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2023 (7) TMI 668
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....ct on 05.12.2019 assessing the total income of assessee at Rs.. 134,10,75,282/-. 3. Ld. Pr.CIT, Mumbai -5 while perusing the assessment records, he observed that the assessee company in the guise of reduction of capital, sold shares held by it in Indus Towers Ltd to P5 Asia Holdings Investments (Mauritius) Ltd for Rs.. 25,41,30,00,000/-. However, Ld.Pr.CIT observed that no capital gain tax was paid on the said transaction. The assessee company has shown the profit on above amount of Rs.. 1380 crores as Other Comprehensive Income but has not credited the same in its profit and loss account, arisen due to the sale of the said shares. The Assessing Officer during assessment has not enquired and examined the said transaction. According to him, it is evident that assessment order passed u/s. 143(3) of the Act dated 05.12.2019, is erroneous in so far as it is prejudicial to the interest of revenue, within the meaning of Section 263 of the Act. Accordingly, he issued notice u/s. 263 of the Act on 01.03.2022 through ITBA, thereby providing assessee the opportunity of being heard. 4. In response to the above notice, the assessee company vide letter dated 07.03.2022 submitted as under:....
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....ssee has not accepted the additions made in the impugned order and has filed an appeal before the Honble Commissioner of Income (Appeals) wherein, inter alia, the Assessee has challenged the validity of the assessment order. Copy of the appeal filed is enclosed as Annexure 3. 1.4 During the course of assessment proceedings, the learned AO issued Notice u/s 142(1) of the Act dated 31 January 2019 and the assessee through its submission dated 04 February 2019 filed(sic) details along with the financial statements for the year ended 31 March 2017 - which includes Note 19 on capital reduction along with Note 7 and Note 29 which providing details on non-current investments and its movements. Copy of the financial statements is enclosed as Annexure 4. 1.5 The AO further issued Notice U/s 142(1) of the Act dated 12 October 2019 (copy of Notice is enclosed as Annexure 5) and enquired amongst other items about the capital reduction of equityshares (page no 2 of the Notice dated 12 October 2019). 1.6 The Assessee through its submission dated 11 November 2019 had made detailed submission on the capital reduction of its equity shares and distribution of 4.85% of shar....
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....ing the assessment proceedings (a) Financial statements filed through the submission dated 04 February 2019- refer Note 19 to the financial statements provides details of the capital reduction scheme and the distribution of Indus shares to P5 along with Note 7 and Note 29 which providing details on non-current investments and its movements (b) Notice dated 12 October 2019 with specific queries and assessee made submission dated 11November 2019 which provides complete details of the court approved capital reduction and thereby distribution of Indus shares to P5 along with movement of non-current investments being shares held in Indus (c) Copy of the Bombay HC Order dated 14 December 2016 It is therefore clear that learned AO has examined the above documents relating to reduction of capital by the company and did not arrive at any adverse conclusions in passing the assessment order dated 05 December 2019 1. in view of the above, the assessee submits that the proceedings u/s 263 of the Act needs to be dropped as i) Twin conditions of assessment order being erroneous so far as it is prejudicial to the interest of the revenue is not ....
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....approved capital reduction scheme, the assessee submits as under 5.1.1. The distribution to the shareholders pursuant to capital reduction cannot be regarded as sale or transfer under section 2(47) of the Act and hence, such distribution does not result in levy of capital gains tax in the hands of the assessee. 5.1.2 Reliance in this regard is placed on the ratio of Supreme Court ruling in the case of CIT Vs. Madurai Mills Co. Ltd. (1973) 89 IT 45 (SC) where the question was whether the distribution of assets of a company in liquidation amounted to a sale, exchange, relinquishment or transfer within the terms of section 128 of the Indian Income-tax Act, 1922, so as to give rise to capital gains to the shareholders of the company therefrom. The Supreme Court held as under "The act of each of the liquidators in distributing the assets of the company which had gone into voluntary liquidation did not result in the creation of new rights. It merely entailed recognition of legal rights which were in existence prior to the distribution. A liquidator is only a trustee in the sense beneficially to the company and passes into his custody, to be applied by him as di....
