AI Drafter 
TaxTMI 
TaxTMI 
2022 (7) TMI 1041
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....6.02.16 -Do- 321/Ahd/17 Shri Anil R. Patel 2008-09 -Do- 07.03.16 153A r.w.s. 143(3) of the Act 322/Ahd/17 Shri Atul Nandkishore Dalmia 2008-09 -Do- 29.02.2016 -Do- 2. Since, in all appeals facts & circumstances are common, therefore, for the sake of brevity, we would like to dispose of these matters by way of a common order. IT(SS)A No. 322/Ahd/2017 in case of Shri Atul N. Dalmia is taken as lead case for disposal of the above appeals. 3. The ground of appeal raised by Revenue in IT(SS)A No. 322/Ahd/2017 in case of Shri Atul N. Dalmia read as under: 1. (a) On the facts and circumstances of the case and in law, the Ld. CIT(A)-12, Ahmedabad has erred in deleting the entire addition to the tune of Rs. 11,62,69,9077-. The addition was based on the seized e-mail conversations. Hence, the addition has erroneously been deleted by the Ld. CIT(A)-12, Ahmedabad. (b) The Ld. CIT(A)-12, Ahmedaba'd has erred in deleting the addition on account of considering sale of 100% shares of RLL to M/s Lupin Ltd. as 'Business Income' and considered it as Income from 'Capital Gains'. The same is erroneous as this is not mere....
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.... 4. With regard to issues under consideration, the AO observed as under: 5. Difference of Rs. 5,68,61,048/- in sale consideration of Rubamin Laboratories Limited- 5.1 During the course of assessment proceedings, it was observed that assessee has sold 6,52,432 shares of Rubamin Laboratories limited to Lupin Limited and has shown the sale consideration of Rs.7,02,99,053/-. The total capital gain shown is of Rs,6,55,91,422/-. Out of this amount, assessee has claimed exemption u/s 54 of the Act of Rs 6,09,82,053/- (54EC Rs.50,00,000 + 54F 5,59,82,053) and the capital gain offered for taxation before claiming set off is of Rs. 46,09,369/- and after set off the capital gain offered for taxation is of Rs. 9,91,462/- After the verification of submission of assessee and the seized material, assessee was issued show cause notice dated 15.01.2016, relevant portion is as under : "............. 5. On the perusal of seized material (AnnexureA-7)(Hard Disk Information) seized from the office of Rubamin Limited, Synergy House, Baroda, an offer letter from Lupin Pharma dated 28.08.2007 has been found and seized. This offer letter has been duly signed by the representative ....
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....ed that in the entire scheme of section 153A of the Act, there is no prohibition for the assessing authority to restrict the enquiry to incriminating material itself. It is expressly provided u/s 153A of the Act that the AO shall assess or reassess the "total Income" of the six assessment years . For clarity section 153A is reproduced herewith as follows: "153A(1) Notwithstanding anything contained in section 139, section 147, person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003, the Assessing Officer shall - (a) issue notice to such person requiring him to furnish within such period, as may be specified in the notice, the return of income in respect of each assessment year falling within six assessment years referred to in clause (b), in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139; (b) assessee or reassess the total....
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....ment proceeding would lead to one block assessment for undisclosed income and regular assessment were preserved resulting into multiple assessments. Section 153A has been introduced to withdraw multiple assessments and hence the power is given to AO to decide total income of the assessee under one assessment order for 1 year.. As under 153A , there is no room for multiple assessments, the provision has been made that pending assessment will be abated i.e. it will be merged to search assessment for the determination of total income as only one order has to be passed for disclosed and undisclosed income. With respect to completed assessment they will be reassessed as the section 153A asks AO to assess or reassess the total income. That's why the word reassess has been introduced in the section for completed assessments. 5. A perusal of section 153A shows that it starts with a non obstante clause relating to normal assessment procedure which is covered by sections 139, 147, 148, 151 and 153 . These sections applicability of which has been excluded relate to returns, assessments and reassessment provisions. So if an order is already in existence u/s 143(3)/ 143(1) having o....
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....mination of income on this issue. Now these documents which were found during the search were not available .when the assessment order u/s 143(1) of the I T Act was passed. Hence the arguments of the assessee on this count are also not valid. The details of incriminating material found related to assessee has been discussed in the following paragraphs. 5.3.2 Rebuttal of objection at point b : 1. During the course of search on perusal of seized material (Annexure A-7) (Hard Disk Information) seized from the office of Rubamin Limited, Synergy House, Baroda, an offer letter has been found and seized. For clarity the copy of offer letter is reproduced in assessment order. 2. This offer letter has been duly signed by the representative of Lupin Limited, Shri Ramesh Swaminathan(President, Finance and Planning Lupin Limited).As per this letter, Lupin Limited has made an offer amounting to Rs.42,50,00000/-for acquiring 100% fully paid up share capital alongwith business of Rubamin Laboratories Limited. The above letter is also agreed, accepted and signed by Shri Atul Dalmia. As per the submission of assessee, it is mentioned that offer made 'in the offer letter of ....
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.... As per the oral discussion with A.R of the assessee, it was submitted that payment to Yes Bank was made as a commission for facilitating the transfer of this transaction. But no proof in this regard is submitted. Further offer letter nowhere mentions adjustment on account of commission payments. 6. Most importantly it is submitted that some mails exchanged between Shri Vikas Dawra, Atul Dalmia and Ajay Agarwal have been found from the premises of Rubamin Limited, Synergy House, Baroda. The copy of these mails are also reproduced in assessment order. From the mails, it is observed by the AO that offers and deliberations made through mail are related to sale of the business of Rubamin Laboratories Limited(RLL). Assessee has submitted that these are not relevant mails. But it can be seen that the discussion in these mails is with respect to sale of Rubamin Laboratory itself. First mail is from Shri Atul Dalmia to Shri Vikas Dawra dated 09.08.2007which states that the valuation will conclude to Rs. 45 crore. Second mail is dated 13.08.2007 i.e in the period when Rubamin was in the process of sale of Rubamin Laboratories Ltd. and was evaluating various offers. In this....
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....ness as a going concern. Thus, assessee was issued show cause notice dated 15.01.2016, relevant portion is as follows : "............... 5. Further on verification of Share Purchase agreement between sellers and Lupin Ltd, it is seen that there are various clauses which elaborate the fact that Lupin has acquired the shareholding of company alongwith the entire business of the company , Rubamin Laboratories Limited . On going through various clauses, it is seen that through this agreement Lupin Pharma has acquired the business of the company i.e. business of manufacture , marketing, distribution and sale of fine chemical, API and intermediaries used in Pharmaceutical industry on a going concern basis with the entire shareholding of the company . Thus it is seen that entire control and management over the business and the company has been transferred by the sellers to the purchaser i.e. Lupin Pharma. Thus you are requested to show cause why the total consideration received by you on transfer of shareholding alongwith business of Rubamin Laboratories Limited should not be considered as business receipts and gain arising thereon should not be considered as income from....
