunal - Amritsar
Max Financial Service Limited , ... vs Principal Commissioner Of Income Tax ... on 31 March, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL,
DIVISION BENCH, AMRITSAR
(VIRTUAL COURT)
BEFORE: SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
AND SHRI R.L. NEGI, JUDICIAL MEMBER
ITA No. 121 (Asr)/2020
(Assessment Year : 2015-16
M/s Max Financial Services Ltd., बनाम The Pr. CIT-I.,
Bhai Mohan Singh Nagar, C.R. Building,
Rail Majra, Tehsil Balachaur, Model Town Road,
Distt Nawanshahr. Jalandhar.
थायी लेखा सं./PAN NO: AABCM1204G
नधा रती क ओर से/Assessee by: Shri Deepak Chopra,
Shri Deepak Aggarwal
Shri Rohan Khare
Ms.Pratishtha Singh
राज व क ओर से/ Revenue by: Smt.Prabhjot Kaur, CIT
सन
ु वाई क तार ख/Date of Hearing : 24.02.2021
उदघोषणा क तार ख/Date of Pronouncement: 31 .03.2021
(Hearing through webex)
आदे श/ORDER
Per Anna pur na G upta, Account ant Member :
This appeal filed by the assessee is directed against the order of the Principal Commissioner of Income Tax, Jalandhar ( i n sh o r t " P C I T" ) , dated 25.02.2020 relating to assessment year 2015-16, p a s se d i n e xe r ci s e o f h i s re vi s i o n a r y j u r i s d i c t i on u /s
2 6 3 o f t h e I n c o m e Ta x A c t , 1 9 6 1 ( h e r e i n af te r re fe r re d t o a s A c t) . 2 ITA No.121/Asr/2020
A.Y.2015-16
2. B r i e f ly s ta te d , t he Ld . P r .C I T wh i le pe r u si ng t he a sse ssme nt re cor d of the a sse sse e pe r ta i n in g to t he imp ug ne d y e a r noti c e d tha t t he A sse ssi n g O ff ice r ( AO ) h a d fr a me d th e a sse ssme n t w i thou t d ul y e x a min in g th e c la i m of the a sse ssee r e l a ti n g to ce r t a in e x pe nses a nd or in come s/p r ofi ts re tur ne d . Acc or d in gl y, sh ow ca us e n oti ce wa s i ss ue d t o th e a s se sse e a s to wh y re me d i a l a cti on u/s 26 3 of t he A ct be n ot ta ke n w it h r e s pe ct to t he a sse ssme nt or de r fr a me d, an d sp e c if i c d i sc re p a nc ie s note d by the Ld . Pr . C I T th e r e i n w a s p oi nte d out. D ue a nd e xh a usti ve re p ly wa s fi l e d by t he a sse sse e a d d re ss in g the le ga l a sp e c t of a ssu mp tio n of j u r i sd i cti on u /s 2 6 3 of th e Ac t a nd po in ti ng out w h y th e s a me we re n ot f ul f il le d in the p re se nt ca s e vi s- à -vi s e a ch sp e cifi c is sue r a i se d by th e P r . C I T. Th e Ld . Pr . C I T d id not f i n d me ri t i n th e c ont e n tio n of th e a sse ssee a nd d e a li n g w i th e a ch spe ci fi c is su e ra ise d b y he r , a r r iv e d a t a fi n d in g t ha t th e or de r of the AO w a s e r r one ou s s o a s to ca us e p re j ud i ce to th e i nt e re s t of the Re ve n ue w ith r e s pe ct to e a ch i s sue . The Ld . P r .C I T h e l d t ha t the AO ha d p a sse d the o rde r u /s 14 3( 3 ) of th e Ac t wi th ou t ma ki n g re q ui si te e nq u i rie s a nd v er i fi ca ti on in r e s pe ct o f th e s pe ci fie d i ss ue s, wh i ch sh oul d ha v e be e n ma de b e f ore p a ss in g of th e o rde r u/s 1 43 ( 3 ) of th e Ac t a n d , th e ref or e , the a ss e ssme n t or de r wa s e rr one o us and p re ju d ic ia l to t he i nte res t of t he 3 ITA No.121/Asr/2020 A.Y.2015-16 Re ve nue . A ccor di ng ly , s he se t sid e the a s se s sme n t o rde r pa s se d b y the AO d i r e ct in g a f re sh or de r to be pa ss e d a fte r ma ki n g ne ce s sa ry e nq u i rie s /in ve sti ga t ion i n th e l i ght of t he di sc us si ons ma d e b y he r i n he r or d e r p a sse d u /s 2 6 3 of t he Act .
3. Th e sp e ci f ic is sue s vi s-à - vi s th e a sse ss me nt o rd e r w a s fou nd to b e e rr one o us a n d pre jud ic ia l to th e i nter e s t of t he Re ve nue b y th e Ld . Pr . C I T , a s s e t ou t in th e show ca u se noti ce i ss ue d to th e a sse ssee a re as un d e r :
( a) Al lo wa b i l i ty of de prec i a tio n an d o th er ex pen se s a s b u sin e ss ex pen d i ture an d th e ir pu r po se f or e ar n in g rev en u e f ro m oper a tio n s and o th er in c o me ;
b) Ba si s of c ompu t ati on of l oss f rom s ale of u n qu o te d in ve stm en t of R s. 4 03 7 . 19 l a kh s;
( c) Al lo wa b i l i ty of expen d i tu re in c u rred on Co r por a te gu ar an tee g iven o n b eh alf of a si ste r c on ce rn a s bu sin e ss d ed uc ti o n;
( d) Ba si s of val u a ti o n of v ario u s a sse ts sol d in sl u mp sal e to M a x S pec ial i ty F il ms L td.
( e) R en t rec e ived f rom l e t ti n g o u t of a pro per ty to the e mpl o ye e t ax abl e a s ' in co me f rom ho u se pro pe r ty ' v i s- à-v is ' bu s ine ss in c o me ' of f ered b y th e a sse ssee in the r e tu rn of in come a n d c on sequ en tia l c la i m of d epre ci a ti on th ere on .
(f ) Ba si s of val u ati on of un qu o ted c urr en t in ve stmen t sol d d ur in g th e ye ar to a si ste r c on c ern .
4. I t i s th e a f ore s a id or d e r o f the L d . P r .C I T w h ic h is i n cha ll e n ge be f ore u s a n d t he g r oun d s r a is e d b y the a sse ssee cha ll e n ge bot h t he va l id i ty o f th e a ssu mp tio n of j ur i sd i cti on 4 ITA No.121/Asr/2020 A.Y.2015-16 by th e Ld. P r . C I T u/s 2 63 of th e A ct a s w e l l a s the me r i ts of the c a se . Th e gr ou nd s r a is e d b y th e a sse ssee a re as un d e r :
"1. That the order passed by the Principal Commissioner of Income Tax ("PCIT") under Section 263 of the Income Tax Act, 1961 ("Act") is bad in law and void ab-initio.
2. That the order of the PCIT is bad in law, being based on surmises and conjectures without any finding of fact as to how the order passed under section 143(3) of the Act was erroneous or prejudicial to the interest of the revenue.
Jurisdictional grounds
3. That the assumption of jurisdiction under section 263 of the Act was also patently bad in law since neither of the conditions prescribed stood satisfied since neither the assessment framed under section 143(3) of the Act was erroneous or prejudicial to the interest of revenue.
4. That the assumption of jurisdiction under section 263 is also bad in law since the PCIT has failed to demonstrate as to how any of the conditions prescribed in Explanation 2 to section action 263 of the Act stood satisfied on the facts of the present case.
5. That the impugned order is also bad in law since it only records that the AO had failed to make 'adequate' enquiries during the course of the original assessment, which does not meet the mandate of law for invoking jurisdiction under Explanation 2 of section 263 of the Act.
6. The PCIT failed to appreciate that the assessment order was passed by the Assessing Officer after due application of mind and after making due investigation/enquiries which fact is clearly borne from the assessment records and hence was not a case of lack of enquiry as envisaged in Explanation 2 to section
263.
7. That the assumption of jurisdiction by the PCIT under section 263 is contrary to the Position of law laid down by the jurisdictional High Court and the Supreme Court and it is not for the PCIT to determine a threshold of 5 ITA No.121/Asr/2020 A.Y.2015-16 conducting enquiry when the issue has been examined by the AO.
On merits
8. Without prejudice to the above, the PCIT failed to appreciate that acceptance of the treatment and taxation of income from leasing of property by the Appellant as "profits and gains of business" as against "income from house property" and consequential claim of depredation under section 32 of the Act, being supported by various decisions of the High Courts could not have been termed as erroneous.
9. Without prejudice to the above, the PCIT failed to appreciate that business expenditure as claimed by the Appellant for the purposes of carrying its business activities having a direct nexus with the income earned during the relevant previous year, was rightly allowed by the Assessing Officer and such conclusion did not manifest any error.
10. Without prejudice to the above, the PCIT failed to appreciate that the tax treatment of income /loss arising from sale of shares of Neeman Medical International BV and Max Healthcare Institute Limited by the Appellant, as offered by the Appellant and accepted by the Assessing Officer after making specific enquiries, and hence could nto be termed as erroneous.
11. Without prejudice to the above, the PCIT failed to appreciate that the taxation of slump sale of MSF division by the Appellant to Max Speciality Films Limited, as offered by the Appellant and accepted by the Assessing Officer after making specific enquiries was neither erroneous and prejudicial to the interests of the revenue.
12. Without prejudice to the above, the PCIT failed to appreciate that the appellant had not incurred any expenses in the provision of corporate guarantee to its sister concerns and hence the order passed by the AO was neither erroneous nor prejudicial to the interest of the revenue.
13. That the Pr.CIT grossly erred in law in not appreciating the positions taken by the Appellant on the issues raised 6 ITA No.121/Asr/2020 A.Y.2015-16 by the PCIT were duly supported by various decisions of High Courts of the country and hence, acceptance of the same by the assessment order while framing the assessment would not render the assessment erroneous, and the PCIT is not permitted to supplant his opinion with that of the AO."
5. B e f ore u s t he pr ima r y c onte nt ion of th e Ld .C ou n se l f or the a s se sse e , a dd r e s si ng e a ch is sue ra i se d , w a s th at d ue di sc lo sur e re ga rd in g t he i ss ue ha d b ee n ma d e by t he a sse sse e be f ore th e AO d u r in g the a sse ss me nt p roc ee d i ng s, du e in q ui r y ha d be e n c ond u cte d b y t he AO on the is su e , w ho ha d a p p l ie d hi s min d to the sa m e a n d the re a f te r ma d e no a dd i ti on/d i sa l l o w a nc e w i th re g ard to the sa me , fi n di n g t he cl a im t o b e i n a cco rd a n ce w ith l aw . I t w a s con te nd e d b y t he Ld. C ou ns e l f or th e a sse ssee tha t d e sp ite b r in gi ng out the a bo ve a spe c t be for e the Ld .P r .C I T a n d a d d re ss in g e a ch q ue ry ra i se d by he r d ur i ng th e r e v i si ona r y p r ocee d in gs sa ti sf a cto ri l y, th e Ld . P r. C I T ha d me r e ly sta t e d th a t t he is sue s re q ui re d f ur th e r ve r if i ca tion , w i th out po in ti ng out a ny f a l la c y, s ust a in a b le in la w , in th e e xp l a na tio n of t he a sse sse e . Th a t t h e re w a s no fi nd i ng b y t he Ld .P r CI T of a ny e r r or c a usi n g p re ju d ice to the Re ve n ue a n d t he re fore the re vi si on a ry j ur i sd i cti on a ssu me d by h e r u/s 2 6 3 of the A ct wa s n ot in a cco rd a n ce w i th l a w.
6. Th e Ld . D R, on th e ot he r h a n d, su p po rt e d the or de r of the Ld . P r .C I T, w i th h e r pr i ma r y c on te n tio n be ing th a t t he 7 ITA No.121/Asr/2020 A.Y.2015-16 AO h a d f a il e d to e xa mi ne the s pe ci f ic i ss ue s r a i se d b y the Ld. P r . C I T a nd h a s si mp ly a c ce p te d the cl a im of t h e a sse ssee a s s uc h. I n t hi s re ga r d she he a vi ly r e l ie d on t he ord e r of t he Ld. P r .C I T.
7. To a dj ud i ca t e th e p re se nt a p pe a l w e sha l l be ta ki n g u p a nd d e a l i ng w it h e a ch i ssu e v is a v is w h ic h t he Ld. P r .C I T ha d f ou nd the ord e r p a sse d b y the A O to be e r r oneou s.
8. B e f ore a dve r ti n g to th e sa me , it w oul d b e re le van t to di sc us s the j u ris pr u de nce on the e xe rc ise of re vi si ona r y pow e r a s p e r the p ro vi si ons of s e ct ion 2 63 of th e Ac t, mor e pa r ti cu l a rl y w i th r e ga r d to or de r be in g f oun d e r r on e ou s a n d pr e ju di ci a l to the i nt e re s t of th e Re ve nue on a c cou nt of la c k of in q ui r y/i na d e q ua te i nq u ir y by the A O, w h ich is t he pr i ma r y gr ou nd f or e xe r ci si ng r e v is ion a r y j ur i sd i cti on i n t he pr e se n t ca se .
9. I t w ou ld be pe rtin e n t to be gi n w it h r e p r odu ci ng t he re le va n t p r ovi s ion s of th e s ect ion f or th e a for e state d pu r po se s .
"Revision of orders prejudicial to revenue.
263.(1) The [Principal Commissioner or] Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing] Officer is erroneous in so far as it is prejudicial to the interests of the revenue, he, may, after giving the assessee an opportunity of being heard and after making or 8 ITA No.121/Asr/2020 A.Y.2015-16 causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment.
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Explanation 2.- For the purposes of this section, it is hereby declared that an order passed y the Assessing Officer shall be deemed to be erroneous in so far as it is prejudicial to the interests of the revenue, if, in the opinion of the Principal Commissioner or Commissioner, -
(a) the order is passed without making inquiries or verification which should have been made;
(b) the order is passed allowing any relief without inquiring into the claim;
(c) the order has not been made in accordance with any order, direction or instruction issued by the Board under section 119; or
(d) the order has not been passed in accordance with any decision which is prejudicial to the assessee, rendered by the jurisdictional High Court or Supreme Court in the case of the assessee or any other person.]"
10 . I n te rp re t in g se c ti on 26 3 ( 1 ), th e pr op os it ion t ha t to in vok e re v is ion a ry ju r is d ic ti on, t he a sse s si ng of fice r s o rde r must b e f ou nd to b e b oth e r r one ous a nd a ls o p r ej ud ic i a l to the i nte re s t of the Re ve n ue a n d i f on e of the c on di ti on s is 9 ITA No.121/Asr/2020 A.Y.2015-16 not fu lf i ll e d re c our s e c a nn ot be ha d t o se cti on 26 3 of t he Act , i s se ttle d l aw, l a id d ow n b y t he H on 'b le Ape x c our t in the ca se of Ma l a b a r I n d ust ri a l C o. Ltd . vs. C I T ( 2 00 0 ) 2 4 3 I TR 83 ( SC ) . F ur t h e r , f or co min g to t he co ncl u si on th a t t he a sse ssme nt or d e r is e r r one ou s a nd p re ju d ic ia l to t he in te re st of the Re ve nue , the a s se sse e ha s to be gi ve n opp or tu ni ty to m a ke s ub mis si on s a nd a fte r c ons id e ri n g the sa me a nd con du cti n g d u e i nq u ir y ,t he P CI T/C I T ha s to a rr i ve a t the c on cl usi on of the or d e r be i ng e r r on e ou s a n d pr e ju di ci a l to the in te re st of t he Re ve nue . Th e f in d in g of e r r or sh oul d g iv e t he re a s ons f or a r r iv in g at th e sa i d con cl us ion . Th e ma t te r ca n n ot b e s imp l y r e ma n d e d b a ck f or fu rt he r in q ui r y wi th out a ny fi n din g of e rr or in the o rde r of a sse ssme nt . Th e H on 'b l e De h i H igh C o ur t h a s so in te r p re te d the p r ovi si on s of se cti on 2 6 3 i n the fol l ow in g de ci sion s:
i) PC I T Vs Mod i ca r e Ltd . , I TA N o.7 5 9 /20 1 6 , de ci si on da t e d 1 4 .0 9 . 20 17 .
i i) PC I T V s. D e l h i A ir p or t Me tr o Exp r e s s P vt. Lt d. , I TA N o. 70 5 /2 0 17 , d e c is io n da te d 0 5 . 09 . 2 01 7 . i ii ) I TO Vs . D G H ou s in g Pr oj e c ts Li mi te d ( 2 0 12 ) 3 4 3 I TR 32 9 (D e l h i) 11 . Exp l a na t io n 2 to th e se ction , ou tl in e s s p e ci fi c ci rc ums ta nc e s in w h ic h o rd e r of a sse ssi n g of fi ce r sh a l l b e de e me d to be e rron e ou s a nd p re jud ic ia l to t he i nter e st of t he Re ve nue . Th e s a id e xp la n a ti on has been in te r pr e te d in 10 ITA No.121/Asr/2020 A.Y.2015-16 va r io us d e ci si ons o f t he I TA T ho l d in g tha t the e xp la n a ti on ca n not be r e s orte d to si mp li ci te r for g iv in g a fi nd i ng of e r r or , a nd t he su b sta n ti ve re q u ir e me nt s o f se c tion 2 63 ,a s sta te d a b ove , h a ve st il l to be f ul fi l le d f or a p p ly in g t he e xp la na ti on . The ca s e l a w s hol d in g so, a s p oi nte d out b y t he Ld. C ou ns e l f or th e a sse ssee a re a s un d e r :
i. To rr e nt P ha r ma ce uti ca l s Ltd . Vs . DC I T, I TA N o.1 6 4 /Ah d /2 0 1 8 , de ci si on d a te d 0 8 .0 8 .2 0 1 8.
i i. Asi a n H ome s Pvt. Ltd . Vs. P C I T ( 2 0 1 2) 7 8 I TR ( Tr i b) 24 0 ( Mu mb a i ) .
i ii . C ity sta r G a ng ul y P ro je cts Ltd . V s. PC I T, I TA N o.1 1 0 3 /Kol /2 0 1 9 ,d e c is io n d ate d 3 1 . 10 . 2 01 9, Kol ka t a Tr i bu na l .
