TaxTMI 
TaxTMI 
2018 (12) TMI 281
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....sessment order being: (a) erroneous; and (b) prejudicial to the interests of Revenue and consequently, the impugned order is illegal and bad in law. 3. That the PCIT erred on facts and in law in failing to appreciate that the order passed under section 143(3) of the Act was neither "erroneous" nor prejudicial to the interests of the Revenue, to warrant exercise of revisionary jurisdiction under section 263 of the Act. 3.1 That the PCIT erred in alleging that the assessing officer failed to examine the tax implications of the scheme of amalgamation, particularly the issue of taxability of long- term capital gains on sale of shares in terms of proviso to section 10(38) for the purpose of computing 'Book Profit' under section 115JB of the Act. 3.2 That the PCIT failed to appreciate that the assessment order dated 02.01.2016 had been passed after due and adequate inquiries/ investigation and application of mind in respect of the aforesaid issue of taxability of gains on transfer of shares for the purpose of computation of 'Book Profit' under section 115JB of the Act. 3.3 That the PCIT erred in observing/ holding that there was no need/justification for amalgamation of the t....
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.....01.2016, whereby the AO had accepted the income returned by the assessee. The assessment order so framed by the AO reads as under : "Return declaring an income of Rs. 47,31,20,060/- was filed electronically on 29-09-2013. The case was taken up in scrutiny through CASS and notice u/s 143(2) was issued on 03-09-2014 and served upon the assessee. Thereafter, notices u/s 142(1) along with questionnaire was issued and duly served upon the assessee wherein certain specific details were called for. During the year, the assessee company was engaged in the business of investments and to inter alia buy, invest, underwrite, acquire shares/other securities for long term. However/the assessee company has amalgamated with M/s Slocum Investments (Delhi) Pvt Ltd. and Shikiran Investment (Delhi) Pvt. Ltd. vide High Court Order dated 31s'January 2013. In response to these notices, Mr. Nilesh Aggarwal, C.A./A.R. of the assessee attended from time to time and filed the 4 necessary details which have been examined and placed on record. After discussion the returned income of the assessee is accepted. Assessed at an income of Rs. 47,31,20,060/- Issue necessary forms. Charge interest ....
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....and also orally discussed the case with the undersigned. During the present proceedings u/s 263, some further inquiries were made which were also replied by the assessee. During the proceedings u/s 263, the copy of the amalgamation scheme, copies of various Orders passed by the Honble High Court were requested/received from the office of Registrar, Punjab and Haryana High Court. [underline and highlight supplied by us] 4. Thereafter, the learned CIT-9, New Delhi, exercising his powers u/s. 263, after considering detailed submissions of the assessee, assessment order passed by AO and all the material available on record, revised the above assessment order based on independent inquiries holding it erroneous in so far as prejudicial to the interest of revenue and directed the AO to frame the assessment order afresh in the light of observations made in the impugned order. The observations and findings reached by the ld. CIT in the impugned order read as under : "9. From the assessee's submissions, the following observations are relevant: (a) Details of filing ITRs by M/s Slocum and M/s Shivkiran for A.Y. 2013-14 - The assessee's submission has been considered and t....
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....ar ending March 31, 2013 observed that: "As per the Accounting Standard 14 (AS 14), accounting for amalgamation, prescribed under Company Rule, 2006 (Accounting Standard) has modified by the Central Government vide its notification dated 07-12-2006. As excess value of net assets over the amount of consideration paid should be credited to capital reserves and not to security premium." Thus even the Statutory Auditor has pointed out the deviation deliberately adopted by the assessee which resulted in the creation of Security Premium Reserve instead of the Capital Reserve Account. Further, the Security Premium Reserve is created when someone subscribes to the equity shares of the assessee at premium, which is absolutely not the present case here. (h) The assessee submitted that the Security Premium Account is not in the nature of Revaluation Reserve : The assessee has recorded the fair value of various assets and liabilities of the amalgamating company as cost of the acquisition in accordance with SOA and in compliance of the Accounting Standard-14(AS 14). It is relevant to mention there that this procedure and its impact is more or less similar to the revaluation of asset....
