TaxTMI 
TaxTMI 
2014 (6) TMI 600
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....t file any such synopsis despite opportunity for the same was given on 21.03.2014. Ld. CIT-DR was of the view that revenue's submission/arguments have been fairly incorporated in the synopsis of arguments filed by assesssee-company. So these synopsis were relied upon by us for the arguments advanced by both the parties. We will first take up revenue's appeal in ITA No. 982/Ahd/2009 A.Y. 2002-03 3. Revenue has taken following grounds:- "1) On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding that shares were received by the assessee as gift without consideration whereas the same were received under Family Arrangement. 2) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that transfer under Family Arrangement is for a consideration which is monetary and therefore cannot be termed as gift. 3) On the facts and circumstances of the case and in law, the learned CIT(A) failed to appreciate that Clause-6 of Family Arrangement clearly records the consideration being "to avoid any further disputes ,.,.„ " and therefore transfer being a consideration cannot be termed as gift. 4) On....
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.... 16-02-2001, the transfer of shares was not voluntary and without consideration. In view of these facts, the amounts of Rs. 45,58,654/- and Rs. 14,17,11,839/- were added to the total income of the assessee. 5.1 Moreover, the profit shown on sale of shares amounting to Rs. 45,58,654/- was added to the book profit computed u/s. 115JB of the Act on the ground that book profit was not computed as per the provisions of Companies Act read with Part II and III of Schedule VI of Companies Act. While doing so, ratio laid down in the case of Hon'ble Mumbai High Court in the case of CIT vs. Veekayalal 249 ITR 597 was followed. Assessment u/s. 143(3) r.w.s. 147 of the Act was completed determining the total income at Rs. 14,18,1800/- under regular provisions of the Act and Rs. 14,09,37,186/- under special provisions of Section 115JB of the Act. 6. Aggrieved by this order of AO, assessee went in appeal before Ld. CIT(A) who decided the appeal of the assessee as under:- (i) Reopening of assessment was held to be valid. (ii) Transfer of shares to the assessee-company by three brothers of Bilakhia were directed to be considered as gift, cost to previous owner and holding period of prev....
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.... it is clear that there is no requirement in law for the existence of natural love and affection between the donor and the donee. All that is necessary is that the transfer be made voluntarily and without consideration. 2. Question then arises as what is the meaning of ''consideration" as understood in S.122 of the Transfer of Property Act, 1882. Can natural love and affection be regarded as consideration? The Supreme Court in the case of Km.Sonia Bhatia Vs. State of UP (AIR 1981 SC 1274) held that the consideration is not to be confused with motive. It observed thus: "19. ... It has been rightly pointed out in one of the books referred to above that we should not try to confuse the motive or the purpose of making a gift with the consideration which is the subject matter of the gift. Love, affection, spiritual benefit and many other factors may enter in the intention of the donor to make a gift but these filial considerations cannot be called or held to be legal considerations as understood by law. It is manifest, therefore, that the passing of monetary consideration is completely foreign to the concept of a gift having regard to the nature, character and the circumst....
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.... only to be rejected. iii Reliance has been placed by the Learned DR on the case of CWT Vs. HH Vijayaba, Dowger Maharani Saheb of Bhavnagar Palace (111 ITR 784) to say that the transfer family arrangement are executed for good consideration. This decision is wholly distinguishable for the reason explained hereinafter: a. The issue raised for the consideration of the Apex Court was whether the obligation of a mother (the Appellant) under a family arrangement to pay Rs... to son 'A' in the event son 'B' failed to make that payment to son 'A' from the estate of the father which devolved upon son 'A' under such condition, could be allowed as a deduction in computing the wealth of the mother. b. The contention of the Revenue was that the mother's agreement to pay being without any consideration was not an enforceable contract and hence could not constitute a debt such as was deductible under while computing the assessable wealth of the mother. c. It was the above argument that commitments under a family arrangements are not binding was rejected by the Apex Court stating by observing thus: "5 .,. Taking the totality of the fact as found by the Tribunal ....
