TaxTMI 
TaxTMI 
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2022 (7) TMI 1041
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....A 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 merely transfer of the shares of a company but the 'lock, stock and barrel' sale with a noncompete and non-solicit....
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.... 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 of Lupin Limited, Shri Ramesh Swaminathan (President, Finance and Planning Lupin Limited). As per this letter, Lupin Limited had made an offer amounting to Rs ....
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....53A 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 income of six assessment years immediately preceding the assessment year relevant to the previous year in which such search is conducted or requisition is made : " 2. Thus under the provisions of section 153A, th....
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.... 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 obviously been passed prior to the initiation of search, the assessing officer is empowered to reopen those proceedings and reassess the total income, taking note of the unearthed income, if any, during the search. For this purpose the fetters imposed....
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.... 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 Rs 42.50 crore was subject to adjustments as mentioned in para 2 of the said offer letter. The details of adjustments made to initial offer as mentioned by assessee are as follows: Consideration as per offer: 4250.00 lacs Adjustments: Bad inventory 309.601acs Loss 104.....
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.... 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 mail, Shri Atul Dalmia has stated to Vikas Dawra, who is from Investment banking in Yes bank that as per his calculation Rs 45 crore plus 15 crore will be good valuation . The mail also mentions about Lupin offer. So there is no force in assessee's argument that this mail is not related to sale of RLL. Further mail between Atul Dalmia and Aja....
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....e 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 business rather than capital gain as shown by you in your return of income. ............ .............." 6.2 In response to the same, assessee has furnished his reply dated 01.02.2016. On this issue, assessee has again raised similar objections with reference to scope of 153 assessment. The detailed reply to those objections has already been made in the first issue. H....
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....r 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 management of the similar company or having investment in the business Further 9.2 contains non solicit clauses. The clause 9.2.1 puts restriction on promoters interfere with , to induce any senior executive employee or use the services of any employee who is under contract of the company. Further it restricts promoters to solicit from company any contract , or interfere in any project or induce any client from offering similar services.....
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....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 case of Sumeet Taneja and Harbir Singh Khurana dated 8th June 2012. The Incometax Appellate Tribunal has held in its judgment that substantial sale of unlisted equity shares by the promoters of the company will be treated as business income and not capital gains in the hands of the transferor. 6.6 The Hon'ble ITAT in paragraph no. 16 & 17 in its judgment has remarked that - "16. Taking into consideration the entirerety of facts and circumstances of the case and agreement entered into between the....
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....0 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 claim the domain name www.Excel.netcom. Article 9 of the agreement further refer to non- solicitation of employees covenant where by the seller will not directly or indirectly solicit, hire, employ, induce or attempt to induce any present or future employee of the company or the purchaser," 17. In view thereof we are in agreement with the orders of the authorities below that the transaction in question was not mere transfer of capital asset within the meaning of section 2(14) of the Act but was in fact tran....
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.... 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 business. Hence, the Hon'ble ITAT has held that provisions of section 28(va) of the Income-tax Act are squarely applicable to the present facts of the case. Further it is to be mentioned that the Hon'ble High Court of Punjab and Haryana in the case of Sumeet Taneja vs CIT , Supneet Kaur vs CIT has affirmed the ruling of the ITAT as mentioned above. On the basis of the principles enunciated in the order of Hon'ble HC , the gain arising from the transfer of shares as per the Share Purchase Agreement to be assessed as income from business and section 28(va) of the Income-tax Act shal....
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....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 determined by the market forces. Thus the method of valuation for shares was prescribed to protect financial interest of each party. In the later agreements various amendments or modifications were made , in which the concern has been reflected by parties to the agreement regarding subsequent sale of shares by Dalmia group at a higher price than at which the shares would be transferred to Shri Atul N Dalmia, then the excess so received would be shared between Dalmia Group and Patel group in proportion as existing prior to agreement Further concern is also shown regarding the value of shares determined as per the methods of valuat....
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....saction 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 Shri Atul Dalmia and the additional consideration paid by you should not be considered as your undisclosed investment and added to your total income for the relevant assessment year. ................." 7.2 In response to the same, assessee made his submission dated 02.02.2016 which has been perused but not found acceptable by AO on following grounds: 7.2.1 Assessee has submitted that issue under consideration has been verified during the course of regular assessment proceedings " In this matter it is stated that no scrutiny assessment proceedings u/s 143(3) of the I T Act have taken place in the case of assessee for A.Y 2008-09. So the issue has never been verified in th....
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....lmia 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 the groups so as to avoid any possible conflicts and make path of succession defined. AND WHEREAS in pursuance of the discussion between the parties hereto it has been decided that on and from the date of the agreement, Patel Group shall transfer 1% of the shares held by them in favour of Dalmia Group on the agreed consideration and the relationship between the parties in the conduct, management and inter se relationship shall be governed by the present agreement." The important and relevant provisions of this Shareholder's Agreement related to the share transfer between the promoters of the company " Rubamin Limited' are mentioned on page on.8 to 43 of Annexure A-l seized from the o....
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.... "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 principle that the minimum value of the division shall be NAV. STEP:4 After the above, the following items should be added being the Market value of the surplus assets (as reduced by the tax impact of revaluation) and investments. Investments in businesses commenced within last 3 years will be valued at the higher of the following two values: (i) As per the method adopted for valuing pharma business of the company; or (ii) Increase its valuation @ 6% p. a. from the date of investment (minimum return) provided the said business is continued on the date of valuation. Investments in assets other than in businesses (like investment in securities, fixed assets, bonds, etc) will be valued at the market value as red....