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....-up of a company, as in Madura Mills' case in so far as what the shareholders get is only what they are entitled to by the very fact of their being shareholders of that company, and such a transaction cannot amount to a transfer. 5.1.7 In this regard, we wish to submit that it is a well settled principle that the principles upheld by the High Court in a particular State are binding on all the authorities under the superintendence of that State and they cannot ignore it, either by initiating or deciding the matters before them. Reliance in this regard is placed on the following precedents * CIT VGM Stainless Steel Pvt. Ltd. 263 ITR 255 (SC); * UOI v Kamlakshi Finance Corporation Ltd AIR 1992 SC 711, * Bank of Baroda v H.C. Shrivastva 122 Taxman 330 (Bombay); * Agarwal Warehouse and leasing Ltd v CIT 257 TR 235 (Madhya Pradesh). * Commissioner of Income-tax, Bhopal vs. Raison Industries Ltd (2007) 207 CTR 201 (SC); * HDFC Bank Ltd. Vs. DCIT (2016) 383 ITR 529 (Bombay) * Reliance Infrastructure Ltd Vs DCIT (2016) 76 taxmann.com: 238 * Bank of Baroda vs. HCShrivatsava(2002) 175 CTR 663 (Bombay) ....
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....only would it be considered as transfer eligible to capital gains tax Without prejudice to our submission above that there is no 'transfer in the present case as held by the Honble Bom HC in the case of Cawasji Jehangir Co. (P) Ltd. (supra), it is submitted that no consideration accrued to or received by the assessee for distribution of Indus shares to P5 pursuant to capital reduction scheme. Hence, the computation mechanism under section 48 of the Act falls resulting into no capital gains tax implications under section 45 of the Act. Therefore, the distribution of Indus shares to P5 cannot be subject to levy of capital gains tax in the hands of assessee. Reference could be made to the ratio of the following judicial precedents in support of the above: 1. CIT vs. TexspinEngg&Mfg Works (2003) 263 ITR 345 (Bom HC); 2. Sadanand S. Varde vs. State of Maharashtra 274 IT 609 (Bom HC), 3. Oudh Sugar Mills Limited vs. ITO (1990) 35 ITD 76 (Mum, ITAT), 4. Credit Suisse (International) Holding AG, In re 24 taxmann.com 224 (AAR- New Delhi) 5. Hoechst GmbH, In re (2007) 289 ITR 312 (AAR- New Delhi); 6. Dana Corporation....
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....urt approved scheme of capital reduction cannot be regarded as "transfer or (sale) under section 2(47) of the Act and hence, such distribution does not result in levy of capital gains tax in the hands of the Company The above principal is upheld by the SC and jurisdictional Bombay HC which is binding in this case We trust the above clarifies the issue and your goodself will drop the proposed revisionary proceedings. Should you require any further information or clarifications, we would be happy to provide the same. We also request your goodself to allow us a further opportunity of personal hearing in the matter." 5. After considering the submissions of the assessee, Ld. Pr.CIT observed that P5 Asia Holdings Investments (Mauritius) Ltd, was the shareholder of the Assessee Company and it was holding 30.31% of the equity shares in the Assessee Company. The Assessee Company in turn was holding 16% in Indus Towers Ltd. Thus, P5 Asia Holdings Investments (Mauritius) Limited was holding 4.85% shares in Indus Towers Ltd indirectly through the Assessee Company. He observed that as per Balance-sheet as on 31.3.2017, the Assessee Company has other investments that include mutual f....