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....2.2: sale and purchase of the shares it is mentioned that the Purchase Consideration shall include consideration for the transfer and assignment of the business as a going concerns, goodwill, intellectual property right, in relation to the business or otherwise owned or used by the company to the purchaser in the manner set out herein. Therefore the purchase consideration of Rs. 154.37 per share comprises the payments made for the purchase of shares and the purchase of business on a going concern. 6. On perusal of Article 9 as mentioned in the Agreement, it is clearly evident that Lupin Pharma has paid the Purchase Consideration for the non-compete and non solicit clauses as enshrined in the Agreement. Clause 9.1.1 states that sellers will not directly or indirectly engage in any business activity which competes with the business of the company. Clause 9.1.2 states that sellers being key promoters are in possession of trade secrets and confidential information of the business of the company thus they will not render any services as employer or consultant in any business similar to business of the company. Further it puts restrictions on sellers to participate in the manage....
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....ervices:" 6.4 In the instant case on verification of the agreement following facts are brought out: 1. The agreement not only provided for transfer of shares but also envisaged the transfer/ renunciation of the management of the company 2. Taxpayers were required to hand over business asets such as employee data base , product data base, customer proposals , etc , contracts, etc. 3. Taxpayer agreed to non compete clauses which prevented them from undertaking similar business for the period of two years. 4 There were specific clauses for non solicitation of present and future employees of the company and contracts of the company. 6.5 Therefore, after discussing the contents of the Agreement, it is beyond any doubt that the entire control and management over the business and the company has been transferred by the sellers to the purchaser, i.e. Lupin Pharma. Thus, the whole business has been transferred to Lupin Pharma on a going concern basis by the sellers as mentioned in this Agreement. In this context, it is relevant to highlight the cardinal principles enunciated in the Judgment of the Chandigarh bench of the Income Tax Appellate Tribunal in the ....
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....Article 5.1.1 of the agreement which enunciated the delivery of effective resignation in writing by the Directors as part of the activities of the completion. The next point under consideration is the non-compete covenants agreed upon between the parties as per Article 8, under which Article 8.4 clearly stated the seller agrees not to engaged in any call centre, business process outsourcing or IT enabled services business in the States of Chandigarh, Punjab, Haryana or Himachal Pradesh within a radius of 100 Kms from Chandigarh for a period of 2 years from the date of this agreement. Further non-compete covenants imposed a restriction upon the seller Directors to directly or indirectly solicit a business that the company has done since its inception without prior written permission of the company. Under Article 8.10 there was renunciation of brand equity of the company by the sellers in favour of the purchaser as the parties agreed that the sellers will not take advantage of the brand equity of the company by using any names, logos, trademarks, partnerships, affiliations, names etc. As per para 8.11 the sellers cannot use domains that contain the word Excel and would not use or cla....
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....facts and issues in ITA No.1101/Chd/2009 and our decision in ITA No.1101/Chd/2009 shall apply mutatis mutandis to ITA No.1102/Chd/2009. The ground of appeal raised by the assessee is dismissed. 19.1n the result, both the appeals relating to assessment year 2006-07 filed by the different assessees are dismissed. Order pronounced in the open court on this 8th day of June, 2012. Sd/- (MEHAR SINGH) ACCOUNTANT MEMBER Sd/- (SUSHMA CHOWLA) JUDICIAL MEMBER Dated 8th June, 2012 SURESH/Rati Copy to: The Appellant/The Respondent/The CIT/The CIT(A)/The DR Assistant Registrar, ITAT, Chandigarh" 6.7 The instant case of transfer of business by sellers is similar to the issues raised in the case before the Hon'ble ITAT, Chandigarh Bench. In the above case law the Hon'ble ITAT has mentioned that the transaction was in fact transfer of management of the company to the purchaser with a rider of non-interference by the sellers who were the directors of the company. Therefore, the Hon'ble ITAT has held that the gain arising from the transfer of share is to be assessed as income from busines....
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....nil R Patel at the price of Rs 1/-per share. The shares have been purchased on 04.07.2007. Thus cost of investment as shown in your books of accounts is Rs 10,90,000/-. In respect of this issue, various incriminating material is found and seized from the premise at office of Rubamin Limited, Synergy House, Baroda which is discussed hereunder a. Shareholder's agreement dated 06.06.2003 , annexed as Annexure A-l(Pg no 8-43) found and seized from the office of Rubamin Limited b. Shareholder's agreement dated 31.08.2005 , annexed as AnnexureA-l(pg 48 to 55) found and seized from the office of Rubamin Limited c. Shareholder's agreement dated 15.12.2006, annexed as Annexure A-l(pg 55-66) , seized from the office of Rubamin Limited d. Various documents, e-mails annexed as Annexure A7(Hard Disk information), from the office of Rubamin Limited. From the perusal of the document at(a), it is seen that this agreement provides for methods for valuation of shares. The method considers the performance of the company, the position of its assets and liabilities, yield of company based on past records and future capacities and potential being ....
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....on record, it is seen that market value of shares of Rubamin limited as on the date of transfer was much more than the rate at which they have been transferred. The value of shares as per the seized document is ranging from Rs 80/- to Rs 318.39/- per share , but it is nowhere nearby to value adopted by assesses for the transfer of shares. It is worthwhile to note that the date of transfer of shares between Anil R Patel and Atul Dalmia is 04.07.2007 while the date of transfer of shares between Rubamin Limited and India Advantage Fund -V through ICICI Ventures is 06.07.2007, Thus there is hardly any time lag between the two transaction. Still the price adopted for one transaction is substantially lower than price adopted for the other. Thus the fact and circumstances leading to transfer of share shows that assessee Shri Atul Dalmia has not correctly declared or disclosed the consideration paid by him and there is understatement or concealment of consideration in this respect. Thus in this respect , you are requested to show-cause why the market rate of Rs 318.39/- should not be adopted as the price paid for the transfer of shares of 10,90,000/~ between Shri Anil R Patel and ....
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.... the two promoters. Thus there is no point in assessee's argument w.r.t no incriminating material being found. 7.2.4 Coming to the merits of the case, the assessee's arguments w.r.t transfer of shares at price of Rs 1/- per share are not acceptable considering the background in which this transaction has taken place. In this context, it is relevant to highlight the conditions precedent to the transfer of shares by Shri Anil R. Patel to Shri Atul .N Dalmia. The genesis of the transfer of shares between the promoters and the reasons for such restructuring are enshrined in the Shareholder's Agreement dated 6th June, 2003 between Shri Anil R Patel Family (group) and Shri Atul N Dalmia family (group). The reason for entering into the Shareholder's Agreement dated 6th June 2003 is mentioned on page no.41 of seized document (the Shareholder's Agreement is annexed from page no.8 to 43) annexed as Annexure A-l found and seized from the office of Rubamin Limited, which is as under: "..AND WHEREAS the parties have expressed a desire to bring a clarity about the future functioning of the company and chart a path of growth and mutual rights and relationship between ....
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....n which the shares of the Patel group is to be acquired and also use the mode of buyback of shares at the relevant time and in such an event also, the valuation of the shares to Patel group shall effectively and financially be the same as has been arrived in accordance with the present agreement i.e. the Shareholders' Agreement dated 6th June 2003. Therefore, as per the clause no.6, it is evident that the shares have to be transferred by Shri Anil R Patel to Shri Atul N Dalmia in stages 1 to 3 and the shares to be transferred have to be valued as per the methods of valuation mentioned under Schedule 3. The methods of valuation motioned in this Shareholder's Agreement prescribe three steps: "STEP:1 Ascertaining the value of the Division (Pharmaceutical Division, Metal Division and Zinc Division) as per the Net Asset Value method (NAV). STEP:2 Ascertaining the value of the Division as per the yield Capitalization Method (YCM). STEP:3 Working out the weighted average of the value arrived at by above method as per the weights assigned to both the methods. In case where value as per the YCM is less than the NAV then the YCM will be ignored on the princ....
