Indian Kanoon - Search engine for Indian Law

Income Tax Appellate Tribunal - Chennai

R Srinivasan, Chennai vs Dcit, Corporate Circle 1(2), Chennai on 21 March, 2019

              आयकर अपील य अ धकरण, 'ए'  यायपीठ, चे नई

               IN THE INCOME TAX APPELLATE TRIBUNAL
                             'A' BENCH, CHENNAI
 ी एन.आर.एस. गणेशन,  या यक सद य एवं  ी इंटूर रामा राव, लेखा सद य केसम%

        BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND
           SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER

                       I.T.(SS) A. No.1/Chny/2018
     Block Assessment Period : 1987-88 to 1995-96 and Part of 1996-97

Shri R. Srinivasan,                      The Deputy Commissioner of
No.103, Ashok Nagar Main Road,      v.   Income Tax,
Kodambakkam, Chennai - 600024.           Corporate Circle 1(2),
                                         Chennai - 600 034.
PAN : AAIPS 8386 H
       (अपीलाथ(/Appellant)                    (*+यथ(/Respondent)

 अपीलाथ( क, ओर से/Appellant by : Sh. B. Ramakrishnan, FCA
 *+यथ( क, ओर से/Respondent by :      Shri S. Bharath, CIT

       सन
        ु वाई क, तार ख/Date of Hearing          : 21.02.2019
       घोषणा क, तार ख/Date of Pronouncement : 21.03.2019


                             आदे श /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

This appeal of the assessee is directed against the order of the Assessing Officer dated 20.11.2017 consequent to the order passed by the Apex Court in SLP No.7741 of 2013 dated 29.04.2014.

2. There was a delay of 12 days in filing this appeal by the assessee. The assessee has filed a petition for condonation of 2 I.T.(SS) A. No.1/Chny/18 delay. We have heard the Ld. representative for the assessee and the Ld. D.R. We find that there was sufficient cause for not filing the appeal before the stipulated time. Therefore, we condone the delay and admit the appeal.

3. Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that the Apex Court in I.A.4/2014 in Civil Appeal No.7741/2013 dated 29.04.2014 directed the Assessing Officer to decide the issue afresh uninfluenced by the order of the High Court. However, according to the Ld. representative, the Assessing Officer has passed the very same order without referring to any of the provisions of Income-tax Act, 1961 (in short 'the Act'). According to the Ld. representative, the assessee was an employee of ONGC. The assessee left the employment in 1995 and floated several commercial institutions for business. The assessee, according to the Ld. representative, promoted several companies such as Shree Ramadoss Finance (P) Ltd., Shree Ramadoss Builders (P) Ltd., Sree Ramadoss Estates (P) Ltd., S.R. Associates, Sree Ramadoss Exports, etc. All these companies are known as "S.R. Group of Companies".

4. Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that there was a search in the premises of the assessee on 13.02.1996. A simultaneous search was also conducted in the business premises of the companies promoted by the assessee. During the course of search operation, according to the Ld. representative, the Assessing Officer found certain share certificates and the application for transfer of said shares. According to the Ld. representative, the assessee purchased the shares at the rate of ₹100/- per share. This is apparent from the copy of application found during the course of search operation for transfer of said shares. According to the Ld. representative, the assessee, in fact, purchased the shares of M/s Talent Alloys (P) Ltd. and M/s Talent Steel Industries Pvt. Ltd. at face value of ₹100/- per share. According to the Ld. representative, the Assessing Officer ignoring the seized material, estimated the value of asset of the company and found that the assessee has invested more money. Similarly, according to the Ld. representative, the shares of M/s Anchor Breweries Ltd. was also purchased by the assessee on the face value of ₹100/- per share. The Assessing Officer obtained the valuation report with regard to land of the said company and estimated the value of the shares at an exorbitant rate. 4 I.T.(SS) A. No.1/Chny/18

5. Referring to Section 158BB(1) of the Act, Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that the Assessing Officer for the purpose of completing the block assessment, has to confine himself only to the material found during the course of search operation and such other information which is relatable to the material found during the course of search operation. In this case, according to the Ld. representative, what was found during the course of search operation is the share certificates of M/s Talent Alloys (P) Ltd., M/s Talent Steel Industries Pvt. Ltd. and M/s Anchor Breweries Ltd. The copies of share transfer certificates were also found during the course of search operation. Prima facie, according to the Ld. representative, the copies of share transfer application discloses the sale consideration of ₹100/- per share. Apart from this, no material was available with the Assessing Officer to conclude that the assessee had paid more money over and above what is stated in the share transfer application. According to the Ld. representative, the Assessing Officer exceeded his jurisdiction in estimating the value of the land of the company and to conclude that the value of share is more than ₹100/-. According to the Ld. representative, share certificates and 5 I.T.(SS) A. No.1/Chny/18 share transfer application prima facie discloses the value of share at ₹100/- per share. According to the Ld. representative, estimating the networth of the company to determine the sale consideration of the shares is beyond the jurisdiction of the Assessing Officer. The Assessing Officer, according to the Ld. representative, cannot travel beyond the provisions of Income-tax Act to determine the undisclosed income for the block period.

