TaxTMI 
TaxTMI 
2021 (10) TMI 505
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....ax, Range- 7(1), Mumbai (hereinafter referred to as ld. AO). ITA No.4345/Mum/2007- Revenue Appeal 2. The primary facts of the assessee are that it is engaged in manufacturing and sale of pharmaceuticals dealing in both prescription and OTC products as well as bulk drugs, chemicals and skin care products. The company has its registered office and head office at Lower Parel, Mumbai and its units at Deonar, Pithampur, Malad, Thane, Mulund, Bhandup and Paithan. 2.1. During the A.Y.2002-03, the assessee company has amalgamated Rhone Poulenc (India) Limited (RPIL), Super Pharma Limited (SPL) and assets and liabilities (excluding certain assets and liabilities as per Schedule A of the Scheme) of amalgamation of NPIL Finvest Private Limited (NFL) with itself under the scheme of arrangement as approved by the Bombay High Court vide its order dated 29/09/2001. As per the scheme of arrangement, all the assets and liabilities of RPIL and SPL and certain specified assets of NFL stand transferred and vested with the assessee company w.e.f. 01/04/2001 being the effective date. Further during the A.Y.2002-03, the assessee company has also acquired the pharmaceutical division of ICI (India....
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....sale of assets worked out the WDV of the "block of assets by reducing the sale value as recorded in the books of the purchasing company. 18. Insofar the disallowance of the claim of depreciation pertaining to BMIL is concerned, we find that the same being a recurring issue is covered by the order of the Tribunal in the assesses own case for A.Y. 2008-09 in favour of the assessee. We find that the Tribunal while disposing off the appeal of the assessee for A.Y. 2008-09, had observed that it was an admitted fact that BMIL before its merger had not claimed depreciation on the assets in the A.Y. 1995-96 & A.Y 1996-97. In fact, the assessee had claimed depreciation for the first time on the assets taken over from BMIL. It was observed by the Tribunal that as per the provisions of Sec. 32 of the IT Act applicable to the relevant assessment year, the assessee was free to either claim or not claim depreciation, as per its own option. On the basis of the aforesaid deliberations, it was concluded by the tribunal that the A.O was not justified in notionally reducing the depreciation for A.Y 1995-96 & A.Y 1996-97 from the WDV of the assets of BMIL while quantifying the depreciation in....
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.... of the assessee that it was a slump sale transaction and considered the same as an itemised sale of assets. On the basis of his aforesaid observations, the A.O worked out the WDV of the block of assets by taking the values of the assets as were recorded in the books of accounts of the purchasing company, as the sale value, and reduced the same from the different block of assets. In the backdrop of his aforesaid reworking of the WDV the A.O scaled down the assesses claim of depreciation in respect of assets of PHL. 20. On a perusal of the records, we find that it is the claim of the assessee that the CIT(A) while disposing off its appeal for A.Y 1999-2000 had observed that the sale of two divisions viz. (i). Glass Division (GGL); and (ii). Bulk Drug Division (BDD) by the assessee was rightly claimed as slump sale transaction. However, as is discernible from the order of the DRP, the issue as to whether the sale of the aforesaid two divisions was to be construed as itemized sale of assets or slump sale is pending before the ITAT in the preceding years of the assessee. Accordingly, the DRP had directed the A.O to allow depreciation to the assessee on the basis of the outcome....
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....ct, the same analogy would apply to the issue in dispute before us. We find that the Hon'ble Apex Court had held that deduction u/s.80HHE had to be worked out on the basis of adjusted book profit u/s.115JA of the Act and not on the basis of profits computed under regular provisions of law applicable to computation of profits and gains of business. Respectfully following the same, we do not find any infirmity in the order passed by the ld. CIT(A). Accordingly, the ground No.1(b) raised by the Revenue is dismissed. 5. Ground No.1(c) raised by the Revenue is challenging the action of the ld. CIT(A) in directing the ld. AO to allow deduction for provision of bad and doubtful debts while computing book profits u/s.115JB of the Act. 5.1. We have heard rival submissions and perused the materials available on record. We find that assessee had made provision for bad and doubtful debts in the sum of Rs. 2,53,88,267/-. This sum was duly disallowed by the assessee voluntarily while computing income under normal provisions of the Act. However, while computing book profits u/s.115JB of the Act, the assessee claimed deduction for the same. The ld. AO proceeded to disallow the same while com....
