AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2013 (1) TMI 811
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....e 153C proceedings as no Undisclosed documents were found in relation to the disclosed transaction by the Appellant , and hence the order passed by the learned CIT(A)-I, Hyderabad is wholly unsustainable and is to be quashed. 3. The learned CIT(A)-I, Hyderabad ought to have clearly held that the proceedings u/s. 153C of the I.T. Act 1961 initiated against the Appellant was on a wrong foundation of reasoning arising out of presumptions, assumptions and reappraisal of the same set of facts in respect of a disclosed transaction much before the date of search and was thus not capable of being upheld statutorily or otherwise and therefore the order passed by the A.O. ought to have been quashed by the learned CIT(A)-I. 4. The learned CIT(A) I, Hyderabad ought to have clearly held that the extinguishment of debt redeemed with the financial institutions resulted in a notional surplus/surplus on capital account not exigible to tax. The learned CIT(A) I ought to have deleted the entire amount of Rs. 42,20,31,114/- which included the sum of Rs. 6,43,20,260/- sustained by the learned CIT(A)-I. 5. The learned CIT(A) I, Hyderabad erred in treating the alleged gains out....
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....Rs. 6,43,20,260 as against Rs. 42,20,114/- arrived at by the Assessing Officer. 3. The CIT(A) is not correct in adopting the value of Share of LVS Power Ltd. at Rs. 10/- per share instead of Rs. 50 /- as adopted by the Assessing Officer. 4. The CIT(A) ought to have appreciated the fact that the assessee company itself has adopted the value at Rs. 50/- per share in its books of account while recording the transaction of debt assignment. 5. The CIT(A) ought to have ordered for addition of Rs. 5,30,23,056/- of interest received by the assessee from LVS Power Ltd., during the year as noted in Su-Para 4 of 4.5.1 of the Assessment order, when he differed with the figures adopted by the Assessing Officer. 6. ..... 4. Briefly stated facts of the case are that action u/s.132 of the I.T. Act was initiated in the case of one A. Venkat Rama Reddy and his family companies on 20-08-2009. In the course of search proceedings in the above case, certain documents and loose sheets belonged to the assessee were seized from the residence of A.Venkat Rama Reddy as well as in the business premises of M/s. L.V.S. Power Ltd. Consequently notice under section 153C was ....
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....he Chartered Accountants. Accordingly, they engaged M/s. Surya Chandra &Associates, Hyderabad to ascertain its net worth of M/s. LVS Power Ltd vide valuation report dated 31-12-2007 and arrived at the share value at Rs. 55.82/- (face value Rs. 10/-). M/s. LVS Power Ltd has repaid its debt towards financial institutions to the assessee company by cheques on various dates and also by allotment of shares of 89,42,772 @ Rs. 50/- per share, totalling Rs. 44,71,38,600/-. In brief, the assessee company has settled the debt to the tune of Rs. 78.39 crores by paying Rs. 33.67 crores to the Fls and made a profit of Rs. 42.20 crores. 6. The shares thus acquired by the assessee company were sold to one Shri A.Raghava Reddy and one Shri A.Jaipal Reddy who are having business relations with Venkata Rama Reddy for Rs. 4.OO and Rs. 3.75 respectively on 21-02-2008 who in turn sold all the shares to one Shri Narasimha Reddy for Rs. 2.25/-. Shri Narasimha Reddy again sold all the shares to Shri A.Venkata Rama Reddy on 14-10-2008 at Rs. 2.24 per share. On its part, assessee company made a net profit of Rs. 95,52,935/- in the entire transaction. Out of this, the assessee had set off the brought forw....
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....nment and capital reserve submitted by the assessee along with reply is only an afterthought and not part of neither the seized material nor it was submitted by the assessee during assessment proceedings. The Assessing Officer brushed aside the explanation of the assessee that it had inadvertently taken the surplus on account of debt assignment as income by wrong advice/guidance for the finding that assessee set off the carry forward losses to the tune of Rs. 31 lakhs from out of income earned on debt assignment. 8. The Assessing Officer held that assessee adopted a grand tax evasive design in a systematic way by - (i) assigning the debt to it, (ii)diluting the existing shares of LVS Power Ltd, (iii) allotting the shares to assessee company by LVS Power Ltd at Rs. 5O/-per share, (iv) routing these shares through pre-arranged name lenders viz A.Jaipal Reddy and A. Raghava Reddy and A.Narasimha Reddy and (v) finally channelizing the entire set of 89,42,772 shares to Venkat Rama Reddy, MD of M/s. LVS Power Ltd and of the assessee company (presently known as Venkateswara Financiers). The Assessing Officer took support from the clause in the MOU signed by M/s. LVS Power Ltd and the a....
