TaxTMI 
TaxTMI 
2023 (8) TMI 21
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....ing the addition of Rs. 1466.60 crores made u/s 56(1) of the Act, on account of shares of Zee Entertainment Enterprises Ltd. received by the assessee company from M/s Essel Business Process Ltd. at the time of amalgamation, without appreciating the fact that the shares issued to M/s Essel Business Process Ltd. consequent to amalgamation was bought back by the assessee company for a consideration of Rs. 1.20 crores whereas, the value of shares of Zee Entertainment Enterprises Ltd. received at the time of amalgamation was at Rs. 1466.60 crores. 2. On the facts and circumstances of case and in law, the Ld.CIT(A) erred in deleting the addition of Rs. 1466.60 crores made u/s 56(1) of the Act on account of shares of Zee Entertainment Enterprises Ltd. received by the assessee company from Ms Essel Business Process Ltd. at the time of amalgamation, without appreciating the fact that there was no substantial increase in the revenue of the assessee company and the increase attributable was only on account of amalgamation of M/s Essel Business Process Ltd. only. 3. "On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in deleting the addition of....
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....28,867/- and Rs. 4,08,52,175/--, respectively, without appreciating the fact that assessee's own fund was only Rs. 98149.37 Lakh whereas investment was of Rs. 164308.70 Lakh." 3. Against the above, the cross-objections (CO) of by the assessee are as under: - "1. The CIT(A) / Assessing Officer (hereinafter referred to as "the AO") erred in holding that the transfer of shares of Zee Entertainment Enterprises Limited on account of amalgamation between Essel Business Process Limited and the assessee was a part and parcel of a colorable device intended to avoid tax. The reasons given by her are wrong and contrary to the facts and circumstances of the case and in law, 2. The CIT(A) erred in relying on CIT(A)'s observations in Jayneer Capital Private Limited case though these bore no connection with the assessee's case, that too without confronting the assessee with the same. The CIT(A) failed to appreciate that the amalgamation between the assessee and Essel Business Process Limited, resulting in receipts of shares of Zee Entertainment Enterprises Limited, bears no link with the transactions entered into by Jayneer Capital Private Limited with other parties; ....
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.... this additional ground is legal in nature and the facts relating to this additional ground are available on record, and is therefore admitted. 7. Ground Nos. 1 to 4 of the Revenue's appeal and the Ground nos. 1 & 2 of the C.O. being inter-connected is being taken up together. 8. Brief facts are that, the assessee company which is engaged in the business of selling advertisement space and rendering subscription management services had filed its return of income for the relevant AY 2012-13 on 30-09-2012 declaring total loss of Rs. 7,91,18,428/-. Later, the case of the assessee was selected for scrutiny. The AO noted that, in the year under consideration, a group company, M/s. Essel Business Process Limited [in short 'EBPL'] was amalgamated with the assessee company, M/s. Cyquator Media Services Private Limited [in short 'Cyquator' or 'assessee'] w.e.f. 15-10-2011, as per the scheme of arrangement which was sanctioned by the Hon'ble Bombay High Court vide order dated 02-12-2011. In terms of the scheme as approved by the Hon'ble High Court, all the assets & liability of EBPL stood transferred and vested in the assessee company. Acting in compliance with Clause 6 of the Scheme of....
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.... shares of ZEEL in the garb of gift/amalgamation etc., was not a case of corporate restructuring. Instead, according to the Ld. CIT(A), it was a tool to accommodate exchange of shares between M/s Jayneer Capital Pvt Ltd [in short 'Jayneer'] and Essel Corporate Resources Pvt Ltd [in short 'ECRPL'] without payment of tax. The Ld. CIT(A) thereafter proceeded to discuss the relevant findings recorded by him in the appeal decided in the matters of another company, Jayneer. According to the Ld. CIT(A), the case of Jayneer was directly connected with the instant case. In brief, according to the Ld. CIT(A), shares of Wire & Wireless India Ltd [in short 'WWIL'] had been transferred by Jayneer & its associates to ECRPL & its associates in the garb of gift /acquisition of holding/ amalgamation etc.; in exchange for receiving shares of ZEEL in the garb of gift/acquisition of holding/ amalgamation etc. The Ld. CIT(A) noted that, these shares of ZEEL were first received from ECRPL by Essel Media Entertainment Ltd [in short 'EEML'] which then amalgamated with ZEEL, and thereafter through scheme of gift/amalgamation etc. between EBPL and Cyquator, the shares stood ultimately transferred to Jayneer....