12 . H a vi ng sa i d s o w e sha l l n ow ta k e up e a ch i ssu e f l agge d by th e Ld .P r .C I T i n h e r or de r .
Issu e N o . 1: C l a im o f de p r e c ia t io n o n r e n te d ou t bu ild in g 13 . W i th r e s pe ct t o the sa me , th e Ld . P r .C I T, w e f in d , h a d note d th a t t he a sse s see h a d s hown i nv e st me n t i n b ui l di n g a t Rs. 27 3 1 .6 5 l a cs o n w h ic h de p rec ia tio n h a d be en cl a ime d a moun ti ng to R s . 27 3 . 16 l a cs. Sh e f ur the r no te d th a t th is bu il d i ng h a d be e n re nte d out on w h ic h re n ta l in co me of Rs. 15 . 5 7 la c s h a d b ee n s how n b y th e a sse ssee a nd r e t ur ne d a s b us in e ss i ncome cl a i min g d e p r e c ia t ion a ga i ns t th e s a me. 11 ITA No.121/Asr/2020
A.Y.2015-16 Th e Ld . P r . C I T n ot e d tha t the AO ha d n e i the r e xami ne d t he cl a im of d e p r e cia ti on on t hi s b ui l d in g, nor a s t o w hy t he re nt f r om b u il d i ng w a s a 'b us in es s in co me ' a nd no t i n come un de r the he a d ' hou se p r ope r ty' a ga i ns t w hi c h cl a i m of de pre ci a ti on w a s no t a l l ow a bl e .
14 . B e f ore us, the Ld. C ou ns e l fo r the a sse s see fi r st ly poi n te d o ut t ha t a l l du e d i sc los ur e of a l l fa ct s r e le va n t to the i ss ue we re the re be f ore the A O,
a) wi th th e i mp u g n e d p r ope r ty ha v i ng b ee n d u ly ca p i ta l iz e d in th e bo ok s of a c cou nt un d e r the he ad 'i nv e st me n t p r ope r ty' a nd re f le cte d i n Sche d u le -XI of th e Fi n a nc ia l S tat e me n t.
b) Th a t th e a s se s see ha d c la i me d d e p r e c ia ti on of Rs .2 , 73 , 16 , 5 71 /- u /s 3 2 ( 1) of th e Ac t a n d the re n ta l i nc ome e a r ne d fro m the sa i d prop e rt y ha d bee n d u ly d is cl ose d u nd e r t he he a d 'i nc om e f ro m b u si ne ss a n d p r ofe ssi on ' a n d d i sc los e d in S che d ule -XXI a s 'o the r i nc ome in the Fi na n ci a l S ta te me n t of th e a ss e ssee co mpa n y.
15 . Th a t th e a f or e s a id d i scl os ure s we re d ul y and thor ou gh ly e xa min e d by th e AO , wh o h a d t he r e a fte r ac ce p te d the c la i m o f the a sse sse e of re tur ni n g the re n ta l i n come 12 ITA No.121/Asr/2020 A.Y.2015-16 un de r the he a d i nc ome f r om b us in e s s a n d p r ofe ssi on ' a n d cl a imi n g d e p r e cia ti on on t he sa id a sse t a ga i ns t th e s a me , wh i ch w a s i n acc or d a nc e wi th the v ie w t a ke n b y va r i ous Hi gh C ou rt s on i d e nt ic a l is sue bef or e the m. Re fe r ri ng to t he fa ct s of th e ca se i t w a s p oi n ted ou t th a t t he imp u gne d pr op e r t y h a d b ee n le a se d out to th e Ma na g in g D i r e c tor of the c omp a ny for h is re si de n tial p ur p ose a s pa r t of t he re te n ti on p ol ic y of th e c omp a ny p e r ta i n in g to Ke y Ma n a ge r i a l Pe r son ne l of t he a s se s se e comp a n y. The Ld . C oun se l f or t he a sse sse e p oi nte d ou t th a t va r i ou s H ig h C our ts ha v e he ld suc h le tti ng out to be i n the c our se of b us in es s o f t he a sse sse e , fo r the p ur p ose of b usin e ss of the a s ses se e a nd he n ce to be a ssess e d un de r t he h e a d 'b us ine s s inc ome '. He dr e w ou r a tte nt ion i n th i s r e ga r d to th e fo ll ow i ng de c is ion s:
1) Ja md e sh pu r E ngi n ee r i ng & Ma ch i ne Ma nu fa c tur i ng C omp a n y, 3 2 I TR 4 1
2. C I T Vs . D e lh i C lo th & G e ne r a l Mi ll s (1 9 6 6 ) 5 9 I TR 15 2
3. C I T V s. Mc le od & C o., ( 19 9 3 ) 2 0 3 ITR 2 9 0 ( C a l)
4) C I T Vs. Mod i I nd us tr ie s Li mite d ,( 1 99 4 ) 2 1 0 I TR 1 (D e l ) (F B )
5) C I T Vs . N e w I n d i a Ma r it i me Age nc ie s ( 1 9 94 ) 2 0 7 I TR 39 2 ( Ma d ) 13 ITA No.121/Asr/2020 A.Y.2015-16 16 . Th e Ld .C oun se l f or t he a sse ssee st a te d th a t a ll t he fa ct s be in g d ul y d i sc lo se d to t he A O a nd the AO h a vi ng ta k e n a p os si b le vi e w on th e i ss ue , the re w a s n o e rro r in t he or de r of the AO me re ly be c a use the Ld . Pr . CI T e nt e r ta i ne d a noth e r v ie w on th e i ss ue . He re fe r re d to the de c isi on of t he a pe x c our t in t he ca se of C I T Vs . Ma x I n d ia Ltd . , 2 9 5 I TR 28 2 i n th i s re ga rd .
17 . Th e Ld . C oun se l f or th e a ss e s see t he re a fte r d r e w ou r a tte n ti on t o the fi n di n g of t he Ld . Pr . C I T a t p a r a 5 .2 of t he or de r p oi nti n g o ut the re f ro m th a t h e r e n ti re c a se fo r f i nd i ng e r r or in t he or der of the A O re s ted on he r h ol d in g t he re n tal in come to be c a te gor i ca l l y a ss e ss a ble u nde r th e he ad 'in come f r om h ou s e p r ope r ty ' a n d no t "i nc ome fr om bu si ne ss a nd p r of e s si on', re ly in g on the r a tio l a id d own by the Hon 'b l e A pe x C our t i n the c a se of Ra j D a d a r k a r & A sso ci a te s Vs. AC I T C i vi l Ap p e a l N os . 6 4 5 5- 6 46 0 of 2 0 17 . Th a t for t he a for e s a i d re a s on th e Ld. Pr . C I T he ld th a t t he A O b y not e xa mi ni ng th e i ssue of re n ta l i ncome e a r ne d b y t he a sse ssee a nd a cce p tin g the cl a im of the as se sse e for the sa me t o be a sse sse d un de r th e he a d 'i nc ome f r om b us in e s s and pr of e s si on' c la imi ng de p re ci a tion a g a in st the s a me , ta nt a moun te d to e r ro r in the or de r of t he AO ca u si ng pr e ju di ce to t he in te re st o f t he Re ve n ue . Th e Ld .C ou ns e l f or the a sse s see p oi nte d out th a t th e de ci si on re fe r red t o b y t he 14 ITA No.121/Asr/2020 A.Y.2015-16 Ld. P r .C I T w a s b a se d on t ota l ly d if fe re n t fa c ts a nd w a s di st in gu is ha b l e fr om th e c a se of th e a s se sse e . Tha t in the sa i d ca se the a s se sse e h a d tre a ted th e re n ta l i nc ome e a r ne d a s 'b u si ne ss in come ' on a c cou n t of th e f a ct tha t i t w a s e ng a ge d in t he bus in e s s of re n ting out p r op e r ty. In the l ig ht of the s a id f a ct , the H on 'b le S up r e me C our t ha d he ld tha t the in co me c ould no t b e te r me d a s b usi n e ss i ncome s in ce the re w a s s pe ci fic h e a d f or a ss e ss in g th e r e n ta l inc ome a n d ha d , th e re f ore , held th a t the re n ta l i n come wa s to be a sse sse d u nde r th e he a d o f 'ho use pr ope rt y' a s p ro vi de d i n the A ct. Th e Ld. C ou ns e l f or t he a s se s see p oi nte d ou t tha t the fa c ts i n the p re se nt c a se we re to ta ll y d i ff e re nt, w i th t he a sse sse e ha v in g r e nte d ou t p r oper ty to hi s Ke y Ma n a ge r i al Pe r son ne l a nd c la i mi ng th e s a me a s b us in e s s i nc ome for t he re a son tha t the a sse t w a s ow ne d b y t he a s se sse e fo r the pu r po se of i ts b us in e s s, a s he l d b y va ri ou s Hi gh C our ts in the de c i si ons c it e d a bov e in ide nti ca l fa c ts and ci rc ums ta nc e s . Tha t t he de ci si on of th e H on'b le Ape x C our t wa s d is ti ngu i sh ed b y th e H on 'b le B omb a y H ig h C o ur t i n t he ca se of Pr i n ci pal C ommi ssi o n e r of I n come Ta x Vs . Kr ome Pl a n e t I n te r i or s (P) Ltd . ( 20 1 9 ) 2 65 Ta x ma n 30 8 w h ile hol d in g th a t t he sa id de ci si on coul d n ot be a p p lie d b l in d ly a nd w h e the r a n inc ome i s f r om p r op e r ty a s b us i ne ss i n come or i nc ome f r om h ou se p ro pe r ty h as to be de te r mi ned k ee p i ng 15 ITA No.121/Asr/2020 A.Y.2015-16 in mi nd th e f a ct s of e a ch ca se . Th e Ld. C ou ns e l for t he a sse sse e a c cor d ing ly p le a de d th a t th e fi nd i ng of th e Ld . Pr . C I T w a s b a se d on in co rre ct a ppl i ca ti on of l a w to the f a cts re la t in g to the i ss ue .
18 . Th e Ld . D R, on th e othe r h a n d, he a v il y re l ie d u pon t he or de r of t he Ld . P r .C I T. H e r con te n ti on be i ng th a t the A O ha d a cce p te d the a sse ssee 's cl a im of re nta l i nc ome b e i ng a sse sse d un de r th e he a d 'i nc ome f r om b us in e s s and pr of e s si on" a nd d e p re c ia ti on b e i ng cl a ime d a ga in st it ,w i tho ut e xa mi ni n g the c la i m a s s uc h, mor e p a r ti cu la r l y, wh e n the Hon 'b l e Su p re me Cou rt in t he c ase of Ra j Da d a r k a r & A ss oc ia t e s Vs. A C I T ( su p r a ) ha d ca te gor ic a l ly he l d t ha t the imp u gne d i nc ome w a s to b e a s se s se d un d e r the he a d 'i n come fr om h ous e p r op e r ty ' a nd no cl a i m of de pre ci a ti on w a s t o b e a ll owe d a ga i ns t i t. Th us the n on e xa mi ni ng o f th e a fo re sa i d c la i m of t he a s se s se e by t he AO wa s a n e r ro r w h ic h h a s c a us e d pr e ju d ice to the R e ve nue as ri gh tl y he l d b y the Ld . Pr . C I T. 19 . W e h a ve he a r d both th e p a r tie s ca r e f ul l y a n d ha ve a l so gon e t hr ou gh the ju d ic ia l de ci si ons re fe r re d to be f or e us . 20 . Th e e nti r e ca s e of the Ld . Pr.CIT f or h ol di n g t he a sse ssme nt o rde r e r ro ne o us c a us in g p r e j ud i ce to t he Re ve nue on the i s sue of r e n ta l in co me e a r n ed by t he 16 ITA No.121/Asr/2020 A.Y.2015-16 a sse sse e a nd dep r e c ia ti on c l a ime d a ga i n st th e same , r e sts on th e u nd e rs ta nd in g tha t th e r a tio l a i d d ow n b y t h e H on' ble Ap e x C ou r t i n th e c a se o f Ra j D a d a r ka r & As soc ia t e s V s. AC I T (s up r a ) a p p li e d t o the fa c ts of the p re se n t case a nd t he re nta l in come ac cor d in gl y w a s a ss e ss a b le un de r t he he a d "I n come fr om Hous e P r ope r ty " a g a in st w hi ch no cl a im of de pre ci a ti on was a l lo wa b l e . Th a t the AO had e r re d in a cce pt in g a sse sse e s cl a i m of re tur ni n g th e in come un d e r the he a d "B u si ne ss a n d P r of e ss io n" a n d a l lo wi n g de p re ci a ti on a ga i nst th e s ame , w ith ou t ma k in g due i n qui r ie s and a pp l yi ng th e cor re c t pr op os it ion of la w . 21 . W e h a ve gone t hr ou gh the sa id d e c is i on a nd w e a gree wi th th e Ld. C ou ns e l fo r the a s se s se e th a t the r a ti o l a i d dow n th e re i n is n ot a p p li ca b l e in th e f a cts of the p re se nt ca se . I n the c a se be f ore the H on 'bl e A pe x Cour t , t he a sse sse e w a s in th e b us in e s s of le tti n g ou t th e shop s/s ta l l s on mon thl y r e n t, c ol le cti ng se r vi ce cha rge s se p ar a te l y for re p a ir s, ma i n te na nc e a nd othe r se r vi ce s. Th e a s se sse e in the sa i d c a se wa s no t fo un d t o b e e n ga ge d in a ny sys te ma t ic a cti vi ty of p r ovi d in g se r vi ce t o the occ up a n ts, bu t w a s i n fa ct f oun d to be r e ce i vi ng i nco me f r om l e tt in g o ut s ho ps e t c. si mpl i ci te r and th us it was held tha t it s i nc ome w as a sse ssa b le u nde r t he he a d I nc ome f r om H ous e p r ope r ty a n d not a s B us in e s s in come . Th e fa c ts in t he p re se nt cas e , we 17 ITA No.121/Asr/2020 A.Y.2015-16 fi nd a r e tota ll y d if fe re n t. I n the pre se n t ca s e th e re n ta l in come w a s e a r ne d o n le t tin g out re si de n tia l p r ope r ty to t he ke y ma n a ge r i a l p e r son ne l of th e a sse sse e c omp a ny i n l i e u of its r e te n ti on p olic y. Thi s fa ct ha s r e ma i n e d u nc ont ro ve r te d by the Ld. P r .C I T a n d e ve n be fore us. B a se d on i de n ti ca l se t of fa c ts, va r i ous j ud i ci a l d e c is i ons , a s r e f e r re d to by t he Ld. C ou ns e l for t h e a s se s se e , h a ve he ld th e re nta l i nc ome to be a s se ssa b le u nd e r the he a d "B usi n e ss I n come" , ho ld i ng tha t th e oc cu pa t ion of th e re si d e n tia l p r ope rt y by t he a sse sse e w a s for th e p u rp ose of b us in e ss a nd hen ce e xe mpt fr om being ta x ed un d e r the he a d "I n come from Hou se Pr op e r t y". The s a id d e ci si on s a re :
1) Ja md e sh pu r E ngi n ee r i ng & Ma ch i ne Ma nu fa c tur i ng C omp a n y, 3 2 I TR 4 1
2. C I T Vs . D e lh i C lo th & G e ne r a l Mi ll s (1 9 6 6 ) 5 9 I TR 15 2
3. C I T V s. Mc le od & C o., ( 19 9 3 ) 2 0 3 ITR 2 9 0 ( C a l)
4) C I T Vs. Mod i I nd us tr ie s Li mite d ,( 1 99 4 ) 2 1 0 I TR 1 (D e l ) (F B )
5) C I T Vs . N e w I n d i a Ma r it i me Age nc ie s ( 1 9 94 ) 2 0 7 I TR 39 2 ( Ma d ) 22 . It has been c ons is te n tl y he ld by c our ts in t he a for e s ta te d de cisi on s tha t w he r e a hou se p rope r ty is occu p ie d as re sid e n ce by e mp l oyee s or i ts d ire ctor s to 18 ITA No.121/Asr/2020 A.Y.2015-16 e na b le the m to di sc ha r g e the i r f un ct ion s e ffe ct ive ly a n d the le tti ng ou t is su bs e r vie n t and i n ci de nta l to th e main bu si ne ss of the as se sse e , su ch a n oc cup a ti on a mou nt s to a n occu p a ti on a nd u se r of the p r ope r ty b y the a ssess ee it se l f for t he p ur p ose s of i ts b usi ne ss . C le a r l y the i ssu e i s sq ua r e ly cove re d b y va r i ous de ci si on s o f H i gh C ou rt s in fa vo ur of th e a ss e s see s s ta nd an d th e H on' ble Ap e x c ourt de ci si on is di st in gu is ha b l e on f act s a n d th us n ot a p p l ic a ble in t he p re se nt ca se .