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....ssee deliberately did not submit provisional accounts of the period beginning 01-04-2012 to 30th June' 2012 or upto 15th September' 2012 and in the process hid the very crucial/material fact of having sold 1 crores shares of M/s HCL Tech. for Rs. 500 crores on 04- 05-2012 itself from the Hon'ble Court. Thus it is apparent that as per this proviso the assessee was supposed to place all material facts before the Hon'ble High Court. Further, as stated earlier, the difference arising from recording the acquired assets at fair value in the Balance Sheet of the assessee was wrongly credited by the assessee to Security Premium Account and this fact was duly highlighted by the Auditor of the assessee in notes to the account. (I) The following facts are observed about the reasons submitted by the assessee for crediting the difference in the values of assets arising of amalgamation to Security Premium Account and not Capital Reserves :- i. As stated earlier also, the scheme was drafted by the assessee and was tailor made for the purpose of avoiding the due payment of fair taxes only. ii. As discussed separately, the assessee company has strong financials and is supporting its ass....
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....Capital Gains was avoided. (p) As discussed earlier, the assessee in the garb of approved clauses of SOA and following AS-14 has in fact done the revaluation of the shares of M/s HCL Tech.(held as Long Term Investment) in its financial statements. However, the assessee has very cleverly instead of using term "Revaluation", has used the term Restated Value/FMV for changing the carrying cost of these shares. Thus, applicability of clause (j) in Explanation 1 to Section 115JB needs to be considered in the assessee's case. (q). As discussed earlier also, the SOA has been cleverly drafted by the assessee with a malafide intent of evading fair taxes on LTCG and the same scheme (without any modification) has been approved by the Hon'ble High Court. When we dig deep then the assessee's whole scheme and its mala-fide intention for nonpayment/ evasion of due fair taxes becomes very much apparent. (r) As stated earlier, there are only three common shareholders in all the three companies, the ROC usually does not examine the SOA from the angle of its impact on taxability and also considering the fact that the deliberate hiding of transaction of sale of 1 cr. shares of M/s HCL Tech. wh....
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....e at the time of submission of proposed SOA before the Hon'ble High Court. However, from the submissions of the assessee as discussed in detail separately in this order, it is apparent/clear that none of the stated objectives were fulfilled as a result of the amalgamation and actually there was no need at all for the amalgamation of the three companies. (w) Statutory Recognition of SOA approved by the High Court: The assessee further submitted that the scheme has been approved by the Hon'ble High Court and therefore cannot be regarded as a tax evasion exercise. As discussed earlier, the scheme was drafted by the assessee company and the same was (in ditto) approved by the Hon High Court(without any modification). The C LB /ROC gave its report in the routine manner that the affairs of the company have not been conducted in the manner prejudicial to the interest of the members. The fact is that certain very crucial & material facts were hidden from the Hon'ble Court as well as from the ROC and as discussed earlier the scheme was drafted with the only motive of not paying/evading the due taxes. As stated earlier, the scheme is binding on creditors and shareholders and it d....
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.... meager Rs. 1.00 lac each. After amalgamation, all assets and liabilities have been transferred to M/s Vama Sundari (resultant/amalgamated company) and now M/s Vama Sundari is engaged/doing the same business, as was being done earlier by M/s Slocum. iv. It was only after 4 months (or so) from the date on which the HCL Tech shares were sold (04-05-2012) (and the tax liability arose), that this Scheme Of Amalgamation (SOA) was envisaged and proposed, for which there was absolutely no need/justification. v. All material facts such as latest financial position of the companies not disclosed to the Hon'ble Court & ROC : While submitting the SOA before the Hon'ble High Court on 19-09-2012, the Appointed Date was proposed as 01.04.2012. However, with the Amalgamation Application, only audited financial statements for the year ending 31.03.2011(FY 2010-11) and unaudited provisional accounts for year ending on 31.03.2012{FY 2011-12) were submitted to the court. It is really significant to highlight here that the applicant conveniently/deliberately did not submit the provisional accounts of these companies for the period 01-04-2012 to 30-08-2012. The applicant could and should have ....
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....can not be said to be binding on the Income Tax Department as the issue of taxability of LTCG on the sale of shares was not brought to the knowledge of the Honhle Court which neither considered nor issued any direction on the taxation angle related to the amalgamation. 11b. Though the SOA was approved by the shareholders, yet it is an important fact that all the three companies are closely held Private Companies and there are only 3 common family member shareholders in these companies who happen to be promoters, so their approval was a mere formality. 11c. The accounts of the companies are always audited and even then the Assessing Officers always examine the accounts of the companies from taxation angle. 11d.As far as ROC is concerned, it routinely considers the accounts of the companies and they are not expected to examine the taxability part of a particular transaction. [Sumer Builders Pvt. Ltd. Vs. DCIT, Central Circle - XXXVI (Mumbai) (ITA No. 2512, 2513 and 2514/Mum/2009} 11e. The Apex Court's decision in 'Apollo Tyres' case has been considered by Honble Courts and ITATs and in many cases and it has been held that AO can examine the books of accounts and can modif....