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....rchase 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 of these clauses it is clearly evident that there is an apparent concern/ regarding shares being transferred at a value lower than the market value in the process of transfer of shares by Shri Anil R Patel to Shri Atul N Dalmia. In this process, Shri Anil R Patel would be at a loss. To compensate this loss agreement mentions about sharing the excess received between both the groups in the ratio of their pre acquisition shareholding ratio. However, in reality by creating a facade ,the real substance and the real concern of Shri Anil R Patel was apparently not addressed in the transactions under consideration. The same was, however, taken care of by way of payments of the actual value of the shares made out of the books of accounts which precisely was ....
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.... 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 evident that the shares have to be transmitted to Shri Atul N Dalmia at the fair market value after the death of Shri Anil R Patel. Hence there should not be any reason to believe that there were conditions present which warranted the shares to be transferred by Shri Anil R Patel to Shri Atul N Dalmia at Re.l per share, i.e. much below than the FMV of the shares on the date of transfer. 7.2.8 Therefore, there was always a concern of the protection of rights of each party to the various agreements and the protection of rights cover the rights of each party in terms of control and management of company as well as the financial interest of each party. Hence, it is also evident that there was no business expediency or exigency for the impending share transfer bet....
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....e 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 construction of Arbitration Agreement merely serves the purpose of a cloak or grab of legal document to hide the otherwise colorable transaction. Hence, the conditions precedent to the transfer of shares do not in any way support the basis of transfer of shares from Patel group to Dalmia group at Re.1.00 per share. This is merely a mechanism of colourable transaction adopted by Shri Anil R Patel to avoid the incidence of tax on the transfer of shares (10,90,000 equity shares) to Shri Atul N Dalmia at Re. 1.00 each. 7.2.10 Some e-mails have been found annexed in Annexure A-10 from the office of Rubamin Limited, Synergy House, Vadodara. On the perusal of information in the mail server seized from the office premise of the assessee company annexed as Annexure A-10, a mail ....
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.... 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 transfer the shares by Shri Anil R Patel and Shri Atul N Dalmia at Re. 1 per share. 7.2.11 Moreover on a note of restructuring of Rubamin Ltd. Found from Annexure A-7 from Rubamin Ltd., Synergy House, Baroda, it is mentioned that on 1/4/2006 (i.e. on the eve of Demerger of Pharma Division from Rubamin Ltd.) the book value per share of Rubamin Ltd. is Rs. 210.51.The note is reproduced as below: 1. Pharma Business of the company is demerged into a separate company named Rubamin Laboratories Limited, High court has approved the demerger w.e.f. 1" April 2006. The purpose of above de-merger and merger is to make Rubamin Limited a focused Metal company having interest in Cobalt, Copper and Zinc related business In demerger, all the assets and liabilities of pharmaceutical business (Dabhasa) as on 1" Apri....
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....hares 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 Rs 80/- per share. The copy of certificate dated 02.08.2007 as found and seized is reproduced in assessment order. 7.2.13 Further, in the mail dated 01/07/2007 as discussed above in point no 9, 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 both the parties were concerned about incidence of tax if the transaction is effected on paper at fair market value of the shares involved and they were looking for ways and means so as to avoid tax in respect of income arising from such transaction and, hen....
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....eipt 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 Atul N Dalmia (the Arbitration Agreement and the subsequent share transfer) an unequal exchange transaction has been created. 7.2.15 The assessee in his submission has cited the following case laws which are discussed hereunder: CIT vs George Henderson & Co. Ltd (1967)66 ITR 622 (SC)- This case law enunciated that the full value of consideration is the price bargained for by the parties to the sale. But, in the case of the assessee it does not appear that despite all disputes and disagreement (as discussed earlier) Rs.l per share would be the "price bargained for " by the party to the sale. The price bargained for has to be seen in the context of conditions precedent to the transfer (as discussed earlier) and the reasonability of transaction considering the human probabilities of maximizing profit. In this context the decision of Hon'ble Supreme ....
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....ction 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 Patel if we refer to the conditions precedent to the share transfer. The transfer of shares at Re. 1 share is merely a facade created by both the parties. The arrangement has the character of 'exchange transaction' where the transaction has been given a form of unequal exchange transaction-wherein substantial shareholding has been transferred at almost no value negligible value. The transaction of shares which has taken place between Anil R Patel and Atul N Dalmia is "an unequal exchange transaction" wherein substantial shareholding has been transferred to Shri Atul N Dalmia by Shri Anil R Patel at no cost or negligible cost. This is merely a facade to camouflage the real transaction. Hence, as the transaction has the nature and spirit of exchange transaction therefore applying the sound principles enunciated in the judgment of Hon'ble Supreme Court in CIT vs. Gillanders Arbuthnot &....
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.... 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) There is behind taxation laws as much moral sanction as is behind any other welfare legislation and it is a pretence to say that avoidance of taxation is not unethical and that it stands on no less a moral plane than honest payment of taxation. The proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax and whether the transaction is such that the judicial process may accord its approval to it. It is neither fair nor desirable to expect the Legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the court of take stock to determine the nature of the new and sophisticated legal devices to avoid tax and to expose the devices for what they really are....
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....nt 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 loss from sale of gold jewellery and also declared a short- term capital gain from sale of shares so that the two almost match each other. This simple tax planning became ineffective after the Assessing Officer disbelieved the astronomical share price increase applying the test of human probability. The Assessing Officer observed that short-term capital gains were not genuine inasmuch as the assessee had purchased 45000 shares of Ankur international Ltd. At varying rates from Rs. 2.06 t Rs. 3.1 per share and sold them within a short span of six-seven months at the rate varying from Rs. 47.75 paisa to Rs.55. Even though the two respective transactions for purchase and sale of shares were routed through two different brokers, yet the Assessing Officer did not believe the astronomical rise in share price of a company from Rs.3 to Rs.55 in a short-term. The assessee lost its case before the Tribunal. Confirming the order of the Tribunal, the P....