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....has considered the issue whether the provisions of S.153C are proper or not and held that in view of seizure of documents, S.153C were validly initiated by the Assessing Officer. With reference to the issue of computation of profit made by the Assessing Officer, while accepting that the assessee has correctly taken the valuation of shares at Rs. 50 and has recorded the same in the books, he found that there is no justification to interfere with the value adopted by the Assessing Officer in respect of the shares received by the assessee company, in view of debt assignment which is as per the accounts. He further held that the Assessing Officer was not correct in computing the profit upto the date of allotment of shares ignoring that subsequent sale of shares and therefore, the profit brought to tax by the Assessing Officer was deleted. However, he did not accept that the sale price of the shares could be so low as contended by the assessee, and therefore, he went on to fix the fair share value at Rs. 10 for the purpose of computing the profits on sale of shares. Therefore, as against Rs. 3,46,60,399 sale proceeds accounted by the assessee company in the books of account, the CIT(A) ....
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....ion not disclosed to the department by the assessee. In the absence of any such satisfaction, the proceedings initiated under S.153A culminated into order under S.143(3) read with S.153C dated 29.12.2010 is bad in law and void ab initio. In this context, the learned counsel placed reliance on the following decisions- (a) Decision of Bombay Bench 'H of the Tribunal in the case of Bejay Securities & Finance Ltd. V/s. ACIT (ITA No.4859 to 4865/Mum/2009 AYs 2001-02 to 2007-08) dated 24.6.2011; (b) Decision of Bombay Bench 'H' of the Tribunal in the case of Anil P.Khimani V./s. Dy. CIT (ITA No.2855 to 2860/Mum/2008 for assessment years 1999-2000 to 20004-05) dated 23.2.2010; (c) Jindal Stainless Learned. V/s. ACIT(120 ITD 301)-Del. (d) Singhad Technical Education Society V/s. ACIT (140 TTJ 233)- Pune. (e) SSP Aviation Ltd. V/s. DCIT (346 ITR 177)-Del. (f) Ingram Micro (India) Exports V/s. DDIT ITAT (Mumbai) 13. The third contention is with reference to merits in relation to which it is stated that the Assessing Officer as well as the CIT(A) have failed to appreciate the transaction. The assessee acquired the debt amounting to Rs. 73.9 cores as an actionable claim fr....
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....e decision of the Mumbai Bench of the Tribunal in the case of Rupee Finance & Management (P) Ltd. V/s. ACIT (129 ITD 539). 16. The learned counsel for the assessee further contended that the assessee has invested in the shares of LVS Power Ltd. in the year 2001. The debt of LVS Power Ltd. was acquired by assessee to protect the initial interest. Thus, the entire transaction is an investment and not an adventure in the nature of trade. In support of this contention, reliance is placed on the following decisions of the Calcutta High Court (a) CIT V/s. Guest Keen & Nettlefold Ltd. (115 ITR 205) (b) CIT V/s. Calcutta Discount Co.(P)Ltd (1672 ITR 680). 17. In reply, the Learned Departmental Representative submitted on the preliminary legal issue, that all that section 153C contemplates is that during the course of search material pertaining to another persons should be found and there should be no ambiguity as to whom the material pertains. If the Assessing Officer is satisfied that the seized material pertains to another person, he can initiate proceedings under S.153C. The satisfaction is with regard to the ownership of the document and not regarding quantification or amou....
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....over, it is a loss. Therefore, the very activity of taking over a debt is in the nature of adventure or trade and is, therefore, rightly assessable under S.28 of the Act. Whether the entries are in capital side or revenue side is not really relevant. To illustrate, it is submitted by the Learned Departmental Representative, a person may buy a plant and machinery, make some repairs and sell it off at a profit. Just because Plant and Machinery is capital item, the profits derived do not take the character of capital receipt. 20. Reconciling the figures of Business Profit (GP-interest paid) arrived at by the Assessing Officer at Rs. 42,61,92,176 and by the CIT(A) at Rs. 6,43,20,260, the Learned Departmental Representative submitted that the main issue is whether the value of shares allotted should be adopted at Rs. 50 per share or at Rs. 10 per share as done by the CIT(A). The Assessing Officer took Rs. 50 per share because that is backed by the Valuation Report based on which both the assessee and M/s.LVS Power transacted. 21. The Learned Departmental Representative, explaining the grievance of the Revenue in its appeal, submitted that the total debt, which was assigned and tak....