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....td. (EBPL) with the assessee. During the course of amalgamation, all assets and liabilities of EBPL were taken over by the assessee company including 13,09,88822 shares of Zee Entertainment Enterprise Ltd. (ZEEL), Pursuant to the amalgamation, the assessee company has issued 4 equity shares of its company to the shareholders of EBPL. In this context, the AO noted that as and when a particular asset in the form of shareholding in group concerns is to be transferred, the modus adopted was always the same. First, the transferor company becomes the holding company Hence, In the valuation report, the share price of Zee Limited should also have been incorporated. As per Rule 11UB of J.T, Rules, (1) The fair market value of asset, tangible or intangible, as on the specified date, held directly or indirectly by a company or an entity registered or incorporated outside India (hereafter referred to as "foreign company or entity"), for the purposes of clause (i) of sub--section (1) of section 9, shall be computed in accordance with the provisions of this rule. (2) Where the asset is a share of an Indian company listed on a recognized stock exchange on the specified ....
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....e scheme of amalgamation is sanctioned by the Hon'ble High Court, and to which the Union of India is also a party, the AO cannot disregard the same while alleging it to be a 'colourable device'. The Ld. AR brought to our notice that the Revenue had been put to notice regarding the scheme of arrangement and its terms by the assessee company vide letter dated 02.09.2011. He has placed before us copy of the relevant letter filed before the Regional Director, Department of Company Affairs along with the letter addressed to the Income-tax Department (Annexure K-1 & K-2 of that letter). He submitted that, the Revenue did not object to the scheme of arrangement at that material time when it could have before the Hon'ble High Court. According to him, therefore, post the sanction of the scheme of arrangement for amalgamation of EBPL with Cyquator by the Hon'ble High Court, the AO cannot term the same as a 'colourable device'. For this, he cited the decision of the Hon'ble Bombay High Court in the case of Sadanand S. Varde Vs. State of Maharashtra (115 Taxman 407) wherein it was held as under:- "We are of the view that the amalgamation, which has become final and binding, cannot be ....
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....n transferor and transferee but also in rem. The Ld. AR further drew our attention to several other judicial precedents in the same context, which we shall discuss in the succeeding paragraphs. The Ld. AR accordingly asserted that the AO erred in terming the amalgamation as a colourable device, particularly when the scheme bore the stamp of approval of the Hon'ble Bombay High Court. 16. The Ld. AR also objected to the observations made by the Ld. CIT(A) while deleting the addition. According to the Ld. AR, the Ld. CIT(A) erred in relying on the observations that were made by him in the case of Jayneer, which according to the Ld. AR, had no connection with the assessee's case. Taking us through the observations of the Ld. CIT(A), he pointed out that the transaction entered into by Jayneer with other parties did not have any relevance in the present case. The Ld. AR emphasized that, even the Revenue did not agree with these observations of the Ld. CIT(A) and therefore reliance placed by the Ld. CIT(A) on the findings rendered in the matters of Jayneer being factually erroneous deserves to be expunged. The Ld. AR, in the alternate, brought to our notice that the adverse findings re....
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....aced at Pages 1 to 26 of the Paper book. We observe that the lower authorities have not disputed the acquisition of the business division of Advertisement Space Sales from DMCL. Thus, the undisputed fact noted by us is that, the assessee was engaged in the business of selling of advertisement space prior to entering into the scheme of amalgamation having a valuable asset base. The Ld. AR pointed out that, the assessee being engaged in the business of selling advertisement space had sought to take over the EBPL's business of running call centres vide scheme of amalgamation, which was filed before the Hon'ble Bombay High Court on 02.12.2011 with the Appointed Date as 15.10.2011. This according to the Ld. AR was a prudent commercial decision of the Group to generate synergies by integrating both these businesses and achieve economies of scale. We therefore find merit in the submissions of the Ld. AR that, the assessee had indeed explained the object behind the scheme of amalgamation and the observation of the lower authorities that the assessee was not engaged in any business activity prior to the scheme of amalgamation is factually untenable. The lower authorities are thus noted ....