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....ed company normally do not continue to have a proportionate share in the equity of the combined company and/or the business of the acquired company is not intended to the continued. Further, generally in real business scenario, a large company acquires a small company or a listed company acquires/may acquire a big Private Limited Company. Thus, in a normal business scenario, even if amalgamation (for the sake of the argument) was needed in this ease, then it would squarely fall in the category of "Amalgamation In The Nature Of Merger" and accordingly as per AS 14, there was no need/justification, for restating the book value of the investment(shares) of the transferor company. 12d. In the "Pooling Of Interest Method"(in the nature of merger), the assets, liabilities and reserves of the transferor company are recorded by the transferor company at their existing carrying amounts. Even in purchase method, Transferee Company has the option to do accounting for the amalgamation either by taking the assets & liabilities at their existing carrying amounts or by allocating the consideration to individual identifiable assets and liabilities of the transferor company on the basis of their....
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....d be examined from the point of view of various stakeholders and not from the narrow prism of tax saving. Here, there are two important stakeholders, on the one hand there are three common shareholders (family member promoters of HCL Group) in these companies and on the other hand, there is Income Tax Department. It is the prime duty of the department to examine any business transaction/scheme from the taxation angle and if needed, to examine/investigate the matter to its logical end for arriving at the truth. 13e. The assessee has stated that the tax authorities cannot examine the assessee's case as the amalgamation has been approved by the Hon'ble Court. Such a view of the assessee is narrow. If amalgamation is used as a tool of tax evasion, then the tax authorities can look into the evasion. In this particular case, as is evident, the amalgamation was used as a facade for tax evasion. The moment amalgamation becomes a tool of tax evasion, the assessee cannot take shelter behind judiciary and prohibit the revenue from examining the evasion. Reference is invited to the decision of Hon'ble Gujarat High Court in Wood Polymers Ltd (1977) 109 ITR 77 wherein it has been stated....
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....s resulting from the amalgamation. The assessee submitted that due to amalgamation, 3 entities were reduced to one. Here the assessee also submitted that there are 11 associate concerns but did not tell about the group companies of HCL Group. It is noted that there were no employees in these 3 companies and the consultancy/legal expenses related to SOA would definitely outweigh the reduction in Administrative Cost and Regulatory Compliances. The assessee also failed to specify or quantify the concrete monetary advantage like saving in expenditure/expenses due to the amalgamation. ii. The assessee has further stated that after amalgamation, there is centralized and common treasury operations for all the 3 entities. It is relevant to mention here that prior to amalgamation, the treasury operations were carried by M/s Slocum only and after amalgamation the same functions/ operations were carried on by M/s Vama Sundari. iii. It has also been submitted by the assessee that the amalgamation enables the assessee, if required, to raise Finance at better terms. The assessee's reply is very vague and evasive. As discussed earlier, due to amalgamation, there was no marked change in asse....
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....on of LTCG is as under :- (38) any income arising from the transfer of a long-term capital asset, being an equity share in a company or a unit of an equity oriented fund [or a unit of a business trust] where- (a) the transaction of sale of such equity share or unit is entered into on or after the date on which Chapter VII of the Finance (No. 2] Act, 2004 comes into force: and (b) such transaction is chargeable to securities transaction tax vider that Chapter: Provided that the income by way of long term capital gain of a company shall be taken into account in computing the Book Profit and income -tax payable under section 115JB From the above proviso it is clear that the income by way of LTCG of a company shall be taken into account in computing the Book Profit and tax payable under section 115JB. The word "income by way of long term capital gain" as used in the above section is of quite significance. Such income can only be as computed in accordance with the provisions of Section 48 of the Act. This aspect has been considered by the Banglore Bench of ITAT in the case of Karnataka State Industrial Infrastructure Developers Co. Ltd. v DCIT (2016) 76 taxmann.com 360....
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....investments, the different between the carrying amount and the disposal proceeds, net of expenses, is recognized in the profit and loss statement. Thus, the combined effect of Paras 17 and 21 of AS-13 is that difference of 'sale proceeds of investment" and "cost" thereof has to be recognized in the P & L A/e, Thus, the assessee has not even followed the accounting treatment required to be followed as per AS-13. If the assessee had correctly followed the accounting treatment as per AS-13, then difference of 'Sale Proceeds Of Investment' and "Cost" thereof (and not the Fair Market Value) would have been recognized in the Profit & Loss A/c. iv. Adoption of different "Costs of Acquisition" by the assessee for the purpose of computing Capital Gains u/s 10(38) and "Book Profit" u/s 115JB : In terms of provision of sub-section(e) of clause (iii) of Sub-section (1) of Section 49 of the Act, the cost of Investment (Share) which is to be considered as cost to the previous owner i.e. amalgamating company. The "cost" of any asset cannot be different for different purpose. While computing "Book Profit" and Capital Gain u/s 10(38), the assessee is adopting different "Costs Of Acquisiti....