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....nt in the balance-sheet, then, this would amount to writing off. In the present case, the Tribunal recorded a finding of fact that the respondent-assessee has debited the provision of doubtful debt to the profit and loss account and correspondingly reduced the assets by reducing the amount of unsecured loans. On the aforesaid facts, the Tribunal held that this would amount to writing off of the debt. Thus, on examination of facts it concluded that the respondent-assessee has written off the loan and would be entitled to the claim of bad debts. The Tribunal by the impugned order also recorded a finding of fact that once the respondent-assessee has lent surplus money and offered the interest to tax as business income, then the activity of the respondent-assessee of lending money is a business activity. Therefore, the debt qualifies for deduction under Section 36(1)(vii) read with Section 36(2) of the Income Tax Act, 1961. In view of the finding of fact recorded by the Tribunal that the provision has been written off and reliance placed on the decision of the Apex Court in the matter of Vijaya Bank (supra), we see no reason to entertain question (c). 8. In so far as question ....
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....ment with retrospective effect from 01/04/2001 by introducing Clause (i) in Explanation 1 to Section 115JB(2) of the Act as under:- "Clause (i)- the amount or amounts set aside as provision for diminution in the value of any asset" 5.5. We find that this amendment has been brought in the statute by Finance Act, 2009 with retrospective effect from 01/04/2001. As stated earlier, Section 115JB of the Act is a self-contained code by itself starting with a non-obstante clause. The Hon'ble Supreme Court in the case of Apollo Tyres reported in 255 ITR 273 had already held that the book profits reported by the assessee which has been approved by their shareholders in the Annual General Body meeting could not be tinkered with by the ld. AO other than those additions or deductions specified in Explanation-1 to Section 115JB (2) of the Act. Clause (i) of Explanation to Section 115JB(2) of the Act specifically mandates that provision for diminution in value of any asset should be added back while computing book profits u/s.115JB of the Act. It is not in dispute that the provision for doubtful debts in the instant case does represent provision made for diminution in value of asset. ....
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....e conditions u/s.72A of the Act as it stood then and as applicable to A.Y.2003-04 i.e. the year under consideration. The assessee provided all the data as required by the ld. AO. The ld. AO noted that amalgamating company i.e. GBDFC had hived one of its Ibuprofen unit on 01/11/2002 which was having installed capacity of 720 MTS by way of slump sale to another sister concern of GBDFC namely Alpex International Pvt. Ltd., (hereinafter referred to as Alpex), the ld. AO thus alleged by doing the slump sale, GBDFC intentionally reduced installed capacity to 150 MTS as total installed capacity of GBDFC prior to slump sale was 870 MTS. Accordingly, the ld. AO concluded that the purpose of amalgamation was only to transfer huge unabsorbed depreciation and accumulated business losses of GBDFC to the assessee company. 6.3. It was pleaded before the ld. CIT(A) that assessee company, (i) had filed a copy of merger agreement along with resolution to specify the conditions of amalgamation and set off; (ii) had furnished detailed note along with copies of the Hon'ble Bombay High Court order sanctioning the scheme of amalgamation; (iii) had furnished copy of Minutes of meeting of the assessee c....
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....by the Finance Act, 2003 w.e.f April 1, 2004 i.e. A.Y. 2004-05 and hence these new conditions could not apply for A.Y. 2003-04 (i.e the year under consideration). 6.5. Before us, the ld. AR made a statement from the Bar that the assessee company does not hold any shares in GBDFC or in its holding company i.e. Nidus Fincom Pvt. Ltd., (hereinafter referred to as Nidus) and none of the Directors of the assessee company are the Directors on the Board of GBDFC or Nidus. It was also submitted by him that GBDFC is not a related party of the assessee company. In this regard, he drew our attention to page 25 of the factual paper book containing audited balance sheet of the assessee company for the year ended 31/03/2003. Similarly, he also drew our attention to the audited balance sheet of GBDFC as on 31/12/2002 at page 89 and 90 of the factual paper book containing related party transactions thereon, as per Accounting Standard 18 issued by the Institute of Chartered Accountants of India (ICAI). It was also submitted by him that GBDFC is a pharmaceutical company having substantial exports and that there was commercial rationale for the merger of GBDFC with the assessee company. In this co....