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....he 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 of the Supreme Court, in the case of McDowell and Co. Ltd. (supra), the Tribunal (SB) had, inter alia noted that the Courts and Tribunals had to expose subterfuges, colourable device, and dubious methods in tax case, that the lawful dues to the State cannot be withheld through schemes of subterfuge, a colourable device, and a dubious method, that the approach in such cases must be to take the entire arrangement as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to 'make up the arrangement or the scheme, each of which may be legally valid, that the genuineness of the arrangement has to be viewed not in relation to every step taken to achieve that result but in relation to the final result, that one has to look at the truth of the transaction (and if permissible) by going behind the facade of documentation or the series of steps taken, that the Courts (and Tribunals) always have ....
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....ure 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 share. The shares have been transferred between Anil R Patel and Atul Dalmia on 04.07.2007. Thus there hardly any time lag between the two transactions. Thus considering that the transactions with third party are done at the market rate, the fair market value as on the date of transfer is taken at Rs 318.39/- per share. Thus full value of consideration is as follows: Full value of consideration =1090000* 318.39/- per share=Rs 34,70,45,100/- Less: Value of consideration shown in books of accounts=Rs 10,90,000/- Unaccounted Investment=Rs 34,59,55,100/-. Accordingly, Rs. 34,59,55,100/- is added back to the total income of the assessee for I the year under consideration. Penalty proceeding u/s 271(l)(c) of the Act are being initiated for concealment of income. [Addition : Rs 34,59,55,100/-] 8. Transfer of shares of Rubamin Laboratories Limited by Shri Anil R Patel to Shri Atul N Palima. 8.1 Shri Anil R Patel has transferred 1,94,....
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.... 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. .........." 8.2. In response to the same, assessee made submission dated 02.02.2016, which is perused but not found acceptable for following reasons: 8.2.1 It is to be noted that Rubamin Laboratories Limited was part of Rubamin Limited till June 2006. Thus the shareholders agreement as discussed in the issue of transfer of shares of Rubamin Limited also discussed about the transfer of shares of Rubamin Laboratories Limited. Thus as discussed in previous issue the incidents preceding the transfer of shares and the instance of transfer of shares are diametrically opposed to each other. Thus the arguments regarding shareholders agreement dated 2003 and subsequent amendments and implications are not repeated here as those agreements included the issues of Pharma Division also as it was part of Rubamin Limited at that point of time. 8.2.2 In the case of Rubamin Laboratories Ltd, there is no evidence of Arbitration Agreement and the assessee, Rubamin Limited has also not furnished any Arbitration Agreement. Rubami....
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.... of the Offered shares (the offer terms). In this case the "offer price" means the price at which he intends to sell the shares to the third party which in present case means at the rate of Rs. 154.37 per share as per Lupin Agreement and the negotiations prior to the final Agreement. Therefore there was no reason to sell the same shares at Re. 1 per share when the offer price as per this agreement was Rs.154.37 per share. 8.2.3 Further, it is mentioned under clause 7.6 that if offeree by any reason do not purchase the entire offered share then the remaining of shares can be sold to third party but at a price equal to or in excess of the offer terms and on terms no more favorable than the offer terms. Hence Shri Anil R Patel should not have transferred the shares to Lupin at a price equal to the price at which the shares were transferred to Shri Atul N Dalmia and should have been transferred at equal terms. Therefore this Agreement talks about equal terms and price to be fixed for the transfer of shares to the other group and to third party, hence the shares transferred to Shri Atul N Dalmia should have been transferred on the same terms and at the same price as was done in the cas....
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....ase Agreement dated 26th September 2007, it is mentioned that "the sellers are the legal and beneficial owners of 23,84,783 shares (hereinafter defined), which represent 100% of the current issued and paid up share capital of the company more particularly described in Annexure 1 hereto". Further, in the Article 1 (Definitions 85 Contention) point no. 1.1.18, "the Purchase Consideration" is mentioned, which reads as under: "Purchase Consideration" shall man the sum of the payments to be made by the purchaser to the sellers, as more accurately set out in the payment Schedule in Article 4.1 below. The Purchase Consideration shall comprise of an amount of Rs.154.37 per share." Further, in payment schedule is mentioned in Annexure-4 of the share purchase Agreement. As per the Annexure-4 (payment Schedule) all the shareholders comprising 23,84,783 shares is totality have been purchase for a total consideration of Rs. 36,91,38,952 crores at the rate of Rs.154.37 per share. Thus as per this agreement, it is evident to point out that apart from other shareholders Shri Anil R Patel has also sold his remaining of shares held by him at the rate of Rs. 154.37 per share. Further, Shri Atul ....
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....the fact that at the end of the relevant financial year Shri Atul N Dalmia had Short term Capital loss on mutual fund of Rs, 1,94,43,667/- and short term capital loss on Nifty Future of Rs. l,44,35,804/- (as per the submission made by the assessee), whereas Shri Anil R Patel did not have and such loss to be set off against the gain received on the sale of shares to Lupin Ltd, Hence Shri Atul N Dalmia has set off his short term losses against 1,94,800 shares received from Shri Anil R Patel on transfer. Hence the whole transaction was planned by Shri Anil R Patel and Shri Atul N Dalmia, wherein Shri Anil R Patel avoided paying taxes on the transfer of shares to Shri Atul N Dalmia and Shri Atul N Dalmia had the cushion to absorb the gain out of the sale of 1,98,000 shares to Lupin at Rs.154.37 per share. Hence the whole series of transaction is nothing but a creation of semblance of legal mechanism to hide or subterfuge the otherwise colourable transaction. Shri Atul N Dalmia had purchased the units of Mutual Fund in the month of 3rd October 2007 and the record date was 14.1.2008, whereby the assessee received dividend in excess of Rs. 3 crores and thereafter he sold the units of MF a....