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....AGM, The Profit & Loss A/c and Balance Sheet were filed before the ROC. The ITAT in this case of "M/s Sumer Builders Pvt Ltd. vs. DCIT Central Circle- 36" duly considered the judgements in the cases of "Apollo Tyres", "Akshay Textile" and "NJ Joss and Co. " And held that: Now, who is going to check this aspect? Obviously, the Registrar of Companies is not concerned with these aspects whether accounts adopted for the previous year are same or not because the Registrar of Companies at best is concerned whether the accounts adopted and laid before the annual general meeting are in accordance 22 with the requirements of Part II and Part III of Schedule VI of the Companies Act, 1956. Therefore, In view of these enlarged requirements, we are of the view that AO has powers to go behind the accounts and see whether same have been prepared in accordance with the requirements of Part IT and Part III of Schedule VI of the Companies Act, 1956. In the case of "CIT VS. Vee Kay Lai Co. Put. Ltd" it was observed that the important thing is to be noted that while calculating the total income under the Act, the assessee is required to take into account income by way of capital gains u/s 45 ....
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....ain in the hook profit's u/s 115JB is not examined at all. Though various details were indeed called by the AO, yet the core issue of tax implication of the amalgamation, particularly the treatment to the LTCG is not at all touched/ examined by the AO. Thus the assessment order dated 02-01-2016 passed by the AO is definitely erroneous. b. Further, the assessment order passed by the AO is simultaneously prejudicial to the interest of revenue. As discussed separately, 1 crore shares of HCL Technology Ltd(herein after referred to as HCL Tech.) are sold on 04-05-2012 and resultant LTCG of Rs. 491.70 crores approx. arose which were claimed as exempt under Section 10(38) of the Act. However, while calculating the LTCG for MAT purpose, the assessee changed the historical cost of HCL Tech. shares from Rs. 6.50 to Rs. 790.00 per share each in the garb of restating the value of investment (of shares) at Fair Market Value. In this manner, the assessee instead of showing the LTCG at Rs. 491.70 cr, showed Rs. 292 cr. Long Term Capital Loss and consequently did not pay MAT on LTCG of Rs. 491.70 cr. Accordingly there was huge loss to the revenue on account of non-payment of MAT on LTCG of Rs. ....
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....scussed earlier, the assessee on 04-05-2012 sold 1 crore shares of M/s HCL Tech. for Rs. 500 cr appx. and in this way, part of its Long Term Investment is converted into cash on 04-05-2012, Further, the tax liability also arises on account of this transaction on 04-05-2012 itself whereas the SOA was submitted before the Hon'ble High Court as late as on 19-09- 2012. Even the first action towards amalgamation was started as late as on 30-08-2012 by taking approval the scheme by the shareholders of the three companies. As sated earlier, all these material facts were deliberately hidden from the Hon'ble Court as well as from the ROC, Thus the assessee has violated the proviso to Section 391(2) of the Companies Act. b) If such type of ingeniously designed courses of actions/ transactions/stands taken by the assessee are accepted & allowed then the proviso to Section 10(38) of the Act would lose its relevance as in most of such cases, the company would draft similar amalgamation schemes to avoid payments of due tax under MAT provision c) As discussed earlier, the statutory Auditor has pointed out the deviation by the assessee from AS 14 in respect of creation of Security Premium Re....
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.... per accountancy, the difference in historical cost and the sale price is the amount of profit accruing on account of sale of investment. This is the amount which is to be credited to the P&L account of the assessee. Normally all assessee's follow this basic rule of accountancy. But in the present case, the assessee has increased the cost of acquisition in an artificial manner. The difference between historical cost and the market cost (due to revaluation) has not been credited to the P&L account of the assessee or of any amalgamating company. In this way, the assessee has evaded tax. The assessee has only credited the amount of difference between the sale price and the revalued price of the investment(shares of M/s HCL Tech.). g) It is an established principle that in case of conflict between accounting standard/ accounting policy and the provision of law, the later would prevail over the former. The accountancy cannot extinguish the tax liability of any assessee. At the most the liability to pay taxes either gets preponed or postponed but it never gets extinguished. h) Let us consider a situation wherein the assessee had adopted the accounting as per the pooling of interest....