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.... amalgamation of GBDFC with assessee was only to buy losses. He argued that normally the purpose of amalgamation would only be for revival of amalgamating company which is conspicuously absent in the instant case. He led more emphasis on the following dates together with the events and argued that obviously the petition for amalgamation could have been filed by the assessee company on prior to slump sale:- Date of Slump Sale 01/11/2002 Appointed Date for amalgamation 01/01/2003 Order of the Hon'ble High Court approving the scheme of amalgamation 20/02/2003 6.8. From the above mentioned dates, the ld. DR argued that obviously the assessee company could have filed the scheme of amalgamation before the Hon'ble Bombay High Court prior to the date of slump sale i.e. 01/11/2002 and hence, the entire transaction by way of amalgamation was only done as a measure of colourable device to buy losses of GBDFC to be set off with the profits of the assessee company. He also led emphasis on the fact that Ibuprofen undertaking which is a profit making undertaking was sold by the GBDFC on 01/11/2002 by way of slump sale to its sister concern Alpex for a paltry sum of Rs. 50 lak....
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....sses available thereon in the hands of GBDFC was duly placed before the Hon'ble Bombay High Court along with the scheme of amalgamation while seeking approval. We hold that once the scheme of merger was duly approved by the Hon'ble High Court having in mind the larger public interest, the same cannot be disturbed by the Revenue by merely alleging that the merger was done only to buy losses and it was done only as a measure of colourable device. It is also pertinent to note that scheme of amalgamation when it goes for approval before the Hon'ble Bombay High Court, Union of India is made a party to the said scheme, which means all the Central Government regulatory authorities had a right to raise objections to the scheme of merger before the Hon'ble High Court. In the instant case, Income Tax department which is part of Union of India had not filed any objections before the Hon'ble High Court objecting to the merger. No evidence has been brought on record by the ld. DR before us in this regard. Hence, the department cannot object to the same at this point of time while implementing the said order of merger. We find that the scheme of amalgamation approved by the Hon'ble Bombay High C....
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....sented from or opposed to its being sanctioned. It has statutory force in that sense and therefore cannot be altered except with the sanction of the Court even if the shareholders and the creditors acquiesce in such alteration." 7.3. We find that the aforesaid observations of Hon'ble Supreme Court had been followed in yet another decision by the Hon'ble Bombay High Court in the case of Sadanand Varde vs. State of Maharashtra reported in 247 ITR 609 wherein it was held that Once a scheme becomes sanctioned by the court, it ceases to operate as a mere agreement between the parties and becomes binding on the company, the creditors and the shareholders and has statutory operation by virtue of the provisions of Section 391 of the Companies Act." 7.4. The said judgment of Hon'ble Bombay High Court further provided that an appeal, if any, against the order of amalgamation lies u/s.391(7) of the Companies Act 1956 and the same cannot be agitated in any collateral proceedings. The relevant extract of the said judgment is reproduced hereunder:- "We are of the view that the amalgamation, which has become final and binding, cannot be permitted to be challenged by the petitioners....
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....apacity of amalgamating company within a period of four years and which fact should also be supported by a certificate from a Chartered Accountant in Form No.62. A certificate from an Accountant in the Form No.62 is enclosed in page 76 of the factual paper book. We also find that assessee in the instant case had duly specified the commercial rationale beyond doubt which goes to prove the complete revival of GBDFC. This fact is also reiterated in the "FINANCIAL EXPRESS" news paper on 29/11/2002 Mumbai edition which date happens to be prior to the date of amalgamation. In other words, the said intention behind merger of GBDFC with assessee company, by exploiting the business prospects and inherent networking advantages of GBDFC, which was reported in the news paper on 29/11/2002 stood ratified and strengthened by the subsequent act of the assessee by fully utilizing the resources of GBDFC. At this juncture, we are conscious of the fact that the income tax dispute cannot be determined based on newspaper reports. But in the instant case, the facts stated in the newspaper reports stood subsequently ratified by the actual events that had taken place post merger. We are completely in agre....
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....ordingly, entered into share purchase agreement with Charak Pharma Pvt. Ltd. to sell its shares at a token price of Rs. 100 since even the capital of the Joint venture was eroded. 8.3. The ld. AO has alleged that the assessee has not furnished any tenable reason for the loss that it has incurred by selling off its share holding. In this regard, the assessee submitted that as stated earlier, the capital and reserves of Charak Piramal P. Ltd had been completely eroded. Further, Reckitt Piramal Pvt. Ltd. was incurring huge losses. Thus, the assessee decided that it would be prudent to exit from the company than incur further losses. The assessee exercised enough business prudence and foresight to reduce the further losses it could have incurred, had it not sold the shares. Thus, the assessee exercised appropriate caution in accordance with prudent business practices in its decision to sell the shares and receive whatever little consideration it could and took precautions to reduce the loss it suffered. However, the ld. AO failed to appreciate the action of the assessee without realizing the true intention of the assessee i.e. to avoid the further loss it could have suffered. 8.4....