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....hout making entries for adjustment to shares issued at premium of Rs. 50 and subsequent sale at discounted price, thereby incurring loss at the time of sale of shares. The net result is the same. The Assessing Officer ignoring the sale of shares at a loss considered the allotment of shares at a premium as part of the debt and brought to tax the above amount of Rs. 44.71 crores. It was rightly pointed out by the Ld. CIT(A) vide his observations in para 9.1, that Assessing Officer computed the amount of Rs. 42 crores as income, taking into consideration the value of equity accepted in the assignment of debt directly to Receipt and Payment Account as on 31st January, 2008, instead of computing the income as on 31.3.2008, i.e. as at the end of the year. Therefore, we are of the opinion that the CIT(A)'s order in deleting the addition of Rs. 42 cores is correct in the sense that the so-called gains brought to tax by the Assessing Officer in the debt assignment, gets nullified by the loss on sale of shares during the financial year itself at a discounted price. 24. There is no dispute with reference to the transaction of the debt assignment, nor there is a dispute with reference to sa....
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....ns of the Act, unless the transaction is considered as bogus or there is any evidence to indicate that the assessee has received more than what it stated to have received. The Income-tax Act does not permit change of sale value of sale of shares transaction. There are provisions to redetemine the purchase cost, if the transaction is collusive or with related parties, but refixing the sale value by certain notional means is not permitted in law while computing business income, except as provided specifically while calculating Capital Gains. Moreover, in arriving at the value of the shares at Rs. 10/-, the CIT(A) has considered the subsequent sale of shares in September, 2008 to March, 2009 at Rs. 10 per share by IDBI. As pointed out before us, the investment by IDBI is with certain buy back arrangement, and accordingly, the IDBI sold at Rs. 10. Not only that, when the assessee has sold the shares at the price which it realized, there was a hope for a positive outcome of the litigation before the Hon'ble Supreme Court. Subsequently, the prices have fallen further, as the decision of the Hon'ble Supreme Court went against the assessee. On a review, the matter was reconsidered, and on ....
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.... by him is not, in the opinion of the AO, satisfactory, the value of the investments may be deemed to be the income of the assessee of such financial year." The undisputed facts in this case are that the assessee company has purchased certain shares at a price which is below the market value. There is no dispute of the fact that the price paid for the shares by the assessee company were the cost incurred by the purchaser. It is also not disputed that all these investments were recorded in the books of account. Under s. 69 only such value of the investments may be deemed to be the income of the assessee for the financial year, if they are not recorded in the books of account. Thus s. 69 is not applicable in this case. The first appellate authority possibly realising this difficulty has chosen to invoke s. 28(iv) and not to give a decisive finding as to whether s. 69 is applicable or not. We have to mention here that it is not the case of the Revenue that the assessee company has paid certain amount in excess of what is recorded in the books of account for the purchase of the shares. There is not even an allegation much less any evidence that the apparent consideration is no....
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....urchased certain shares at a certain price and was required to hold these shares for a period of three years. It is not in dispute that this was an investment made by the assessee company hence irrespective of the fact as to whether these investments were made in pursuance of the MoU or not, we are of the consideration opinion that such investments cannot be said to be a benefit arisen out of the business of the assessee. Moreover the assessee is the purchaser of the shares and there is no event that has taken place during the current accounting year which can be said to have resulted in any income being accrued or arisen to the assessee company during the year. If at all the assessee transfers the shares, then the benefit of profit in question can be brought to tax in those particular years. In all the case laws relied upon by the Revenue have been discussed by us while narrating their arguments and in these cases the tax has been levied on the transferor and not the transferee. The effect of this section has been explained by the CBDT in the above cited circular and from this it is clear that, when an assessee purchases goods or assets at a price lower than the market price, unde....
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....urred any expenses or liability or has provided a facility. It sold its shares at a reduced price." Respectfully following the above, we are of the opinion that the CIT(A) has traversed beyond the jurisdiction to re-determine the sale price, when the Assessing Officer himself has not re-determined the sale price, nor considered the transactions as bogus. In view of this, we are not in a position to uphold the order of the CIT(A) in re-determining the sale price and confirming the addition of Rs. 6,43,20,260. Therefore, the assessee's grounds No.1, 6 and 7 on this issue are allowed. 28. Coming to the other contentions about the jurisdiction for initiation of proceedings under S.153C, these issues have become academic in nature. However, as seen from the additional grounds raised, and paperbook filed, the Assessing Officer has issued a notice under S.153A when the assessee is not a searched party. Revenue did not bring out anything on record to submit that the notice under S.1533C has been issued. As seen from the notice itself, this notice was issued/typed as a notice under S.153C. This was corrected by way of ink to be that of 153A. The learned Departmental Representative was....