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....er. 8. Aggrieved, assessee preferred appeal before us raising initially various grounds of appeal. However, subsequently assessee has filed revised grounds of appeal which are reproduced below: - "Grounds of appeal 1:0 Re: Validity of the Order passed u/s. 263 of the Income-tax Act, 1961: 1:1 On the facts and in the circumstances of the case and in law, the impugned Order dated 26 March 2022 passed u/s. 263 of the Income-tax Act, 1961 ["the Act"] is without jurisdiction, illegal, bad in law and void-ab-initio. Without prejudice to the above, 1:2 On the facts and circumstances of the case and in law, the Principal Commissioner of Income-tax ["PCIT"] has erred in passing the Order dated 26March 2022 u/s. 263 of the Act. 1. 2. 1 On the facts and circumstances of the case and in law, the Hon'ble PCIT has erred in holding that the Order dated 05 December 2019 passed by the Assistant Commissioner of Income-tax 5(2)(2) [ACIT of the "learned AO"] u/s. 143(3) of the Act was erroneous in so far as it is prejudicial to the interests of revenue. 1.2.2 On the facts and circumstances of the case and in law, the Appellant submi....
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.... and with regard to other grounds of appeal, he briefly explained the issues involved, however, has not pressed these grounds at this stage. He vehemently submitted that the Assessment Order passed by the Assessing Officer u/s. 143(3) of the Act which is being passed on a non-existing entity which itself is invalid and non-est order, the same order cannot be revised. He further submitted that the assessee is pressing collateral proceedings before us, he submitted that the proceedings completed under section 143(3) itself is bad and the same order cannot be subject matter of revision hence the revisional order passed u/s 263 of the Act can be challenged before the appellate authority in the collateral proceedings. This aspect of challenge is appreciated by the Hon'ble Jurisdictional High Court in the case of Westlife Development Ltd., v. Pr.CIT in Income Tax Appeal No 1168 of 2017. (copy of the same is placed on record). Therefore, he proceeded to make the submissions in Ground No. 1.4 and 1.5 elaborately as under. 10. Ld. AR submitted that the original assessment passed u/s. 143(3) was completed in the erstwhile name of the assessee i.e., M/s. Aditya Birla Telecom Limited which ....
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....tted that the appeal filed by the assessee is against the order passed u/s. 263 of the Act and Ld. Pr.CIT has invoked the provisions of section 263 of the Act in order to revise the Void and non-est order and the assessee can challenge the proceedings u/s. 263 before the ITAT with the limited purpose of examination whether the collateral proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. He submitted that the similar issue was arisen before the Coordinate Bench in the case of Westlife Development Ltd. , v. Pr.CIT [2017] 88 taxmann.com 439 (Mumbai) and brought to our notice the ratio in the above said order. He submitted that the Coordinate Bench has held that the assessee should be permitted to challenge the validity of the order passed u/s. 263 of the Act on the ground that the impugned Assessment Order was non-est and we hold accordingly. Further, he brought to our notice that the Coordinate Bench has discussed in details the various aspects of the validity of the Assessment Order passed u/s. 143(3) of the Act and subsequent proceedings initiated u/s. 263 of the Act ....
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....un Realtors (P) Ltd. - 443 ITR 194 (SC) 11 to 31 3 Copy of Judgment of Hon'ble Supreme Court in the case of ACIT Vs. Vahanvati Consultants (P) Ltd. - 138 taxmann.com 52 (SC) 32 to 34 4 Copy of Judgment (Digest) of Hon'ble Supreme Court in the case of Kartikeya V. Sarabhai vs. CIT - 228 ITR 163 (SC) 35 to 36 5 Copy of Judgment (Digest) of Hon'ble Supreme Court in the case of CIT vs. G. Narasimhan - 236 ITR 327 (SC) 37 to 39 6 Copy of Judgment of Hobble Madras High Court in the case of CGT vs. td.- India co. (P) Ltd. 149 ITR 548 (Madras) 40 to 43 7 Copy of Judgment of Hon'ble Madras High Court in the case of CIT vs. Kasturi Estate (P). Ltd.- 228 ITR 376 (Madras) 44 to 48 8 Copy of Judgment of Hon'ble Bombay High Court in the case of Jeevan Investment & Finance (P) Ltd. Vs. CIT 88 taxmann.com 552 (Bombay) 49 to 52 9 Copy of Judgment of Hon'ble Bombay High Court in the case of CIT Vs. Ballarpur Industries Ltd.85 taxmann.com 10(Bombay) 53 to 55 10 Article on the tax implications of the reduction of share capital in Bombay Chartered Accountants Society Reference 56 to 60 18. Ld.DR brought to our notice Para No.....