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....0/- , which is not disputed , had to be accepted as commercial consideration. We find that the ld. AO in the instant case had not brought any material on record to dispute the fair market value of the consideration on sale of shares. 8.7. The ld. DR before us argued that the sale price quoted by the assessee at Rs. 75 lakhs was not justified and was not supported by way of any valuation report and accordingly, pleaded for restoring this issue to the file of the ld. AO with a direction to the assessee to produce the valuation report. We feel that this is not required to be done as there was no requirement as per the mandate of law on the part of the assessee to furnish a valuation report for sale of unlisted shares in the year under consideration. We find that the assessee had completely narrated the facts and circumstances under which it had to sell the shares for Rs. 75,00,000/-. If the ld. AO has got any doubt on the same, it is for the ld. AO to bring on record the comparable instances to prove that the share sale consideration shown by the assessee is incorrect. Nothing prevented the ld AO to even make cross reference to the buyer of the shares to ascertain the fact that the....
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.... Income Tax Appeal No.738 of 2014 dated 24/01/2017 had addressed the similar issue in dispute before us. The relevant question raised before the Hon'ble Bombay High Court is as under:- "(ii) Whether on the facts and in the circumstances of the case and in law, the Tribunal was correct in rejecting the fair market If value of the unlisted shares of PMP Components P Ltd. adopted by the Assessing Officer by invoking the provisions of Section 2(22B) (i) of the Income Tax Act 1961 for working out the long term capital gain?" 8.10. This question was disposed of by the Hon'ble Court by observing as under:- "4. Regarding question no.(ii): a) The issue which arises herein for consideration is whether it is open to the Assessing Officer to substitute the 'full value of consideration received on sale of shares by its 'fair market value' in the subject Assessment Year. The impugned order of the Tribunal allowed the Respondent assessee's appeal by inter alia holding that the reliance by the Revenue on Section 2(22B) of the Act is not justified. This is for the reason that there is no provision under the Act which would permit the Assessing Officer t....
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....uch a power under Section 50D of the Act is only to be exercised if the Assessing Officer comes to a finding that the consideration received is not ascertainable or cannot be determined. Moreover the decision of the Coordinate bench of the Tribunal in the case of MGM Shareholders Benefit Trust (supra) on identical facts situation has been accepted by the Revenue, as no appeal from the same has been filed by the Revenue. (d) In the above view, the question as formulated does not give rise to any substantial question of law. Thus not entertained." 8.11. In view of our aforesaid elaborate observations, in the facts and circumstances of the instant case and respectfully following the aforesaid decisions of the Hon'ble Jurisdictional High Court, we do not find any infirmity in the action of the ld. CIT(A) allowing capital loss on sale of shares of Reckitt Piramal Pvt. Ltd., and Charak Piramal Pvt. Ltd., in the sum of Rs. 11,75,06,652/-. Accordingly, the ground No.1(e) raised by the Revenue is dismissed. 9. The ground No.1(f) raised by the Revenue is with regard to allowability of bad debts as deduction in the sum of Rs. 46,00,000/- by the ld. CIT(A). 9.1. We have heard....
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.... the Special Bench of the Hon'ble Tribunal which has constituted to decide a similar issue in the case of DCIT vs. Oman International Bank SAOG (100 ITD 285). The question before the court was whether as per the existing provisions, even after the amendment w.e.f. 01.04.1989, it is obligatory on the part of the assessee to prove that the debt written off by him is indeed a Bad Debt for the purpose of allowance u/s.36(1)(vii). Held-No. it is not". 17.2. Respectfully following the Special Bench decision of the Jurisdictional Tribunal in the case of Oman International Bank. I hold that it is no longer necessary for the appellant to establish that the debt which is written off has become bad during the year. The A.O. is therefore directed to allow bad debts of Rs. 46,00,000/-. This ground of appeal is therefore allowed." 9.3. In view of the elaborate discussions of the ld. CIT(A) on the impugned issue, we do not find any infirmity in the order of the ld. CIT(A) granting relief to the assessee in this regard. Accordingly, ground No.1(f) raised by the Revenue is dismissed. 10. In the result, appeal of the Revenue in ITA No.4345/Mum/2007 for A.Y.2003-04 is partly allowed. ....