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....sham transaction which does not have any reasonableness and is merely a device to avoid taxation by Shri Anil R Patel. 8.2.9 Therefore prior to the acquisition of shareholding of Dalmia group and Patel group and others by Lupin Pharma Ltd., an arrangement or a facade or subterfuge was created by Shri Anil R Patel in collusion with Shri Atul N Dalmia to evade tax due on the transfer of shares of Rubamin Laboratories Ltd by Shri Anil R Patel to Shri Atul N Dalmia. As per this arrangement 1,94,800 shares were transferred to Shri Atul N Dalmia at Re. 1 each share. Hence no incidence of tax arose in the hands of Shri Anil R Patel and simultaneously when Shir Atul N Dalmia transferred these shares in the scheme of acquisition to Lupin, he set off his short term capital loss against the gain on the sale of these shares. Therefore, no tax on this transfer was paid by Shri Atul N Dalmia as well. Moreover, there was no reason for transferring the shares at Rs. 1 by Shri Anil R Patel when he along with Shri Atul N Dalmia were equally aware of the prospect of sale of these shares to Lupin Pharma at market rate or more than market rate. In this context it is again reiterated that colorable dev....
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.... discussion and on the basis of the data made available on record, the total income of the assessee is computed as under: Income from business as discussed above in para 5 &6 Rs.11,62,69,907/- As discussed in para 7 above Rs. 34,59,55,100/- As discussed in para 8 above Rs. 3,45,20,508/- Income from other Sources Rs. 29,679/- Gross Total Income... Rs.49,67,75,194/- Less: Deduction (chapter VI-A Rs. 1,00,000/- Total assessed Income... Rs. 49,66,75,194/- .....u/s 288A... Rs. 49,66,75,190/- 10. Assessed u/s 153A r.w.s. 143(3) of the Act 1961. Tax and interest u/s. 234A & B charged as applicable as per ITNS 150 which forms part of this order. Issued demand notice and Challan accordingly. Issued notice u/s 274 r.w.s. 271(1)(c) of the Act. 11. Thereafter, assessee preferred first statutory appeal before the learned CIT(A) who granted relief to the assessee with following observations: "5.4 After having perused the assessment order and the written submissions of the appellant and after hearing both the sides, I have noted that there is no dispute that Gopakumar (supra) which supports his contention that there is no r....
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....he seized documents relied upon by the AO would be necessary. The nexus of such documents with the addition made by the AO would also need to be examined. As this essentially also involves going into the facts leading to each of the additions, I propose to firstly adjudicate the grounds 2-5 challenging the additions on merit after which I would revert to these (1.1, 1.2, 2.1, 3.1, 4.1 and 5.1) legal grounds. 8. I have carefully considered the material available on record. I have also very minutely gone through the "Offer Letter" signed by both the parties and available on pages 7 to 10 of the assessment order. I have also gone through the e-mail exchanges printed by the AO on pages 13-15 of the assessment order. I have also noted that while the "Offer Letter" dated 28/8/2007 offered lump-sum consideration of Rs. 42.5 crores, the same is doubtlessly subject to underlying presumptions and conditionalities as stipulated in clause 2 of the Offer Letter. The Ld. AO has, despite his attention having been invited to the same, not taken note of the same and has unduly emphasized only the consideration portion of Rs. 42.5 crores. I have further noted that indeed the AO has correctly note....
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....considered opinion, it is also a wholly irrelevant consideration for the AO as to why at all should the appellant accept a consideration lower than that stipulated in Offer Letter of Lupin, particularly when the Offer Letter itself contained in clause 2, the factors which would entail downward revision of consideration after "due diligence", the appellant has still and nevertheless satisfactorily demonstrated and established the reasons for acceptance of lower consideration as under: Particulars Amount (Rs. in 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 5.6860 *Adjustment on account of Supplementary Agreement 0.1805 5.8665 Net Consideration receivable as per Share Purchase Agreement dated 26-9-2007 36.8140 (36.6335) 154.37 (153.61) *re-payment (refund) made as per supplementary SPA dated 26/9/2007 9. Emphasizing the obvious sanctity, int....
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....lders') such decision of acceptance of lower consideration. As per bullet-point 5 in clause 5 of Offer Letter, "Post financial, legal and technical due diligence, Lupin will confirm the final valuation number and will provide the legal documentation draft, In my considered opinion, the AO clearly erred in relying on this Offer Letter containing such categorical tentativeness and such possibility of downward adjustment, in preference to and in complete disregard of final SPA dated 26/9/2007. There is absolutely no evidence of any cash or additional payment received by the appellant. The e-mail or other communications between the parties/stakeholders to an agreement preceding the final SPA (as noted and printed by the AO on pages 13-15 of assessment order) which in any case have been exchanged before even the Offer Letter dated 28/8/2007, have absolutely no bearing or relevance for the issue to be decided (amount of consideration "received or accrued") enabling or empowering the AO to discard the welldocumented "full value of consideration" of Rs. 36.82 crores as depicted in SPA. As such, Section 48 of the Act explicitly refers and requires the AO to adopt only "full value of con....
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....ing as their drawings were made, the profits continued to be divided equally. This is no doubt an unusual feature, but it depends upon how the drawings were considered by others. There was an arrangement in the deed itself for such drawings, and looking at the circumstances of the family the drawings during a year could not be said to be too extensive as others had withdrawn large sums also in their turn. Taking into consideration the entire circumstances of the case, we are satisfied that there was no material on which the Income-tax Officer could come to the conclusion that the firm was not genuine. There are many surmises and conjectures, and the conclusion is the result of suspicion which cannot take the place of proof in these matters." 10. Thus and therefore, it is held that the consideration under the SPA paid by Lupin and received by the appellant and others, as evidenced by SPA, is no more than Rs. 36.814 crores giving a pershare consideration of Rs. 154.37. Accordingly, there is no understatement of "full value of consideration received by or accruing to the appellant" disclosed by him in the return of income at Rs.7,02,99,053/-. It is therefore also held that the a....