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.... by Dalmia group. 7.2.6 Further, another Shareholder's Agreement was entered into on 15th day of December 2006 between Shri Atul Dalmia family and Shri Anil R Patel family as appearing on page no. 55 to 66 of Annexure A-l seized from the office of Rubamin Ltd. Copy of which is annexed as Annexure C. On page no. 60,61,&62 of Annexure A-l, under clause 2(B) and 2(C) it is mentioned that the Parties (Dalmia and Patel groups) recognize that there is possibility of market value of the shares being different from the valuation of the shares calculated in accordance with the provisions of the Shareholders agreement. Hence to elucidate this concern, the agreement restricts Dalmia group to sell the shares within a period of one year from the date of purchase at a price higher than the price the Dalmia Group acquired the said shares from the Patel Group. In case, if the restriction is not followed (as it is evident in this case) then the consideration received in excess of the price between price at which the acquired shares are sold by the Dalmia group would be distributed between both the groups in the ratio of their pre acquisition shareholding ratio. Therefore, as per the perusal ....
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....ess than the market rate. In that case, to protect the interest of the seller of transferor i.e. Shri Anil R Patel (Patel group), the excess amount so received would be shared between Patel and Dalmia group. In addition to this, the Shareholders Agreement dated 30th June 2007 contains the provisions of Transmission of Shares mentioned on page no. 75 & 76 of the seized document Annexure A-l. As per clause no. 10.1, it is mentioned that the shareholders have agreed that upon the death of Anil Patel, Atul Dalmia will have a right to acquire all the shares held by the Patel Group from the successors in law of Anil Patel or any Person to whom such shares have been bequeathed under the Will of Anil Patel or otherwise and the other Shareholders of the Patel Group at the FMV, payable no later in ninety days from the date of exercise of this right by Atul Dalmia. Clause no 10.4 mentions about the appointment of an independent Valuer who shall determine the fair market value of the shares on the basis of the value of the company on a going concern basis and after taking into account of underlying assets and future prospects of the company. Therefore on perusal of this clause also it is evide....
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.... share based on the potential of the company and its future progress. Therefore, the determination of the value of shares at Rs.l per share is totally out of sync with the conditions precedent to the transfer of shares. The Agreements entered prior to share transfer and the instance of share transfer appears to be totally antithetical and opposed to each other. The right s of the group i.e. Patel group is totally ignored and the purpose for which the Shareholder's Agreement and the Arbitration Agreement were entered upon, i.e. to protect and define the rights and obligations of each group (Patel group and Dalmia group) and the furtherance of growth of the company are totally ignored. Further, the Arbitration Agreement without giving any reason has directed the Patel group to transfer 10,90,000 equity shares of the company to the Dalmia group at a consideration of Re. 1.00 per share. Therefore, through the award of Arbitration Agreement, Patel group did not get the true value of the share transferred as per the potential of the company, as desired by Patel group through various Shareholder's Agreement (discussed earlier) as well as in the Arbitration Agreement, The constr....
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....SOP at Rs.80 per shares; 1,40,000 shares were allotted in March 2007 at Rs.80 per share. -Company is signing an agreement with private investor who will be buying 19% of equity of the company at Rs 321.90 per share -Share transaction between same promoters in 2003 at Rs 94/- per share and thereafter there has been substantial improvement in the performance of the company -Two associate partnership firms were acquired by company in recent past the date of transfer and shares allotted by company at Rs 225/- per share. Therefore, from the perusal of this mail, it is clearly evident that the shares have to be valued as per fair value determined by valuer and shares of the company have been transferred to private equity investor at a much higher price. From the details found in the case of Rubamin Limited , it is seen that Shares of Rubamin Limited (Number of shares=2198531) were transferred to India Advantage Fund -V through its investment manager ICICI Venture Fund management Company at Rs 318.39/- per share on 06.07.2007 i.e. just two days after the date of transfer of shares between Anil R Patel and Atul N Dalmia. Therefore, there was no reason to trans....
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.... capital will increase from Rs. 2.50 crores to Rs. 10,00 crores. The reserves of the company will reduce to that extent. 4. We are working to raise the share capital through private equity route. We expect to raise fund to the tune of Rs, 50-60 crores by this route. The funds will be deployed in the company's growth plans at OR Congo and India. 7.2.12 Further a certificate dated 02.08.2007 regarding net worth of Shri Anil R Patel duly signed by a Chartered Accountant has been found and seized from office of Rubamin Ltd. at Synergy House, Baroda as Annexure A-5, Page no 133. It is stated at sr.no.3 of this certificate that as per the certificate dated 10.07.2007 the investment in shares of Rubamin Limited by Shri Anil R Patel is valuing Rs 24,55,41,120/-, As on 31.03.2008, Shri Anil R Patel was holding 30,69,264 number of shares of Rubamin Limited. As per the records furnished by assessee, there is no transfer of shares of Rubamin Ltd. by Shri Anil R. Patel after 10.07.2007. Thus the number of shares held by him as on 10.07.2007 is taken as 30,69,264. Thus the value of shares of Rubamin Limited as per the certificate furnished by Shri Anil R Patel as on 10.07.2007 is....
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....eiterated its rights in the form of receiving the true value of shares on its transfer to Dalmia group. This true means the fair market value of the share (which is also discussed in the Shareholder's Agreement). Hence, the chain of events leading to the Arbitration Agreement and the subsequent transfer of shares clearly postulate that the shares will / would be transferred by Patel group to Dalmia group at fair market value which should be considered as the true value of shares, thereby protecting the interest of the Patel group. Further receiving the true value of shares would also mean that there is a fair exchange between Patel group and Dalmia group whereby the Dalmia group has enhanced its shareholding and Patel group is being compensated of the loss on transfer of shares to the extent of reduction of shareholding in the company by the means of receipt of true value of shares. Therefore, there is an exchange/ sale transaction wherein the shareholding of one party is increased and the reduction in shareholding of another party is compensated in the form of value of shares paid to the party. However, in the instant case, as per the form created by Shri Anil R Patel and Shri....
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....he has not transferred the shares at the fair market value or not even at the value at which he has not sold the shares previously to Shri Atul N Dalmia. Further the transfer has also not covered the principles as enshrined in the share holders agreement. Thus in this case market value has to be considered as full value of consideration. Further, assessee has referred to the case of CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 407 (SC). In the case of CIT vs. Gillanders Arbuthnot & Co. (1973) 87 ITR 4O7 (SC), their lordship has observed that in the case of sale for a price, there is no question of any market value unlike in the case of an exchange. In this case, the Hon'ble Court has made a difference between sale and exchange. Even in the context of sale, the Hon'ble Supreme Court has mentioned that in case of sales to which the first proviso to sub section (2) of section 12B is not attracted, all that we have to see is what is the consideration bargained for. Even if we consider that the share transfer between Shri Anil R Patel and Atul N Dalmia is sale transaction, then also it cannot be said that Re.l per share was the price bargained for by Shri Anil R ....