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....lve Jayneer directly or indirectly, the findings/conclusions drawn in its income-tax assessment cannot serve as a basis to ascertain the incidence of tax in the case of the assessee. We are also unable to countenance this action of the Ld. CIT(A). To that extent, the contention of the Revenue as well as the assessee is accepted. 22. Now coming to the scheme of amalgamation between the assessee and EBPL, it is noted that the same was approved and sanctioned by the Hon'ble Bombay High Court vide order dated 02.12.2011. The Ld. AR brought to our notice that the assessee had intimated the terms of the Scheme to the Income-tax Department, and they had not objected to the same before the Hon'ble High Court nor did they claim then that the scheme was prejudicial to the interests of the Revenue. We therefore find merit in the Ld. AR's contention that, once the jurisdictional High Court had approved the terms of the scheme of amalgamation, the allegation of the use of a 'colourable device' stands precluded. For this, we refer to the CBDT Letter in F.NO.279/MISC./M-171/2013-ITJ, dated 11-4-2014. In this letter, the CBDT had communicated to the field officers that, when the terms of a sche....
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....ese have been considered on merits by the concerned High Court and also incorporated the condition for safeguarding the interest of revenue in the very scheme. As a matter of public policy, once a scheme of amalgamation is approved by Hon'ble High Court no authority should be allowed to tinker with the scheme. In the present case of the assessee, neither the official liquidator nor the Regional Director nor Central Government raised any objection to the scheme of amalgamation. In such circumstances, we are of the view that the revenue has nothing to say at the time of approval of scheme by Hon'ble High Court in the present case." 24. The above decision of this Tribunal is noted to have been upheld by the Hon'ble Calcutta High Court in the case of CIT Vs Purbanchal Power Company Ltd (145 taxmann.com 215). Before the Hon'ble High Court, the Revenue posed the following questions of law :- "(i) Whether on the facts and in the circumstances of the case the Learned Income-tax Appellate Tribunal, "B" Bench, Kolkata erred in law in upholding the order of the CIT (Appeals)-VIII, Kolkata by deleting the addition of Rs. 69,64,34,089/- made by the Assessing Officer on the ground th....
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....rt approves of a scheme of Amalgamation, the suspicion of a colourable device therein is preclude. The AO has mentioned in his order that a 'a huge amount of money has been transferred to the serve by way of some transaction which is nothing but a colourable devise to put the reserve by way of some transaction which is nothing but a colourable devise to put into undisclosed and unaccounted income of the assessee company through the transferor companies. . .'. The assessment order itself is silent about the process of generation of such 'undisclosed and unaccounted income'. There is no material therein to indicate that the appellant has earned any such income as mentioned by the AO. Furthermore, as has been repeatedly stressed in various judicial decisions, the tests for an addition under Sec. 68 of the Income-tax Act to be sustained are those of identity of the creditor, its creditworthiness and genuinity of the transactions. If the AO's addition is measured against these, then it is seen that, there is no dispute as to the identity of these amalgamating companies, their creditworthiness is attested by their balance-sheet which, have been accepted by the AO and....
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....lt into some tax benefit or even if it is framed with an object of saving tax or it may result into tax avoidance, it cannot be said that the only object of the Scheme is 'tax avoidance'. Considering the various clauses of the Scheme, it is not possible for us to come to a conclusion that the Scheme is floated with the sole object of tax avoidance." 8. The above decision was affirmed by the Hon'ble Supreme Court as reported in the case of Department of Income-tax v. Vodafone Essar Gujarat Ltd. [2016] 66 taxmann.com 374/[2015] 373 ITR 525. In the light of the factual position arrived at by the tribunal, we find that no question of law much less substantial question of law arising for consideration." 26. We also gainfully refer to the decision rendered by the coordinate bench of this Tribunal at Delhi in case of Priapus Developers (P.) Ltd. Vs. ACIT (104 taxmann.com 298). In the instant case, two subsidiary companies of the assessee were amalgamated with the assessee company, which was the holding company, vide judgment of High court, wherein the Court has sanctioned the scheme of amalgamation. In terms of the Scheme, the assessee was required to account for t....