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.... the relief from the MAT provision without inquiring into the claim of LTCG of the assessee. Accordingly, the undersigned has no choice but to set-aside the assessment order dated 02-01-2016 passed by the AO on the issue discussed above. c. Reliance is also placed upon the following decisions with regard to validity of proceedings u/s 263 of the Act: i) Hon'ble Supreme Court in the case of Deniel Merchants Pvt. Ltd. vs. ITO (Appeal No. 2396/20171 dated 29.11.2017. In this group of cases, Hon'ble Supreme Court has dismissed SLPs in cases where AO did not make any proper inquiry while making the assessment and accepting the explanation of the assessee(s) insofar as receipt of share application money is concerned. On that basis the Commissioner of Income Tax had, after setting aside the order of the Assessing Officer, simply directed the Assessing Officer to carry thorough and detailed inquiry. ii) Malabar Industrial Co. Ltd. Vs C1T f20001 109 Taxman 66 1SC17120001 243 ITR 83 (SC)/r20001 159 CTR 1 (SC) (Copy Enclosed) Where Hon'ble Supreme Court held that where Assessing Officer had accepted entry in statement of account filed by assessee, in absence of any supporti....
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.... (a) the assets, including investments in HCL Tech were recorded at fair values (which was determined by the three independent valuers), by following purchase method, as part of the scheme of amalgamation [refer para 6.1]: (b) the difference between the fair value of the net assets of the amalgamating companies acquired pursuant to merger, was credited to "securities premium account" [refer para 6.4], 5. During the relevant previous year, 1 crore shares of HCL Tech were sold at recognized stock exchange for total consideration of Rs. 498,17,63,996 after payment of securities transaction tax (in short "STT") thereon. 6. Under the normal provisions of the Act, long-term capital gains of Rs. 491.67.63,996 (being the difference between sale consideration of Rs. 498,17,63,996 and original purchase cost of Rs. 6,50,00,000 in the hands of the amalgamating company) was claimed by the appellant as exempt from tax under section 10(38) of the Act. 7. In the books of account, since shares were transferred to and stood vested in the appellant pursuant to the Scheme, at fair value, (which was 29 determined at Rs. 790 per share), the resultant book loss of Rs. 291,82,36,004, was sho....
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....gal and bad in law since the pre-requisite 30 twin conditions for invoking jurisdiction under the said section have not been fulfilled in as much as the assessment order dated 02.01.2016, is: (a) neither erroneous; nor (b) prejudicial to the interests of the Revenue, as briefly set out hereunder: 12. Reliance, in this regard, is placed on the following decisions: - Malabar Industrial Co. Ltd. v. CIT: 243 ITR 83 -CIT vs. Max India Limited: 268 ITR 128 (P&H) [afformed in 295 ITR 282 (SC)] - CIT v Kwality Steel Suppliers Complex: 395 ITR 1 (SC) - CIT vs. Amitabh Bachchan: 384 ITR 200 (SC) - CIT v. Hindustan Lever Ltd: 343 ITR 161 (Bom.) - CIT v. Vikas Polymers: 341 ITR 537 (Del.) - CIT v. Sunbeam Auto Ltd.: 332 ITR 167 (Del) -CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) - Vimgi Investment (P) Limited: 290 ITR 505 (Del) - Hari Iron Trading Co. vs. CIT: 263 ITR 437 (P&H) - CIT vs. Gabriel India Limited: 203 ITR 108 (Bom). 13. In the present case, the aforesaid twin conditions are not met since: (a) during the assessment proceedings, the assessing officer conducted extensive/ necessary enquiries regarding the issue of transfer of share....
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....the paperbook], it was clearly stated as under: "25. Investments acquired due to the scheme of amalgamation are stated at fair market value as on April 1, 2012. Loss on disposal of investments represents sale of investments at a value lower than fair market value as on April I. 2012 ". 16. It may be pertinent to note in this regard that Notes to accounts are an integral part of the financial statements and have to be read as such. [Refer: CIT vs. Sain Processing & Wvg. Mills (P) Ltd.: 325 ITR 565; Sak Industries vs. DCIT: WP No. 1884/2012 (Del)] 17. During assessment proceedings, the assessing officer, conducted extensive/ necessary enquiries on the aforesaid issue of sale of shares in HCL Tech as explained hereunder: 17.1 Vide questionnaire dated 24.06.2015 [refer pages 240 to 241 of paperbook], the assessing officer specifically directed the appellant to, inter alia, furnish the following details: a) Vide question No.5, the appellant was directed to provide the details of amalgamation or demerger carried out during the year: b) Vide question No.11, the appellant was directed to provide details of investments in equity shares as shown in Note No.8 to the audited financ....