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....hares held indisputably as "capital asset" as defined u/s 2(14). AO neither in assessment order nor during hearing has thrown light on this aspect. With utmost respect, after perusing the exparte Tribunal decision relied upon by the AO as juxtaposed with Delhi HC decision in Shiv Raj Gupta and SC decision in Vodafone (both supra), I am convinced that these factors (of transfer of control & management, transfer of business as going concern and also some non-compete/non-solicit clauses as a part of the deal} are in no way relevant. As such, in my considered opinion, and as explained in Vodafone, shares of a company are indeed a bundle of rights, and are obviously capital asset as defined u/s 2(14), and consequences which follow (i.e. transfer of control/management and transfer of business) on account of "transfer" of shares can have no bearing, and no such bearing has been envisaged u/s 2(14) or u/s 28, so as to enable the AO on facts or in law to consider such transfer as "business". As such, newly inserted Explanation below s. 2(14) categorically and specifically includes "rights including the rights of control and management in relation to an Indian Company" within the definition ....
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....proviso. But in my opinion, when the consideration received on transfer of a capital asset has duly been disclosed under the head Capital Gains, as prescribed by CBDT letter dated 2/5/2016, and otherwise also, unless there are compelling and patent justifications, "Head Shifting" attempt by the AO is not warranted, Moreover and more recently, as held by SC in Vodafone (supra), a lump sum consideration cannot be allocated/ divided to assign to each component of an overall deal of transfer of shares. On a joint reading of section 2(14), section 28(va) r.w. proviso thereto, section 45(1), section 47(vib), section 48 and section 50B, and Board letter no.F.No.225/12/2016/ITA.II dated May 2, 2016 I have formed a considered opinion that a transaction of sale of entire shareholding in a company held as investment/capital asset which results eventually into complete transfer of the company along with rights of control and management, "lock, stock and barrel, as are the facts in the present case, remains chargeable under the Head 'Capital Gains' as held by Delhi High Court in Shiv Raj Gupta (supra). The AO has erred in attempting to bring the transaction within u/s 28(va) by unreason....
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....nter-party (ARP) (seller of shares who disclosed transaction under the head Capital Gains), as also the AO of the grouppersons namely Nandkishor Dalmia, GyanDalamia and MitaDalmia (who showed similar purchase @ Re.1) have, in orders passed by them u/s 143(3) for the relevant assessment year 2008-09 before the date of the search, have accepted, after due verification, the genuineness of the transaction of sale/purchase of shares of RL @ Re. 1/- in pursuance to the Arbitration Award. AO was under heavy onus therefore to demonstrate credible basis, based on reliable evidence rather than conjectures, for differing from a co-ordinate Officer, or her own predecessor (A.Y 2009-10) while disturbing the sanctity of finality of the issue, which, in my opinion, has not at all been even attempted to have been discharged by the AO. It is also evident that the AO has indeed erred in only partially, conveniently and twistedly reading the email of Milin Mehta dated 1/7/2007. The said e-mail, seeking opinion/advice, is not at all seeking advice on "tax-avoidance through dubious means" as has been read by the AO, but is, while giving full details of the back-ground, merely seeking advice on structur....
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....ss than "true value") in possession of the AO to conclude that transaction is a colourable device. As such, the transaction achieves a real purpose and a real and irreversible change in the parties' positions rather than being a mere hollow documentation. The transaction is also not one which is a factual nullity. The transaction is also not a mere form without substance. It not only has produced tangible and intended financial and corporate consequences for parties thereto who, towards a pursuit of quietus inter se have come ad idem, but has also been duly disclosed in the returns of income filed at appropriate time by the parties. The AO has without any iota of evidence in her possession branded the whole Arbitration proceedings and Arbitration Award to be sham or collusive. While it is true, and rightly so pleaded by the AO both in the assessment order and during hearing, that "AO is not required to put blinkers on her eyes" and that "she may take recourse to surrounding circumstances and aspects of human probabilities", as ruled by Apex Court, but it is also equally true that these rulings of the SC do not certainly authorize the AO to act on no evidence or to act arbitrari....
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....ne transaction achieving meaningful and real purpose permanently producing real, financial and corporate consequences. Thus, I have no hesitation what-so-ever in holding that the transaction of transfer of shares at Re. 1 per share is a genuine transaction within the four corners of law and there is no colourability or dubiousness about the same. Had it been the finding of the AO that any other benefit has flown from Dalmia Group to Patel Group and further that such transfer of benefits is a composite, collusive and integral part of the "deal of transfer of shares at Re.1", though structured independently/separately, then certainly I would have found that to be a relevant consideration and possibly also found myself in agreement with the AO. Similarly, had there been any evidence on record, as against mere presumption, that any unaccounted payment has in fact been made by the appellant to Shri Anil Patel, then also possibly I would have concurred with the AO's finding of colourability. I have for my satisfaction and as an abundant caution also obtained the bank accounts of Patel members for May-August 2007 and I find no receipt from any member of Dalmia. However, in complete ab....
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.... be there in every transaction. There is no evidence of "selfcancellation" or "apparent being different from real". Thus and therefore, in my considered opinion, the impugned transaction has to be held as having no evidence of evility, no color of colourability, no semblance of shamness and no shade of shadiness so as to be validly branded or treated as "sham" or "subterfuge''. In other words, I have no hesitation in holding that the transaction is real, meaningful and genuine and thus as one having been validly and genuinely entered into and acted upon within permissible limits of four corners of law. In this behalf, and before parting, I would also quote from Supreme Court decision in Vodafone as quoted in Shiv Raj Gupta (supra) and from Delhi High Court decision in D. S. Bist & Sons (supra) wliich touch upon the concept of colourability, and which sanctify my finding that the impugned deal of transfer of shares of RL at Re. 1 per share cannot in law be treated as "sham" or "subterfuge"(Emphasis mine): 31. Hon'ble the Chief Justice S.H. Kapadia referred to Furniss (Inspector of Taxes) v. Dawson [1984] 1 All EF 530 (HL.) and observed that the. decision was an extens....