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....pany or companies which so merge being referred to as the amalgamating company or companies and the company with which they merge or which is formed as a result of the merger, as the amalgamated company) in such a manner that- (i) all the property of the amalgamating company or companies immediately before the amalgamation becomes the property of the amalgamated company by virtue of the amalgamation; (ii) all the liabilities of the amalgamating company or companies immediately before the amalgamation become the liabilities of the amalgamated company by virtue of the amalgamation; (iii) shareholders holding not less than 20[three-fourths] in value of the shares in the amalgamating company or companies (other than shares already held therein immediately before the amalgamation by, or by a nominee for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by virtue of the amalgamation, otherwise than as a result of the acquisition of the property of one company by another company pursuant to the purchase of such property by the other company or as a result of the distribution of such property to the other company ....
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....emption u/s 47(vi) or assessed the receipt of these assets u/s 56(1) in the hands of the assessee. We find ourselves in agreement with the Ld. AR that, when qua these assets of Rs. 96,798.49 lacs, the lower authorities did not disregard the scheme of amalgamation or hold it to a 'colourable device' to evade tax, then it was incorrect on the Revenue's part to cherry pick only the receipt of shares of ZEEL and assess it as a taxable event, denying the benefit of exemption set out in Section 47(vi) of the Act. 31. In view of the above, we hold that the scheme of amalgamation of EBPL with the assessee company cannot be disregarded nor can it be held to be a 'colourable device'. Consequent thereto, the transfer of shares of ZEEL pursuant to the scheme of amalgamation was entitled for benefit of exemption u/s 47(vi) of the Act and therefore the addition made u/s. 56(1) of the Act in the hands of the assessee was unsustainable. The AO is according directed to delete the impugned addition of Rs. 1466.60 crores. 32. Before parting, we may briefly mention that, while alternatively arguing on the applicability of provisions of Section 56(1) of the Act to the receipt of shares of ZEEL by....
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.... by the AO that part reply was received from FT&TR in the course of assessment. According to the AO, the assessee failed to discharge its onus of establishing the creditworthiness of the investor u/s 68 of the Act as the source of the funds of the investor remained unexplained. The AO further held that the valuation report furnished by the assessee was untenable. According to him, the assessee was a loss-making company and therefore it was improbable as to how the valuer could value the company at a price of Rs. 31/- per share using DCF Method. Thus, the AO doubted the genuineness of the transaction as well. He accordingly added share capital of Rs. 29,30,90,000/- received from EMEL by way of unexplained cash credit u/s 68 of the Act. Aggrieved by this action of the AO, the assessee preferred appeal before the Ld. CIT(A) who is noted to have deleted the addition by holding as under: "7.2 I have carefully perused the assessment order and the submission of the appellant. During the appellate proceeding, the appellant submitted the copy of share valuation report of the appellant's shares, copy of incorporation of M/s Essel Media Entertainment, sources of investment by M/s....
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....d. CIT DR submitted that the valuation exercise undertaken by the Chartered Accountant using DCF Method was flawed in as much as the assessee was a loss-making entity and therefore it was highly unusual for a foreign entity to invest in its share capital at a premium. Referring to the AO's findings, the Ld. CIT, DR submitted that the investor, EMEL had underwent a restructuring exercise, in terms of which M/s. Packaging Products Investment Ltd [in short 'PPIL'] amalgamated with the investor, EMEL on 28.03.2012. The Ld. CIT DR contended that PPIL also failed to provide the source of monies out of which the investments were made. He argued that there were layers of conduit entities and the act of amalgamation was done only with the intent to hide the source of the monies. He thus urged that the order of Ld. CIT(A) be reversed and the order of AO be restored. 38. Per contra, the Ld. AR brought to our notice that the assessee had placed on record the evidences to show the identity & creditworthiness of M/s. EMEL and the genuineness of the transaction. He drew our attention to the fact that the foreign investor had subscribed to the share capital of the assessee in conformity with th....
