TaxTMI 
TaxTMI 
TaxTMI 
2018 (12) TMI 281
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....ejudicial 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 three companies (including the appellant) and the entire....
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....ee. 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 u/s 234A;234B, 234C and 234D, if any, as per Act. Computation of tax and interest....
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.... 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 the same is found factually correct except on the issue that the important business transactions falling between....
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....d 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 assets and creation of Revaluation Reserve. As stated earlier, earlier M/s Slocum had all the assets and substantial share capital. Amon....
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....d 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 associate concerns on its own and there is no need for the company to take any loan from the bankers and in fact no such loans have been taken by the ....
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.... 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. which took place on 04- 05-2012 from the Hon'ble Court as well as from the ROC, the accounts cannot be treated as sacrosanct for the purpose of computing Book Profit u/s....
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....ent/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 does not bar the Department from examining the scheme from the Income Tax Angle. 10. A few points about the Scheme Of Amalgamation and the context would help in better appreciation of the f....
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....cum. 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 informed the Hon'ble Court about the important financial transactions having taken place in the interim period and its tax implications. The sale of 1 cr. shares of for Rs. 500 crores appx. was definitely an important financial transaction carrying si....
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....amation. 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 modify/alter the 'Book Profit' in cases of deviation from the standard accounting practices. Some of these judgments are mentioned below: i) DCIT Vs. Bombay Diamond Co, (1TAT Mumbai) 2009/TIOL/ 760/ITAT-MUM ii) CIT Vs. Veekay Lal Investments 249 ITR 597 (Bom.) iii) Rain ....
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....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 fair values at the date of Amalgamation". Thus the assessee's contention that it was obligatory {as per AS'14) on their part to restate the value of assets(Investments) at their FMV is far from truth. 13. Objectives of amalgamation quoted by the assessee : While submitting the SOA t....
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..... 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 : "It must be confessed that it is open to a party to so arrange its affairs so as to reduce its tax liability. The assessee or party can arrange its affairs so that he or it may not incur any tax liability. But it must be within the power of the party to arrange its affairs. If the party seeks assistance of the co....
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....enses 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 assessee's capital or asset structure. The assessee itself has admitted that, considering sufficient availability of working capital, there was no such business requirement of borrowing funds from the market. iv. Lastly the assessee submitted that it has availed credit of Rs. 11.25 crores from Noida authority at 11% interest. Here the asse....
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....04 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{Bang-Trib) where it has been held that amount of profit eligible u/s 10(38) should alone be considered for the purpose of tax liability u/s 115JB of the Act. iii. Accounting Standard AS-13 for Accounting for Investments and its violation by the assessee : Para 17 of AS-13 (Accounting for investments) provides as under 17. Long-term investments are usually carrie....
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.... 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 Acquisition". The claim of assessee appears to be that cost of acquisition in terms of provision of Section 49(3) (i.e. cost to the previous owner) is applicable only for the purpose of "Computation Of Capital Gain". If we go by this logic, the exemption from definition of the word "transfer" as provided 21 in sub-section (vi) of section 47 will also apply only in respect of computation of Capital ....
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....nts 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 of the I.T. Act. In the circumstances, one fails to understand as to how in computing the Book Profit under the company Act, the assessee company cannot consider capital gains for the purpose of computing Book Profit u/s 115J of the Act. vii. The clause 2 of Part II of Schedule VI of the Companies Act makes it clear that profit from investments were required to be credited to the revenue account apart fr....
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....e 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. 491.70 crores. Thus, the assessment order passed by the AO is prejudicial to the interest of revenue. Further, as per Explanation 2 to Section 263(1) (w.e.f. 01-06-2015), an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the CIT/Pr. CIT, the assessment order is passed by the AO : (i) without making enquiries or verification, which sho....
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....g 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 Reserve by the assessee instead of creation of Capital Reserve. The Capital Reserves are the reserves created out of the profit earned not in the normal course of business and in the process capital employed in the business is increased permanently. The Capital Reserves are not available for the payment of dividends, however liabilities and losses of capital nature can be met from these. The present case also falls in the category of creation of Capital Res....
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.... 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 method. In that case, the investments would have been stated at the historical cost in the books of the amalgamated entity. By that method the assessee was liable to pay MAT u/s. 115JB on the total amount of Long Term Capital Gain of Rs. 491.70 crores. By revaluing(restating) the historical cost and taking the revalued cost as the cost of acquisition by the amalgamated entity, the assessee has sought to extinguish the entire tax liability u/s 115JB. Neither the amal....