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....pany has already merged with the petitioner company. Therefore, he submitted that in the above case the assessee has misled the Assessing Officer as well as the court. Therefore, the above case is distinguishable to the facts of the present case, from the initiation of the assessment proceedings assessee has been continuously informing the Assessing Officer the proper facts on record. 21. With regard to the Mahagun Realtors (P) Ltd case (supra), he brought to our notice Para No. 3 of the order to highlight that even in this case, the assessee has misguided the Assessing Officer by giving wrong information in their return of income, in particular column No. 27 of the Form wherein the assessee has to specify the business reorganization etc., (in the case of amalgamated company) it is specifically asked to mention the name of the amalgamating company. However, the assessee has mentioned as "not applicable". Further, he brought to our notice Para No. 33 of the order wherein the Hon'ble High Court has observed that this is an established fact and not in contention, the respondent has relied upon Spice and Maruti Suzuki (supra) to contend that the notice issued in the name of the ....
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....e. Vodafone Idea Limited. In our considered view, the fact that the Aditya Birla, erstwhile name, is non-exist at the time of passing of the order by the Assessing Officer and Assessing Officer also aware of the fact of merger, therefore, the fact in the present appeal are exactly similar to the facts in the case of Pr.CIT v. Maruti Suzuki India Limited (supra). Therefore, the ratio of the Pr.CIT v. Maruti Suzuki India Limited (supra) is equally applicable in the present case. 24. At the time of hearing, Ld. DR brought to our notice the decision in the case of M/s. Mando Automotive India Pvt. Ltd. (supra) and PCIT vs. Mahagun Realtors (P) Ltd. (supra) and wherein the facts are distinguishable to the facts in the present case and facts in the Maruti Suzuki case. In the case of M/s. Mando Automotive India Pvt. Ltd. (supra) and PCIT vs. Mahagun Realtors (P) Ltd. (supra) the erstwhile assessee misrepresented and actually filed the wrong informations in order to misguide the revenue. Accordingly, the Hon'ble Supreme/High Court has decided the issue against the assessee. However, the facts in the present case are not similar to the facts in the case of M/s. Mando Automotive India ....
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.... 4. Normally we would not have entertained a petition as an alternative remedy to file an appeal is available to the petitioners. However, prima facie, the impugned notice has been issued in respect of a non existing entity as MIs. Addler Security Systems Pvt. Ltd., which stands dissolved, having been struck off the Rolls of the Registrar of Companies much before its issue. Consequently, the assessment has been framed also in respect of the non-existing entity. This defect in issuing a reopening notice to a non-existing company and framing an assessment consequent thereto is an issue which goes to the root of the jurisdiction of the Assessing Officer to assess the non-existing company. Thus, prima fade, both the impugned notice dated 24th March, 2015 and the Assessment Order dated 28th March, 2016, are without jurisdiction." (emphasis supplied). 9.7. Further, recently, the co-ordinate bench of hAT Mumbai decided identical issue in the case of M/s GenesysWorldeye Ltd in ITA No.473/Mum/2012 order dated 03-06-2016 in which one of us (AM) was a party. The relevant part of this order is reproduced hereunder: "4.8. In our view, this argument of the Ld. DR is also not ....