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....s been mainly in the form of transfer without consideration of almost all the shares held in different companies by the various -family members to the appellant company where in the shares of the three brothers are equal. All the family members who have transferred the shares by way of gift have reflected the transaction as such as a gift in their individual accounts as well as in the return of income filed with their assessing officer. The company, vide resolution dated 31.03.2001 & 13.02.2002 accepted and received the gifts and the copy of acknowledgement of gift has been submitted to the AO during the course of assessment proceedings. This facts has not been disputed the AO either during the course of assessment proceedings or in the remand report submitted to this office. The appellant has recorded the transaction as a gift and has credited the sale proceeds of shares received as gift to capital reserve account and argued that gifts cannot be profit. The AO has observed that the accounting of the shares @ Rs. 1/- per gift transaction should be taken as a sale consideration. I am not agreement with the observation of the AO The value adapted by company @ Rs. 1/- per gift is o....
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....es by the assessee-company as a purchase of shares at a price which was the cost of the shares of the previous owner. Accordingly the AO did not consider the holding period of the alleged doners and considered only the holding period by the assessee-company to determine the nature of capital gain earned by the assessee-company during the year under appeal. Thereby assessment was completed treating the gains as short term capital gain and the entire consideration of Rs. 4,68,072/- (Gains Rs. 16,44,776- Losses Rs. 11,76,704/-) was accordingly treated as short term capital gain. Ld. CIT(A) however agreed with the assessee-company and held that shares received were gifts therefore cost of previous owner and holding period of previous owner was available to the assessee-company, and thus the addition made by AO was deleted. 10. The issue before us is whether the transfer of the shares of Nestle India Ltd and Hindustan Lever Ltd held by the members of Bilakhia family as investment by them to the assessee-company as per family arrangement dated 16-02-2001 claimed to have been transferred without any monetary consideration can be held to be gift or not? 10.1 As per Transfer of Proper....
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....fect the peace, harmony, honour, and prestige of the family or the parties as also affect the various business and assets and with a view to always remain a joint close knit family, the parties have agreed that each of the three brother: namely Yunus, Anjum and Zakir should have equal rights and owner ship in the various business and assets except when specifically provided otherwise. 7. Yunus, Anjum and Zakir have equal shareholding in Bilakhia Holdings P Limited ("BHL ") Each of Yunus, Anjum and Zakir shall create a separate trust and transfer to such trust and transfer to such trust their shareholding in BHL so that the existing share capital of BHL shall be held by the individual trusts so created. 8. Pursuant to the arrangement arrived at between the parties and with a view to consolidate their respective assets, investments and interests in the family business and assets, the parties hereto have agreed that BHL shall he the main holding company which shall hold all investments in other companies and business present and future. 9. The parties here to hold disproportionate and unequal shares and securities in the companies specified in Annexure "A" here to. the detail....
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....rb according to which it is said that a person who wins a case actually looses it as by the time matter is settled in his favour he is already a ruined person. Thus, in this case it cannot be said that the consideration for transfer of shares was not for monetary consideration. Now coming to the aspect whether this act of transfer of shares was voluntary or not. Since this transfer was in pursuance of family arrangement, the same was not voluntary as the family arrangement was enforceable and binding on the parties. The argument made on behalf of the assessee that since the family arrangement was voluntary the subsequent action of the parties to the arrangement was also be considered voluntary and for making this submission it was submitted that if ld. DR's contention is accepted then no transfer effected pursuant to an agreement be regarded as voluntary. We find this argument advanced by asssessee devoid of any merit because if this argument of the assessee is accepted then what was the need of signing enforceable binding family agreement in the first place. We further find that in the Mitra's Legal and Commercial Dictionary word "voluntary" is defined as under:- "Free choice; ....