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....orable transaction as discussed supra. Therefore it is apparent that Shri Anil R Patel has received part of the sale proceeds out of the books and Shri Atul N Dalmia has paid part of the proceeds which is not reflected in his books of accounts. 7.2.16 On the basis of above mention discussion, it is relevant to quote the principles enunciated in various case laws related to Colorable Transaction which is squarely applicable in principle in the facts of this case. It is most pertinent to mention here that a deliberate attempt to subvert the law to obtain tax benefit is an illegal act and impermissible. The law on the subject has been laid down by the Hon'ble Supreme Court in the case of McDowell & Co. Ltd.v. CIT[1985]154 ITR148/22 Taxman 11. Relevant extract from the head note is given below: - "Tax planning may be legitimate provided it is within the framework of the law. Conlourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honourable to avoid the payment of tax by dubious methods. It is the obligation of every citizen to pay the taxes honestly without resorting to subterfuges (emphasis Supplied) T....
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.... reiterating the law laid down in CIT v. Durga Prasad More (1971)82 ITR 540(SC) that an apparent must be considered real only if it is shown that there are reasons to believe that the apparent is not the real and that the Taxing Authorities are entitled to look into the surrounding circumstances to find out the reality and the matter has to be considered by applying the test of human probabilities. Therefore, it is clear from the above judgments that the burden is on the assessee to show that the receipt is not of an income nature by giving an explanation; the income Tax Officer is not expected to put blinkers and accept it as it is; it is open to him to probe further and find out whether the apparent is real or not and take a decision on such probing, in the light of human probabilities. However, he should not act unreasonably. The test of human probability is most significant to be referred to the circumstances such as in the present case where the assessee has used colorable device for avoidance of tax and it would be important to refer to the decision in the case of Som Nath Maini v. CIT [2008] 306 ITR 414 (punj. & Har.). In this case, the assessee in his return declared los....
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....without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step taken. McDowell therefore, did not depart from what-has already been laid down by the Supreme Court earlier except that the law regarding tax evasion was restated in much stronger expressions such as "dubious device", subterfuge, colorable transaction", etc. The judgment did not permit the income Tax Authorities to rewrite or make a new contract for the parties nor did it say that they could not go behind the documentation in an attempt to find out the real intention of the parties. If the real intention of the parties is discovered to be something different from the intention professed in the document, the income Tax Authorities are at liberty to brand the same as a subterfuge or a dubious device or a colourable transaction. An identical issue arose in the case of ICICI Ltd. In respect of boiler purchase from and leased back to Gujarat Electricity Board (GEB) and therefore the same was also referred to the Special Bench and the ICICI Ltd., was added as an appellant. While discussing the judgment o....
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....ent that Shri Anil R Patel has transferred the shares (10,90,000 shares of Rubamin Limited) to Shri Atul N Dalmia at Rs 1 per share by creating a mechanism of colorable transaction as discussed supra. Therefore it is apparent that Shri Anil R Patel has received part of the sale proceeds out of the books and Shri Atul N Dalmia has paid part of the proceeds which is not reflected in his books of accounts. 7.3 Thus on the basis of above discussion and facts on record, the full value of consideration is calculated adopting the fair market value of shares on the date of transfer. From the various evidences as discussed above, it is gathered that fair market value of shares of Rubamin Limited was much more than Rs 1/- per share at which the transaction is recorded in his books of accounts. It is pertinent to note that shares of Rubamin Limited (No of shares- 2198531) transferred to India Advantage Fund-V through its investment manager ICICI Venture Fund management Company at Rs 318.39/-per share(Rs 10/- per share + premium of Rs 308.39/- per share) on - 06.07.2007. India Advantage Fund is the third party investor to whom the shares have been transferred at the price of Rs 318.39/- per....
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....on of seized documents and facts on record which are discussed hereunder -In the context of Rubamin Laboratories Limited, there is separate shareholder's agreement dated 30.06.2007, which is found annexed in Annexure A-7(back up of computer hard disk) seized from the office of Rubamin Limited. This agreement talks about the equal terms and price to be fixed for the transfer of shares to the other group and to the third party , thus the shares transferred should have been transferred on the same terms and at the same price as was done in the case of shares transferred to Lupin. Therefore on the basis of conditions prevalent prior to the transfer of shares, it is observed that there was neither any compelling reason nor any rationale behind the transfer of shares at the rate ofRs I/-per share. Thus you are requested to showcause why the market rate of Rs 154.37/- should not be adopted as the purchase price paid for the transfer of shares of 1,98,000/- between Shri Anil R Patel and Shri Atul Dalmia and the additional price paid by you should not be considered as your undisclosed investment and added to your total income for the relevant assessment year. ....
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....eceipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Definitions and Interpretation _____________________________________________________________ 1.1 Definitions. In this Agreement, unless the context otherwise requires or expressly provides, the following words shall have the following meaning respectively: _____________________________________________________________ Rubamin Laboratories Ltd. Page2 Promoters'Sharedholders' Agreement After verifying various clauses of this agreement, it can be observed that before offering the shares for sale/transfer etc. to any third party, the shares have to be offered to the other group by giving a notice in writing (the selling notice) to the shareholders of the other group of his intention to sell his shares, spelling out-the number of shares beneficially owned by the offerer, the number of shares which make up the offered shares and the price at which the offered shares are proposed to be sold(the "offer price") and the terms and conditions of the sale of the Offered shares (the offer terms). In this case the "offer price" means the price at which he intend....
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....arranted the shares to be transferred by Shri Anil R Patel to Shri Atul N Dalmia at Re. 1 per share, i.e. much below than the FMV of the shares on the date of transfer. 8.2.5 Hence, on the basis of conditions precedent to the share transfer by Shri Anil R Patel to Shri Atul N Dalmia it is clearly evident that there was always a concern shown by Patel group that the shares might be transferred to Dalmia group and Dalmia group would pay the consideration which would be less than the true value of the shares (based on the potential of the company) or the fair market value of the shares as on the date of transfer. Therefore, on the basis of conditions prevalent prior to the transfer of shares there was neither any compelling reason nor any rationale or motive behind the transfer of shares at the rate of Rs. 1 per shares. 8.2.6 Further, it has been noticed that Rubamin Laboratories Ltd has been acquired by Lupin pharmaceuticals Ltd through share Purchase Agreement dated 20th September 2007 by acquiring all the existing shareholding of the company. Under clause no.B of the share Purchase Agreement dated 26th September 2007, it is mentioned that "the sellers are the legal and benefi....
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....ham transaction or colorable transaction having no rationale and the purpose is only to evade taxes due on the transfer of shares by Shri Anil R Patel to Shri Atul N Dalmia. Shri Anil R Patel and Shri Atul N Dalmia were fully aware of the negotiations with Lupin and other persons interested in acquiring Rubamin Laboratories Ltd (being the promoters/ Directors of the company). They were fully aware of the price that RLL's sale would fetch in market or bidding . Hence, they entered into a colorable transaction whereby Shri Anil R Patel transferred 1,94,800 shares to Shri Atul N Dalmia at the rate of Re.l per share when the same shares were subsequently acquired by Lupin at the rate of Rs. 154.37 per share. It is beyond comprehension and against human probabilities that if Shri Anil R Patel was going to receive handsome consideration against the sale of his shares of RLL to a third party acquirer then what was the reason that forced him to sell the shares at Re.l per share and that too only 1,94,800 shares and not the whole shareholding of Rubamin Laboratories Ltd. In this direction it is worth mentioning the fact that at the end of the relevant financial year Shri Atul N Dalmia ha....