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....hat irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT shall have no bearing on the profits of the assessee. We find that the assessee had before the lower authorities objected to the aforesaid addition as was sought to be made by the A.O on three counts viz. (i) that requirement of valuing the purchases, sales and inventories for the purpose of determining the income under the head "Profits and gains of business or profession" was contrary to the accounting principles laid down by Accounting Standard-2 (for short "AS-2"); (ii). that the ICAI had issued "Guidance Note on Tax Audit under Section 44AB of the I-T Act", which specifically requires the formats in which information as regards the valuation of purchases, sales and inventories under both inclusive and exclusive method are to be presented, and the same provides that irrespective of the methods being followed, the net impact on the profit and loss will be nil; and (iii). that irrespective of whether the assessee follows Inclusive or Exclusive method of valuation of stock, the amount of unutilized MODVAT credit will have no impact on the profits of....
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..../s 145A, and in support thereof had relied on the order of the ITAT, Mumbai in the case of Hawkins Cookers Ltd. Vs. ITO (2008) 14 DTR 206 (Mum). We have perused Clause 12(b) (Page 61 of "APB") of the Tax Audit report of the assessee and find that it is the claim of the assessee that the impact of grossing up of tax, duty, cess etc. by restating the values of purchases and inventories by inter alia including the effect of CENVAT credit will be Nil, subject to Sec. 43B that the duty, taxes, cess etc. is paid before the "due date" of filing of the return of income. As the ld. D.R had submitted that the aforesaid working of the assessee would require to be verified, we therefore, in all fairness restore the matter to the file of the A.O for readjudication. Needless to say, the A.O shall in the course of the set aside proceedings afford a reasonable opportunity of being heard to the assessee, who shall remain at a liberty to substantiate its claim before him. The Ground of appeal No. V is allowed for statistical purposes." 5.2. Respectfully following the same, we deem it fit and appropriate, to remand this issue to the file of the ld. AO to decide the same in the light of direc....
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....al was borrowed for acquisition of the asset till the date on which such asset was first put to use , shall not be allowed as deduction. We find that this proviso in any case would not be applicable for the year under consideration as the same was introduced in the statute only with effect from Asst Year 2004-05 and not applicable for earlier years. 6.11. We find that the ratio laid down by the Hon'ble Supreme Court in the case of S.A. Builders v CIT reported in 288 ITR 1 would be squarely applicable to the facts of the instant case. In the said case, the Hon'ble Apex Court held as under: "In our opinion, the decisions relating to section 37 of the Act will also be applicable to section 36(l)(iii) because in Section 37 also the expression used is "for the purpose of business". It has been consistently held in the decisions relating to section 37 that the expression "for the purpose of business" includes expenditure voluntarily incurred for commercial expediency, and it is immaterial if a third party also benefits thereby. Thus in Atherton Vs. British Insulated and Helsby Cables Ltd. [1925] 10 TC 155, it was held by the House of Lords that in ....
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....llow deduction u/s.37(1) of the Act by observing as under:- "7.1. We have heard rival submissions and materials available on record. We find that under the head legal and professional fees, the assessee had claimed deduction in respect of payments made to Accenture in the sum of Rs. 522.97 Lakhs. The assessee submitted that payment of Accenture was mainly pertaining to successful integration of RPIL with the assessee company. The assessee submitted that this expenditure has been incurred on the grounds of commercial expediency allowable as deduction u/s.37(1) of the Act. The ld. AO however, disregarded the contentions of the assessee and disallowed the claim of the assessee by treating it as capital expenditure. The ld. CIT(A) however, observed that since this expenditure had been incurred pursuant to amalgamation of RPIL with assessee company, the same would fall within the ambit of provisions of Section 35DD of the Act and accordingly only 1/5th of the said expenditure would be eligible for deduction. Against this action of the ld. CIT(A) both assessee as well as the revenue are in appeal before us. 7.2. We find that the genuinity of incurrence of this expenditu....