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.... as loans and advances at the point of time when it was received. However the amount changed its character when it became the assessee's own money. The assessee-company itself has treated the money as its own money and taken the amount to the capital reserve, therefore, the full amount was treated as income of the assessee by the AO while finalizing the assessment under regular provisions and under special provisions of section 115JB of the Act. The Ld. CIT(A) following his findings in respect of the shares received from the Bilakhia family members treating them gift in the hands of the company treated these amounts also as gift and not taxable in the hands of the assessee-company. Accordingly the addition made by the AO on account that these receipts construed income/profit for the purpose of computing income under the regular provisions of the Act and book profit u/s. 1115JB respectively was directed to be deleted. Since Ld. CIT(A)'s finding in respect of shares has been reversed by us and since there is no dispute about the fact that gift of Rs. 14 crores by the family members to the assessee-company and Rs. 17,11,839/- received by the company on account of the assignment of the....
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....the book profit U/s. 115JB of the Act without jurisdiction and contrary to the decision of honorable Supreme Court in the case of Apollo Tyres Ltd V/s Deputy CIT [2002] reported in 255 ITR 0273. The action the Learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted. 6. On appreciation of the facts and circumstances of the case and law, the Ld. CIT(A) has erred in confirming the addition made by the Ld. AO to the tune of Rs. 45,58,654/- being surplus on sale of shares received as gift to the book profit for taxation U/s. 115JB. The action of the Learned Commissioner of Income Tax (Appeals) is contrary to the facts and law and deserves to be deleted." 17. Ground No. 1& 2 are general and do not require any adjudication on our part. Ground no. 3 and 4 relate to re-opening of the assessment by AO u/s. 147 of the Act. 18. Brief facts of the case in respect to this ground are that assesseecompany filed its return of income for the year under appeal on 28-10-2002 declaring total income of Rs. 89,960/- under the regular provisions of the Act. Assessment was completed u/s. 143(3) on 16-02-2005 accepting the income returned by the asse....
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....profit and loss account. Assessee company has credited gain on sale of shares directly to capital reserve account. As per the generally accepted accounting principles only those items are credited to the capital reserve which is not in the normal course of activities of the assessee. To invest in shares and earn income on sale is not an unusual item or any extraordinary item which has happened for the first and last time to the assessee company. Even extra ordinary items are routed through profit and loss account by the companies, though as a separate disclosure. Further, if, for the sake of argument, it is accepted that receiving gift from promoters/directors of the company is a transaction of capital nature, then only gifts have to be credited to the capital reserve. In this case Re. l/- per gift. Once shares are received as gift, it becomes normal investments for the company and it is included in the common pool of investments of the company. Subsequently when these shares are sold it should be treated as normal transaction of the company and the same accounting treatment should be given to these transactions. Receiving of gift may be a transaction of special nature and capit....
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....n sale of gifts was not income and therefore the reopening was bad. However, I do not agree with the appellant company since as per the accounting standards and even as per Schedule VI of the Companies Act, 1956, the sale proceeds of any item has to be credited in the profit and loss account and the facts as to whether the same is purchased by the appellant or is received as a gift would be irrelevant in determining the profit from the said sales proceeds. In this case the appellant company has not credited the sales proceeds of the shares in the profit and loss account but has directly taken the same to the capital reserve account which is patently wrong and not in accordance with the accepted accounting principles as also Schedule VI of the Companies Act, 1956. Hence this is prima-facie case of income escaping assessment and thus the reopening of assessment is justified and held to be in order. Further, under the Income Tax Act, the principles of resjudicata are not applicable and every year is an independent year. In the year under consideration, in the assessment the AO has not noticed the non compliance of Schedule VI while framing the assessment order and subsequent notice of....
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....iz. Rs. 89,960. d. Hence there is no escapement of tax and the reassessment ought to be quashed on this count alone." Ld. DR on the other hand relied on the orders of lower authorities. 24. After hearing both the parties and perusing the record, we find that shares of Nestle India Ltd and HLL which were transferred to the assesseecompany under the family agreement were sold during the year. The AO initiated proceedings for re-opening as he found subsequent to passing order u/s. 143(3) that assessee-company had taken capital gain on sale of these shares to capital reserve account and had not routed it through the profit and loss account and to that extent income u/s. 115JB of the Act escaped assessment. It is clear even from the submissions of the assessee which we have reproduced above that during the original assessment proceedings no query was raised by the AO in this respect. Therefore, it cannot be said that there was change of opinion on the part of the AO in this case. Therefore, case laws relied by assessee-company are not applicable to the facts of this case. 24.1 In the case of Parixit Industries Ltd vs. ACIT assessee company was engaged in manufacturing and su....