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....etween Shri Atul Dalmia and Shri Anil R Patel respectively and 1% of shares of Shri Anil R patel was purchased by Shri Atul N Dalmia at Rs. 94 per share. Further, it is mentioned a new shareholding agreement had been entered upon by Shri Atul N Damia And Shri Anil R Patel, whereby prefixed formula for share valuation for inter-se transfer of shares was substituted with fair value determined by valuer. Further, in the same mail dated 01/07/2007, certain questions for consideration have been posed which reads as under: 1) How this transaction of transfer of shares should be effected so as to avoid litigation on matters of valuation, capital gains, tax on the gifts, etc? 2) Can we take the recourse to either gift of shares or transfer at token consideration? On perusal of the questions for consideration, it is amply evident that the transfer of shares was to be constructed in such a manner to avoid taxation or litigation. Therefore to avoid it being treated as a gift transaction, the shares were transferred at a token consideration of rupee las mentioned above. Hence, the whole transaction is noting but a sham transaction which does not have any reasonableness ....
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....alculated adopting the fair market value of shares on the date of transfer. From the various evidences as discussed above, it is gathered that fair market value of shares of Rubamin Laboratories Limited was much more than Rs l/-per share at which the transaction is recorded in his books of accounts. It is pertinent to note that 100% shares of Rubamin Laboratories Limited alongwith business as a going concern has been transferred to Lupin Limited which is a third party at the rate of Rs 154.37/- as per the share purchase agreement per share. But as discussed in Para 5, the actual price at which the shares have been transferred is Rs.178.21 per share. Thus full value of consideration is as follows: Full value of consideration =1,94,800* 178.21 per share=Rs 3,47,15,308/- Less: Value of consideration shown in books of accounts=Rs.1,94,800/- Unaccounted Investment=Rs 3,45,20,508/-. 8.4 Accordingly, Rs. 3,45,20,508/- is added back to the total income of the assessee for the year under consideration. Penalty proceeding u/s 271(l)(c) of the Act are being initiated for concealment of income. [Addition : Rs 3,45,20,508/-] 9. After discussion and on the bas....
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....cative of any "unaccounted" transaction or any undisclosed income, and hence the ratio of Saumya Construction (supra) and Kabul Chawla 62 taxmann.com 412 would squarely apply. On the other hand, the AO submitted that documents relied upon by the AO are incriminating in as much as these were not produced nor would have been produced during regular assessment and they reveal the true and fraudulent/sham nature of underlying transactions and therefore being of "incriminating" nature, the additions founded on such incriminating seized documents are not hit by ratios of Saumya Construction or of Kabul Chawla (supra). After appreciating the rival contentions and after perusing the documents relied upon by the AO, I have come to the conclusion that before the grounds raised by the appellant can be adjudicated, the issue whether each/any of the seized document relied upon by the AO is "incriminating" within the meaning and spirit of ratio of the Jurisdiction HC in Saumya Construction (2016) 387 ITR 529 (Guj) so as to confer valid jurisdiction on the AO to revisit the issue(s) and make related additions in fresh assessment u/s 153A, need to be adjudicated. For this purpose, detailed examina....
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....clause 2 of the Offer Letter, thereby emphasizing AO's own demonstrated suspicion about validity of his own action of relying on an executory, inchoate, negotiation-stage and tentative e-mail communications (such reliance in any case, though, as per the AR, has no legal merit also). I have taken note of the final share-purchase agreement (SPA) entered into by the appellant with Lupin dated 26/9/2007 (PB page 112} which, as rightly submitted by the AR, is finally "executed" as against merely transient, inchoate, conditional and "executory" Offer Letter of Lupin. Having perused all these relevant documents and having noted the relevant factors as above, I find that the AR is absolutely right that there is not an iota of evidence brought on record by the AO, even after an extraordinary and intrusive action u/s 132, to establish, or even suspect, that even a rupee in addition to what has been mentioned in SPA has been received by the appellant or any other seller of the shares of RLL. The AO has proceeded merely on conjectures. She has merely surmised, without any even indicative evidence, that the appellant "must have received" the extra sale consideration as per the Offer Letter.....
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....h the legal, unimpeachable and binding sanctity and integrity of the SPA and of amount of consideration received as mentioned in SPA r.w. Supplementary SPA. The AO has. without bringing any adverse evidence on record, simply brushed aside these explanations and contents of SPA and supplementary SPA and indeed based his decision on irrelevant considerations like e-mail exchanges which had preceded even the Offer Letter of Lupin dated 28/8/2007. I cannot agree more with the AR, and he is absolutely right that the negotiation stage "Offer Letter" issued by Lupin and "accepted" by the appellant is obviously an executory and conditional offer of consideration of Rs. 42.5 crores made by Lupin, which as per the very same document, was subject, to downward adjustment as per "underlying assumptions" in clause 2 and "after due diligence" as per clause 3 of the Offer Letter dated 28/8/2007. Clause 2(iii) clearly stipulates downward adjustment, and indeed, as rightly pleaded by the AR, the best person to decide the issue as to whether and if yes what amount of such downward adjustment may be acceptable, is only the appellant, and, AO has neither any authority nor any legal sanction in seating ....
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....the appellant) is not authorized to partially and conveniently read the same by ignoring other parts of the same document. Thus, I find that the addition made by the AO is based merely on ill-founded suspicion, conjectures and surmises and has no foundation in any adverse evidence brought on record. As explained by Apex Court in Umacharan Shaw & Bros v. CIT [1959] 37 TTR 271 (SC), suspicion, howsoever strong, cannot partake the character of evidence. Thus, addition made by the AO merely on conjectures, by relying on irrelevant pre-offer letter (pre-28/8/2007) e-mail exchanges for doubting the sanctity and conclusive evidentiary value of the SPA dated 26/9/20O7 and also by ignoring vital parts of the very document (Offer Letter of Lupin)- relied upon by him and also by rejecting the plausible and substantiated explanation offered by the appellant, has absolutely no merits and deserves to be deleted. I may quote from the instructive and oft-quoted observations of Hon. SC in Umacharan Shaw & Others (1959} 37 ITR 271 (SC) for the mandate that mere suspicion can be no basis for addition and that suspicion cannot partake the character of evidence: "The Department contends that o....
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....m being along with "control and management" and also along with "the whole business of RLL as a going concern", are capital asset within the meaning of s. 2(14), more particularly after insertion of Explanation below s. 2(14) by Finance Act, 2012. The AR is also right that at the time of demerger of RLL, this obvious position has also been accepted by the Department. In other words, the AO has clearly not alleged that the shares transferred were "stock intrade" of the appellant or that they were "not capital asset". As such, the AO has not pointed to any fact on the basis of which it can be held that the shares held by appellant as investment are not Capital Asset as defined in s. 2(14). As rightly submitted by the AR during the course of hearing, once shares are capital asset, how in law the transfer of such capital asset is held by the AO to result into business income is not at all spelt out by the AO except by relying on Chandigarh Tribunal Decision in Sumeet Taneja (supra). I am at complete loss to understand and digest as to which provision of s. 28 makes, and which provision of s. 45 excludes, the transaction amenable to Capital Gains when "sale of entire shareholding" "alon....