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....perations, issues relating to investment etc. undertaken for corporate business purpose should not be treated as artificial or colourable device. In the said case, it was held that the transactions were not a colourable device. Reference was made to 'Westminster principle1 as expounded in The Commissioners of Inland Revenue v. His Grace the Duke ofWestminsterl935 All E.R. 259, that when the document and transaction is genuine, the court cannot go behind it to some supposedly underlying substance. It was observed that in W.T Ramsay Ltd'scase (supra) the House of Lords did not discard the said principle but read it in a proper context by holding that "device" which was colourable in nature has to be ignored as a fiscal nullity. Thus, W.T Ramsay Ltd'scase (supra) laid down a principle of statutory interpretation rather than imposing a tax avoidance doctrine on tax laws. It was elucidated that Westminster principle does not compel the court to look into the document or the transaction in isolation from the context to which it properly belonged. The task of the court was to ascertain the real nature of the transaction and while doing so, the court has to look at the entire t....
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....tes: tax avoidance and the intention of the Parliament by Judith Freedman; Tax Avoidance, Tax Evasion and Tax Mitigation by Philip Baker; and, Corporate Social Responsibility and Tax Avoidance: A comment and reflection by John Hasseldine and Gregory Morris. We acknowledge benefit of exposition and analysis in these articles as we elaborate on the said distinction. Discussion even after Vodafone International Holidays B.V. case (supra) is reflective that penetrating and perfect clarity of the said terms is not easy to discern and determine. To us the determination and ratio in Vodafone International Holidays B.V's case (supra) is clear. 40. The aforesaid decision in Vodafone International Holidays B.Vs case (supra) does not prescribe criterion simply predicated on preordained, circular or self cancelling transactions with a step or steps having no commercial or business purpose other than obtaining tax advantage. The decision does not exert the doctrine of economic substance. The ratio steers clear from using the said tests or principles. The said propositions and premise as specific tests stands disapproved and rejected. 41. The precise test enunciated and prescribed as a....
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....onduct is consistent with the taxing provision. If there is no tax avoidance, the question of abusive tax avoidance does not arise, for the latter refers to a particular category of transactions that are unacceptable being pejorative, i.e. sham, colourable device or deceitful and is distinct from tax mitigation. Albeit, where the Parliament's intention is to the contrary and the finding negates the assessee's submission, it would be a case of tax avoidance, whether acceptable or abusive is a different and another matter. Thus, the term "tax mitigation" is simple, intelligible and unequivocal. It is a positive term and refers to the assessed taking benefit or advantage of a provision which the tax code intends and wants to confer. Deductions under Chapter VIA, exemptions under Sections 10A, 10AA, 10B etc. of the Act are all provisions relating to tax mitigation. If an assessee takes benefit or advantage by complying with the stipulated conditions therein to reduce his tax liability, it would be a case of tax mitigation. 44. Tax evasion is illegal and consists of willful violation or circumvention of applicable tax laws to minimise tax liability. The assessed breaches the ....
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....rs' right to arrange once affairs within die confines of law, which is not prohibited or barred. 48. Naturally, the dividing line between acceptable and abusive tax avoidance cannot be deduced or inferred from lowering or elimination of the tax liability. Latter is the consequence and the tax effect. It is the post facto consequence under the tax code of the event selected by the assessed. The test applied should not curtail the freedom of choice to adopt a particular transaction or combination of transactions to reduce or eliminate the tax liability. 49. At the same time, the dividing line as per the ratio in Vodafone International Holidays B.Vs case (supra) is ethically principled and moralistic as tax avoidance is disapproved when the assessee adopts a colourable device, dubiousness and otherwise indulges in a sham arrangement or transaction. This would mean that pre-ordained, circular or self-cancelling transaction with a step or steps having no commercial purpose or lack of economic or business purpose could in a given case be, though not necessarily, a relevant fact, yet they are not the touchstone, yardstick or the final test. These could be circumstances or facts ....
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....n favour of Revenue or assessed can be applied but within four corners of law. In fact, in some cases, the assessed may find themselves taxed at a higher liability for failure to choose a more tax friendly event. But the right of choice is hedged with one significant condition. The event selected, as noticed above and subsequently, should be real and not a colourable device, sham and deceit. 51. Tax reduction is not an evil if you do not do it evilly [MurphyLogging Co. v. US [1967] 378 F.2d 222]. The assessee acts evilly when there is camouflage or dubiousity to mask and masquerade the real intent of the transaction which the parties intended and the document(s)/transaction(s), is at variance with the actual intent. The assessed in such cases does not choose the real event as one from the multiple choices, but adopts a sham or colourable event. The assessed then acts fraudulently, deceitfully or in a corrupt manner. He does not choose an event which is useful, viable and tenable, but employs deception and visors to pretense a state of affair which is different from the actual or real state of affairs. The event propounded is contrary to his intention. When the event selected is ....
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....rability of the transaction is upheld, then also I would have found the addition made by the AO to be not sustainable on facts or in law. While making this addition, the AO has firstly surmised that "amount in excess of Re.1 per share" must have been paid by the appellant. Secondly, the AO has further surmised that such payment must have been made by the appellant in cash. I agree with the contention of the Ld. AR that addition u/s 69B as "deemed investment" cannot be made in law in the absence of clear and categorical evidence (as against mere inference or mere surmise). The twin legal conditions required to be satisfied for making the addition u/s 69B are that there must be evidence on record that payment has been made and second that such payment/ in vestment has not been recorded in the books of account. None of the conditions can be said to have been satisfied merely on the basis of inference/ surmise when no categorical evidence has been brought on record or even referred to by the AO. The facts are covered by a series of decisions relied upon by the AR and also by Supreme Court decisions in George Henderson & Co. (supra) as also in Gillanders Arbuthnot & Co. (supra), and the....