23 . Th e r e f or e , we h ol d , t ha t th e r e nta l i n come r e tu rn e d b y the a sse ssee un de r the head b usi n e ss i nc ome is in a ccor d a n ce w ith l a w a n d the c lai m of d e p r e c ia t io n ag a in st the sa me the re f or e a ls o i s ju sti f ie d. Th e r e is ther e f ore , we fi nd , no e r r or i n t he or d e r of the A O a cce p tin g the re n ta l in come r e tu rne d u nd e r t he he a d B usi n e ss i nc ome and de pre ci a ti on cl a ime d a ga i n st the sa me . The r e fore , vi s-à -v is the i ss ue of n on e xa mi na ti on o f the c la i m of re n ta l i n come a nd d e p r e c ia t ion c la i me d a g a in st the sa me , a s r a is e d b y t he Ld. P r .C I T, we h ol d tha t the f i nd i ng s of the Ld . P r .C I T o f t he or de r be i ng e r ro ne o us a n d p re j ud ici a l to th e Re ve nu e a re not ju sti fi e d . The r e i s no e r r or a nd p r e j u di ce ca use d to t he Re ve nue , a s he l d b y us a b ove s in ce the cl a im of th e a sse ssee is s up p or te d b y va r i ous d e c is i ons o f va r i ous H i gh Co ur ts a nd f i nd i ng of th e Ld . Pr . CI T to the c ont ra r y sup p or te d by 19 ITA No.121/Asr/2020 A.Y.2015-16 the de ci si on of th e H on 'b le Ape x C our t in the ca se of Ra j Da d a r k a r & A sso ci a te s Vs . ACI T (s up r a ) i s, w e fi nd , b a se d on in co rr e ct a pp li ca ti on o f la w to the fa c ts of the ca se . 24 . I n v ie w of t he a bove we se t a s ide th e fi nd i ng s o f the Ld . Pr . C I T o f t he ord e r be i ng e r r oneou s a n d p r e j ud ici a l to t he in te re st of the R e ve nue on a cc oun t of n on e xami na ti on of cl a im of r e n ta l i nc ome a nd d e p re cia ti on a g a in st th e sa me . Issu e N o. 2 : no n -ex a m ina t ion by th e AO of the ex p e nse s c l a im ed by t he a ss e sse e 25 . Ta k in g u p th e n e xt i ss ue r a i se d b y t he Ld . P r . CIT, t he sa me r e l a te s to n on -e xa mi na t ion by th e AO of the cl a im of e xpe n se s b y the a s se s se e p a r ti cula r l y, a s p e r the Ld . Pr . C I T, in t he b a ck d r op o f the f a ct th a t th e a sse ssee h a d n o o the r sou rc e of i nco me othe r th a n f ro m i nv e s tme n t a c ti vity. 26 . B e f ore u s, be s ide s the Ld. C ou ns e l f or t he a s se sse e 's cl a im th a t a l l d i scl os ur e s w i th re ga r d to t he sa me w e re ma de be fore the AO , i t w a s a l so con te n d e d t ha t j ust if ia bi l it y of t he cl a im ha d a ls o b e e n d e mon str a t ed b e f ore th e Ld. P r . C I T, w ho ha d fa i l e d to p oi nt out a n y i n f i r mity in th e s a me and , the re fo re , the re w a s n o b a si s w it h th e Ld. P r .C I T f or ho ld i ng the or de r e r r one ou s on th is c oun t.
20 ITA No.121/Asr/2020
A.Y.2015-16 27 . Th e j ust if i ca ti on for t he cl a im o f e xpe nse s gi ve n by t he a sse sse e w a s that :
a) Th a t th e a sse ssee w a s e a r n in g in come n ot on ly f r om i n v e stme nt a cti vi ty bu t a l so fr om r e n d e ri ng op e ra t ion a l c onsul ta n cy to it s si ste r co nce r ns a n d h a d a l so i nc ome f ro m oth e r sou r ce s . Tha t t he e x pe ns e s a c cor d i ngl y ha d b e e n in cu r r e d f or th e p u rp os es of c a r ry in g o ut the a fo re sta te d ac tiv i ty of r e n der i ng f un cti on a l sup p o r t s e r vi ce s to g ro up co mp a n ie s a n d ma k i ng hol d in g a n d nu r tur i ng in ve stme n ts in gr ou p c omp a ni e s .
b) Th a t the a sse ssee h a d s uo mot o di sa l l owe d 4 5% of the e xpe nse s cla i me d in i ts P r of it & Los s Ac cou n t.
c) Th a t th e e xpe n se s i n a ny ca se we re of t he n a ture f or ma i n ta in i ng th e c or p or a te e n ti ty o f the a s se sse e , a f te r hi vi ng of f the ma nu fa ctu ri n g b us in e s s o f t he a s se s se e .
d) Th a t t he in ve stme nt a cti vi ty und e r ta ke n w a s t he ma i n bu si n e ss a cti vi ty of the a ss e ssee a nd , the re for e, th e cl a i m of e xpen se s w a s a l l ow a bl e a ga i n st the s ame .
e) Th a t n o d i sc re p a nc y h a s b e e n ob se r ve d b y t he a u d ito rs i n th e Book s of a c cou nts ma i n ta in e d .21 ITA No.121/Asr/2020
A.Y.2015-16 28 . Ld .C o un se l for th e a sse ssee con te nde d th a t t he Ld. P r .C I T h a s si mp ly sta te d th a t th e cl a i m of e xpe nse s w a s not e xa mi ne d b y th e A O bu t ha s not con d uct e d a n y i nq u ir y a s to how the y w e re not a l l ow a bl e . Tha t no e rr or has b e en poi n te d out b ut th e ma t te r s i mpl y r e ma nd e d to th e A O f or fu rt he r i n q ui r y. Th a t t hi s i n a ny c a se w a s n ot the f i rs t ye a r tha t th e sa i d e xpe nse s we re cl a ime d a n d h a d be e n a l lowe d by th e AO hi mse lf i n p r e ce d in g yea r s .
29 . Ld .D R on th e oth e r h a nd dr e w ou r a tte nti on t o p a r a 6 . 2 of th e o rde r wh ich i s a s un d e r :
" 6 .2 D ec i sion T h e pe rus al of th e f acts of th e c a se a s ac ce pted b y the as se ssee sh o w th a t the A sse sse e Co m p an y earn ed the f ol l owin g re ven u e / in come d u r ing th e prev io u s ye ar:
• In co me f rom in ve s tme n t ac ti v i tie s' ( S ch ed u l e 2 0 of th e f in anc i al st a te men ts) : R s. 5 8 1 . 7 7 Crs.
• O th er inc o me ( S c he du l e 21 of the f inan c ial s ta te men ts ): R s. 2 .8 7 Crs.
• In co me f ro m f un ction al su p por t serv ic e s ( S ch ed u l e 2 4 & 2 5 of the f in an ci al sta te men ts) ( Re co very of ex pen se s) : R s. 1 2. 4 7 C rs.
F u r th er th e as se ssee h a s exp l a in ed th a t th e As se ssee Co mp an y wa s pr i m aril y en g age d in prov id in g f u nc ti on al su ppo r t serv ice s to its su b sid i ar ie s an d in the ac ti v i ty of in ve sti ng, h ol d in g and n u r tur in g in ve stme n ts mad e in its su b sid i ar ie s an d the c o st in cu rre d to ren d er su ch se rv ice s wa s rec overe d f rom th e o per a ti n g su b sid i ar ie s to wh om su c h se rv ice s we re re nd er ed. S ing h th e c ost wa s re cov ered f r om th e si ste r 22 ITA No.121/Asr/2020 A.Y.2015-16 c on ce rn in suc h c a se s the re i s n o t i ssue of an y lo ss on th i s ac co un t. Be sid e s th i s th e o th er in co me sh o wn b y th e a sse ssee is on l y in c o me f ro m in ve sti ng ac ti v i ty wh ere in th e as sessee h a s sh o wn d iv ide nd in c o me an d in ter e st i nc ome. D iv ide nd in co me be in g exe m p t u nd er the In co me T ax Ac t n o ex pen se ag a in st i t c an be cl a imed b y th e a sse ssee a s per prov i sion s of sec tion 14 A .
In tere s t sh o wn b y the a sse ssee i s f rom in ve sti n g ac ti v i ty an d n o t f rom bu sin e ss ac ti v ity . T h e A O h a s f ail ed to ex am in e th e i s su e of ad mi ssi b il i ty of ex pen se cl a i med b y th e a s se ss ee ag a in st su ch in co me an d the rea so n f or sh o wi n g lo sse s on th e b a si s of f ac ts of th e ca se.
Acc ord in g to sec tion 3 7 ( 1 ) of th e In c o me T ax Ac t, 1 96 1 , an y e xpen d i tu re ( n o t b ein g ex pen d itu re of the n a tu re d e s cri bed in sec ti on 3 0 to 3 5 an d no t be in g in th e n a tu re of c ap i tal ex pen d i ture or per son al ex pen se s of th e a sse sse e) , l a id ou t o r ex pen de d wh ol l y an d ex cl u sive l y f or the pu r po se s of the bu sin e ss or prof ession sh al l be al l o we d i n c ompu ti n g the in c ome ch arge a bl e u n d er th e he ad " Prof its an d g ain s of bu sin e ss or prof e ssion . A l so ac cord in g to Exp l an a ti on in ser ted b y th e F in an c e ( No. 2 ) Ac t, 1 99 8 , w. e.f . 1- 4 -1 9 6 2 to sec ti on 3 7 ( 1 ), an y ex pe nd i tu re inc u rred b y an a sse ssee f or an y pu r po se wh i ch i s an of f en c e or wh ich i s pro h i b i te d b y l a w sh a ll n o t be de e med to h a v e been in cu rred f or the pu r po se of bus in e s s o r p rof e ssion an d n o d ed uc tio n of al l owan c e sh al l be mad e in re spec t of su c h ex pen d i tu re . An e xpen d itu re c an be c l a i med a s a d ed uc ti on wh ile c o mpu ti n g in c o me f ro m " bu sin e ss or prof e ssion " if th e f oll o wi n g co nd i ti on are f u lf il l ed .
( i) Expen d i tu re i s n o t of th e n a tu re a s de scr i bed in sec ti on 3 0 to 3 5 of the A c t;
( i i) Expen d i tu re is o f rev en ue in n a tu re n to of ca p i ta l in n a tur e;
( i ii) Expen d i tu re i s n o t per son al e x pe n se s of th e as se ssee;23 ITA No.121/Asr/2020
A.Y.2015-16 ( iv) Expen d i tu re h a s been l a id d o wn or expe n ded wh ol l y an d e xcl u sive l y f or th e pu r po se s of bu s in e s s or prof ession of th e a sse sse e;
( v) Expen d i tu re h a s no t been in cu r red f or an y pur po se wh ic h i s an of f e nc e or wh ic h i s proh ib i ted b y l a w.
... ...... ...... ... ...... ...... ...... ... ...... ...... ... ...... ...... ...... ... ......
... ...... ...... ... ...... ...... ...... ... ...... ...... ... ...... ...... ...... ... .... . ... ...... ...... ... ...... ...... ...... ... ...... ...... ... ...... ...... ...... ... .... .
In th e a sse sse e ' ca se th e ne x u s be t we e n th e ex pen d i ture in c u rr ed an d th e inc ome e arn ed h a s n o t bee n sh o wn . Ev en if a li ber al vie w i s ta k en th a t the ex pe n se s wa s in c ur red f o r d eal ing wi th th e res id u al a spec ts of th e MS F d iv i sion wh i ch wa s so ld a s sl u mp s al e on 0 1 -0 4 - 20 1 5 the n al so o nl y 1 0 % of th e to ta l ex pen se s cl a i med sh o ul d h av e bee n al l o we d. T h e ad min ssi b il i t y of e xpen d itu re c la i me d b y th e a sse sse e ne ed s to be e x a mine d b y the a sse ssin g of f ice r. T h e ord er of th e A O i s th u s erro n eou s an d p reju d ic i al to th e in tere st of th e rev en u e."
30 . Re fe rr i ng to the a bov e Ld. D R c ont e nde d th a t the Ld . Pr . C I T ha d cou n t e re d the j u sti fica tio n of th e a ss e s see by sta ti n g th a t t hou gh a d mit te d l y th e a sse ssee wa s e a rn i ng in come f r om op e ra t ion a l c ons ul ta n cy bu t a s pe r the a sse ssee its e l f i t w a s on l y r e cove r in g the cos t i n cur r e d on th e sa me so th e re w a s no q u e s tio n of a n y loss b e in g in cu r re d by t he a sse sse e on a cc oun t of a ll suc h a cti vi ti e s . Tha t ot h e r i n come e a r ne d by the a s se s se e in cl ud e d d i vi de nd inc ome a nd in te re st in come a n d th a t no cl a im of e xp e n se s at tr ib ut a b le to the e a r ni n g of d i vi d e n d i nc ome w e re a ll ow a b le un de r t he Act . Tha t the in t e re st i nc ome e a rn e d w a s on a cc oun t of t he 24 ITA No.121/Asr/2020 A.Y.2015-16 in ve s tme n t a c tivi ty ca r r i e d out b y th e a sse ssee a nd co uld not b e ca te gor i ze d a s th e b usi nes s in come of the a s se s se e. Th e r e for e , the Ld. P r .C I T h e l d th a t th e j u sti fi ca tio n o f t he cl a im of th e e xpe nse s sto od n e ga te d and t he n on- e xa mi na ti on of the cl a i m of e xpe nse s by the AO had re nde re d the a sse ssme nt or de r e r r one ous s o a s to ca use pr e ju di ce t o t he Re ve n ue .
31 . On ca re fu l consi d e r a ti on of the c on te n tio ns mad e by bot h the p a r tie s , w e a re i n a gree me n t w i th the Ld. Cou ns e l for th e a s se sse e th a t t he re is no fi n di n g of e r r or a s suc h by the Ld . Pr . C I T o n the i ss ue of n on e xa mi na ti on of cl a im of e xpe n se s b y the AO .