6. On the contrary, Shri S. Bharath, the Ld. Departmental Representative, submitted that there was a search in the premises of the assessee on 13.02.1996. According to the Ld. D.R., the Assessing Officer computed the undisclosed income under Section 158BC of the Act. The assessee filed appeal before this Tribunal against the original assessment order and also before the High Court. An order was also appears to be passed under Section 263 of the Act, in the mean time, by the Administrative Commissioner on 28.03.2001. However, the High Court quashed the same and deleted the addition made therein. According to the Ld. D.R., against the order of the High Court, the assessee moved Apex Court. The Apex Court by an order dated 29.04.2014, directed the Assessing Officer to re-examine the matter uninfluenced by the 6 I.T.(SS) A. No.1/Chny/18 observation made by the High Court. Consequent to the direction of the Apex Court, according to the Ld. D.R., the Assessing Officer has passed the impugned order which is now under challenge before this Tribunal under Sections 261 and 262 of the Act. According to the Ld. D.R., the only issue arises for consideration on merit is the cost of the shares of M/s Talent Alloys (P) Ltd., M/s Talent Steel Industries Pvt. Ltd. and M/s Anchor Breweries Ltd. In fact, the assessee invested in the shares of three companies on the face value of ₹100/- per share. According to the Ld. D.R., the Assessing Officer obtained the valuation report in respect of the land owned by these companies and came to a conclusion that the cost of the shares are much more than the face value of ₹100/- per share. Therefore, according to the Ld. D.R., the Assessing Officer estimated the cost of shares on the basis of the value of land and made addition to the extent of the difference between the cost of shares so estimated and face value. In fact, according to the Ld. D.R., the Assessing Officer adopted the cost of shares at ₹6732/- per share.

7. On a query from the Bench what was the material found by the Assessing Officer during the course of search operation other 7 I.T.(SS) A. No.1/Chny/18 than the share certificates and copies of share transfer application? The Ld. D.R. very fairly submitted that no other material other than the share certificates and copies of share transfer application were found. The Ld. D.R. also clarified that the copies of share transfer application discloses the value of shares at ₹100/- per share for transfer. The Assessing Officer valued the cost of land held by the companies and came to a conclusion that the value of shares would be ₹6732/- Therefore, according to the Ld. D.R., the Assessing Officer has rightly estimated the investment in the shares of three companies.

8. We have considered the rival submissions on either side and perused the relevant material available on record. The only issue arises for consideration is investment made by the assessee in the shares of M/s Talent Alloys (P) Ltd., M/s Talent Steel Industries Pvt. Ltd. and M/s Anchor Breweries Ltd. The assessee claims that investment in the shares of these three companies are at ₹100/- per share. It is also not in dispute that the face value of shares is ₹100/- per share. The copies of transfer application found during the course of search operation disclose that the value of shares is ₹100/- per share. The Assessing Officer estimated the value of the 8 I.T.(SS) A. No.1/Chny/18 asset, namely, the land owned by the companies and found that the value of shares would be ₹6732/- per share. The question arises for consideration is when the Assessing Officer has no material other than the share certificates and copies of share transfer application, can the value of the land be a basis for estimating the investment made by the assessee in the shares of the three companies? We have carefully gone through the provisions of Section 158BB(1) of the Act which reads as follows:-

Computation of the undisclosed income of the block period.

"158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, "in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years, determined,--

(a) where assessments under section 143 or section 144 or section 147 have been concluded prior to the date of commencement of the search or the date of requisition, on the basis of such assessments ;

(b) where returns of income have been filed under section 139 "or in response to a notice issued under sub-section (1) of section 142 or section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns ;

(c) where the due date for filing a return of income has expired, but no return of income has been filed, as nil ;

(d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years ;

(e) where any order of settlement has been made under sub-

section (4) of section 245D, on the basis of such order ;

(f) Where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment.

Explanation For the purposes of determination of undisclosed income,--

(a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 ;

(b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner :

Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement ;

(c) assessment under section 143 includes determination of income under sub-section (1B) of section 143.

(2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to "financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition.

(3) The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee.

(4) For the purposes of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments."

9. In view of the specific language employed by the Parliament, the Assessing Officer is expected to confine himself only to the material found during the course of search operation and such other information which is relatable to the material found during the course of search operation. In this case, admittedly, what was found is the share certificates and copies of share transfer application. No material is available other than these two documents to indicate or suggest that the assessee has paid more money over and above what was disclosed in the share transfer application. The Assessing Officer estimated the value of shares on 11 I.T.(SS) A. No.1/Chny/18 the basis of the value of the land owned by the said three companies. This Tribunal is of the considered opinion that in the absence of any material found during the course of search operation with regard to investment made by the assessee over and above what was disclosed in the share transfer application, mere estimation of value of the land cannot be a basis for making any addition. The Assessing Officer cannot travel beyond the language employed by the Parliament in Section 158BB(1) of the Act.

10. Moreover, the purchase price of shares is one thing and networth of the company is another thing. There may be various reasons for the shareholders or the companies to dispose the shares far below the networth of the company. What is to be seen in the block assessment is whether the assessee has paid more money over and above the face value of the share. In the absence of any material found during the course of search operation and any other information which indicates payment of more money over and above what is disclosed in the share application, this Tribunal is of the considered opinion that there cannot be any addition with regard to investment made in the shares of the above said companies. Therefore, this Tribunal is unable to uphold the order of the 12 I.T.(SS) A. No.1/Chny/18 Assessing Officer. Accordingly, the order of the Assessing Officer is set aside and the Assessing Officer is directed to take the investment in the shares at ₹100/- per share as found in the share transfer application.

11. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the court on 21st March, 2019 at Chennai.

               sd/-                               sd/-
       (इंटूर रामा राव)                  (एन.आर.एस. गणेशन)
    (Inturi Rama Rao)                     (N.R.S. Ganesan)
लेखा सद य/Accountant Member        या यक सद य/Judicial Member
चे नई/Chennai,
                      st
4दनांक/Dated, the 21 March, 2019.
Kri.


आदे श क, * त5ल6प अ7े6षत/Copy to:
 1. अपीलाथ(/Appellant     2. *+यथ(/Respondent   3. Principal CIT-1, Chennai
 4. 6वभागीय * त न ध/DR    5gg. गाड: फाईल/GF.