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.... the assessee had furnished the details of EMEL including copy of certificate of incorporation in Mauritius, certificate regarding source of funds, copy of inward remittance proof along with assessee's bank statement evidencing both receipt of funds and refund of excess balance. The documents placed on record revealed that EMEL was incorporated on 3rd June 2011 and that the source of their investment in assessee was the contribution received from its shareholders, as certified by the local Chartered Accountant. The Ld. CIT(A) had further observed that, the AO had referred the matter to FT&TR Division to make independent enquiries in Mauritius and the AO had noted in the impugned order that part reply was also received from FT&TR. The Ld. CIT(A) rightly pointed out that the AO had not cited any adverse finding or remark of the FT&TR with respect of the source of investment either in the assessment order or post completion of the assessment. Even before us the Revenue was unable to furnish any adverse finding or contrary report of FT&TR doubting the genuineness of the investment made by EMEL in the assessee. 41. The next allegation of the Revenue is that there were layer of entiti....
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.... multiple corporate bodies may have been involved in the entire process of collecting funds in P5AHIML and then investing the same in the assessee company, by itself would not be sufficient to establish a sham transaction or colourable device. 10. We further notice that when the Commissioner (Appeals) had permitted additional evidence to be produced on record during the appellate proceedings, he had called for remand report from the Assessing Officer. Such report was made by him on 27.5.2013. In such report, his remarks were as under:- "7. On going through the documentary evidence, prima facie it appears that the identify of P5 Asia Holdings is established through residency certificate issued by the Mauritius Government. Assessee has filed documentary evidence of funds transfer vide letter dated 27th May 2013 by filing of copy of bank extracts. Copies of the said letter along with annexures are enclosed. Prima facie these prove the genuineness and the financial capacity of the persons making investment in preference shares. (Zerox Copy of the said reference enclsoed as Annexure -E)." 11. Thus, the Assessing Officer himself was also prima facie of the beli....
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....roviso to Section 68 of the Act, introduced by the Finance Act, 2012 with effect from 01-04-2013 will not have retrospective effect. (i) CIT Vs Gagandeep Infrastructure Private Limited (394 ITR 680) [Bom HC]: "We find that the proviso to section 68 of the Act has been introduced by the Finance Act 2012 with effect from 1st April, 2013. Thus it would be effective only from the Assessment Year 2013-14 onwards and not for the subject Assessment Year. In fact, before the Tribunal, it was not even the case of the Revenue that Section 68 of the Act as in force during the subject years has to be read/understood as though the proviso added subsequently effective only from 1st April, 2013 was its normal meaning. The Parliament did not introduce to proviso to Section 68 of the Act with retrospective effect nor does the proviso so introduced states that it was introduced "for removal of doubts" or that it is "declaratory". Therefore it is not open to give it retrospective effect, by proceeding on the basis that the addition of the proviso to Section 68 of the Act is immaterial and does not change the interpretation of Section 68 of the Act both before and after the adding of the p....
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....of shares, according to us, such issuance of shares at a value higher than the intrinsic fair value was in compliance with the FEMA/RBI regulations. It is noted that, the RBI has not disputed the fair value of shares, which was supported by the CA Certificate using DCF method. Even the AO, apart from making certain remarks, was unable to point out any specific defect or inaccuracy in the valuation report issued by the Chartered Accountant. 46. It is also relevant to take note that, the provisions of Section 56(2)(viib) of the Act which brings to tax excess share premium charged over the fair market value of shares, had been introduced only with effect from AY 2013-14 and onwards, and was therefore not applicable in the relevant year. Moreover, even this provision is made relevant only in circumstances where the issuance of shares is made to residents, while in the instant case, undisputedly these shares were issued by the assessee to a non-resident. The Legislature in its wisdom had not made the said Section 56(2)(viib) of the Act applicable to the shares issued to non-residents, mainly to encourage foreign investments into the country. 47. Moreover, the Ld. AR has rightly br....