32 . I t i s n ot d i sp ute d tha t a l l re le van t d is cl osu r e vi s a vi s the c la i m of e xp e nse s w a s the re be f ore the AO. I de n tic a l cl a ims w e r e ma d e in t he p re ce di ng ye a r s a l so a nd a l l ow e d b y the A O . F ur the r a d mi tte d l y i t is not t he c a se tha t t he a sse sse e wa s e a rni ng on ly f ro m i n ve stme nt a cti v ity, a s ma d e out by the Ld . Pr . C I T in he r sh ow c a us e not ic e , b ut a dmi tte d ly a s p er h e r f i nd i ngs at p a r a 6 . 2 of t he or d e r , t he a sse sse e had e a r ne d i n come f r om va r i ous a cti vi ti e s in cl ud i ng i nv e stme nt a ct iv it y, r e nd e ri n g f un cti on a l su p po rt se r vi ce s a nd o the r i nc ome wh ich i nc lu d e d i nte re s t an d di vi d e n d i n come . The ju sti f ic a tion of the cl a i m o f e x pe nses 25 ITA No.121/Asr/2020 A.Y.2015-16 by the a sse ssee is tha t e xp e n se s cl a i me d r e l ate o nl y to thos e in cu r re d in r e l a ti on to i ts b us in e s s a cti vi ty of re nde r i n g fu nc tiona l su pp or t s e rvi ce s, i ts in come e a r ne d by wa y of in te r e st fr om i nv e st me nt s ma de i n th e co u r se of i ts bu si ne ss a nd e x pe nse s i n cu rr e d f or ma i nt a in in g i ts cor p or a te e n ti ty a nd tha t the a ss e ssee had suo moto di sa l l ow e d 4 5 % of th e to ta l e xpen se s de b i te d t o th e p r of it a nd l os s a cco un t.
33 . Th e a for e sa i d j u s ti fi ca ti on ha s n ot b ee n c ont ro ve r te d be fore us n or a n y i nf ir mi ty w or t h i ts n a me p oi nt e d out b y the Ld .P r . C I T. O n the c ont ra r y , we f in d , the Ld . Pr . C I T ha s tr ie d to n e g a te the cl a i m of e xp e ns e s a ga i ns t th e afor e s ta te d in come s by s ta ti ng th a t:
a) Si nc e t he a sse ssee w a s re cove ri ng cos t o n a cc oun t of o pe ra ti ona l c ons ul ta n cy gi ve n a n d, th e re f ore , t he re was no re a son for in cu r r in g l oss e s.
b) I nte re s t i n come i s fr om i nv e st me nt a c tiv ity w hi c h th e re f ore i s n ot th e b us i nes s i nc ome of th e a ss e s see .
c) Th a t si n ce d iv id e n d i nc ome is e xe mp t n o cl a i m of e xp e n se s i s a l l ow e d aga i ns t th e s a me un d e r the A ct.26 ITA No.121/Asr/2020
A.Y.2015-16 34 . Th e a b ov e r e a sonin g, w e fi n d, i s ne i the r he re nor the re . Ld. P r .C I T's f i n d i ng tha t n o l oss cou ld p os si b ly hav e be en in cu rr e d i n ope ra ti on a l c ons ul ta n cy, we f a i l to un d e r st a nd . I t i s not the c a se of the Ld . P r. C I T tha t th e a s se s se e h a d cl a ime d l os se s un de r the he a d 'b u si ne ss a n d p ro fe s si on in come ', o n t he con tr a r y th e onl y c ont e nt ion of th e Ld . Pr . C I T is th a t t h e a sse ssee h a d cl a i me d e xpe nses w h e n no bu si ne ss a cti vi ty/i n co me ha s be en e a r ne d b y i t. Th e re is no re fe re nce to a ny f a ct vi s a vi s t he cl a im of l oss e s i n ope r a ti ona l c onsul ta n cy a cti vi ty, i n th e or de r a n d w e fa il to un de r sta n d ho w th is r e a s oni n g /f in d in g ha s b e e n a r r i ve d a t. Fu r the r we fi n d n o b a si s f or th e f i nd i ng of the Ld . P r . C I T tha t the i nte re st i nc ome fr om in ve stme n t a cti vi ty was not bu si ne ss in come of t he a sse ss ee , de sp i te the re pe a te d a sse r tio ns by the a sse sse e bef or e he r th a t inv e stme nt a cti vi ty a nd op e ra t ion a l co ns ul ta nc y w e re i n the n ature of bu si ne ss a cti vi ty of the a s se ssee , wh i ch ha s n ot be en con tr ove rte d b y th e Ld . Pr . C I T. Al l i n a ll we f in d tha t the Ld . Pr . C I T ha s not g iv e n a n y b a sis or r e a s oni n g a t a ll for re je cti n g the ju sti f ic a tio n of t he c la im of e xp e n ses ma de by the a s se s se e .
35 . In s uch c ir c umst a nc e s, w i th a ll due d i sc los ur e of e xpe n se s a d mit te d l y ma d e d ur i ng a s se ssme nt p roc ee d i ng s, the cl a im of s i mi l a r e xpe n se s h a vi ng be e n a ll ow e d i n e a r l ie r 27 ITA No.121/Asr/2020 A.Y.2015-16 ye a r s, the a sse ss ee a l so ha v i ng j us tif i e d its cl a im of e xpe n se s and the Ld. P r .C I T, we f i nd , be in g u na b l e to con tr ove rt t he a for e s a id no r be i ng a bl e to p oi nt an y f a ll a cy in the sa me , ther e c a nn ot be s a id t o a ny f i nd i ng of e rr or in the o rde r o f the A O ca usi n g p re ju d ic e to the Re ve nue on a ccou nt of n on- e xa mi na t ion of t he cl a i m of e xpe nse s in cu rr e d by the a sse s see wh i le comp ut in g i ts i nc ome . Th e r e for e , w e se t a s id e t he fi nd i ng s of th e Ld . P r . C I T of t he or de r b e in g e r r on e ou s a nd p r e j ud i ci a l t o the i n ter e s t of t he Re ve nue o n a ccou nt of no n e xa mi na ti on of e x pe nse s cl a ime d by th e a sse ssee .
ISS U E: N on Ex a m ina t ion o f t he li a bil it y o f ex p e nd it u re inc u r re d by t h e a s se s se e o n g ua ra n t e e g i ve n t o sis te r c o n c e rn s w h ic h st o od d i s c ha r g e d du r in g th e y e a r .
36 . W i th r e ga r d to th e s a id i ss ue t he Ld .C ou ns e l for t he a sse sse e sta te d th a t i t ha d b e en p oin te d out to the Ld . Pr . C I T th a t t he a s se s see h a d incu rr e d n o e xpe nd itu r e on a ccou nt of cor p or a te gua r a n tee give n t o the s is te r c onc e r n s, nor cl a i me d a ny i n th e r e tu r n of in come , th a t th e comp l e te di sc lo sur e s we re ma d e to the AO th r ough f i na n ci a l sta te me n ts w hi ch a re a ma tte r of r e cor d a nd si nc e no e xpe n d itu re w a s in cu r r e d , n o e nq u ir y w a s r e q ui re d t o be con du cte d i n t hi s r e ga r d a n d for th e s a me re a son th e re 28 ITA No.121/Asr/2020 A.Y.2015-16 cou ld be no p r e j ud ice ca u se d to th e Re ven ue . The Ld. C ou ns e l for t h e a s se s se e st a te d th a t d e sp i te the a b ove ca te g or ic a l s ta te me nt the Ld . Pr . C I T w e n t on t o r e ite r a te i n he r fi n di n gs tha t th e AO had f a i le d to e xami n e t he e xpe n d itu re i nc ur r e d on gi ve n c or por a t e gu a r a nte e a n d tha t he h a d a l so fa i l ed t o e xa min e w he the r the i nte re st f re e fu nds or in te re st b e ar i n g fu nd s were u se d f or gi vi ng sa i d gua r a n tee . He d r e w our a tte nti on to th e fi nd i ng s of t he Ld . Pr . C I T a t p a r a 1 0 . 2 of h e r or de r a s u nd e r :
"1 0. 2 Decisi on T h e A O h as f ail e d to ex a m in e t h e exp e n se s in cu rre d on g iv in g co r por a te gu ar a n tee . T he A O h a s al so f ail ed to ex am in e wh e th er i n ter e st f ree f u n ds or in te re st be ar in g f u n ds were u se d f or g iv ing an y su c h gu ar an te e. T h e l o ss to th e a sse ssee on ac cou n t of gu ar a n tee h a s al so n o t bee n ex a m in ed b y th e A O. T h e ord er of th e a s sess in g of f ic er is thu s pre ju d ic i al a n d erro ne ou s. "
37 . Th e Ld. C ou ns e l f or the a sse ssee s ta te d th a t in vie w of the c a te g or ic a l s ta te me nt o f f a ct th a t n o e xpe nd it ur e h ad be e n i nc ur re d by th e a sse ssee on t hi s a cc oun t wh i ch h a s not be e n c on tr ove rted by the Ld . Pr . C I T, the r e is no e rr or I t he or de r of t he AO .
38 . Th e Ld . D R, on t he othe r ha n d , rel ie d up on t he f ind in gs of th e Ld . P r .C I T. 29 ITA No.121/Asr/2020 A.Y.2015-16 39 . W e h a ve he a r d both th e p a r tie s and h a ve a l so c a re f ul ly gon e th r oug h the or de r o f t he Ld . Pr . C I T on thi s is su e . C le a r ly the con si ste nt a nd ca te gor i ca l st a nd of the a ss e ssee ha s b ee n th a t it had n ot in c u rr e d any e xpen d itu r e on a ccou nt of cor p o r a te gu a r a nte e gi ve n to its s is te r con ce r ns a nd th e sa i d fa c t h a d a l so b e e n poi n te d ou t fr om i ts fi na n ci a l sta te me n ts. Th e Ld . P r .C I T ha s not c ont ro ve r te d thi s fa c t. Th e r e for e , w i tho ut con tr ov e r ti ng th is b as ic f a ct tha t th e a sse ssee ha d in cu rre d n o e xpe nd i tu re a t a l l on cor p or a te gu a r a nte e gi ve n, w e f a il to u nd e r s ta nd ho w th e re cou ld po ssi b l y be a n e r r or o f the AO for no t e xami ni n g t he a ll ow a b il i ty o f s uch e x pe nd i ture , w h i ch a dmi tt e d ly w e re n on e xi ste nt.
40 . Th e f i nd i ngs of t he Ld . P r. C I T, t h a t th e A O h a s fa il e d to e xa mi ne w he the r th e i nte re s t fre e f un d s or i nte res t b e a r i ng fu nd s ha d bee n us e d fo r gi vi ng su ch gu a r a nte e , ma k e s no se n se be c a use , as i s c ommon k n o w le dge , the re i s no tr a ns fe r of f un ds i n vol ve d w h e n a n e n ti ty sta n d s a s a gu ara n tor f or a noth e r e nt ity w it h a fi na nci a l i ns ti tuti on w ho ha s e xte n de d fi na n ci a l s up p or t to the ot he r e n ti ty. Th e e n ti ty gi vi ng cor p or a te gua r a ntee u nde r ta ke s to ma k e good the l ia b i li ty to th e b a nk i n ca se the lo a ne e fai l s to p a y ba c k it s l ia b i li ty or l oa n to t he ba n k. Th e r e f ore , the re is n o q ue sti on o f a ny fi na n ci a l tr a n sa c tio n be in g in vo lv e d on g iv in g cor p or a te 30 ITA No.121/Asr/2020 A.Y.2015-16 gua r a n tee t o t he e xte n t of t he gu a r a nt ee gi ve n atl e a s t a nd , the re fo re , the i ss ue of w he the r wh a t f un d s w e re u se d for giv i ng th e s a me d oe s n ot a r i se . As f a r a s th e fi n di n g of t he Ld. Pr . C I T th a t th e AO ha d fa il e d to e x a min e the l oss in cu rr e d o n co rpor a t e gu a ra n te e , we fa i l to un de rst a nd h ow the Ld. P r .C I T h a s a r r i ve d a t t hi s f in d in g a s no th i ng ha s be e n br ou gh t out i n t he or de r or e ve n be f ore us so a s to de mons tr a te w h at l os s i s b e i n g r ef e r re d to by the Ld .P r . C I T. I t i s c le a r , the re for e , v is -à -vi s, the i mp ugn e d i ss ue , the re i s no f i nd i ng of a ny e r r or i n t he or d e r of the A O b y th e Ld . Pr . C I T. 41 . I n v ie w of t he a bove we se t a s ide th e fi nd i ng s o f the Ld . Pr . C I T o f t he ord e r be i ng e r r oneou s a n d p r e j ud ici a l to t he in te re st of the R e ve nue on a cc oun t of n on e xami na ti on of e xpe n se s c la i med on a cc oun t of g ua r a n tee s g ive n b y t he a sse sse e .
ISS U E: N on Ex a min a t ion o f t h e t r a ns a c ti on o f sl um p sa le d ur in g t he y e a r.
42 . Th e Ld .C ou ns e l fo r the a sse ssee dr e w our a tte nt io n to the f a ct s r e l a ting to t he i ss ue p oi n tin g ou t tha t t he Ld. P r .C I T n ote d t ha t t he a sse ssee h a d sh ow n s lump s a l e on "ong oin g con ce rn b a si s" of i ts Sp e c ia li ty Fi l m s D i vi si on 31 ITA No.121/Asr/2020 A.Y.2015-16 e ng a ge d in the bu si n e ss of ma n uf a ctu ri n g and sa l e of B ia xi a l l y Or i e n te d P oly p ro py le ne s (B O P P ) F i lms , i .e MS F di vi si on , to Ma x S p e ci a l it y F i lms Ltd . , ( M SF L), r e sul ti n g i n pr of i t d i scl os e d i n the r e t ur n of i nc ome o f R s. 1 6 3 . 72 la c s. Th a t a s p e r th e Ld .P r .C I T, th e ma nn e r of co mp uta t ion of pr of i ts e a r ne d o n th e sa me a n d va l u a ti on of v a r i ou s a ss e ts in cl ud i ng th e s tock a nd b ui l d ing t ra n sf e r re d h ad n ot b e e n e xa mi ne d by th e A O, as a lso th e B usi ne ss Tr a ns fe r Agr ee me n t un d er w hi ch th e tr a n sfe r took p la c e . As pe r t he Ld. P r .C I T the r e was a d i ff e r e nce in r a te at w h ic h t he con ce r n had bee n tr a ns fe r re d and th e r a te as per the B usi n e ss Tr a n sf e r Ag re e me n t, sh ow in g a d ow nw a rd re vi si on ,a n d t he s a me h a d n e i the r b e i ng q u e s tio ne d, no r r e c on ci le d du r in g the a s ses sme nt p ro ce e din gs. Th a t the s a le h a vi ng be e n ma d e to a si st e r c once r n, t he b a si s of va l ua t ion a nd i ts cor r e ct ne ss h a d no t b ee n e xa mi n e d b y the AO. Fo r t he a for e s a i d d is cre pa n ci e s , the Ld . Pr . C I T w a s of th e vi e w t hat the or de r of the AO w a r r a n te d re vi si on a nd acco rd i ng ly sho w ca u se n oti ce w a s i ssue d to the a s se s see . 43 . Th e Ld .C o un se l f or the a ss e ssee th e re a f te r c ont en de d tha t it w a s sub mi tte d be fore the Ld . P r .C I T th a t d ur i ng a sse ssme nt p r oce e d in gs , spe ci f ic q u e r y ha d b e e n r a i se d by the AO and t he a sse ssee had e xp l a ine d in de ta i l t he comp l e te mo da l i ti e s of t he sl ump sa l e tr a ns a cti on 32 ITA No.121/Asr/2020 A.Y.2015-16 un de r ta ke n a nd a l so s ub mit ted r e q u is ite d ocu me n ts in sup p or t. He fu r the r c on te n de d tha t du e r e p l y w a s a l so fi le d to th e Ld . P r . CIT to e ve r y p oin t r a i se d b y he r , e xp l a in i ng how th e tr a n sac ti on q u a l if ie d a s s lu mp sa l e a s p e r t he pr ov is io ns of the Ac t e vi de n ce d w ith the B u si ne ss Tr a ns fe r Agr ee me n t (i n s hor t 'B TA' ), t he v a lu a ti on of t he sale con si de r a ti on as o ri gi n a ll y s how n in the B TA and i ts dow n w a r d r e v is io n vi d e a l e tte r e xch a ng e d be tw ee n t he a sse sse e a nd MF S L, the b a si s of ca l cu la t ion of t he ca p i ta l ga in e a r ne d a s pe r the b ook s of a cco un t a n d a s pe r t he I nc ome Ta x A ct. I t wa s p oin te d o ut th a t i n a sse ssme nt pr oc ee d i ng s, the B TA, b oth or igi n a l a n d a me n de d , e xp l a in i ng the e n ti re tr a nsa cti on of s lu mp sa l e , h a d be e n fi l e d be fore the A O, c op y of ce r ti f ic a te of Ac cou nt a nt r e ga r d i ng comp ut a tio n of n e t w or th of th e un d e r ta k i ng s o tr a ns fe rre d for th e p ur p ose of s l ump sa l e i n F or m N o. 3C EA w a s al so fi le d and s pe ci fi c d is cl osu r e r e ga r d in g the imp u gne d tr a ns a cti on w a s ma d e i n the note s for mi n g the pa r t of t he fi na n ci a l tr a n sa c tio n. F ur th e r a N o O bj e c ti on C er ti f ic a te of the AO u/s 2 8 1 (1 ) of t he Act , obta i ne d by t he a sse ssee w a s a ls o fi le d be fore t he A O a n d the e n tire c omp uta t io n of ca p it a l ga i n s a lo ngw i th t he ta x c omp uta ti on on th e sa me wa s a l so fu r ni sh e d . Th a t t he AO ha d a p p l ie d hi s min d to the s a me a n d h a d ma d e n o a d di t i on . Tha t c le a r ly t he i ss ue 33 ITA No.121/Asr/2020 A.Y.2015-16 ha d be e n e xami ne d by the AO d u ri n g a sse ssme nt pr oc ee d i ng s. He c ont e n de d th a t th e e nt ire tr a ns act ion a n d the mod e of com p ut a tio n a n d e ve r y a sp e c t a n d q u e r y r a i se d by the Ld. P r .C I T wa s r e p l ie d to a nd it was d u ly de mons tr a te d to the Ld . P r .C I T t h a t t he i nc ome the re f ro m ha d b e e n r igh tly r e f le cte d a s p e r the pr ov is ions of l a w a pp l ic a b le . He drew our atte n ti on to the de ta i le d sub mi ss ion s i n t hi s r e g a rd ma d e be fore t he Ld .P r . CI T a n d re p ro du ce d i n he r or de r a t p a r a 7. 1 & 7 . 2.