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....ted 26/9/20O7 I fully agree with the Ld. AR that neither Lupin attached any value to such "non-compete" or "non-solicit" clause in Offer Letter, nor has the appellant undertaken any activity in Pharma business even after lapse of 8-9 years so as to imply that such restraint by way of "non-compete" or "non-solicit" clauses had "value" enough which resulted into transfer of any "asset" by the appellant to Lupin through SPA. The AR is also right in pointing out that clause (va) in section 28 has been brought in to bring within the tax net the exclusive and stand-alone transactions of undertaking "non-compete" and "nonsolicit" or "non-sharing" restraints for a consideration, which receipts were hitherto not offered by the recipients of consideration even for capital gains claiming such receipts to be mere capital receipts without any underlying transfer of any asset. Moreover, the Ld. AR has also taken me through proviso of section 28(va) which categorically excludes from the purview of clause (va) the sums received on account of transfer of right to carry on business, which is chargeable under the head 'Capital Gains'. The AO is right in his submissions during the hearing that....
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....gains arising on account of transaction of sale of shares of RLL was rightly disclosed by the appellant under the head 'Capital Gains'. There is no dispute or any adverse observation of the AO with regard to the cost of acquisition and the quantification of capital gains as disclosed by the appellant. Consequently, the whole addition of Rs. 11,62,69,907 /- is held wholly without merit and I have no hesitation in deleting the same. Accordingly, the addition of Rs.11,62,69,907/- is hereby deleted. The appellant gets equivalent relief. Grounds No.3.2 and 3.4 are thus allowed. 15.2 Having analyzed the material on record as above, and after grasping the basis of the AO in making the addition and the appellant's objections thereto, and after engaging with the relevant facts, I have come to a considered conclusion, which, in my considered opinion, more or less also emerges on its own and indeed effortlessly, that the AO has proceeded on no credible and relevant evidence at all, as rightly contended by the AR, in bringing the amount of Rs. 34,59,55,100/- to tax u/s 69B as "unexplained investment" in the hands of the appellant. As such, I tend to agree with each of the ....
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....y Rs.40 per share, it remains an established and accepted position that the transaction at Re. 1 per share is obviously below the "market rate" or "true value" of shares. Though "why should it be so" may be an aspect which could prompt the AO for necessary enquiry/investigation, but that in itself particularly in the background of Arbitration Award dated 5/6/2007 cannot per se be, in the absence of other credible evidences, a relevant consideration for deciding the dubiousness or otherwise of the transaction. I also agree with the Ld. AR that the said e-mail dated 1/7/2007 much emphasized by the AO to allege that the same establishes the collusiveness of the transaction entered into for avoidance of tax has indeed been conveniently read in a twisted way by the AO. The mail dated 1/7/2007 is a mail seeking advice. The full background including the comment therein that "the old SHA likely to raise several constraints in future to both the groups" has been conveniently overlooked by the AO. In my considered opinion, the two questions referred for consideration of the consultant in the said mail can in no way at all even remotely imply that the mail represents collusive nature of the t....
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....the quietus brought in by Arbitrator. I have also perused the Arbitration Award and the submissions made before him by the parties to get an insight into the "curious deal at Re.1/- per share". It is evident that the SHA dated 6/6/2003 with subsequent amendments thereto, was conceived by both the parties to be, in a nutshell, irritating, strangulating and a drag on progress of the company RL. The Arbitrator, in para 15 passed the following order: The share-holders' agreement dated 6th June, 2003, is declared to be void and unenforceable and deserves to be substituted by a fresh SHA as per Annexure A. I direct the Patel Group to transfer 10,90,000/- equity shares of the company to the Dalmia group at a consideration of Re. 1 per share" 15.3 In my considered opinion, the Arbitration Award, which has been baselessly 'tarnished by the AO, is a valid and legally enforceable document which has permanently transformed the rights and obligation of the parties thereto and which has also been duly evidenced to have been acted upon. There is absolutely no "factual nullity", or "mere form and no substance" or "self-cancellation" or "dubiousness" about the same. Conseq....
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....he appellant could not be brought to tax under such newly inserted provisions not applicable for the year under reference, cannot in itself also be a ground to brand such a legally recognized transaction as a "subterfuge". The AR is also right that no transaction can be held to be "sham" for the sole reason of "consideration being less than the market value", particularly looking to the fact that, legislature when considered so necessary, has enacted enabling deeming provisions like section 50C, or taxing provisions like section 56(vii)(c). I am of the considered opinion that for holding a transaction to be sham or subterfuge, the AO is obliged to establish that through a series of apparently unconnected transactions, in sum total, no real consequence except one of tax-evasion or tax-reduction has been achieved by the party in an orchestrated and dubiously executed series of apparent transactions with tax-evasion being the only hidden purpose. As against this, in the present case, there is a single and stand-alone transaction without any "nullity" even alleged by the AO. Tax-angle, but certainly not tax-evasion, is not only not at all hidden but is loud and patent, but at the same ....
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....judgment in McDowell's & Co. Ltd. case (supra) was referred to hold that tax planning may be legitimate, provided it is within the framework of law, but colourable devices cannot be a part of tax planning and it was wrong to encourage and entertain the belief that it is honourable to avoid payment of tax by resorting to dubious methods. Further, the majority decision agreed with the view expressed by Reddy, J. only in relation to tax evasion through colourable device by resorting to dubious methods and subterfuges. It did not hold that tax planning is illegitimate, illegal and impermissible. The opinion and view expressed by Reddy J, was only in the context of artificial and colourable devices. Thereafter, under the heading international tax aspects of holding structures" reference was made to Ramsay principle and it was reiterated that look at principle as enunciated requires the Revenue or the Court to look at the document or transaction in the context to which it property belonged, i.e. to understand the real nature of the transaction, one has to look at the entire transaction as a whole and not to adopt a dissecting approach. The look at test is to ascertain the true legal ....
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....to be nothing more than an attempt to make a man pay notwithstanding that he has so ordered his affairs that the amount of tax sought from him is not legally claimable." 33. Lord Atkin dissented stating "that the substance of the transaction was that what was being paid was remuneration." Thereafter, the principles which emerged from this Grace the Duke of Westminster case (supra) were stated as:- "(1) A legislation is-to receive a strict or literal interpretation; (2) An arrangement is to be looked at not in by its economic or commercial substance but by its legal form; and (3) An arrangement is effective for tax purposes even if it has no business purpose and has been entered into to avoid tax." .................................. Vodafone Tests 39. Expressions "tax avoidance, tax evasion and tax mitigation" are often spoken about, but differently understood. Rule of law mandates and requires a measure of certainty in understanding the said terms. Juristic explications on the subject are indicative of equivocating and divergent stand points. The distinction between the expressions; tax avoidance, tax evasion and tax mi....
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....its nexus nth the transaction is decisive. 43. Tax mitigation in simple words would refer to a taxpayer taking advantage or benefit of a beneficent provision under the tax code and complying with the requisites to his lower the tax liability. In the words of Lord Nolan in CIR v. Willoughby [1997] 4 All ER 65, it is:- "The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option". The aforesaid quote uses the expression "economic consequences that Parliament intended" which as per some, causes confusion and is self contradictory. However, the said criticism overlooks that if the intention of the Parliament is clear and unambiguous; taking advantage or benefit as envisaged by the provision is a case of tax mitigation. Even in case of debate, when the intention of the Parliament is favourable and adjudication decides the question in favour of the assessee, it would be a case of tax mitigation. Courts are trusted and given the power to d....