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....into or found support from the fact of short term capital loss having been offset by short term capital gains. I have already held that there is no credible material with the AO to treat the transaction as sham or subterfuge. I have also held that even if the transaction is held to be a subterfuge, no addition as unaccounted investment u/s 69B can be made in the hands of the appellant in the absence of any positive evidence of "extra and unaccounted payment" brought on record by the AO. Thus, it is held, following the reasoning given in para 15 above that the transaction of purchase of shares of RLL by the appellant at Re. 1 per share is a genuine transaction and not at all a sham, collusive or colorable transaction. Thus, there is no merit in the addition of Rs.3,45,20,508/- made by the AO. The addition is therefore deleted. Appellant gets equivalent relief. Related grounds succeed. Legal Grounds 1.1, 1.2, 3.1, 4.1 and 5.1 18. Now I turn to the legal grounds based on the ratio of Saumya Construction (supra) raised by the appellant. As discussed at appropriate places (supra), I have categorically held that there is no credible material, seized or otherwise, in possession of t....
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....ered conclusion that none of the above five seized documents would qualify to be "incriminating". As rightly submitted by the AR, the plain dictionary meaning of "incriminating" is "to be making someone appear guilty of a crime or wrongdoing". Thus, the document to be incriminating so as to be validly conferring jurisdiction u/s 153A or 153C for triggering AO's "interference" has necessarily to record a "transaction" which at least prima fade indicates unaccounted/cash/doubtful transaction. The document relied upon by the AO as pertaining to the appellant and treated by her as incriminating are unquestionably not incriminating in as much as none of them record any completed or proper transaction, leave aside such transaction pointing towards guilt or wrong-doing or act of tax evasion of appellant. As already held by me, the e-mail communications and the Offer Letter of Lupin are themselves futuristic and tentative in nature and probabilistic in tenor. In my considered opinion none of the documents are also capable of remotely evidencing any meaningful wrongdoing, accomplished or even planned, by the appellant. If such communications evidencing the negotiations-stage bargaining ....
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....sactions have taken place, and therefore whether or not the same were not produced or might not be produced before the AO is an irrelevant consideration. Moreover, when a businessman or his associates enter into hundreds of mail-communications, which of them "might not be produced" is an unending and an equally meaningless enquiry. The AO, therefore, doubtlessly and positively must show incriminality in the very seized documents relied upon by her to validate her "getting triggered" for unsettling a concluded issue. Finally, my findings on merit (supra) would also indicate that I have already held these documents to be irrelevant and consequently and obviously therefore to be not incriminating. Thus, I agree with the Ld. AR that AO has exceeded her authority, as explained in Saumya Construction (supra) by Gujarat High Court, in "interfering" with an already concluded issue and in making the addition on an issue for which there was no relevant and credible enabling incriminating seized document in her possession. Accordingly, ground no.2.1 succeeds. Capital Gains v. Business Income; Rs.11,62,69,907/-(Ground 3.1) 19. The only seized document referred to by the AO for holding th....
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.... E-mail of Milin Mehta dated 1/7/2007 Seeks an advice on the "structure" of future transaction. Nothing fishy or "incriminating". 5 35 Note on restructuring of RL No negative inference or suspicion possible. 6 36,37 Valuation Certification K.A. 31iah a Co. Evidence that market value of shares of RL is higher than Re. 1 per share, which information the AO already has. Nothing incriminating to trigger "interference". 20.1 The Ld. AO has held these documents to be "incriminating" enough so as to justify the addition in unabated assessment being retrained by her n/s 153A. My perusal and examination of these seized documents, as held by me in discussion on merits of the addition, do not lead me to a conclusion that the documents are "incriminating in nature" to begin with. As such three shareholders' agreements are entered into between the two promoter groups and are routine in nature. Nothing at all can be considered to be incriminating in them unless a twisted, partial and purported view about the same is taken, as has been done by the AO. Obviously there is nothing to remotely suggest in these shareholder agreements that the transaction of purchase of shares ....
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....mption of jurisdiction by the AO in "interfering" with the closed and concluded issue and making the addition. As such Saumya Construction (supra) is squarely applicable and in absence of any meaningfully incriminating seized material in possession of the AO, the AO could not have made this addition of Rs. 34,59,55,100/- in this "unabated assessment". Ground No. 4.1 stands allowed. Addition of Rs.3,45,20,508/- as Unaccounted Investment on purchase of shares_of RLL (Ground 5.1) 21. The only seized document referred to by the AO while making the addition is shareholders' agreement dated 30/6/2007, Referring to the contents of the said shareholders' agreement, the Ld. AO has observed that the agreement talks about "the equal terms and price to be fixed for transfer of shares to the other group and to the third party". Thus, as per the AO, the shares, should have been transferred on the same terms and at the same price as was done in the case of shares transferred to Lupin. The AO has thereafter referred to and analyzed various clauses of the shareholders' agreement to conclude that as per clause 7.3C of the said agreement the price to be realized by Shri Anil Patel c....
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....he issue of purchase of shares of RLL by the appellant at Re. 1 and to make the impugned addition while framing re-assessment u/s 153A in this assessment which had attained finality before the date of the search and had therefore remained unabated within the meaning of second proviso to section 153A. In other words, the AO indeed exceeded her authority u/s 153A while making the addition de hors any incriminating seized material enabling her in this behalf, and thus violated the law as laid down by Jurisdictional High Court in Saumya Construction (supra) and other Authorities. Consequently ground no.5.1 is also allowed. 22. Thus, while allowing ground no.2.1, 3.1, 4.1 and 5.1 as above, I have held that there is no "incriminating material" in possession of the AO so as to enable her in law to re-visit the relevant issues in unabated assessment being reframed by her u/s 153A. As none of the additions as made by the AO are supported by any incriminating seized material, the AO was duty-bound to merely "reiterate" the total income of the appellant which had attained finality before the date of the search. Accordingly, ground no. 1.1 and 1.2 are also allowed. 12 Now, Revenue has com....