44 . Th e L d .C oun se l for the a ss e s see poi nt e d ou t t ha t in t he fi nd i ng s of the Ld . P r .C I T, p oin ti ng ou t t he e r ror in t he a sse ssme nt so f ra me d on t he i ssu e , the Ld . Pr . C I T ha d f a i le d to po in t out a n y a no ma ly i n th e e x pl a n a ti on a n d d e ta il s so fi le d b y t he a sses see . Ta ki n g u s t o th e fi n di n gs of the Ld . Pr . C I T a t p a ra 7. 3 of th e or der , th e Ld . C oun se l for t he a sse sse e poi n ted out tha t the is sue s re la tin g to the tr a ns a cti on w hi ch th e Ld . Pr . C I T f oun d th e A O h a d f a il e d to e xa mi ne we re ;
i) w h e the r the s a le fa l l s w it hi n t he d e fi ni ti on of s lump s a le a s d e f ine d u/s 2 ( 42 C ) of th e A ct. H e d re w ou r a t te n tio n to p oi nt N o.I of p a r a 7 .3 , w h e r e i n the f in d i ngs of t he Ld . Pr . C I T in th i s r e ga r d f in d me n tion a s u nd e r :
34 ITA No.121/Asr/2020
A.Y.2015-16 " 1 . Wh e th er th e sal e ef f ec ted f eel wi th i n th e d ef in i tion of sl u mp sal e as d ef in e d u nd er se c tio n 2 (4 2 C) . A s per sec tio n 2( 4 2 C) of In c o me T ax Act, 1 9 6 1, 'sl u m p sal e' me an s th e tr an sf er of on e o r mor e u n der ta k ing s a s a resu l t of th e sal e f or a l u mp su m co ns ider ati on wi th ou t v al u e s be in g a ss ig ne d to th e in d iv idu a l a sse ts an d l i ab il i ti e s in suc h s ale s. ' S l u m p sa l e' is tr an sf er of a wh ol e or p ar t of bus ine ss co nc ern a s a go in g co n c ern , lo ck sto c k an d b arre l.
' Un d er ta k in g' h a s th e s ame me an ing a s in Ex pl an a ti on 1 to se c tio n 2 ( 1 9 AA) d ef in in g ' de merg er' . A s per E x pl an a ti on 3 to sec ti on 2 ( 19 A A) , ' u nd er ta k in g' sh all in cl u de an y p ar t of an u n der ta k in g or a u n i t o r div i s io n of an u n de r ta k ing o r a bu s ine ss ac tiv ity ta k en a s a wh ol e, bu t d oe s n o t inc l u de in d iv idu al as se ts or l i ab il i ti e s or an y co mb in a ti o n th ereof nt c on sti tu ti n g a bu s ine ss ac tiv ity .
Ex pl an a ti on 2 to se c tio n 2( 4 2 C) c l ar if ie s th a t th e d e te r min ati on of val u e of an a sse t o r l iab il i ty f or the p ay men t of s ta mp d u ty , re gi str a ti on f ees, si mil ar ta xe s, e tc . sh al l n o t b e r egard ed a s a ssign me n t of val u e s to in d iv id u al a sse ts an d l i ab il i ti e s. T h us, if v al u e i s a ssig n ed to l an d f or sta mp du ty pu r p ose , th e tr an s ac tio n wi l l be a qu al if ying sl u mp sal e un d er sec tio n 2 ( 42 ) C) . A sal e in ord er to c on sti tu te a s ta mp sale mu s t sa tisf y th e f ol l o win g qu ic k te st:
(a) T h e su bje c t ma tt er of sl u mp s ale sh al l be an u n d er ta k i n g o f an asse sse e.
(b) An ' u nd er ta kin g ' ma y be o wn ed by a c or por a te en ti ty or a n on - cor por a te en ti ty , in cl u d in g a prof es sion al f irm.
(c ) S lu m p sal e ma y be of a s in gl e un d er tak in g or ev en more th a n o ne u n d er ta k in g.
(d ) T h e u n d erta k in g h a s to be tr an sf erre d a s a resu l t of sal e.
(e ) T h e c on sid er a tio n f or tr an sf er is a l u mp su m co n s id er a ti o n. T h is c on si d era ti on sh ou l d be arr iv e d at wi th ou t a ss ig n in g val u e s to in d iv id u al a sse ts an d l i ab il i ti e s. 35 ITA No.121/Asr/2020
A.Y.2015-16 T h e c on sid er a ti o n ma y be d i sc h arge d in c ash or b y i ssu in g sh are s of T ran sf e ror Co mp an y.
(f ) Po ss i bil i ty of id en tif ic a ti on of pric e a ttr i bu ta bl e to in d iv idu al ite ms ( pl an t, mac h in er y an d d ead sto c k) wh ich are so ld a s p a r t of sl u mp sal e, m ay n o t en ti tl e a tr an sac ti on to be qu al if ied a s sl u mp s al e - C IT vs. Ar tex M a n uf actu r ing Co ., [2 2 7 IT R 2 6 0 ( S C) ]. H o we v er, in c a se of slu mp sal e wh i c h in c lu d e s l an d /bu il d in g whe re se par a te v al ue i s a ssign ed to i t u n de r th e rel ev an t s ta mp d u ty l eg i sl a tio n, th e sl u mp sal e wi ll n o t be adv er sel y af f ec te d in th e l igh t of Ex plan a ti on 2 to sec ti on 2 ( 4 2 C) .
(g) T ran sf e r of ass e ts wi th ou t tr a n sf e r of l i ab il i ti e s i s n o t a sl u m p sal e. "
45 . Re fe rr i ng to th e sa me he sta te d tha t e xce p t for s ta ti ng tha t t he A O h ad not e xa min e d w he the r the t ra ns a cti on q ua l if i e d a s s lump sa l e a s d e fin e d un de r the Act, th e Ld .
Pr . C I T has n ot p oi nt e d out as to ho w t he d e ta i le d e xp la na ti on f ur n is he d b y the a s se sse e in t hi s r e ga rd , b oth to the AO a n d t he Ld. P r .C I T fe ll sh or t of e xp l a ini ng thi s q ua l if i ca ti on of th e tr a ns a ction as sl ump s a le . The Ld. C ou ns e l f or th e a sse ssee p oint e d ou t tha t de s p ite t he de ta i le d e xp l a nat ion f ur n is he d b y th e a sse ssee e v ide n ce d wi th th e B TA, th e Ld. P r. C I T h a d e ve n f a il e d to re fe r to t he e xp la na ti on f ur n is he d by th e a sse ssee a nd s im p l y sta te d tha t th e AO h a d f a i le d to e xa mi n e w he the r the tr a ns a cti on q ua l if i e d a s s lump s a le . The L d . C oun se l fo r the a sse ssee sta te d t ha t i n v ie w of the de t a iled e xpl a n a ti on f ur n is he d by 36 ITA No.121/Asr/2020 A.Y.2015-16 the a sse s see a n d the Ld . P r .C I T ha v in g not p oi nti n g o ut a ny a noma l y in th e sa me , th e a fore me n ti one d fi n di ngs ca n not be s a id to be a n y fi n di n gs of e r r or in t hi s r e ga r d .
46 . H e the re a f te r took u s to p a r a 2 of the f in d in gs of t he Ld. P r . C I T wh i ch a r e re p r od uce d he re u nde r:
" 2 . T h e peru sal of th e a sse ssee ' s tr an sf er agree men t in re spec t of the M S F d iv is ion sh o ws th a t th e a sse s se e h a s tr an sf erred the un d er tak i n g arou n d th e boo k v alu e of th e as se ts an d l i ab il i ti e s. As per th e c o mp u ta ti on su b m it te d b y th e a sse sse e the n e t wo r th of th e u n d er ta k i n g a s o n 01 - 0 4- 2 0 14 wo r k s o u t to 2 75 . 3 6 c rores an d a sse ssee h a s tr an sf erred i t a t Rs.2 7 7 cro re s. T h e a sse ssee wa s a sked to spec if y th e b a si s of arriv in g a t th e sal e c on sid er a ti on f or th e sal e ef f e cted b y th e as se s see. T h e a sse sse e h a s c l a imed th a t it' s a s per the BT A. T h e BT A in c la u se 4 .1 men ti o n s th e bu s in e s s tr an sf er c on sid er a ti on to be 3 0 5 c ro res a s ag a in s t wh i c h th e f in al s ale co n s id er a tio n ha s ta k en pl ac e a t R s. 2 77 c ror e s. T h e b a si s of th is v ar i a ti on h a s n o t be en s pec if ied b y th e a sse sse e and h as no t bee n ex a min ed b y th e A O. It h a s be en c l a i me d th a t the sa me i s a s pe r l e tter d ated 0 1- 0 4 -2 0 1 4. T h e peru sal of th e c op y of the le tter d a ted 01 - 0 4- 2 0 14 d oesno t g iv e an y rea son f or th e re v is io n or b a si s of c ompu ta tio n of the sa me, i t ju st sa y s th a t th e Bu sin e ss T ran sf er Con sid er a ti on h as be en r ev i sed to 2 77 c rore s. D u rin g th e c ou rse of the 26 3 proc ee d in g s a mp l e op por tu n i ty were given to th e a sse ssee to expl a in th e re ason f or ch an ge in v al u e f ro m Rs. 3 0 5 to 27 7 cr ores. No val id ex pl an a ti o n c ou ld be give n b y the as se ssee. H e wa s u n a bl e t o ex pl a in th rou gh a v al id ac c e p ta b l e argu me n t a s to h o w th e val u e of MS F has f al le n f rom 3 0 5 c rore to 2 7 7 c rore s. It is no t ou t of c on te x t to me n ti on th a t the e n ti re tr an sac ti on is a rel a ted p ar ty tr an sac ti on . A si mpl e le tte r h a s be en i ssu e d rev is ing the tr an s ac tio n v al u e to 2 7 7 c rores wi th ou t an y ac ce p ta b l e co mpu ta ti on or r ev i sed v al u a tio n. Ke ep ing in v ie w th e se f ac ts th e c l ai m of th e a sse ssee th at th e val ue of sal e c on sid er a tio n i s 37 ITA No.121/Asr/2020 A.Y.2015-16 2 7 7 cro res c an n o t be ac ce pted whe n th e BT A spe c if ies th e tr an sac ti on to be a t R s. 30 5 cro re s. "
47 . Re fe rr i ng to t he sa me he con te n de d th a t the Ld. P r .C I T ha d n ote d th a t d e sp ite re pe a te d q ue rie s r a i se d in this re ga r d , the a sse ss ee h a d no t spe c if i e d the b a si s for a r r i vi ng a t th e or i gi na l sa le c ons ide ra t ion a s me nt ione d in t he B TA a nd re vi se d sa le co nsi de r a ti on and a l so the r e a s on for dow n w a r d r e v is io n in th e sa me. Tha t th e a ssess ee w as un a bl e to e xp l a in h ow th e va l ue h a d fa l le n f rom Rs .3 0 5 cr or e s to Rs. 27 7 c r or e s, mor e p a r tic ul a r ly , wh e n the tr a ns a cti on w a s w it h the re l a te d p a r ty, th a t si nc e t he B TA sp e ci f ie d t he tra ns a cti on a t Rs. 3 0 5 c r or e s i ts do wn w a r d re vi si on to Rs .2 7 7 cr or e s by way of a le tte r d a te d 01 . 04 . 2 01 4 cou ld not b e a cce p te d .
48 . In thi s re ga r d th e Ld .C ou n se l fo r the a sse ssee con te n de d th a t th e re i s no re q uir e me n t u nde r the Sta t ute for ju sti f yi ng th e sa le co nsi d e r ati on / p r i ce of tr ans a cti on se ve n i f e ffe cte d w i th t he s is te r con ce rn , n or ha s a n y su ch pr ov is io ns be in g p oi n te d ou t b y th e Ld . Pr . C I T. I n a ny ca s e , it w a s c ont e n de d , th e va l ue of t ra n sa c ti on s tood ju st if ie d wi th th e B TA b ot h or ig in a l a nd r e vi se d e nte re d i nt o b e twe en bot h t he pa r t ie s a gr e e i ng to a p a r ti cu la r o f c ons id e r a t ion. Th a t th e o nl y r e q ui re me nt und e r la w was vis-à -v is the ca l cul a ti on of ne t w or th a s p e r se cti on 5 0 B of th e A ct wh i ch 38 ITA No.121/Asr/2020 A.Y.2015-16 ha d be e n ju sti fie d to the Ld . P r .C I T a n d no a n oma ly i n t he sa me h a s be e n poi n te d ou t. He , th e re fore , c onten de d t hat e ve n the a f ore s ai d fi n d in gs of th e Ld . P r. C I T a t par a 2 d i d not co nta i n a n y fi nd i ng r e g a rd i n g a n y e r r or o f the A O . 49 . H e the re a fte r took u s to p oi n t N o. (3 ) of pa ra 7 . 3 of t he or de r of t he Ld . P r .C I T, wh i ch r e a d s a s u nd e r :
" 3 . Fu r th er, the a sse sse e h a s cl a i med th a t th e c on sid er a ti on wa s d i sc h arg ed b y MS F L p ar tl y thro ug h i ssu e of equ i ty sh are s 3, 8 4 ,0 0 , 00 0 /- a t Rs.1 0 e ac h (i ss ue d a t a pre mi u m of Rs. 4 0 pe r equ i ty sh are s) of R s. 1 67 Circ u msta nc e s. A nd b al an c e b y wa y of in te re st be ar in g l oan of R s. 11 0 Circ u mstan c e s. It h a s no t been ex a min ed b y th e A O wh er e th e amou n t of Rs.1 1 0 cr ores is a ppe ar in g in a sse ssee ' s b al an ce sh ee t an d wh e th er the in tere s t on th e l oan h a s b een ac c ou n ted f or b y th e a sse ssee an d if so wh a t i s the r ate of in te res t an d wh e th er the in tere s t c h ar ged i s a t ar m' s l e ng th . D u r in g 26 3 proc ee d in g s i t wa s c l a i me d b y t he a sse s see th a t the in te re st a t 1 3 % h as been rec eived f rom M F SL, h o we ver, th e prof i t and l o s s ac co u n t d oe s n o t se e m to ref le ct th a t in te re st. It h a s al so n o t been ex am in e d a s to h o w th e pre miu m of Rs. 4 0 /- h a s bee n arr ived a t, a s th e sh are s of MS F L were i ssu e d to th e a sse sse e a t a pre miu m. T hu s th e A O h a s f ail ed to ex a min e wh e th er th e e n ti re tr an sac ti on of sl u mp s ale h as o c c ur red a t ar m s l en g th or no t. T h e ord er of th e A O is th u s e rron eou s a n d pre ju d ic i al. "
a nd r e fe r r i ng to t he sa me he p oi nte d out th a t the Ld. P r .C I T me nt ion s the re i n t ha t the AO h a d n ot e xa min e d wh e the r the a sse sse e ha d a ctua l ly r e ce i ve d c ons i de r a tio n in the for m of in te re st be a r in g l oa ns of Rs. 1 10 cr or e s a n d w h e th e r it h a d cha rg e d i nte re s t on t he sa me d u r i ng th e ye a r or n ot. Tha t the P ro fi t & Los s A cc oun t d i d not "se e m" to r e fle ct t he 39 ITA No.121/Asr/2020 A.Y.2015-16 in te re st a nd the AO h a s a l so n ot e xa mi n e d h ow the pre miu m of Rs. 4 0 /- ha s b ee n a rr i ve d a t o n the sh a r e s of M S FL is sue d to t he a sse s see in l i e u of co ns ider a t ion f or sl ump s a le . 50 . I n th is re ga r d t he Ld . C oun se l f or the a s se sse e p oi nte d out th a t a s f a r t he r e f le cti on o f in te re st b e a r ing l oa n of Rs. 11 0 cr or e s the s a me w a s c le a rly r e fle c te d i n the B a l a nce Sh ee t a nd si n ce n o q u e r y h a s bee n r a i se d b y the Ld . P r .C I T du r in g 263 p roc ee d i ng s, t he re was no occa si on to de mons tr a te the sa me to he r . Th a t e ve n vi s-à -v is the i ss ue of in te re st t he on ly fi n d in g of t he Ld . P r . C I T i s th a t i t se e ms tha t the i nte re s t h a s n ot be e n a cco un te d f or . Th e Ld . P r .C I T ha s n e i the r ca re d to e xa mi ne th is is sue d ur i n g re vi si ona r y pr oc ee d i ng s, n or in ve s ti ga te d th e sa me h e r se lf a nd w i th out doi n g so has j ump e d to co ncl u si on. F ur th e r it is not comp r e h e ns i ble a s to h ow th e pr e mi um of Rs .4 0 /- on t he sha re s of MSF L i ssu e d to t he a sse sse e , in a n y wa y, ca us es pr e ju di ce to the Re ve n ue si nce th e sh a re s h a ve be en re ce i ve d as consi d e r a ti on f or th e sl ump sa l e and the va l ua ti on of the sh a r e s is a ma tte r of con ce r n f or MSF L a n d not th e a sse ssee .
