Tribunal confirms deletion of Rs. 200 crores, CIT(A)'s decision upheld, Revenue's appeal dismissed

The Tribunal upheld the CIT(A)'s decision, ruling that the AO's addition of Rs. 200 crores was rightly deleted. The Revenue's appeal was dismissed, affirming the CIT(A)'s order regarding the disputed amount.

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Issues Involved:
1. Deletion of Rs. 200,00,00,000/- addition by AO on account of disallowance of debentures transferred in contravention of the directions of the Hon’ble High Court of Delhi.

Detailed Analysis:

1. Background and Facts:
The assessee filed its return of income declaring Rs. 4,70,51,350/-. The case involves a scheme of demerger between Asian Hospitality Management Pvt. Ltd. (AMHPL), Claridges Hotel Pvt. Ltd. (CHPL), and the assessee company, which was approved by the Hon’ble Delhi High Court. The scheme transferred the Business Convention Division of CHPL to the assessee company along with stocks, shares, debentures, and other assets.

2. Assessing Officer's (AO) Findings:
The AO observed that the assets transferred included Rs. 200 crores in Optionally Convertible Debentures (OCDs) which, according to the AO, were not part of the demerger scheme approved by the Delhi High Court. The AO added the entire Rs. 200 crores to the income of the assessee under section 2(24) of the Income Tax Act, 1961, contending that the OCDs were transferred in contravention of the High Court’s order and constituted income.

3. Assessee's Contentions:
The assessee argued that Rs. 72 crores out of Rs. 200 crores were part of the current assets as per the High Court’s order. The remaining Rs. 128 crores were invested by CHPL in OCDs of GSL and transferred to the assessee between the appointed date and the effective date of the demerger. The assessee contended that these transactions were in accordance with the demerger scheme, and the shares were issued to the shareholders of CHPL in the ratio of 1:6.

4. CIT(A)'s Findings:
The CIT(A) deleted the addition of Rs. 200 crores, holding:
- Rs. 72,23,63,000/- was correctly shown as current assets in the schedule approved by the High Court.
- The Rs. 127.72 crores were further invested by CHPL in OCDs of GSL and transferred before the effective date with the concurrence of the assessee company.
- The transaction of issuing shares against debentures is a capital account transaction and not income.
- The source of investment by CHPL in debentures of GSL was established from the sale of shares in ELEL Hotels to Indian Hotels Company Limited.

5. Department's Arguments:
The Department argued that OCDs cannot be considered current assets and that the investment in OCDs was not linked to the business convention division. It contended that the debentures transferred constituted income in the hands of the assessee company.

6. Tribunal's Analysis:
The Tribunal examined the balance sheets and found that the current asset of Rs. 72,23,63,000 included debenture application money pending allotment, which was correctly transferred to the assessee company. The Tribunal endorsed the CIT(A)'s findings that Rs. 128 crores of OCDs were transferred with the concurrence of the assessee company as per the demerger scheme. It was held that the transaction was a case of issuance of shares for consideration other than cash, which is a capital account transaction and not income under section 2(24).

7. Conclusion:
The Tribunal upheld the CIT(A)'s order, confirming that the addition of Rs. 200 crores made by the AO was rightly deleted. The appeal by the Revenue was dismissed, and the order of CIT(A) was confirmed on the issue under consideration.

Order Pronounced:
The appeal is dismissed, and the order was pronounced in the open court on 27.11.2017.

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