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....he ld. AO show-caused the assessee with regard to claim of deduction u/s.80HHC of the Act to explain as to why the profits of the business should not be recomputed in view of Explanation (baa) of Section 80HHC(4) of the Act. In response, the assessee company vide letter dated 14/12/2005 submitted as under:- "Point no. 11 Claim of deduction u/s. 80HHC (i) Total turnover does not include Sales-tax Rs. 81.74 crores and Excise Duty Rs. 90.17 crores. (ii) AU the foreign exchange have been realized within the stipulated period. (iii) As regards the net off of interest received, amounting to Rs. 19.60 crores, from interest payments, it is submitted that interest receipts consists of interest received on Term deposits with companies. on receivable and others whereas, interest payments also consists of payment in respect of interest on loan, debentures and others which was incurred during the normal course of business having direct nexus with each other. Hence, it is purely related to business only. As for as Other income Rs. 53.00 crores (Schedule 15) if concerned, Dividend Rs,22.09 crores, Profit on sale of Assets Rs. 7,80 crores, Rent Received....
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....appellant has credited an amount of Rs. 39,44,82,807/- to the P&L, Account under various heads. Following my appellate order for A.Y. 2002-03 and looking into the nature of the receipt and the legal position of the issue. I am of the view that receipts such as rent received, misc. income, service and commission charges and interest received are of the nature of receipts covered by [Explanation (baa) and therefore has to be excluded from the profits of the business while computing deduction u/s. 80HHC. However, looking into the nature, the amount received by the assessee on account of processing charges in my view, is not of the nature covered by Explanation (baa) and therefore should not be excluded while computing the deduction u/s. 80HHC. The A.O. is directed to re-compute the deduction u/s, 80HHC accordingly." 14.5. We find that the short dispute in this regard which is to be addressed before us is that while computing the 90% of interest together with rent, miscellaneous income, service charges, commission etc., for the purpose of reducing the same from profits from business eligible for deduction u/s.80HHC of the Act in order to arrive at the adjusted profits of the busines....
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....ted 20/02/2020 vide ground No.5 in para 8.6 thereon, wherein this Tribunal had allowed the said amount as deduction. Accordingly, the ground No.VII raised by the assessee for A.Y.2003-04 is dismissed as infructuous. 18. The ground No. VIII is with regard to treatment of payment made for settlement of dispute to Danisco USA Inc as capital expenditure. We find that this ground was stated to be not pressed by the ld. AR at the time of hearing. The same is reckoned as statement made from the Bar and accordingly, the ground No. VIII raised by the assessee is dismissed as not pressed. 19. The ground No. IX raised by the assessee is with regard to treatment of rental income from let out portion of Rhone Poulenc House (RPIL) as "income from other sources" instead of "income from house property". 19.1. We have heard rival submissions and perused the materials available on record. We find that assessee company had declared the income from house property in respect of rent received from RPIL House and Centre Point. The ld. AO observed that RPIL House has been sold by the assessee company in A.Y.2002-03 and capital gains offered thereon and registration of the said property was also d....
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....lution passed by the assessee and GBDFC, the preference shares were actually redeemed at its face value of Rs. 10 in November 2002. The scheme of amalgamation was approved by the Hon'ble Jurisdictional High Court only on 20.2.2003 with effect from Appointed Date 01.01.2003. The redemption of preference shares is a taxable transfer and since the shares were held for more than 3 years, the assessee had computed Long Term Capital Loss of Rs. 10.80 Cr (purely due to indexation) and claimed the same in the Return of Income. 21.2. We find that the ld. AO accepted the claim of long term capital loss in the order passed by him u/s.143(3) of the Act. However, the ld. CIT(A) in the first appellate proceedings sought to issue a notice of enhancement on the ground that the loss claimed on redemption of preference shares was not genuine and the entire transaction has been carried out by the assessee as a measure of colourable device. In response to the notice of enhancement issued by the ld. CIT(A), the assessee explained that the said loss claimed by it is not fictitious and that the loss arose only because of indexation benefit provided in the statute and the redemption was made at par. Th....
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....hare capital for GBDFC were held only by NIDUS. Hence, assessee cannot be said to be holding any equity stake in GBDFC. 21.5. We find that since GBDFC was incurring huge losses, the assessee could recoup its investment in preference shares by way of redemption only at par, thereby resulting in no loss no profit situation. Admittedly, there is no dispute that preference shares was held by the assessee company for more than three years and hence, the transfer of said shares would result only in long term capital gain / loss, as the case may be. Admittedly, the long term capital loss had arose to the assessee company in the instant case only due to the fact of indexation which is statutorily provided to the assessee. Hence, at the first instance, we hold that the loss claimed by the assessee cannot be treated as a measure of colourable device as pointed out by the ld. CIT(A). We hold that the entire method adopted by the ld. CIT(A) to classify this transaction as a colourable device is absolutely without any basis. We find lot of force in the argument of the ld. AR that had the preference shares not been redeemed at par, considering the fact of losses incurred by GBDFC, then the as....