51 . Th e Ld . D R, on th e ot he r ha n d, he a v il y re lie d u pon t he or de r of the Ld . P r . C I T r e f e r r in g to th e d i sc re p a ncy n ote d i n the t ra n sa c ti on on sl ump sa l e a ff e c te d b y the a sse ssee a nd 40 ITA No.121/Asr/2020 A.Y.2015-16 the is sue s w h i ch ne e de d f ur the r e x a min a ti on a s poi nte d out by th e P r . C I T, be fore u s, a t p a r a 7. 3 of he r or d e r , a s re p ro du ce d a b ove . S he s ta te d tha t th e AO h a vi ng a c ce p te d the su bmi ss io ns ma d e b y th e a s se sse e i n thi s re ga r d d ur i ng a sse ssme nt p r oce e d i ngs a nd consi d e r in g th a t he f a i le d to e xa mi ne the i ssu e s fl a gge d by th e P r . C I T a s to w h e the r t he tr a ns a cti on d i d q u a li f y a s sl u mp sa l e a s p e r the pr ov is io ns of, t he j ust if i ca tion f or th e sa le co ns id e r a ti on re ce i ve d a n d its d ow nw a r d r e v is ion e xpl a i ne d by a l e tt e r e x cha nge d be twee n tw o p a r ti e s a nd f ur th e r th e n on e xa min a ti on of t he ma nn e r of r e c e ip t of c ons id e r a t ion f or th e sl um p sal e , t he fi nd i ng s of the L d. P r .C I T o f e r r o r i n th e or d e r of th e A O in thi s r e ga r d we re , th e re fore , ju sti fie d. 52 . We h a ve he a rd b oth th e pa r ti e s . On c a r e fu l con si de r a ti on of th e su bmi ss io ns ma d e by b oth the p a r ties a nd on g oin g th r ou gh va r i ou s l e t te r s, c ommun ic a ti ons a n d doc ume nts w h ic h w e re re fe r re d t o b e f ore us , we a r e of t he vi e w th a t the re is no f i nd i ng of e r ro r in th e or de r of th e Ld. Pr . C I T on the i ss ue of sl ump sa l e tr a ns a cti on e nte re d i nto by the a sse ssee d u r in g the ye ar . A d mitt e d ly , a q u e r y h a d be e n r a i se d du r in g a sse ss me nt p roce e d i ngs f or j us ti fyi n g the ca p it a l ga i ns e ar ne d b y the a s se sse e du r in g the ye a r , i n re sp on se to wh ic h th e a sses see ha d fi le d de ta i le d sub mi ss ion s r e ga r d i ng th e s lu mp sa le tr a n sa ct ion o f its MS F 41 ITA No.121/Asr/2020 A.Y.2015-16 di vi si on un d e r tak e n d ur i ng the ye a r. Vi de le tte r d ate d 28 . 11 . 2 01 7 th e a s se sse e had e xp l a ine d in de ta i l t he comp l e te mo da l i ti e s of t he sl ump sa l e tr a ns a cti on un de r ta ke n du r in g t he ye a r a n d a ls o su b mitt e d th e re le v a nt doc ume nts . Pe r usa l of t he cop y of the sa i d le tte r , p l a ce d be fore u s, re ve a ls tha t the a sse ss ee h a d e xp la i ned in d e ta il the tr a ns a cti on of sl ump s a le un d e r ta ke n a n d e vi de n ce d t he sa me w i th th e Bu si ne ss Tr a n sfe r A gr ee me n t e n te re d i nto i n the sa i d t r a nsa cti on. Th e a sse ssee ha d fu r the r e x pl a i ne d how th e imp u gne d tr a n sa c ti on qu a li f ie d a s a sl ump sa l e a s pe r the p ro vi si ons of se c ti on 2 ( 4 2 C ) o f th e A ct a n d ha d a l so fu rn i sh e d co mpu ta ti on of th e cap i ta l ga i n e a r ned on t he sa me a s p e r th e r e le va n t p r ovi si on s of se cti on 5 0B of the Act . C op y of N o o b j e ct ion ce r ti fi ca te of the A O w it h re ga r d to the a f ore sa i d tr an sa c tio n obt a in ed u /s 28 1 ( 1) o f t he Ac t w as a ls o f il e d . E ve n b e f ore the Ld. P r . C I T w e f in d th e a sse ssee ha d re ite r a te d h is s ub mi ssi o n s ma d e b e fo re the AO ju sti fy in g i ts tr a n sa ct ion w h ic h sta n d r e p r od uced at p a r a s
7. 2 a nd 7 .3 of t he or de r b e fore u s. W e ha v e n ote d f ro m t he pe r usa l of the le tte rs f i le d be f ore th e Ld. Pr . C I T t ha t e ve r y q ue r y r a i se d by th e Ld . P r .C I T q ua t he ma nn e r of comp ut a tio n of p r of it ge ne r a te d fr om the sa i d tra n sa ct ion , the va l ua t ion of a ss e ts i nc lu di n g st ock and b ui ld i ng tr a ns fe r , j u sti fi ca t ion of th e tr a ns fe r q ua l i fy in g as a s lu mp 42 ITA No.121/Asr/2020 A.Y.2015-16 sa l e a n d va r i a nce i n the v a lue o f b u il d in g a s r e p orte d i n t he fi na n ci a l s ta te me nt s a nd i n the I n co me Ta x Ac t , a l l w e re du ly re p lie d to. The a sse sse e h a d, th e re f ore , ju sti f ie d the tr a ns a cti on q ua l i fy in g a s s lu mp s a l e a s pe r the p rov is ion s of the Ac t b y t he B us i ne s s Tr a n sf e r A gr ee me nt e n te re d in to, so a ls o the s a l e con si d e r a ti on re ce ive d f or the sa me an d i ts dow n w a r d r e vi si on i n the s a le consi d e r a ti on th r ough a l e tte r e xch a n ge d be twe e n tw o p a r tie s , h e ha d j us tif ie d th e ca p i ta l ga in e a r ne d th e re on a s p e r t he p r ov is io ns o f th e A ct a n d be si de s f ur n i shi n g th e c omp ut a t ion of th e s a me had fu rn i sh e d a ce r tif ic a te o f a n Ac cou nta n t i n t hi s r e g a r d i n For m N o. 3 C EA. The a s se s se e ha d a l so ob ta i ne d a No obj e c ti on ce rt if ic a te fr om the AO f or t he imp u gne d tr a ns a cti on . Al l th e a f ore sa i d fa ct s a r e not d i sp ut e d , nor con tr ove rte d be for e u s. Th e r e f ore , the fi nd i ng s of t he Ld . Pr . C I T tha t t he AO ha d no t e xa mi ne d w he the r the tr a ns a cti on q u a l if ie d a s sl ump sa l e , we fi n d i s n ot ju st if ie d ba s e d on the fa c ts be fore u s w he re i n we f i nd t ha t r e pe a te d ly de ta i le d j us tifi ca ti on h a d be e n f ile d b y the a ssess ee . The fi nd i ng s of th e Ld . Pr.CIT th a t th e s a le con si d e r a ti on re q ui re d to be e xa mi ne d fu r th e r sin ce the re wa s a do wn w a r d re vi si on i n th e sa me a nd tr a ns a c ti on h a d b e e n un de rt a ken be twee n si ste r con ce r n, we a re of th e vi e w , me r i ts no con si de r a ti on. Admi tte d ly , t he re w a s a d ow nw a r d r e v is ion in 43 ITA No.121/Asr/2020 A.Y.2015-16 the s a le con si der a ti on a nd the tr a n sa ct ion d id ta k e p l ace wi th si s te r c onc e r n. B u t, we f i nd , the a s se s see h ad e vi de n ce d the sa le c ons i de r a tio n th r oug h B u si ne ss Tr a ns fe r Agr ee me n t a n d th e s ub se q ue nt le tte r e xc ha n ge d b e twee n the tw o p a r ti e s vi s-à-v is w hi ch n o d i scr e pa n cy ha d be e n p oi nte d out by t he Ld. P r .CI T. In su ch ci r cu msta n ce s w hat occa s i one d fu r the r e xa min a ti on of th e i ss ue , we f in d h a s not be e n spe l t out by th e Ld . P r .C I T. Merely be c a use t he tr a ns a cti on took p l a ce w i th th e si st e r con ce r n, th e sa le con si de r a ti on nee de d to be exa mi n e d , se e ms i l lo gic al sp e ci a l ly w he n th e a sse s see ha d e v ide n ce d the sa me w i th B usi n e ss Tr a n sf e r A gr ee me nt . N ot e ve ry tr a n sa c tion w ith a si ste r c on ce r n ne e d s t o b e l ooked a t w i th su sp e ct and th e r e ha d to b e mor e r e a s ons for c on du cti n g fu r th e r e n q ui r y. Fu r the r a s r i gh tly p oi n te d out b y th e Ld. C ou ns e l f or t he a sse sse e the Ld . Pr . C I T ha s a l so n ot p oin ted out a ny pr ov is io ns i n la w w a r r a nti n g t he j ust ifi ca ti on of t he sa le con si de r a ti on in a tr a ns a cti on e n te re d in to wi th th e si ste r con ce r n . The r e f or e , f in d in g of e rro r b y th e Ld. Pr . C I T on a ccou nt of no n e xa mi na ti on of th e s a le co nsi d e r a ti on a l so is not ju sti f ie d . F urth e r a s re ga r d s the non e x a min a ti on of t he ma nn e r of r e ce ip t of sale con si d e r a ti on in the for m of un se c ure d l oa ns a nd sh a r e s be in g not e xa mi ne d, w he t he r du ly a cco un te d fo r a n d the p re miu m a t w hi ch th e sh a re s 44 ITA No.121/Asr/2020 A.Y.2015-16 we re a c q ui re d by th e a s se s se e n ot be in g e xami ne d fo r ju sti fi ca tio n, w e f in d , d o n ot p oi nt to a n y e r r or i n t he o rde r of t he AO ca u sing p re ju d ice to the Re ve n ue . I t i s n ot the ca se of the Ld. P r .C I T th a t t he sa i d co ns id e r a ti on h a s not be e n a cco un te d f or by the a sse ssee . F ur ther h ow the pr e mi u m on the sh a re s g ive n to the a sse ssee as con si de r a ti on fo r th e sl ump s a l e h a s ca u se d a ny p r e j ud i ce to the Re ve nue , i s not c le a r f ro m th e or d e r of the Ld . P r .C I T. As lon g a s th e con si d e r a ti on h a s be e n p a i d to the ass e s see i n the f or m of u ns e c ur e d lo a ns , a n d s ha r e s be in g give n to t he a sse sse e of e q ui va l e n t va l ue , h ow th e pre miu m on w hi ch t he sha re s we re i ssu e d w ou ld , in any w a y, a f fe ct the comp ut a tio n of ca pi ta l ga i n or r a i se any d oub t on t he tr a ns a cti on , ha s not b e e n spe lt ou t by the Ld . Pr . CI T. Th e r e for e , we h ol d th a t vi s-à -v i s th e tr a n sa c ti on o f s lu mp sa l e a l so, the re is n o f in d i ng of any e r r or i n the or d e r of the AO .
53 . I n v ie w of t he a bove we se t a s ide th e fi nd i ng s o f the Ld . Pr . C I T o f t he ord e r be i ng e r r oneou s a n d p r e j ud ici a l to t he in te re st of the R e ve nue on a cc oun t of n on e xami na ti on of sl ump sa l e u nd er ta k e n b y the a sse s se e d ur i ng t he ye a r a n d the or de r o f t he Ld . Pr . CI T ho l d in g s o i s, the re fore , set a si de .
45 ITA No.121/Asr/2020
A.Y.2015-16 ISS U E: N on Ex a m in a t ion o f Va l ua to n o f S h a re s o f Ma x He a l th c a r e Inst it u t e L im it e d so ld by t he a sse s se e du r ing t he y e a r .
54 . Th e L d .C ou ns e l for t he a s se sse e s ub mit te d th a t d ur i ng the i mpu gn e d ye a r th e a s se s see h a d sol d sh a r e s of M /s Ma x He a lt hca re I nst itute Li mite d , wh i ch th e Ld . P r. C I T f ou nd tha t the AO h a d n ot exa mi ne d vi s a v is the va l ua t ion at wh i ch it wa s s ol d.
55 . Ld .C o un se l for th e a sse s see submi tte d th a t d ur i ng t he a sse ssme nt pr ocee d i n gs a l l ne ce ssa r y d oc ume n ts e vi de n ci ng the ge n ui ne ne ss o f th e tr a n sa c tion w e re f i le d t o the AO . He dr e w ou r a tte nt ion t o t he f oll ow i ng i n th is r e ga r d: -
"For Sale of Investment in Max HealthCare Institute Limited (MHIL) Form FC-TRS dated 10.11.2014, filed by the Assessee Company with the Authorized Dealer Bank in connection with sale of shares evidencing receipt of consideration in the Bank account of the Company; 392, Vol,2.
Valuation Report as on March 31,2015; 393 to 404, Vol. 2 Copy of Share Purchase Agreement between the Assessee Company. Life Healthcare International (LHI) and MHIL; 405 to 443, Vol. 2.
Copy of investment schedule along with relevant demat statements/ extracts of financial statements evidencing investment in shares; 444 to 449, Vol 2 Additionally, all disclosures vis-a-vis the Gain/Loss were duly recorded and reported in Audited Financials as submitted before the AO."