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.... of amalgamating company for the period prior to amalgamation and mere omission to mention the name of amalgamated company alongwith the name of amalgamating company in the body of assessment against the item "name of the assessee" is not fatal to the validity of assessment but is a procedural defect covered by Section 292B of the Act. We hold accordingly." 7. The aforesaid line of reasoning adopted by the Tribunal is clearly blemished with legal loopholes and is contrary to law. No doubt, M/s Spice was an assessee and as an incorporated company and was in existence when it filed the returns in respect of two assessment years in questions. However, before the case could be selected for scrutiny and assessment proceedings could be initiated, M/s Spice got amalgamated with MCorp Put. Ltd. It was the result of the scheme of the amalgamation filed before the Company Judge of this Court which was dully sanctioned vide orders dated 11th February, 2004. With this amalgamation made effective from 1st July, 2003, M/s Spice ceased to exist. That is the plain and simple effect in law. The scheme of amalgamation itself provided for this consequence, inasmuch as simultaneous with the s....
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....e substantially the share holders in the Company which is to carry on the blended undertakings. There may be amalgamation either by the transfer of two or more undertakings to a new Company, or by the transfer of one or more undertakings to an existing Company. Strictly amalgamation does not cover the mere acquisition by a Company of the share capital of other Company which remains in existence and continues its undertaking but the context in which the term is used may show that it is intended to include such an acquisition. See Halsburys Laws of England 4th Edition Vol. 7 Para 1539. Two companies may join to form a new Company, but there may be absorption or blending of one by the other, both amounts to amalgamation. When two companies are merged and are so joined, as to form a third Company or one is absorbed into one or blended with another, the amalgamating Company loses its entity." 9. The Court referred to its earlier judgment in General Radio and Appliances Co. Ltd. vs M.A. Khader (1986) 60 Comp Case 1013. In view of the aforesaid clinching position in law, it is difficult to digest the circuitous route adopted by the Tribunal holding that the assessment was in fact....
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....ings is in substance and effect in conformity with or according to the intent and purpose of this Act." 13. The Punjab & Haryana High Court stated the effect of this provision in CIT Vs. Norton Motors, 275 ITR 595 in the following manner:- "A reading of the above reproduced provision makes it clear that a mistake, defect or omission in the return of income, assessment, notice, summons or other proceeding is not sufficient to invalidate an action taken by the competent authority, provided that such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the provisions of the Act. To put it differently, Section 292B can be relied upon for resisting a challenge to thenotice, etc., only if there is a technical defect or omission in it. However, there is nothing in the plain language of that section from which it can be inferred that the same can be relied upon for curing a jurisdictional defect in the assessment notice, summons or other proceeding. In other words, if the notice, summons or other proceeding taken by an authority suffers from an inherent lacuna affecting his/its jurisdiction, the sa....
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....sessment made, such a defect cannot be treated as cured under Section 292B of the Act. The Court observed that this provisions condones the invalidity which arises merely by mistake, defect or omission in a notice, if in substance and effect it is in conformity with or according to the intent and purpose of this Act. Since no valid notice was served on the ass essee to reassess the income, all the consequent proceedings were null and void and it was not a case of irregularity. Therefore, Section 292B of the Act had no application. 16. When we apply the ratio of aforesaid cases to the facts of this case, the irresistible conclusion would be provisions of Section 292B of the Act are not applicable in such a case. The framing of assessment against a non-existing entity/person goes to the root of the matter which is not a procedural irregularity but a jurisdictional defect as there cannot be any assessment against a dead person. 17 The order of the Tribunal is, therefore, clearly unsustainable. We, thus, decide the questions of law in favour of the assessee and against the Revenue and allow these appeals." 4.10 This judgment was subsequently followed by anoth....
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....s of law. 10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is about the validity of order passed u/s 263 by the Ld. CIT seeking to revise the assessment order which was nullity in the eyes of law. 10.1 We have discussed in detail in earlier part of our order that an invalid order cannot give birth to legally valid proceedings. It is further noticed by us that some of the judgments relied upon by the Ld. Counsel have already addressed this issue. This issue has also been decided by the co-ordinate bench (Delhi Bench of Tribunal) in the case of Krishna Kumar Saraf vs CIT (supra). The relevant part of the order is reproduced below: "17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was pas....