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....and tax evasion are two end points. It is easier and more beneficial to follow this discernment to define tax avoidance, for the confines and bounds of tax mitigation and tax evasion are easier to decipher and define legally and also identify with some exactness in practice. (Refer Tax Avoidance, Tax Evasion & Tax Mitigation by Philip Baker.) 46. It is equally important to distinguish and differentiate acceptable tax avoidance and abusive tax avoidance. The Supreme Court in CIT v. A. Roman & Co. [1968} 67 ITR 11, at p. 17 had observed:- "Avoidance of tax liability by so arranging commercial affairs that charge of tax is distributed is not prohibited. A taxpayer may resort to a device to divert the income before it accrues or arises to him. Effectiveness of the device depends not upon considerations of morality, but on the operation of the Income-tax Act. Legislative injunction in taxing statutes may not, except on peril of penalty, be violated, but it may lawfully be circumvented." 47. In clear and categorical terms the aforesaid ratio was resonated and approved by the Supreme Court in the Vodafone International Holidays B.V's case (supra). Thus, the ....
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....e International Holidays B.V's case (supra), the assessee had several options and therefore, right to choose a particular tax event. As long as the choice is within the framework of law, the Assessing Officer cannot disturb the tax effect or liability, which is the consequence of the event. The choice of the assessee is not abrogated or invalidated. For example, a company has several legal options, and therefore, right to choose how to dispose of a capital asset, as in Vodafone International Holidays B.Vs case (supra). Similarly, an assessee can opt for and has multiple options for raising debt to finance business expansion plans. The assessed may have several legally permissible alternatives to effect and divide the assets on partition. Such examples are numerous. The choice night result in mitigation of tax liability, but the tax effect would not classify or help us differentiate between tax avoidance and abusive tax avoidance. Any attempt to minimize or eliminate tax liability would not make the choice of the tax payer abusive tax avoidance. The foundation of the said principle is that the tax code by its nature differentiates between different types of actions, transactions, ar....
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....duction either as a bad debt or as loss incidental to business. Further, no circumstances were available on the record to come to the conclusion that the distribution of the total price over the assets was not in accordance with the commercial practice. Under the taxing system it was up to the assessee to conduct his business and in his wisdom, the assessee may enter into commercial transactions with another party who is ad idem with the assessee as to the terms and conditions. In the absence of any collusion between the two, it was not possible to vary the terms on the facts and in the circumstances of the case. 15.4 Moreover, the addition in the hands of the appellant has been made by the AO as "unexplained investment", which, as per AO, "must have been made/paid by appellant" out of unaccounted sources. This allegation and conclusion of the AO based thereon has rightly been challenged and described by the AR as preposterous. Even if the transaction is indeed sham or is a subterfuge, still it has not been brought out or explained by the AO, and it doesn't appeal to the sense of fairness or reason, as to how could the appellant be held to have made "unaccounted invest....
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....is compelling implication in the Award to reasonably infer that achieving 60:40 ratio in RLL also could and would be an implied but integral necessity and integral part the deliberation/concerns leading to Arbitration Award of so as to achieve intended quietus. The Ld. AO's argument that the transaction is meant to defraud the revenue, has also no substance in as much as even if the transaction is to be considered "sham", the only consequence vis-a-vis the appellant would be lesser capital gains. The finding of "transaction being sham" cannot, even in the wildest dreams, lead to a conclusion of unaccounted investment by appellant. Even the AO's observation, allegation and argument that the appellant had "space" on account of short term capital loss on mutual funds and on NIFTY futures and therefore the transaction is accommodative and collusive is also without substance and wholly without verification of basic facts. As rightly submitted by the AR, the appellant, only after purchasing the shares from ARP on 4/7/2007 (payment debited in bank account on 9/7/2007) and only after earning the capital gains on further sale to Lupin, has entered into transactions which resulted in....
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....vidence of payment of more than agreed to amount. Executory and conditional document, no evidentiary value once final SPA dated 26/9/2007 executed. 2 5 Various Mail exchanges -Annexure A- 10 andA-7 No particular adverse content. 3 13 E-mail communication dated 9/8/2007 from the appellant to Vikas Dawra Refers to "strong feelings" of appellant about deal at "45 crores". No evidence of unaccounted transaction, or unaccounted receipt or payment. 4 14 E-mail communication dated 13/8/2007 from the appellant to Vikas Dawra Appellant's mere opinion that "45 + 15" is a good valuation. No evidence of unaccounted transaction, receipt or payment. 5 15 E-mail communication dated 16/8/2007 from the appellant to Ajay Agarwal "Khanna of Lupin has come up to 44", No evidence of unaccounted transaction, receipt or payment. 18. Based on the above, it is the contention of the Ld. AR, as discussed in para 5 above that there is no incriminating seized material in possession of the AO so as to enable him in making addition in this unabated assessment which had attained finality before the date of search. Having perused the assessment order and....
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.... be arbitrarily and lightly unsettled by the AO merely because there is search action u/s 132 and also merely because the assessment needs to be re-framed u/s 153A as statutorily required. The "triggering" or "enabling" seized material in this behalf, therefore, by necessary implication, must necessarily Justify, on its own face, revisiting the issue by the AO. That only would, in other words, be "incriminating", for validly conferring jurisdiction on the AO while re-framing an "unabated" assessment u/s 153A for making a particular addition. Presently, the "seized documents" relied upon by the AO to "interfere" with an already concluded issue are devoid of any categorical evidence of any unapprovable (planned or concluded) action or of any unaccounted or unaccountable transaction of the appellant and are therefore dumb at best and wholly irrelevant at worst. Had there been in AO's possession a seized record of actual receipt/payment of or even an agreement/undertaking to pay/receive in future an additional and unaccounted amount of even a single rupee in connection with the transaction, or of a defrauding design or deal, that would have indeed conferred a valid jurisdiction on ....
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....n the return of income but the appellant has also claimed deductions u/s 54EC/54F and also claimed set off of capital losses. The issue to be decided therefore is that can the SPA, relied upon exclusively by the AO for making the addition, be held to be "incriminating". In my considered opinion, the transaction of sale of shares to Lupin in pursuance to SPA dated 26/9/2007 has already been disclosed in the return of income by the appellant. It is impossible to hold that there is anything incriminating in the very SPA which has been acted upon and disclosed in the return of income before the date of the search by the appellant. It is also impossible to hold that this fundamental document would not have been or might not be produced before the AO. Thus in my considered opinion, there is nothing incriminating seized during the course of the search which can trigger the action of the AO in proceeding in changing the head ot income from Capital Gain to Business Income. Thus, I am inclined to allow ground no.3.1 also. Addition of Rs.34,59,55,100/- as Unaccounted Investment on purchase of shares of RL (Ground No. 4.1) 20. The incriminating documents referred to by the AO are a....
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....P No. 37-48). These SHAs have nothing in the nature of being "incriminating" in themselves so as to "trigger" AO's jurisdiction in re-visiting the issue. Similarly, the e-mail from Shri Milin Mehta is clearly titled "Case for Opinion". No reference to any suspicious or unaccounted transaction undertaken or likely to be undertaken is found in the said e-mail. I myself have also found it intriguing as to how also note on restructuring (page 35 of assessment order) is relevant and how also the certificate of K. A. Shah dated 2/8/2007 indicates anything except the fact that "true value" of the share received on transfer by the appellant is more than Re. 1 per share, which fact is not only wholly irrelevant, the same is also loudly and patently indicated in the return of income by the appellant at appropriate time before search. I do not think the documents which show the "true value" to be more than the transacted consideration without simultaneously showing that a higher consideration than the transacted consideration of Re.1 has changed hands can, with regard to transaction of purchase of shares by the appellant, be regarded as incriminating. I agree with the Ld. AR therefore, th....