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....unt of share premium gives rise to suspicion on the genuineness (identity) of the shareholders, i.e., they are bogus. The apex court in Lovely exports P Ltd (supra) in the context to the pre-amended section 68 of the Act has held that where the Revenue urges that the amount of share application money has been received from bogus shareholders then it is for the Income tax Officer to proceed by reopening the assessment of such shareholders and assessing them to tax in accordance with law. It does not entitle the Revenue to add the same to the assessee's income as unexplained cash credit." 49. Similar view was also expressed by this Tribunal in their decision rendered in the case of Green Infra Ltd Vs ITO (145 ITD 240). In the decided case, the assessee which was a newly formed company had charged premium of Rs. 490/- against face value of Rs. 10/- per share. The AO had doubted the genuineness of the transaction due to issuance of shares at such high premium and therefore added the same u/s 68 of the Act. Before the ITAT, the Revenue inter alia argued that such issuance of shares at high premium had raised serious doubt on the genuineness of transaction and therefore contended ....
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....ges 58 to 70 of the Paper Book before us. The AO, however, did not agree with the submissions of the assessee. He worked out the disallowance as per Rule 8D of the Income Tax Rules viz., (a) proportionate interest of Rs. 12,47,28,867/- under Rule 8D(2)(ii) and (b) administrative expenditure of Rs. 4,08,52,175/- under Rule 8D(2)(iii), both of which were added back both under the normal provisions as well as while assessing book profit u/s 115JB of the Act. 53. Aggrieved by the above action of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who is noted to have deleted the disallowance of Rs. 12,47,28,867/- made under Rule 8D(2)(ii). Aggrieved by this action of the Ld. CIT(A), both the Revenue and assessee are in appeal before us. 54. We have considered the rival submissions and perused the material on record. With regard to the disallowance of interest of Rs. 12,47,28,867/- made under Rule 8D(2)(ii), the Ld. CIT(A) noted that the investments only comprised of shares of ZEEL. He observed that, the erstwhile transferor company, EBPL originally received these shares by way of gift (at NIL consideration). The Ld. CIT(A) accordingly noted that....
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....wable deduction. Therefore, during the relevant year, if the assessee has not earned any tax free income, the corresponding expenditure incurred cannot be taken into consideration for dis-allowance. 56. The above judgment is noted to have been followed with approval by another coordinate Bench of the Hon'ble Bombay High Court in the case of Pr. CIT Vs. Huntsman International (India) Pvt. Ltd. (ITA 1619 of 2016) dated 30-01-2019. The Ld. AR submitted, though, the assessee under misconception of law voluntarily made the disallowance under Section 14A of the Act, however, as per the settled legal principle no disallowance is to be made in the absence of any exempt income. The Ld. CIT, DR, on the other hand, objected to the admission of this new claim at the stage of the appellate proceedings. 57. It is noted by us that, a similar issue had come up for consideration before the coordinate bench of this Tribunal in the case of Finquest Securities Pvt Ltd (ITA No. 2540/Mum/2017) dated 23.08.2018. In the instant case also, the assessee did not earn any exempt income during the year but had suo moto offered disallowance u/s 14A of the Act. Before the Tribunal, the assessee, having reg....
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....ell as the Special Bench of the Tribunal in case of ACIT v/s Vireet Investment Pvt. Ltd., [2017] 165 ITD 26 (Del.). Thus as per the settled principle of law as it stands now, ITA No.2540/Mum/2017 M/s. Finquest Securities P. Ltd., in absence of any exempt income earned in a particular assessment year, no disallowance u/s. 14A can be made. Therefore, only because the assessee itself has made some disallowance under section.14A of the Act, it cannot be utilized to his detriment as there is no estoppel against law." 58. Following the above decisions (supra) and having noted from the financial statements and computation of income that the assessee did not earn any exempt income during the relevant year, the AO is directed to delete the disallowance of Rs. 4,10,77,175/- (computed by the AO at Rs. 4,08,52,175/-) made under Section 14A read with Rule 8D(2)(iii). 59. Now we come to the issue of disallowance u/s 14A r.w. Rule 8D made while computing book profit u/s 115JB of the Act. Since we have already held that no disallowance u/s 14A read with Rule 8D is warranted in the given facts of the case, consequentially no disallowance is sustainable in the MAT computation under section 115....