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....n the books on amalgamation vide Annexure B thereto: g) Vide letter dated 02.12.2015 [Refer pages 303 to 377 of paperbook], with reference to the last hearing and the specific direction given by the assessing officer, the appellant submitted as under: "1. Actual cost per share of HCL Technologies Limited: Rs. 6.5 per share. 2. Date of Acquisition: Shares of HCL Technologies Ltd. were acquired during the period from 1995 to 1999. 3. Market price as on 01.04.2012 (appointed date of merger): We would like to inform your honour that stock market was closed on 1.4.2012. Therefore the price as on 2.4.2012 was Rs. 501.25 per share. 4. We would like to bring to your honour's attention that as per the scheme of merger, all the assets of transferor companies shall be recorded by the transferee corny any at their respective fair values. Therefore, the assessee company has appointed three reputed, competent, qualified valuers and who are expert in this field and has obtained the valuation report from the following: i) ICICI Securities Limited ii) SBI Capital Markets Limited iii) SSPA & Co. Chartered Accountants" 18. On perusal of the aforesaid, i....
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....Bom.) - CIT v. Hindustan Lever Ltd: 343 ITR 161 (Bom.) 22. For this reason alone, and without anything more, the impugned order passed by the CIT under section 263 of the Act is, it is submitted, without jurisdiction, illegal and bad in law. Re (b): Order not erroneous much less prejudicial to the interests of Revenue. 23. It is submitted that the assessment order was not erroneous much less prejudicial to the interests of Revenue for the following reasons: a) Accounting treatment of recording the shares HCL Tech at its fair market value, accepted by the assessing officer, is strictly in accordance with the following: -Scheme of Amalgamation mandating recognition of various assets and the liabilities of the amalgamating companies at its fair value: -Order of the Hon'ble High Court approving the Scheme of Amalgamation: -AS-14 on "Accounting for Amalgamation" issued by ICA1. permitting recognition of assets at its fair value, more particularly in a court approved scheme of amalgamation: -Relevant provisions of the Companies Act: -Audited accounts duly approved by the Statutory Auditors, Members in the Annual General Meeting and the Registrar of Companies. ....
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....asis supplied) c) It is settled law that the profit and loss account prepared in compliance with the requirements of Parts II & III of Schedule VI to the Companies Act, 1956 and also the accounting standards issued by the ICAI. as laid before the members in the annual general meeting, is regarded as sacrosanct for computing deemed income under section 1 15JB of the Act and can only be subjected to the upward and downward adjustments specified in Explanation 1 to that section. The assessing officer was bound therefore to accept the Book Profit, as computed in accordance with the self-contained scheme as contained in section 115JB of the Act. Reliance in this regard is placed on the following decisions: - Apollo Tyres Ltd. vs. CIT: 255 ITR 273 (SC) - Malayala Manorama Co. Ltd. vs. CIT: 216 CTR 102 (SC) - CIT vs. HCL Comnet Systems & Services Ltd: 305 ITR 409 (SC) - CIT vs. Sona Woollen Mills P. Ltd.: 300 ITR 202 (P&H) - Kinetic Motor Co. Ltd: 262 ITR 340 (Bom) - CIT vs. Rubamin (P) Ltd: 218 CTR 162 (Guj) - DCIT vs. Farmson Pharmaceuticals Gujarat Ltd: 241 CTR 568 (Guj) 24. It is further submitted that once a dedi....
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....AS-14 and has neither qualified nor provided any adverse remarks in relation thereto. Had the intention of the auditor been to highlight the same as qualification or an adverse remark, the same would have been reported in thick type and in italics, as per the mandatory requirement of section 227(3)(e) of the Companies Act: e) Securities premium is akin to capital reserve so much so that both of them are not freely available for distribution as dividend, unlike general reserve. However, clear and unambiguous guidance is provided in section 78 of the Companies Act for utilization of "securities premium", as compared to "capital reserve" in respect whereof there is no specific guidance: f) It is well settled that where a Court/ Tribunal makes an order sanctioning an accounting treatment in terms of any scheme filed under the Companies Act, then, the said accounting treatment is not only binding but would also be regarded as in accordance with the provisions of the Companies Act. The position is well settled and duly recognized by ICAI. [refer: Hindalco Industries Limited: 151 Comp Cases 446 (Bom) and Western Alliance Power Limited: Company Petition No. 12 of 2011 passed vide ord....