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.... for by the AO. Moreover, the document itself, obviously governs the future relationship of two promoter groups inter se and vis-a-vis RLL. There is no record in this SHA of any unaccounted transaction undertaken or planned or of any payment of receipt not recorded or not likely to be recorded in books or of any conspiracy or collusion. Even without this document, it is a valid curiosity on the part of the AO to wonder as to why the transaction between the appellant and Anil Patel should be at Re. 1 per share as against similar transaction within short time thereafter with Lupin at roughly Rs.154.37 per share. But such curiosity, with or without the seized document relied upon by the AO (SHA dated 30/6/2007), does not, in my considered opinion, confer jurisdiction on AO u/s 153A to revisit a concluded issue in this "unabated assessment". Validly incriminating document authorizing the AO in revisiting this issue in assessment u/s 153A, in my considered opinion, would be a loose paper/document/diary or any such inherently incriminating material, or which records some other dubious and circuitous arrangement, which prima facie indicate that consideration, in cash or in kind, of an amo....
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....n Crores) Amount (Rs. in Crores) Per share value (No. of Shares) 23,84,783 Consideration offered as per letter dated 28-8-2007 42.50 178.21 Less: Adjustments Bad inventory 3.096 Loss for year till date 1.04 Transfer of Land 0.70 Recovery of Fees to Yes Bank 0.85 Adjustment on account of Supplementary Agreement 0.1805 5.8665 Net Consideration receivable as per Share Purchase Agreement dated 26-9-2007 36.6335 153.61 13.2.1 Detailed explanation of all the above adjustments has been given in the original submission dated 17-11-2016 from Para 50 to 57. The sale consideration was fixed after considering the above adjustments. The ld. AO has completely ignored these adjustments and adopted the initial offer value. 13.2.2 The Assessee in the submissions made before the ld. AO had explained each and every adjustment with corroborative evidences. 13.2.3 Issue regarding bad inventory, we can see that in the offer letter, in point no iii) of para 2, it is mentioned that the Offer Value shall be subject to ad....
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....conveyance of these lands to RLL. This resulted into an amount payable to RL by RLL amounting to Rs. 70.00 lacs. This increased the liability of RLL and accordingly, the purchase price was reduced by the said sum. It is submitted that RLL discharged the said liability to RL. 13.7 Issue regarding fees to Yes Bank, it is fact that the Assessee had availed services of Yes Bank for facilitating transfer of shares to Lupin Ltd. Lupin Ltd had incurred expenditure in regards to fees to Yes Bank on behalf of the Assessee, for availing these services. Hence, the amount of fees amounting to Rs. 85 Lacs incurred by Lupin Ltd has been recovered by way of reducing the same from the initial offer value. Copy of the bill raised by YES Bank is attached at page no. 341 of the paper book. It is pertinent to mention that the ld. AO has doubted that no services were provided by Yes Bank without even appreciating that the AO herself relied on the emails which are exchanged by the person (Mr. Vikas Dawra) working in Yes Bank and therefore this contention of the AO is devoid of any merit and merely a product of suspicion. 13.8 Supplementary Agreement to Share Purchase Agreement Rs. 18,05,764, it is....
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....nce redundant. E-mail from Assessee to Vikas Dawra (Yes Bank) 13-08-2007 14 No evidence of unaccounted transaction. Merely an opinion of Assessee. Further, the email is even before Initial Offer Letter and hence redundant. E-mail from Assessee to Ajay Agrawal 16-08-2007 15 No evidence of unaccounted transaction. Further, the email is even before Initial Offer Letter and hence redundant. 13.12 We are of the opinion that considering the above, it can be appreciated that none of the documents relied upon by the ld. AO are incriminating in nature and therefore no addition can be made based on such documents. Hence, it is submitted that ld. CIT(A) has correctly deleted the addition of Rs. 11,62,69,907 on account of alleged unaccounted consideration. 13.13 We hold that the ld. CIT(A) has correctly deleted the addition considering the decision of Hon'ble Gujarat High Court in the case of PCIT v. Saumya Construction (387 ITR 529) wherein it has been held that no addition can be made in an assessment u/s 153A, if no incriminating material is found during the search. In the present case, the decision of the Hon'ble Gujarat High Court is squarely applicable as no....
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....ate that clause (i) of proviso to section 28(va) provides that section 28(va) shall not apply in case of any sum received or receivable in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession, which is chargeable under the head "Capital gains". It is submitted that the right of management and right to carry on business is squarely covered under the definition "Capital Asset" as per explanation to Section 2(14). Therefore as per clause (i) of proviso to section 28(va), the income cannot be treated as business income u/s 28(va). 13.14.6 Our attention was drawn to the facts that Section 50 B of the Act duly provides that sale of the undertaking or division would be treated as sale of the capital asset and taxed accordingly. It is submitted the term undertaking is defined in Explanation 1 to Section 2 (19AA) which mention that undertaking means a business as a whole. This would include all intangible and management control. It is submitted that when the entire undertaking is considered to be a capital asset, the shares of a company which owns industrial undertaking has also to be con....
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....on agreement to resolve the differences pertaining to shareholding in RL. ARP has given a detailed account of circumstances that existed due to which he and the Assessee entered into arbitration. In the arbitration proceedings, all the above mentioned facts were taken into cognizance, and accordingly direction was given to the transferor to transfer the shares to the Assessee at Re. 1 per share. It is submitted that the price of Re. 1 has been ruled by the arbitrator keeping the nature of transaction and the above mentioned circumstances in mind. Since, this is an inter transfer of shares, and the main purpose of the said transaction was to change the shareholding of the company, the price of Re. 1 was adjudged by the arbitrator. There was no intention of the shareholders to enrich themselves on the sale of their shares in RL. 13.15.3 As we can see that all the above facts were also presented at the time of regular assessment of ARP for the year under consideration, in which the then AO confirmed the returned income of ARP. Same are part of the assessment order at page no. 419 to 420. 13.15.4 Surprisingly, the AO has on pure assumptions rejected the price of Re. 1 for transfe....
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....the Assessee by ARP was under special circumstances and based on the order of the Arbitrator. We therefore submit that the allegation of the AO that the award was a colorable devise without bring any material suggesting so is purely based on imagination and far from truth. 13.15.7 Based on the above statement, the Assessee on oath has clearly confirmed the existence of arbitration award/order which gave clear statutory direction to the transferor to transfer the shares of RL at Rs. 1 per share. Further, a statement recorded u/s. 132(4) being spontaneous is considered to true and correct unless pointed out otherwise. 13.15.8 As we can see that against the above, the AO has not brought on record any material to show how the Arbitration Award is colorable. We therefore submit that the allegation of the AO are to be rejected and the issue may please be decided in favour of the Assessee. 13.15.9 It is fact that no provision in any law, permits arbitrary adoption of value of unquoted shares. The Assessee has given clear justification and reasoning as to arrival of value of shares of RL at Rs. 1 per share. Further, the Assessee has also submitted the relevant documents directly r....