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....tion in the Share Purchase Agreement itself (Page No. 112 to 156). The ld. AO has not controverted any of the submissions / factual aspect of this adjustment. In view of the same the adjustment on account of value of non-moving inventory amounting to Rs. 3,09,61,711 is allowed. 13.4 Issue regarding loss for year till date, it is evident that this adjustment has been made on account of loss of RLL for the period ended 31-08-2007. As per the profit and loss account for the period ended 31-082007, the loss of RLL amounts to Rs. 103.74 Lacs (Pg. No. 178). This loss has been reduced from the initial offer value of Rs. 42,50,00,000. This adjustment has not been controverted by the ld. AO. 13.5 Issue regarding transfer of Land, it is stated that RLL is situated at Dabhasa. The Plant of RLL was situated on a piece of land and adjacent to the said land was another land which belonged to RL. At the time when the particulars of the Dabhasa plant was given, the land which belonged to RL was also included in the proposal and accordingly, the price of Rs. 42.50 crore was arrived at. The details of the lands included in the initial offer price are as under: Particulars Block No. Value as p....
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....5,764 would work out to Rs. 153.61. Hence, the value per share of Rs. 153.61 would have to be considered and the ld. AO has incorrectly adopted Rs. 154.37 per share as the alleged price per share. 13.9 After considering the impugned order and hearing both sides, we therefore hold that the actual sale consideration for transfer of shares of RLL to Lupin Limited is Rs. 36.63 crores and not Rs. 42.50 crores. Considering the same, the ld. CIT(A) has correctly deleted the addition made by the ld. AO. We do not find any infirmity in the order of learned CIT(A). Thus, this ground of the Revenue is dismissed. 13.10 The ld. AO has also referred to some e-mails exchanged between the Assessee and various finance department head of RL in which offers made by some other interested parties for acquiring 100% stake of RLL have been discussed. It is submitted that e-mails referred to by the AO are irrelevant. It is submitted that once the share purchase agreement dated 2609-2007 has been executed and even accepted by the ld. AO, the emails, discussing various potential considerations is of no relevance and same cannot be considered as incriminating in nature. 13.11 Following is the table showin....
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....f RLL from Rubamin Limited ("RL"), the issue was examined by the ld. AO as part of the regular assessment in the case of the Assessee for AY 2007-08, and the ld. AO held that the said shares of RLL and also RL are "capital assets". Copy of the return of income, computation of total income, the reply submitted by the Assessee on this issue and assessment order is attached at page nos. 378 to 396. 13.14.3 As we can see that the issue of the nature of income arising on account of transfer of shares had come up for verification before the AO in the case of the Assessee's wife for A.Y. 2008-09 itself and the AO had held the gains as Capital gains. A copy of the return of income, computation of total income, the reply submitted and assessment order in case of Smt. Seema A Dalmia is attached at page nos. 370 to 377. 13.14.4 It is argued that the Finance Act, 2012 inserted explanation to Section 2(14) of the Act with retrospective effect from 1-4-1962, thereby clarifying the definition of "Capital Asset". The explanation to section 2(14) clearly provides to include right of management or control in an Indian Company in the definition of capital asset. The explanation is clarificatory in ....
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....eed to sell the same at the said consideration. However, the said covenant was introduced for the first time in the SPA and no additional consideration for thereof was paid. Accordingly, no part of the consideration could be attributed to the non-compete covenant. Therefore, no part of the income can be treated as business income. Hence, it is held that the ld. CIT(A) has correctly treated the income from transfer of shares of RLL as income under the head "Capital Gains". 13.14.8 In view of the above, 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 incriminating material found during the course of the search. Hence, we hold that ld. CIT(A) has correctly deleted the addition made by relying on the decision of Hon'ble Gujarat High Court. 13.15 Now, we come to issue regarding alleged unaccounted investment on transfer of RL sha....
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....hares are not relevant consideration. 13.15.5 The AO in the assessment order has alleged that the Arbitration award is colorable device adopted by the Assessee to evade payment of tax. It is submitted that the Arbitration order dated 05-06-2007 is one of the documents which were seized / found / produced during the search / post search proceedings. The Assessee during the course of search proceedings has given a statement on oath which is attached from pg. no. 10 to 20. The Assessee has submitted the Arbitration award/order by Shri Mihir Thakur dated 05-06-2007 in his statement dated 28-04-2013 (Page. No. 15). Relevant extract of the statement of the Assessee is reproduced as follows: "Q.30 In response to question no. 33 to 37 asked during the course of recording of statement u/s. 132(4) during the course of search proceedings at your residence on 27.4.2013, you had furnished information in respect of shares of Rubamin Laboratories Limited purchased from Anil R Patel. Please explain how the value of shares was determined and the transaction was executed. Also substantiate any information furnished by you during the course of statement dated 27.4.2013. Ans. 30 I am submitting ....
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....e 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 incriminating material found during the course of the search. Hence, the ld. CIT(A) has correctly deleted the addition of Rs.34,59,55,100/- made by relying on the decision of Hon'ble Gujarat High Court. 13.16 Now, we come to issue regarding alleged unaccounted investment on transfer of RLL shares by ARP to the Assessee 13.16.1 The AO has contended that the Assessee has not correctly declared or disclosed the consideration paid by him, for purchase of shares of RLL from ARP, and there is understatement of consideration. The AO adopted the rate of Rs. 178.21/- per share as the consideration paid for the transfer of shares of RLL and computed the consideration paid at Rs. 3,47,15,308 (1,94,800 x Rs. 178.21). Consequently, the AO has made addition of Rs. 3,45,20,508 (Rs. 3,47,15,308 - Rs. 1,94,800) to the income of the Assessee. 13.16.2 Therefore, we hold that there is no intention on the part of the Asse....