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.... assessee company. Hence, the basic premise on which, the ld. CIT(A) had sought to adjudicate the entire gamut of the issue that they are all related parties, factually fails. With regard to the argument advanced by the ld. DR that through a circuitous route of transfer of funds i.e. BMK Loan NIDUS; NIDUS Equity GBDFC; GBDFC Redemption of preference shares to assessee company is concerned, as stated earlier, those parties are not related parties with the assessee company, and assessee is not bothered as to how the funds are getting arranged in the books of GBDFC to redeem the preference shares held by the assessee company in GBDFC. Further, the ld. CIT(A) also grossly erred in stating that assessee is holding 87% equity stake in GBDFC, which is factually incorrect. 21.7. As pointed out earlier, the entire loss arising on account of redemption of preference shares had arose only due to the fact of indexation statutorily provided in the Act to the assessee. Hence, the same cannot be denied to the assessee. We find that the Hon'ble Jurisdictional High Court in the case of CIT vs. Enam Securities Pvt. Ltd., reported in 345 ITR 64 had an occasion to look into the similar issue on all....
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....e benefit of indexation. The Assessing Officer disallowed the claim of set off of long term capital loss that arose on redemption against long term capital gain on the sale of other shares on the ground that (i) Both the assessee and the Company in which the assessee held the preference shares, were managed by the same group of persons; and (ii) There was no transfer and that the assessee was not entitled to indexation on the redemption of non-cumulative redeemable preference shares. The CIT(A) on the other hand, allowed the benefit which was claimed by the assessee. The Tribunal has affirmed the view of the CIT(A) holding that the genuineness and credibility of the capital transaction was not disputed for the previous ten years. Both the Companies were juridical entities; the fact that the Companies were under common management would not indicate that the transfer was sham and that the view of the Appellate Authority was purely based on surmises and conjectures. The Tribunal has followed the judgment of the Supreme Court in Anarkali Sarabhai v. CIT [1997] 224 ITR 422/90 Taxman 502 in holding that the redemption of preference shares results in a transfer within the meaning of Secti....
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....wever, stipulates that nothing contained in the second proviso shall apply to long term capital gain arising from the transfer of a long term capital asset being bonds or debentures other than capital indexed bonds issued by the Government. The Assessing Officer was of the view that the principal characteristic of a bond is a fixed holding period and a fixed rate of return. According to him, the four percent non-cumulative redeemable preference shares which the assessee redeemed also had a fixed holding period and a fixed rate of return and on this basis denied the benefit of cost indexation to the assessee. 8. The entire basis on which the Assessing Officer denied the benefit of cost indexation was in our view flawed and was justifiably set right in the order of the Tribunal. The Income Tax Act, 1961, does not contain a definition of bonds or debentures. Both those concepts have a well settled connotation in law, particularly in the provisions of the Companies' Act, 1956. Section 2(12) of the Companies' Act, 1956 defines the expression "debenture" to include debenture stock bonds and any other securities of a company, whether constituting a charge on the assets of....
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....A bond includes "any instrument whereby a person obliges himself to pay money to another on condition that the obligation shall be void if a specified act is performed, or is not performed, as the case may be" [P. Ramanatha Aiyar's Advanced Law Lexicon 3rd Edition 2005 page 565 Debt] securities typically are regarded as consisting of notes, debentures and bonds. Technically, a 'debenture' is an unsecured corporate obligation while a 'bond' is secured by a lien or mortgage on corporate property. However, in commercial parlance, the expression "bond" is often used indiscriminately to cover both bonds and debentures. As a matter of fact, the Companies' Act, 1956 in Section 2(12) defines 'debenture' to include debenture stock bonds and any other securities of a company, whether or not they constitute a charge on the assets of the Company. A bond is a formal document constituting the acknowledgement of a debt by an enterprise and normally contains a provision regarding repayment of principal and interest. There is a clear distinction between bonds and share capital because a bond does not represent ownership of equity capital. Bonds are in essence interes....