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....hese were not allowable expenses and income chargeable to tax had escaped assessment. He accordingly disallowed both the items in the reassessment order. Ld. Judicial Member has taken the view that there was no fresh material to support the formation of the belief that income chargeable to tax had escaped assessment. The balance sheet, profit and loss account and other details were filed with the return of income and it was not permissible for the AO after a gap of five years and in the absence of any fresh tangible material to come to the conclusion that income chargeable to tax had escaped assessment. Ld. Accountant Member took the view dissenting from the Ld. Judicial Member that the case is covered by the judgment of Supreme Court in the case of ACIT vs. Rajesh Jhavei Stock Broker Pvt Ltd. He opined that in a case where return u/s. 143(1) was merely processed and no assessment was made u/s. 143(3), if the AO forms the belief that income chargeable to tax has escaped assessment on the basis of material available in the return itself it is not a case of mere change of opinion. The reopening in such as a case would be valid. The Third Member in his order agreed with the Ld. JM and....
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....duce any tangible material on the basis of which the reasons were recorded to demonstrate that there was a live link or nexus between them and the requisite belief." 24.3 It is clear that Ld. Third Member agreed with the Ld. Judicial Member in this case only to hold that there was no tangible material before the AO to enable him to entertain prima facie belief that income chargeable to tax has escaped assessment, therefore 147 proceedings were quashed and it was not quashed on the ground that there was change of opinion on the part of the AO for which the assessee has placed reliance on this decision hence not applicable to the facts of this case. Now coming to the decision of Special Bench in the case of DCIT vs. Padma Prakash relied by the assessee for the proposition that Third Member cases were entitled to as much weight and respect as a decision of Special Bench and it should be followed by regular benches, we find that Third Member in the case of Telco Dadajee sitting with another member in the case of ACIT vs. Kanga & Co. vide its order 14th May, 2010 i.e. subsequent to the order passed by him in Telco Dadajee i.e. on 12th May, 2010 did not follow his own order and on a s....
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....on of Mumbai Tribunal in the case of HV Transmissions Ltd is concerned, the same was passed by the Bench by following the Third Member case in the case of Telco Dadajee. We have already decided in the earlier para as to why the Third Member case is not applicable to the facts of this case. Therefore, this order is also not applicable to the facts of this case. 24.6 So far as judgment of Delhi High Court in the case of CIT vs. Orient Craft Ltd is concerned, we find that in that case assessee company filed return of income for assessment year 2002-03 on 31 October, 2002 declaring the total income of Rs. 4,45,35,395/-. The return was processed u/s. 143(1) on 27th February, 2003 accepting the return income. Included in the return was a claim of Rs. 8,74,20,642/- u/s. 80HHC and Rs. 13,35,65,316/- u/s. 10B. Assessee was a 100% export oriented undertaking and was entitled to substantiate amounts as duty drawback, DEPB, premium on DEPB and sale of quota. These were all declared in profit and loss account and the computation of income. On August, 2005 a notice u/s. 148 of the Act was issued reopening the assessment on the ground that income chargeable to tax had escaped assessment. Accor....
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....to believe" vis-à-vis Section 143(1) and Section 143(3). We are unable to appreciate what permits the Revenue to assume that somehow the same rigorous standards which are applicable in the interpretation of the expression when it is applied to the reopening of an assessment earlier made under Section 143(3) cannot apply where only an intimation was issued earlier under Section 143(1). It would in effect place an assessee in whose case the return was processed under Section 143(1) in a more vulnerable position than an assessee in whose case there was a full-fledged scrutiny assessment made under Section 143(3). Whether the return is put to scrutiny or is accepted without demur is not a matter which is within the control of assessee; he has no choice in the matter. The other con sequence, which is somewhat graver, would be that the entire rigorous procedure involved in reopening an assessment and the burden of proving valid reasons to believe could be circumvented by first accepting the return under Section 143(1) and thereafter issue notices to reopen the assessment. An interpretation which makes a distinction between the meaning and content of the expression "reason to belie....