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....p 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 supporting material without making any enquiry, exercise of jurisdiction by Commissioner under section 263(1) was justified. iii) Raimandir Estates (P) Ltd Vs PCIT [20171 77 taxmann.com 285 (SC)/(2017) 245 Taxman 127 (SC) Hon'ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money launderi....
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....or 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 shown as part of "Loss on disposal of investments - (net)" in the profit and loss account for the year ended 31sl March. 2013. to be read with Note No.25 forming part of the audited accounts. For the purpose of computing deemed income under section 115JB of the Act, net profit/ loss as per audited profit and loss account, which included the aforesaid book loss on sale of equity shares was considered, and the specified upward/ downward adjustments, as prescribed in Explanation 1 thereto were made. Revisionary order of P....
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.... 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 shares of HCL Tech acquired as part of amalgamation: (b) there is no error whatsoever, in the original assessment order accepting the return of income filed by the assessee, more particularly on the issue of gain/ loss on sale of shares in HCL Tech: (c) the view taken by the assessing officer accepting the return of the assessee is, in any case, plausible view' in the eyes of law. Re (a): Assessment u/s 143(3) after extensive enquiries 14. During the assessment proceedings under section 143(3) of the Act, the assessing officer, after taking note of various di....
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....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 financial statements, which referred to investment in equity shares of HCL Tech: c) Vide question No. 12 the appellant was directed to provide details of loss on disposal of investments of Rs. 283.48 crores, particularly with reference to note No.5 of the Notes to the audited financial statements. The appellant was also directed to provide details of fair market value of investments and also to state how the same had been calculated. 17.2 In response to the aforesaid questionnaire and further enquiries/ information sought by the assessing officer from time to time during the course of assessment p....
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.... 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, it will be appreciated that the assessing officer made extensive/ necessary enquiries regarding issue of transfer of shares of HCL Tech acquired as part of amalgamation before accepting gains/ loss on transfer of shares in HCL Tech, as determined while computing income under the normal provisions as well as under section 115JB of the Act. 19. It is of utmost importance to note that complete details of 'book value' and 'fair value' of assets/investments, alongwith supporting valuation reports etc were repeatedly called for by the assessing officer during the course of assessment proceedings to undoubtedly examine/verify the impact of such valuati....
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....n 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. b) It may be noted that the object of MAT provision is to bring out the 'real profits' of the companies which is available for distribution as dividend, based on the profits declared by such companies in its own books of account. The legislative intention behind introduction of section 115J of the Act [refer CBDT Circular No. 495 dated 22.09.1987: 168 ITR (St) 87 @Pg. 110], can be gauged from the speech delivered by the then Finance Minister and the Memorandum explaining provisions of the Finance Bill. 1987. relevant extracts of which is reproduced as under: "Budget Speech of the Finance Minister: ".......... 80. It is only fair and proper that the prosperous should pay at least....
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....ns: - 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 dedicated Guidance Note is issued by the ICAI. the same will have primacy over all other instructions applicable generally.[Refer Cairn India Ltd vs. DCIT: 87 taxmann.com 28 (Del)] 25. It is, thus, respectfully submitted that there was no error in the assessment order accepting the income-tax return filed by the appellant for the relevant assessment year in respect of the transaction of sale of shares of M/s HCL Tech, w herein income under the normal provision as well as deemed income under section 115-JB was computed strictly in accordance with the provisions of the Act. Rebuttal to findings of Pr.CIT 26. The specific allegations/ findings of the Pr.CIT in the impugned order are rebutted as under Re (i): Securities Premium is not Revaluation reserve 26....
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....ting 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 order dated 22nd March, 2011 (Guj)]: g) Even if the difference arising on amalgamation was, without prejudice to the above, credited by the assessee to capital reserve instead of securities premium account, there would not have been any change in MAT liability under section 115JB of the Act since "Securities Premium Reserves" and "Capital Reserves", being balance sheet items, are of similar nature and are fall within the classes of reserves under the Companies Act. requiring no adjustment to section 115JB of the Act, leave apart under clause (j) thereto: h) Even otherwise, for the purpose of section 115JB of the Act, treatment accorded in the books in accordance with the terms of the scheme sanctioned by the High Court and the provisions of sections 210/211 of the Companies Ac....