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....of securities premium, was neither contrary to any provision nor would have had any impact on the "Book Profit" of the appellant. Re (ii): Amalgamation with the purpose of evading MAT and Scheme not binding 26.2 The allegation of the Pr.CIT that the entire exercise should be regarded as being undertaken for the purpose of evading MAT, is presumptive and erroneous. It is submitted that: a) it has not been appreciated that amalgamation by way of purchase, which permits recognition of assets/ liabilities of amalgamating companies at fair value, is a well- recognized accounting principle, which cannot simply be presumed to be tax avoidance measure: b) the entire accounting, it is reiterated, was fully in accordance with the terms of the scheme of amalgamation approved by High Court and is in compliance with the relevant provisions of the Companies Act and applicable accounting standards: c) once the scheme of amalgamation is approved by the Court after following due process of law, it cannot be said that the sole purpose of the scheme of arrangement was only to avoid tax. Indeed, it is a settled law that the arrangement, once approved by the Company Court, gets statutory....
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....1 and 301-302 of the paperbook] g) Further, donation of 8,385 shares of HCL Tech to SSN Trust during the relevant year, debited to the profit and loss account, computed by adopting fair value of Rs. 790 per share, which has been taken into account while computing the profit for the year (the starting point for computation of Book Profit) has also not been disputed by the Pr.CIT. [Refer page 45 and 48 of the paperbook] h) Thus, the action of the Pr.CIT in considering the transactions undertaken pursuant to the scheme on piecemeal basis and drawing adverse inference only against transaction(s) in respect of shares of HCL Tech is legally flawed. Re (iii): Applicability of Proviso to section 10(38) of the Act 26.3 Insofar as reliance placed by the Pr.CIT on the proviso contained in section 10(38) of the Act, it is respectfully submitted as under: (a) Computation of 'Book Profits' has to be strictly in terms of section 115JB of the Act which is a complete code in itself and no variation can be made from the said provisions: (b) Proviso to section 10(38) only carves out an exception to the effect that gains, if any, as per books of account on transfer of shares whic....
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....T in ITA No 3206/Del/2017 (Del. Trib) - Torrent Pharmaceuticals Ltd vs. DCIT: ITA No.164 of 2018 (Ahd. Trib) - Shri Narasimha Reddy Peechu v. ITO: ITA No. 932 of 2017 (Hyd. Trib) 28. Even otherwise, in the case of the appellant, the transaction in question was, as elaborated supra, analyzed by the assessing officer during assessment proceedings and after such extensive verification of records the assessing officer had accepted the returned income of the appellant. 29. In such circumstances, it could not be said that the assessment was erroneous and prejudicial to the interests of Revenue merely because the CIT was of the opinion that some more enquiries needed to be conducted. Reference may be made the following cases: - CIT vs. DLF Ltd.: 350 ITR 555 (Del) - CIT vs. Sunbeam Auto Ltd: 332 ITR 167 (Del) - CIT v. International Travel House: 344 ITR 554 (Del) - CIT vs. Vikas Polymers: 341 ITR 537 (Del) - Gulmohar Finances Limited: 170 Taxman 483 (Del.) - Fab India Overseas vs. CIT: 244 CTR 380 (Del.) - CIT vs. Vodafone Essar: 212 Taxman 184 (Del.) - CIT v. Ratlam Coal Ash Co: 171 ITR 141 ....
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....of ld. CIT. She further submitted that the Assessing Officer has passed a cryptic order without considering the provisions of section 115JB regarding exemption claimed by the assessee u/s. 10(38) of the IT Act. She also contended that the AO did not issue any questionnaire to the assessee regarding applicability of MAT provisions and the assessee also did not submit Form No. 29B (see Rule 40B) at the stage of assessment proceedings as well as revision proceedings, which is mandatory in the case of a company for computation of Book Profit and the assessing officer has also not seen to the qualification made the auditor of the co. in his audit report regarding on Notes to Financial Statements "As per Accounting Standard 14 Accounting for Amalgamations, prescribed under Companies ( Accounting Standard) Rules, 2006 as notified by the Central Government vide its notification dated December 7, 2006, any excess of value of Net Assets over the amount of consideration paid should be credited to Capital Reserve and not to Securities Premium". She also submitted that it is not only the lack of enquiry, but also non-consideration of relevant provisions of IT Act on the part of Assessing Office....