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....e expression "reason to believe" cannot have two different standards or sets of meaning:, one applicable where the assessment was earlier made under section 143(3) and another applicable where an intimation was earlier issued under section 143(1). It follows that it is open to the assessee to contend that notwithstanding that the argument of ''change of opinion" is not available to him, it would still be open to him to contest the reopening on the ground that there was either no reason to believe or that the alleged reason to believe is not relevant for the formation of the belief that income chargeable to tax has escaped assessment, In doing so, it is further open to the assessee to challenge the reasons recorded under section 148(2) on the ground that they do not meet the standards set in the various judicial pronouncements. 14. In the present case the reasons disclose that the Assessing Officer reached the belief that there was escapement of income 'on going through the return of income" filed by the assessee after he accepted the return under Section 143(1) without scrutiny, and nothing more. This is nothing but a review of the earlier proceedings and an abuse of....
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....ue on the other hand was that notice was issued as during assessment proceedings no query was raised by the AO in respect of five points with reference to which assessment was sought to be reopened nor were they referred to in the assessment order. Therefore, it was not a case of review of earlier finding or change of opinion and therefore there was a complete failure on the part of the AO to apply his mind to the five points when the original order of assessment was passed. On these facts and submissions of both the parties Hon'ble Bombay High Court held as under:- "10. The salient aspect of the case that merits emphasis is that the order of assessment that was passed by Assessing Officer under Section 143(3) is completely silent in respect of each one of the five points on the basis of which the assessment is sought to be reopened. There is merit in the contention which has been urged on behalf of the Revenue that no query had been raised during the course of the assessment and the assessment order would ex-facie disclose that the Assessing Officer has not applied his mind at all to any of the points on the basis of which the assessment is now sought to be reopened. That there....
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....ssment is sought to be reopened, it has been sought to be urged that under Section 44 read with Rule 5(a), it would not be open to the Assessing Officer to make an income addition. Moreover, it has been urged that in the past, the same practice had been accepted by the Revenue. These are matters which on merits will be considered by the Assessing Officer and it would be inappropriate for this Court to express any opinion on the merits of issue. Moreover, once the Court has come to the conclusion that even a single ground on the basis of which the assessment is sought to be reopened is valid and within jurisdiction, the notice for reopening of the assessment would have to be upheld. Consequently, we clarify that though submissions have been urged on the merits of each of the grounds, we keep all rights and contentions of the parties open to be urged before the Assessing officer, once the assessment is reopened in exercise of the power conferred by Section 147. The Assessing Officer has acted within jurisdiction in reopening the assessment." In view of the above, we see no merit in the argument advanced on behalf of the assessee that in this case there was change of opinion on the....
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....CIT [2008] 300 ITR 251 (SC) b. CIT vs. HCL Comnet Systems and Services Ltd [2008] 305 ITR 409 (SC), c. CIT-I Vs. Vijayashree Finance and Investment Co. Pvt. Ltd 2 DTR 38 [216 CTR (Madra) 191], d. CIT Vs. Rubamin P. Ltd [2009] 312 ITR 18 (Guj), e. CIT Vs. Kovai Maruthi Paper and Board P. Ltd [2007] 294 57 (Mad), f. CIT Vs. Adbhut Trading Co. P. Ltd [2011] 338 ITR 94 (Bom), and g. CIT Vs. Akshay Textiles Trading and Agencies P. Ltd [2008] 304 ITR (Bom) 2. Proceeds on sale of gifted shares cannot be credited to P &L A/c a. Shares received as gift do not constitute 'investment' and hence gains on sale of the aforesaid shares are not required to be routed through the profit and loss account. Learned Sr. Counsel submitted that since the gift cannot be equated with investment, the Appellant is justify in crediting the sale proceeds of the gifted shares directly to capital account without routing through profit and loss account. He therefore submitted that the said credit should not be taken into account for purposes of calculation of profits under Section 115JB and the provisions of Section 115JB is not applicable in such situation. b. Reliance is placed on the ....