56 . Re fe rr i ng to the a b ove t he Ld . C oun se l f or the asse ssee poi n te d ou t t ha t e ve n the Va l ua tio n R e p or t of a i n de pe n de nt 46 ITA No.121/Asr/2020 A.Y.2015-16 va l ue r de te rmi n in g th e v a l ue of t he sh a re s s old as on 31 . 03 . 2 01 5 w a s fi l e d to the A O r e fle c ti ng the v alu e o f t he sha re s the re i n at Rs. 45 . 1 7 p e r sha r e . He the re a f te r p oi nte d out th a t the Ld . P r .C I T p oi nte d out th a t si nc e t he sh a re s we re so ld mu ch be fore 3 1. 0 3 .2 0 1 5 i.e. on 31 . 08 . 2 01 4 , the re fo re , the a fo re sa i d V a lu a ti on Re p or t was of no re le va n ce , a nd a fre s h va l u a tio n a s on 3 1 . 03 . 2 01 4 , b a si s DC F M e th od olo gy w a s a sk e d for. Th e Ld . C oun s e l f or t he a sse sse e su bmi tte d th a t the sa i d r e po rt w a s a ls o fi le d re fle c ti ng v a lu a ti on t he re in of th e s ha re s a t Rs. 6 6 .3 3 pe r sha re w h ic h w a s le ss th a n the con si de r a tio n for w hi ch t he sha re s we re s old a t Rs .6 7 . 50 pe r sh a r e . Th e Ld .C oun se l f or the a sse s see c ont e nde d th a t t he a sse s see , th e re f ore , had un e q ui vo ca l ly e s ta b li she d t he ge nu ine ne s s of t he tr a ns a cti on b ot h b e f ore the A O an d ha d e ve n a ddr e s se d the q ue r ie s r a i se d by th e Ld. P r . C I T. H e the re a fte r state d t hat the e r r or p oi nte d ou t b y th e Ld . P r .C I T w a s i n fa c t , no e r r or a t a l l. Re fe r ri n g to th e f in d i ngs of th e Ld . P r .C I T a t p a r a 9 .2 of he r or de r a s un de r :
"9 .2 Dec isi on T h e rev ised v a lu a ti on c er tif ic a te b y th e a sse ssee sh o ws th a t th e r a te a t wh i c h th e u n qu o te d sh are s hav e bee n tr an sf erred is su b jec t to f urth er ver if ic a ti on . T h e valu a tio n re por t of th e sh are s n eed s to be ex am ine d f u rth e r an d th e c ompu ta tio n mad e b y the v al u er n eed s to be c ro ss- ve rif ied wi th th e b al an ce sh e e t. T h e asse ssin g 47 ITA No.121/Asr/2020 A.Y.2015-16 of f ic er has f ail e d to ex a m in e th e c ompu ta ti on of sh are v al u a tio n a s d i sc u ssed a b ov e. T h e o rder of the a sse s sin g of f ic er is th u s pre ju d ic i al an d erro n eou s. "
the Ld .C ou ns e l for the a sse s see p oi nte d out tha t the Ld . Pr . C I T h a s on l y sta t e d th a t th e re v ise d Va l ua t ion Re p ort fi le d by th e a sses see ne e de d v e r ifi ca ti on , t he va l ua ti on of the sh a re s s ol d n ee de d to be e xa mi ne d f ur th e r an d ha d to be c r oss che cke d w i th th e B a l a n ce S he e t a n d the A O h a vi ng fa i le d to do so t hi s e xe rc ise, t he or de r wa s e r ro ne o us ca us in g p r e j ud i ce to th e Re ve n ue . Th e Ld .C o un s e l fo r t he a sse sse e con te nd e d th a t t he sh a r e s we re sol d to an in d e pe n de nt th i rd p a r ty, t he v a lu a ti on of the s ame b e i ng du ly e vi de nce d by a gr e e me n t e nter e d i n to by the sa i d p a r ti es a nd f ur th e r ce men te d a s be in g a bo ve bo a rd by the V a l ua ti on Re p or t b a si s th e D C F Me tho d r ef l e cti n g the fa c t that t he sha re s we re s old a t a b ove the f a ir ma r k e t v a l ue of the sa i d sha re s. Th e Ld . C oun se l f or the a ss e ssee c onten de d t hat the re was no r e q u ire me n t und e r l a w, n or a ny su ch re q ui re me n t p oi nt e d out b y the Ld. P r .C I T, i n th e s ha r e s so sol d to a n i n de pe n de nt p a r ty t o b e s ol d a t i ts f air ma r k e t va l ue , n or w a s th e re a ny r e q uir e me n t u nde r l a w i n t he va l ua ti on of su ch sh a r e s to be do ne a t D C F Met hod . Tha t suc h r e q ui re me nt was the re un d e r S ta tu te in se c ti on 56 ( 2 )( vi i a ) & ( v i ib ) w hi ch was a p p li c a bl e in di f fe re nt ci rc ums ta nc e s th a t too in t he ca se of p ur c ha s e r of sh a r e s 48 ITA No.121/Asr/2020 A.Y.2015-16 a nd not th e se lle r of t he s ha re s wh i ch th e a sse s see w a s i n the p re se n t c a se . The re fore , the re w a s no e r r or as su ch a s poi n te d out b y t he Ld . P r . C I T in th e a sse ssme n t or de r pa s se d by th e AO a c ce p ti n g th e tr a ns a cti on of s a l e of sh a r e s of Ma x He a lt hc a re I ns ti tute b y the a ss e ssee . 57 . Th e Ld . D R, o n th e o the r h a nd , v e he me n tl y su ppor te d the or de r of the Ld . Pr . C I T. 58 . W e ha ve he a r d b ot h the p a r tie s ca r e f ul l y a n d we fi nd me r it i n th e con te n ti on of the Ld . C ou ns e l f or t he ass e s see . It is n ot d is pu te d th a t t he i mp ugn e d tr a ns a cti on of sal e of sha re s of Ma x H e a l th ca re I n st itute Li mit e d w a s un de rt a ken by th e a s se s se e w i th an i n d e pe n de nt th ir d pa r ty, Li fe He a lt hca re I nte rna t ion a l , a n d a l l d ocu me n ts e vi de n ci n g t he sa i d tr a n sa ct ion w e re f i le d b e f ore th e A O i nc lu d in g the s ha r e pu r ch a se a g ree me nt be twee n the a sse sse e c omp a ny a nd Li fe He a lt hca re I n te rn a ti on a l to w h o m th e s a id sha re s w e re so ld . I t i s no t d i sp ute d a l so t ha t the sha r e s we re so ld at th e p r i ce a gr ee d to be twee n th e t wo pa r ti es . N o a no ma l y v i s -à-vi s t he a bo ve ha s b ee n p oin te d out b y th e Ld . P r .C I T. The on ly re a son f or h ol d in g the or d e r of th e A O e r r one ous w as tha t the AO ne e de d to ve ri f y t he va l ua tion o f s ha r e s s ol d th a t too for t he r e a so n tha t th e a s se sse e had s ub m it te d two Va l ua ti on Re po rts, on e a s o n 31 . 03. 2 0 15 re fle c ti ng th e va lue 49 ITA No.121/Asr/2020 A.Y.2015-16 of sh a re s at Rs .4 5 .1 7 per sh ar e and the othe r as on 31 . 03 . 2 01 4 r e f le cti n g the va l ue of sh a r e s a t Rs.6 7. 3 3 pe r sha re .
59 . C on si d e r i ng t he fa c t th a t i t is a tr a n sa ct ion b e tw e e n the tw o i nde pe nde n t p a r tie s , t he con si d e r a ti on e vid e n ce d by the p ur c ha se a g ree me nt e n te re d into b e twe e n them, h ow a n d wh y t he is sue of va l ua tio n of s ha r e s a r ise s , h as n ot b e e n poi n te d o ut b y the Ld . Pr . CI T. N o p r ovi si on un der la w ha s be e n b r ou ght t o o ur not ic e w h i ch r e q u ire s the a ss e ssee to se l l sh a re s at it s fair ma r k e t va l ue . In any c a se , t he va l ua ti on of s ha r e s a s pe r D C F Me tho d a s on 31 . 03. 2 0 14 ,a s a sk e d for b y th e Ld . P r .C I T he r s e l f a n d re la ti n g to th e ye ar e nd i ng ju st p r i or to th e d a te on w h i ch the sa i d sh are s w er e sol d ,b e i n g,3 1 -08 -2 0 14 , sh ow s the fa i r ma r k e t va l ue to be le ss tha n t ha t a t w h ic h the a ss es see h a d sol d th e s ha re s. Th e va l u e a t w h ic h th e sh a re s we re so ld , the re f ore , a p pe ars to b e f ul l y ju sti fi e d , e xce e d i ng the fa i r ma r ke t v alue of t he sha re s.
60 . We the re f ore a gr e e w it h the Ld .C oun se l f or t he a sse sse e t ha t t he a sse ssee ha v ing e vi de nce d the tr a ns a cti on of s a l e of sh a res of Ma x H e a l thca r e I n sti tu te Li mi te d w i th ne ce s sa r y d ocu me nt a r y e vi de nce s and e ve n su bmi tte d va l ua ti on sh ow in g t he a ctu a l s a le p r ice e x cee d ing th e f a i r 50 ITA No.121/Asr/2020 A.Y.2015-16 ma rk e t v a lu e of s ha r e s , a n d no in fi r mity b e i n g po in te d out by th e Ld. P r ,C I T in t he sa me , the Ld . P r. C I T w a s n o t ju sti f ie d in h old i ng th e ord e r e r r one ous for w a nt of fu r the r i nq u ir y vi s a v is the va lua t ion . The Ld. P r. C I T o ugh t to h a v e p oi nte d out d i scr e pa n cy or i nf i r mi ty in t he v a lu a ti on r e por t sub mi tte d to h e r b e f ore p r oc ee d ing to h ol d non i nq u i ry of the s a me a s re nde r i ng t he or de r er r one ous . 61 . I n v ie w of t he a bove we se t a s ide th e fi nd i ng s o f the Ld . Pr . C I T o f t he ord e r be i ng e r r oneou s a n d p r e j ud ici a l to t he in te re st of the R e ve nue on a cc oun t of n on e xami na ti on of sa l e of s ha re s of Ma x H e a l thc a r e Li mi te d a n d th e o rde r of the Ld . P r .C I T h o l di n g s o i s, the ref or e , se t a si de . ISS U E: Lo ss o f S a le o f U nq u ot e d In ve st me n t a mo u nt in g to R s .4 03 7. 19 l a c s 62 . P oi nti n g out th e f a cts re la t in g to th e is sue , t he Ld. C ou ns e l fo r th e a s se s se e c on te n de d th a t d u ri n g t he imp ug ne d y e a r the a sse ssee h a d sol d its e n ti re sta k e in N ee ma n Me d i ca l I n te r n a ti ona l B V (h e re i n a fte r r e fe r r e d to a s 'N ee ma n B V') , i ts w h ol ly ow n e d su bs id i a r y, r e p r e se n ti ng 23 6 1 e q ui ty s ha re s to Ma p r ime M a n a ge me n t B .V . fo r a sa le con si de r a ti on o f R s. 20 . 7 4 la c s. The a ss e ss ee comp a n y h a d ma de in ve stme nts in the se sh a res ove r t he ye a r s a moun ti ng 51 ITA No.121/Asr/2020 A.Y.2015-16 to Rs. 4 05 7 . 93 l a cs a n d h a d ma d e p r ovi si on for d imu ni ti on in th e v a l ue of the se i nve stme nts i n it s b ook s of acc oun t. Th e sa i d pr ov i s io n a mou nt was r e ve r se d d ur i ng t he imp ug ne d y e a r p ur su a nt to sa l e o f sh a r e s of N e e ma n B V. a nd a c cor d i ngl y, b ook l os s o f Rs. 4 0 3 7 .1 9 l a cs ( Rs. 2 0 .7 4 l a cs
- Rs. 4 05 7 .9 3 la c s) w a s r e c or de d in th e b ook s. 63 . Th e Ld . C oun se l fo r th e a sse ssee con te nde d tha t ;
1) A co mpl e t e di sclo sur e of t he a f or e sa i d b oo k l oss of Rs. 40 3 7 .1 9 l a cs h a d b ee n ma d e a nd re p or te d i n the fi na n ci a l sta t e me n ts a nd th e ca pi ta l l oss ge ne r a te d un de r t he p ro vi si ons of t he Ac t h a d a l so be e n du l y d is close d. Th e tr a n sa ct ion h a d b e e n e vi de n ce d by copy of sa l e dee d p e rt a in i ng to t he tr a ns fe r of sh a res .
2) C op y of Va l ua t ion Re po rt de te rmi n in g th e e q ui ty va l ue of th e sha r e s a s on 2 8 .0 3 . 20 1 5 h a d a l so be e n f ile d .
3) Th e l os s s uf fe re d on a cco un t of th e sa le of sa id sha re s h a d b een d u ly di s cl ose d i n th e a u di te d fi na n ci a l st a te me nts a s a l so t he en ti r e t ra nsa c ti on ha d a l so be e n r e p or te d i n t he a ud i te d f i na n ci a l sta te me n ts.
64 . Th e Ld. C ou ns e l for th e a ss ess ee c on te n de d tha t a ccor d i ng ly comp l e te di s cl osu re s w e re ma d e b y t he asse ssee du r in g th e cou rse of a s se s sme n t p r oce e d in gs a n d t he i ssue wa s d u ly e xa mi n e d b y the AO s ince a de ta i le d re p ly w a s f i le d 52 ITA No.121/Asr/2020 A.Y.2015-16 by th e a sse sse e in r e s p ons e t o n oti ce d a te d 26 . 10 . 2 01 7 . Th e r e for e , the re w a s n o e r r or i n th e or de r of the AO h a vi ng du ly e x a min e d th e sa i d tr a ns a cti on a n d a l low e d the c la i m to the a sse s see . H e f ur th e r con te n d ed th a t the r e w a s n o l oss to the Re ve n ue a l so si n ce the p r ovis io n for the d imin ut ion i n the va l ue of i nves tme n t p r ovi d e d f or i n t he b ook s o f a c cou nt ha d n ot b e e n a l low e d in the c om p uta ti on of in come fi l e d f or a sse ssme nt y e a r 2 0 13 -1 4 a nd th e s a id a mou nt w a s re d uce d in a cc or da n ce w ith cl a u se ( i ) to Exp la n a ti on -1 to se cti on 11 5 JB of th e Act w hi l e comp u tin g th e b ook pr of i ts f or a sse ssme nt ye a r 2 0 15 -1 6 . The L d .C ou ns e l f or th e a sse ssee fu rt he r c onte nde d t ha t e ve n be fo re the Ld. P r .C I T al l the a bo ve fa c ts wer e d ul y b r ought out and the mod e of comp ut a tio n of l oss on t he sa le of t he s a id sh a re s b oth a s pe r the b ook s a nd a s pe r the Act w e re d ul y fi led . H e dre w our a t te n ti on to the s a me a s re p rod uc e d i n the ord e r i n p a r a
8. 1 su b -pa r a 4. 1 .8 . H e f ur the r sta te d th a t a ll q uer ie s r a i se d by t he Ld . P r . C IT ha d a l so b e e n a d dr e sse d a n d it h a d be e n poi n te d ou t th a t th e p r ov is ion s of s e ct ion 5 6 (2 ) ( vi ia ) a n d 56 ( 2 )( vi i b) of th e A ct w e re a p pl i ca b l e t o t he fa c ts of th e ca s e. Th e Ld .C ou ns e l f or t he a s se s see , th e re f ore , c onte nde d th a t it ha d be e n c le a r ly d e mo nst r a te d to the Ld . P r . C I T t hat th e re wa s no e r r or so a s to c a us e p re jud i ce to the Re ve nue i n t he or de r of t he AO .
53 ITA No.121/Asr/2020
A.Y.2015-16 65 . Th e Ld . D R, on t he othe r ha n d , rel ie d up on t he f ind in gs of th e Ld . P r .C I T a t p a r a 8 . 2 of h er or d e r a s u nde r :
"8.2 The perusal of the details filed by the assessee show that it has shown investment in shares of Neeman Medial International BV (Neeman BV)- a Netherland based wholly owned subsidiary of Max India Ltd. as under
Year Of Number of Cost of Face Value Sale Price per Sale Price Acquisition Shares Acquisition share during the year 1-12-2005 36 7,21,290 500 euros 878.64 33,388 31-08-2006 2 33,27,46,972 500 euros 31-03-2014 2323 7,23,24,900 500 euros 878.64 20,41,087 2361 The above table shows the adjustments made by the assesses to book both short term and long term capital loss in its books. The AO has failed to examine from whom 2323 shares with face value of 500 Euros were purchased on last day of the preceding year previous year for Rs.7,23,24,900/- and were then sold for Rs.20.41.087/- on the basis of valueation on the same day. Further as per the balance sheet for financial year 2013-14 the assessee made provision for diminution in the value of the shares purchased of its subsidiary for Rs.7,23,24,900/- on the same day thus showing that the transaction had been entered into just for the purpose of defrauding the revenue and for adjustment of capital loss against capital gains. It's also surprising how were« two shares of Neeman purchased for 33 crores during 2006. The assessing officer has failed to verify the authenticity of this transaction by calling for valuation submitted to the RBI on the basis of which foreign remittance was made for transfer of fund abroad The Assessing Officer has also failed to examine the authenticity of purchase of 2323 shares ON 31-03-2014 for Rs. 7,23,34,900/- which have been sold for Rs.20,41,087/- after a very short period. It is of importance that the shares are unquoted shares and the basis of valuation of unquoted share as per Rule 11U is to be on the basis of FMV computed on the basis of value on the valuation date as determined in the following manner (A-L)/(PE) X (PV). Rule 11U defines Valuation date as "the date on which the property or the consideration, as the case may be, is received by the assessee". It also defines balance sheet as the audited balance sheet on the valuation date. The Income Tax Rules, 54 ITA No.121/Asr/2020 A.Y.2015-16 1962 does not provides for method of valuation in the assessee where the audited balance sheet is not available on the valuation date. In such cases the last audited balance sheet is to form the basis of valuation. Thus, in the instant case, the last Audited Balance Sheets for purchase and sale of shares would be same i.e. 31-03-2014. No evidence has been filed by the assessee to show that valuation of the shares of Neeman Medical International BV (Neeman BV) was done on the basis of any other date by drawing up and auditing the balance sheet on that date.