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....evant 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 recognition. Reliance in this regard is placed on following decisions: - Sadanand S. Varde v. State of Maharashtra: 247 ITR 609 (Bom) - Wood Polymer Ltd., in re: 109 ITR 177 (Guj HC) - Vodafone Essar Gujarat Ltd. v. DIT: 35 taxmann.com 397 (Guj HC)- afformed by SC in 66 taxmann.com 374 - ACIT v. TVS Motors Co. Ltd.: 8 taxmann.com 288 (Chn) - Purbanchal Power Co. Ltd. vs. DIT in l.T.A No.201/Kol/20100 (Kol 1TAT) d) the scheme of amalgamation was undertaken by the appellant for achieving the objectives of leveraging the balance sheet, consolidation of its investment companies so as to streamline its treasury operations and avoid multiple entities; in the process, if any tax advantage has arisen, it cannot be said that the entire arrangement was for tax evasion: e) even otherwise, the Courts have time and again acc....
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....f '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 which are otherwise exempt under that section, shall be considered for the purposes of section 115JB of the Act: (c) Specific reliance in this regard is placed on the decision of the Mumbai Bench of the Tribunal in the case of Dharmayug Investments Ltd v ACIT: 69 SOT 433, wherein it has been held that while computing Book Profit, income credited to the profit & loss account which is otherwise exempt under section 10(38) of the Act will not be reduced. (d) In the instant case, it may be appreciated that there was book loss of Rs. 291.82 crores on sale of shares of HCL Tech, which was rightly considered for the purpose of determining the 'Book Profit': (e) The provisions of section 115JB have an overriding effect upon other provisions of the Act and consequently, method of computation of Book Profit provided in the Explanation is mandatory and overrides normal provisions of compu....
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....s 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 (MP) - CIT vs. Ganpat Ram Bishonoi: 152 Taxman 242 (Raj.) - CIT vs. Mehrotra Brothers : 270 ITR 157 (MP) - CIT vs. Associated Food Profits (P) Ltd. : 280 ITR 377 (MP) - CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) - Gail India Limited vs. CIT: ITA No.2577/Del/2004 (Del ITAT) 30. In that view of the matter, it is respectfully submitted that the assessment order passed by the assessing officer accepting gains/ loss on transfer of shares in HCL Tech vide assessment order dated 02.01.2016, being in conformity with the provisions of the Act, cannot, by any stretch of argument, be regarded as "erroneous", much less prejudicial to the interests of the Revenue. Re (c ) : Plausible view in law - not erroneous 31. Moreover, on perusal of the above, it is submitted apart from the fact that there was no error whatsoever, in the original assessment order, the view adopted by the appellant as accepted by the assessing officer was, in any case, a plausible view in law and therefore, for this reason,....
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....is not only the lack of enquiry, but also non-consideration of relevant provisions of IT Act on the part of Assessing Officer which make the assessment erroneous in so far as prejudicial to the interest of Revenue. It is also submitted that the assessee has not complied with the directions of Hon'ble High court on Amalgamation Scheme para 6.5. Apart from above, the assessee did not bring correct facts before the Hon'ble High Court regarding sale of shares of HCL Tech. Ltd. The case laws relied by the assessee are not applicable as the assessee has failed to comply with the provisions of section 115JB (4) of the IT Act. She, therefore, urged for sustenance of the impugned order u/s. 263 of the IT Act. 9. After hearing both the sides and perusing the entire material available on record, we find no justification to interfere with the impugned order. The assessment order under section 143 (3) was passed on 02/1/2016 for assessment year 2013 - 14 by the Assessing Officer. This order is subject matter of revision by the Commissioner of Income Tax, Delhi - 9 vide his order dated 26/2/2018 under section 263 of the Income Tax Act, 1961. The learned Commissioner has held that the order is e....