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..... 65,000,000. Subsequently, on amalgamation the shares held by M/s Slocum Investments Delhi Pvt. Ltd. were transferred in the books of accounts of the assessee as per the scheme of the amalgamation at the fair market value. The fair market value of those shares was determined by the assessee at Rs. 790/- per share. Accordingly, the shares were recorded in the books of the assessee company at fair market value as investment at Rs. 790.00 crores. The fair market value of the investment based on the valuation report obtained by the assessee from three different valuers was Rs. 798/- per share. As the shares were sold by the assessee at Rs. 4981763996/-, the assessee incurred resultant book loss of Rs. 2918236004/- and same was shown as loss on disposal of investment in the profit and loss account for the year ended on 31st of March 2013. Such disclosure was also made in note number 25 of the audited accounts. For the purpose of the computation of the Book Profit the assessee claimed the loss on the sale of shares is considered under section 115 JB of the Income Tax Act, 1961. 12. The learned Commissioner of Income Tax on examination of the records was of the view that the capital g....
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.... the fact that the learned assessing officer has not raised any query to the assessee on the aspect of taxability of the Book Profit under section 115JB of the Income Tax Act, 1961. Though assessee has claimed that during the course of assessment proceedings, the assessing officer conducted extensive and necessary enquiries on the aforesaid issue of the sale of shares in HCL technology. Now we would examine whether any examination has been made by the learned assessing officer with respect to the computation of Book Profit under section 115JB of the Income Tax Act, 1961 with respect to the profits or loss arising on sale of shares of this company. The 1st contention raised by the assessee is that vide questionnaire dated 24/06/2015, the assessing officer, especially directed the appellant to furnish the information with respect to details of amalgamation or demerger carried out during the year and vide question No. 11, the appellant was directed to provide details of investment in equity shares as shown in note No. 8 to the audited financial statements, which referred to investment in equity shares of HCL technologies. Vide questionnaire No. 12, the appellant was directed to ....
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....d in terms of section 115 JB of the Act". On careful perusal of the page number 249 - 251 of the paper book, it is found that the assessee has made the part compliance vide serial number 12 of the notice under section 142 (1) dated 8th May 2015 and submitted the details of loss on disposal of investment of Rs. 2834863000/- along with the proof of purchase and the sale of investment. The assessee further submitted that the loss of Rs. 2834863000 appearing in the profit and loss account has been reversed in the computation of income and no tax benefit has been claimed by the assessee company. The details of loss on disposal of the investment is enclosed as per annexure A . Therefore, it is apparent that assessee has not submitted anything with respect to the computation of Book Profit with respect to the profit or gain or loss arising on sale of those shares. In fact, assessee has stated that no tax benefit has been claimed by the assessee company though in the Book Profit, it has reduced the loss of Rs. 2834863000/- from the Book Profit. Therefore, to that extent the assessee has definitely claimed the tax benefit. We rest that issue their 50 only but however, we state that there....
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....air value and the fair value of the share was determined at Rs. 798/- per share (though its quoted price at stock exchange was only Rs. 501.25 per share) by three different agencies, namely ICICI securities Ltd, SBI Capital Markets Ltd and SSPA & company, chartered accountants. Undoubtedly, these documents are placed at page number 303- 377 of the paper book. However none of these documents show that how it has impacted the computation of the Book Profit under section 115 JB of the Income Tax Act. 1961. Even otherwise surprisingly, the assessing officer has not raised the query as to how the market value at recognised stock exchange of the shares of the company is quoted at Rs. 501.25 per share and how the value is determined by these valuers at Rs. 798 per shares as the fair market value. Based on the above finding it is apparent that the learned assessing officer has not looked at the computation of the Book Profit under section 115 JB of the Income Tax Act. 1961. Therefore according 52 to us, it is not the case of inadequate enquiry but absence of enquiry with respect to the computation of Book Profit under section 115 JB of the Income Tax Act. 1961. In view of this we reject th....
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....B of the Act. Even otherwise we are not on the computation of the income but we are on the issue whether the learned assessing officer has at all looked into the computation of the Book Profit under section 115 JB of the Act or not. The answer is clear cut no. d) The next contention of the learned authorised representative is that that order is not erroneous much less prejudicial to the interest of the revenue. It was stated that the accounting treatment of recording the shares of the company are at its fair market value accepted by the assessing officer, which is strictly in accordance with the law. It was further stated that the object of minimum alternate tax provision is to bring out the real profits of the companies which is available for 54 distribution as dividend based on the profits declared by such companies and its books of account. It was further stated that the profit and loss account prepared in compliance with the requirements of the Companies Act, 1956 and in accordance with the accounting standard issued by the ICAI, as laid down before the members in the annual general meeting that normal profit should be regarded as sacrosanct for computing the deemed income u....