The view that the valuation needs to be done on the date prescribed by the relevant provisions is upheld by the Hon'ble Madras High Court in the case of CWT Vs S Ram 147 ITR 278.
One other question which arises in a few of the gift-tax references is this group relates to the choice of the balance sheet which has got to be taken as the basis for computation of the company's net wealth as a first step in arriving at the value of unquoted shares. We may visualize the gift of unquoted shares as having occurred on the date of the company's balance sheet. In such a case, no problem is presented because the balance sheet figures of assets and liabilities can be taken as they are, for the purpose of computing the break-up value of the company's assets as on the date of the gift. Where however, a gift of unquoted shares takes place in between the dates of two balance sheet the question is which is the balance sheet which has got to be adopted, as the basis? The taxpayer's view has been that only the last published balance sheet which precedes the date of the gift must be taken note of. This is a dogmatic assertion for which we find no support in principle. On the contrary, there are decisions of this court which say that the true rule would be to take into consideration not only the balance sheet immediately after the gift and find out, on some principle which would be appropriate, the value of the assets and the value of the liabilities of the company as on the date of the gift. A similar problem had arisen before this court on several occasions. In one of the judgment on the subjects in T.C.No.863 of 1977, dated December 9, 1981, CGT v. K. Ramesh (1983) 141 ITR 462 (Mad), this court preferred to adopt the figure in a balance sheet which were drawn up two or three days subsequent to the date of the gift. It may be explained that this decision was rendered by this court, not as a matter of principle but by way of avoiding as remittal order or two separated the date of the gift from the date of the balance sheet, it would be an unnecessary exercise of one's labour not to take note of the nearest balance sheet but to go upon some other labored valuation of the company's assets involving effort and time. 55 ITA No.121/Asr/2020
A.Y.2015-16 In all these cases of valuation of unquoted shares, however, the true principle is that if it were possible to draw up a precise balance sheet as on the date of the gift, that would afford quite an accurate basis and an ideal solution. But since the valuation question arises only in a shareholder's assessment, neither the shareholder nor the Department can expect the staff and accountants of the company to oblige them by meticulously drawing up a balance sheet as on the date of the gift even assuming that the drawing up of a balance sheet on that date would be feasible or is capable of being done in a correct manner after a passage of time. In the absence of the facility of drawing up a balance sheet precisely on the date of the gift, the next best thing, both for the assessee who is the holder of the unquoted shares and the Department which is charged with the duty of evaluating the market value of the shares not to speak of the company itself, is to take to the balance sheet falling both before and after the date of the gift and arrive as near as may be at the break-up value of the assets and liabilities of the Commissioner as on the date of the gift on a time basis, or on some other basis. The Tribunal in this case and held that only the earlier published balance sheet must be taken note of. This is not a correct direction in law of how to proceed. We cannot be dogmatic about taking as the basis, either the balance sheet which falls before or the balance sheet which falls after the date of the gift. We have to take into account both. Our answers to the questions on this point raised in some of the gift-tax cases are rendered accordingly. We may also point out that the decision in CWT v. S. Ram (1984) 147 ITR 278 formed the subject matter of special leave petitions in S.L.P. © Nos.14051 to 14287of 1989 and 1116 of 1986 and the Supreme Court also upheld the view taken by this court in CWT v. S. Ram (1984) 147 ITR 278 and dismissed the special leave petitions on January 22, 1990 (vide[1990] 181 ITR (St.)227) In the case under consideration, the closest balance sheet which also incorporates the relevant transactions is the balance sheet for the period ending 31-03-2014, that is the only relevant balance sheet for the purpose of Rule 11U/11UA. Thus the value of shares has to be the same for short term capital gain and the AO also needs to examine the valuation of shares on basis of which long term capital loss has been computed. The AO has failed to examine these issues during the course of assessment. 56 ITA No.121/Asr/2020
A.Y.2015-16 Further, as per the sale deed the assessee has certified on oath that the issued capital was divided into 38 shares but the assessee in its books has shown purchase of 36 shares in 2005 ad 2 shares in 2006. The assessee has been the 100% holding company of the unit M/s Neeman Medial International BV. The assessee has claimed that provisions of section 56(2)(viia) of the Act are applicable on the purchaser/recipient of the shares, where the purchase price of shares is less than book net asset value ("Book NAV") of the shares of the company. In the instant case, the Assessee Company is not the recipient or purchaser of shares but the transferor, hence, provisions of Section 56(2)(viia) are not applicable on the Assessee Commissioner with respect to both of the aforementioned subject sale transactions. However the assessee has failed to consider that the assessee has also purchased 2323 shares of M/s Neeman Medical International BV (Neeman BV) on 31-03- 2014.
The AO has also failed to examine as t how two shares of the company with face value of 500 Euros were purchased for Rs.33,27,46,972/-. As per the sale agreement filed by the assessee the shares were purchased in two lots ie 38 shares on 31-08-2006 and 2323 shares on 31-03-2014 and not three lots shown by the assessee. Further, as per the sale agreement the 57 ITA No.121/Asr/2020 A.Y.2015-16 issued capital was increased to 38 shares by notarial deed on 19 th October, 2006 and thus the assessee could not have purchased 38 shares on 31-08-2006 as shown by the assessee. The AO has also similarly failed to examine the basis of determination of long term and short term capital loss. The order of the AO is thus erroneous and prejudicial to the interest of the revenue."
66 . Re fe rr i ng to the sa me s he c onte nde d th a t the Ld . Pr . C I T had po i n te d ou t se ve ra l d i scr e pa n cie s fr om t he de ta i ls of the pur ch a se a n d s a le of th e i mpu gn e d sha re s of N ee ma n B V . R e f e r r in g t o th e s ame , sh e c on te n de d th at a s pe r t he de ta il s f ile d b y the a s se s se e it ha d p ur ch ase d 2 3 23 sha re s w i th f a ce va l ue of 5 0 0 Eu ro s on th e las t d a y of pr e ce d i ng ye a r f or Rs .7 ,2 3 , 24 , 9 00 /- and i m me di a te ly the re a fte r s ol d th e m off f or R s. 20 , 4 1, 0 87 /- . Th a t the a sse sse e ha d a lso pr ov id e d fo r d imi n uti on i n th e val ue of t he sha re s s o p ur cha se d on t he same da y . Th e s e w e re ve ry un usu a l tr a n sa ct io ns si n ce it was n ot po ssi b le f or the sha re s p ur ch a sed for su ch hi gh va l ue to ha ve d i min i she d the ir v a l ue the s a me d a y it se l f a n d sol d of f for ve r y sma l l con si de r a ti on w i thi n a sp a n of few da y s it se l f a n d t he ma tte r , the re fo re, n ee de d fu rt he r e nq u ir y. She a l so re fe rre d to th e f in d i ngs of th e Ld . P r . C I T a s to h ow tw o s har e s of N ee ma n B V we re p u rc ha s e d f or Rs .3 3 cr or e s d ur i ng 2 00 6 . Sh e a ls o r e fe r re d to th e a noma l y ob se r ve d b y th e Ld .P r .C I T in th e sh a re s ale a gree me n t whe re i n i t w a s sta te d tha t sha re s we re p u rcha s e d i n tw o lot s w h il e the de ta il s r e f le cte d 58 ITA No.121/Asr/2020 A.Y.2015-16 pu r ch a se i n t hre e l ots. Al so t ha t 3 8 sh a r e s we re ap p a r e nt ly is sue d e ve n w h en t he c omp a ny w a s not a u th or iz e d to d o so si nc e i ts ca p i ta l w a s in cr e a se d a fte r the sh a re s we re i ssue d. Sh e the re f ore con te n de d tha t con si d e r i ng t he a for e sa i d di sc r e p a nc ie s n ote d i n t he imp u gne d t ra nsa cti on, th e n on e xa mi na ti on of th e sa me b y the A O w a s r i ght ly he l d by t he Ld. P r .C I T to r e n d e r the or de r of t he A O e rr one ous so a s t o ca us e pre ju d ice to the Re ve nue .
67 . W e h a ve he a r d both the p a r ti e s. W e h a ve a l so c are f ul ly gon e thr ou gh t he o rde r of the Ld. Pr . C I T a n d w e f in d me r it in th e s a me . The Ld . P r . C I T, w e h a ve no te d , ha s p oi nte d out gr a ve a n oma l ie s i n th e imp u gn e d t r a nsa cti on of p ur ch a se a nd sa l e of sh ar e s of M/s N e e ma n B V Lt d on a cc oun t of wh i ch th e a sse ss ee h a d re tu r ne d b oth l on g te rm a nd sho r t te r m ca p i ta l ga i ns , w a r r a n tin g f ur th e r i n ve s ti ga ti on of t he sa me .
68 . Ad mi tte dl y t he sa i d c omp a ny wa s fu l ly ow ne d b y t he a sse sse e c omp a ny . Th e Ld .P r . C I T, ha s p oin te d out v ol a ti le fl uc tua ti on s i n t h e va lu e of the se s ha r e s p ur ch a se d in th r e e lot s of 36 , 2 a nd 2 32 3 on 0 1. 1 2. 2 0 05 , 1 3. 0 8. 2 0 06 a n d 31 . 03 . 2 01 4 , w it h th e pr i ce r is in g a la r mi ng ly in a s ho rt sp a n of 2 ye a r s f r om R s.7 la c s o dd for 36 s ha r e s t o Rs .3 3 C r s f or 2 sh a r e s on l y a nd the n d r op pi n g a ga i n to Rs .7 C rs odd f or 59 ITA No.121/Asr/2020 A.Y.2015-16 23 2 3 sh a r e s i n 20 1 4 .S he ha s a ls o p oin te d ou t the s ud d e n dr op i n va l ue o f sh a r e s w h e n s ol d a s c o mp a re d to i ts pu r ch a se p r i ce , d e sp i te the tra ns a cti on s b e i ng e f fe cte d wi th in a sh or t s p a n o f a ye a r. Th e Ld . P r. C I T ha s p oin te d out how 2 3 23 n u m b e r of sh a r e s of th e sa id comp a n y, wh i ch we re p ur ch a se d for a hi gh va l ue of Rs. 7 cr or e s od d on t he la s t d a y of th e p r e ce d in g ye a r w e re s ol d off a t mu ch le ss va l ue of Rs .2 0 la c s od d, a ll w i thin a ma tt e r o f a y e a r . She ha s a ls o d r a w n a t te n tio n t o the f act t ha t wh i le these sh a re s we re p ur c ha se d f or Rs. 7 C r s odd the y we re fo un d to h a ve los t th e i r v a lue im me d i a te l y the rea f te r a n d w r i tte n of f i n t he boo ks on a c cou n t of d i min uti on i n th e v a lue of sh a r e s, by the a sse ssee . In fa c t, w e h a ve no tic e d fr om th e de t a ils sub mi tte d by th e a s se s se e a n d r e p r odu ce d in th e or de r of the Ld .P r .C I T, t ha t th e a s se sse e ha d f oun d the va l ue of the se sh a re s to h a ve bee n wiped of f on a c cou nt of di mi nu ti on in va l ue and w r itte n the m of f by ma k i ng pr ov is io n f or the sa me i n F. Y 2 0 1 2 -13 , r e l a ti ng t o A. Y 2 0 1 3- 14 . Tha t d e sp i te so f i nd i ng the sha r e s to be of no va l ue , the sha re s o f the ve ry sa me comp a n y, nu mbe r in g 2 3 2 3 ,w e re pu r ch a se d fu rt he r i n the ne xt F .Y . i.e 2 01 3 -14 fo r a n a str on omi ca l s u m of Rs .7 , 23 , 2 4 , 9 00 /-, w hi ch in t ur n w e r e a ga i n wr i tte n off i n th e s ub se q ue nt ye a r on a c cou nt of di mi nu ti on in va l ue .
60 ITA No.121/Asr/2020
A.Y.2015-16 69 . S uch a l a r min g f l uct ua ti on s i n th e va l ue of th e s ha r e s, some f lu ctu a ti ons oc cu r ri n g wi th in a s hor t s pa n of ti me , ce r ta i n ly r a i se d oub t re ga r d ing t he ir ge n ui ne ne ss, mor e pa r ti cu l a rl y w he n the c omp a ny in w h i ch th e in ve s tme n ts we re ma d e we re co mpl e t e l y ow ned b y th e a s se sse e a n d the ir va l ue thu s ca p a ble of be i ng ma ni p ul a te d. Th e ma t t e r , in our vi e w , d id re q ui re to be i nve s tig a ted fu r the r. Th e su bmi s si ons of d oc ume n ts e vi d e n ci ng the ge n ui n e ne ss of t he t ra ns a cti on a s p oin te d ou t by th e Ld .C ou ns e l for the a s se s se e, w e f i nd , a re in su ff ic ie nt for d is p e l li ng the do ub t on t he gen ui ne ne ss of th e tr a n sa ct ion b y vi r tue of th e fa c ts a s n ote d a n d poi n te d o ut b y th e Ld . P r .C I T a s a b ov e . The A O h a v in g ma d e no e n q ui r y v i s-à-v is th e sa me , the or de r p a sse d b y the A O a cce pt in g the loss r e tur ne d by the a s se sse e on sa l e of sha re s of Ne e ma n B V , w e h ol d ma k e s th e or d e r e r ro ne ous ca us in g p re ju d ice to the Re ve nue .
70 . I n v ie w of th e a bove we fi nd me r i t i n th e f i nd i ngs of t he Ld. P r .C I T of th e or de r be in g e rr one ous a nd pre ju d ic ia l to the i nte re s t o f th e Re ve nue on a c cou nt of n on e xa min a ti on of the sa l e of s ha r e s of Ne e ma n B V Ltd . a n d t h e or de r of the Ld . P r .C I T h o l di n g s o i s, the ref or e , up he l d . 71 . Th e or d e r of the Ld. P r .C I T i n e xe rci se of he r re vi siona r y ju ri s di ct ion i s a c cor d i ngl y u p he ld on l y on the l imi te d i ss ue 61 ITA No.121/Asr/2020 A.Y.2015-16 re la t in g t o n on exa mi n a ti on of th e los s re tur ne d on the sa le of sh a r e s o f N ee ma n B V Ltd , . Th e or de r o f th e Ld .P r .C I T re la t in g to the r e ma i ni ng i ss ue s is a c cor d i ngl y se t a si de , fi nd i ng the e xe rci se of re v is ion a ry ju r is di ct ion on t he sa me to b e f a i li ng , in th e a b se nce o f an y f i nd i ng of e r ror ca u si ng pr e ju di ce t o t he Re ve n ue on the sa me .
72 . I n t he re s ul t, the a p pe a l of th e a sse sse e is th er e fore pa r tl y a l low e d.
O r de r p r o n o u n ce d o n 3 1 . 0 3 . 2 0 2 1 .
Sd/- Sd/-
(R.L. NEGI) (ANNAPURNA GUPTA)
याय क सद य/Judicial Member लेखा सद य/Accountant Member
Dated: 31st March, 2021
*रती*
आदे श क % त&ल'प अ*े'षत/ Copy of the order forwarded to :
1. अपीलाथ+/ The Appellant
2. %,यथ+/ The Respondent
3. आयकर आय-
ु त/ CIT
4. आयकर आय-
ु त (अपील)/ The CIT(A)
5. 'वभागीय % त न0ध, आयकर अपील य आ0धकरण, च2डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar 62 ITA No.121/Asr/2020 A.Y.2015-16 Draft dictated 09/10/12.03.2021 Sr.PS Draft placed before author 03.2021 Sr.PS Approved Draft comes to the Sr.PS/PS 03.2021 Sr.PS Order signed and pronounced on File sent to the Bench Clerk Sr.PS Date on which file goes to the AR Date on which file goes to the Head Clerk.
Date of dispatch of Order.