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....1961. 12. The learned Commissioner of Income Tax on examination of the records was of the view that the capital gain earned by the assessee on the sale of 1,00,00,000 equity shares of HCL technologies Ltd has not been offered for the Book Profit tax under section 115 JB of the Income Tax Act. 1961. Therefore, it was held that the assessment order passed under section 143 (3) dated 46 02/01/2016 by the learned assessing officer is erroneous and prejudicial to the interests of the revenue. 13. We are of the opinion that there is no infirmity in the order of the learned Commissioner of income tax in holding that the assessment order passed by the learned assessing officer is erroneous and prejudicial to the interests of the revenue as:- a) During the course of assessment proceedings, form No 29B ( See Rule 40B) for computing Book Profits of the company U/s 115JB of the Income Tax Act. 1961 was not filed by the assessee before the assessing officer. No such form was filed by the assessee before the Commissioner also. According to Rule 40B of the Income Tax Rules 1962, Form No. 29B is the report of an accountant, which is required to be furnished by the assessee along with the return....
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....stment in equity shares of HCL technologies. Vide questionnaire No. 12, the appellant was directed to provide details of 48 loss on disposal of investment of Rs. 283.48 crores particularly with reference to note No. 25 of the notes to the audited financial statements. This claim of the assessee, on being examined, we find that vide letter dated 26/5/2015 assessee had submitted the copy of return of income along with the computation of the total income for the relevant year. Admittedly along with this return, the assessee has not submitted form No. 29B of the Income Tax Act, 1961, for the purpose of the computation of the Book Profit. Therefore, there was no occasion with respect to this reply to verify with the computation of the Book Profit with the assessing officer. The 2nd submission was made by the assessee on 30/6/2015 when the details of the amalgamation and the copies of the scheme along with the copy of the order of the High Court sanctioning the scheme was furnished. Even in these details, there was no reference of computation of the Book Profit under section 115 JB of the Income Tax Act, 1961. Therefore, the submission also does not deal with any of the issue covered w....
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....ely claimed the tax benefit. We rest that issue their 50 only but however, we state that there is no reference of any computation of Book Profit under section 115 JB of the Income Tax Act, 1961. The next claim of the assessee is that vide letter dated 20/11/2015, the appellant has furnished the copy of the order of the High Court approving the amalgamation and also the balance sheet of amalgamating entities. On careful perusal of the letter placed at page No. 252 to 299 of the paper book, we find that there is no reference in these documents with respect to the computation of the Book Profit for the year. The next claim of the assessee is that vide letter dated 26/11/2015, it has submitted the book value of assets transferred on merger vide annexure 'A' and the fair market value of the above assets recorded in the books on amalgamation vide annexure 'B' there to. Admittedly these details have been submitted and placed at page number 300 to 302 of the paper book. Vide page number 301, the assessee has shown the investment in HCL Tech Ltd of Rs. 114,30,05,45,285/- which is the book value of the assets. Vide page number 302, the assessee has shown the various investments where ....
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....ok Profit under section 115 JB of the Income Tax Act. 1961. In view of this we reject the argument of the learned authorised representative that there is an extensive inquiries made by the learned assessing officer under section 143 (3) of the Income Tax Act. 1961. According to us the learned assessing officer has not made any enquiry with respect to the computation of the Book Profit during the course of assessment proceedings. It is a clear case of Lack of enquiry. c) An interesting argument has also been raised by the learned authorised representative that the revaluation of assets/investment is in the shares of HCL technologies Ltd which had no tax implication under the normal provisions of the Act and the extensive inquiries undertaken by the assessing officer was purely to examine the impact of such three statements at fair value for the purpose of determining the Book Profit in terms of section 115 JB of the Act. This argument though looks attractive but straightway requires to be rejected in absence of form No. 29B submitted by the assessee before any of the lower authorities. Unless such form duly certified by the accountant about its correctness is submitted before the a....
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....t normal profit should be regarded as sacrosanct for computing the deemed income under section 115 JB of the Act and can only be subjected to the upward and downward adjustment specified in that section. There is no quarrel on this issue because these are the issues of the principles of taxation. The simple issue involved in this appeal is whether the computation of the Book Profit has been verified by the learned assessing officer or not. Whether the assessee has submitted any detail which shows that learned assessing officer has applied his mind to the computation of the Book Profit or not. For both the questions the answer is in negative. e) Though the learned principal CIT has also looked into the computation aspect of the capital gain and crediting of the excess of the fair market value of the asset over the liabilities of the amalgamated company credited to securities premium account or against the revaluation reserve for the purpose of the computation of the Book Profit under section 115 JB of the Act as well, as has also been stated that amalgamation is with the purpose of evading minimum alternate tax and the scheme is not binding on the revenue. These aspects are require....