AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (8) TMI 21
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....) 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 Rs. 1466.60 crores made u/s 56(1) of the Act, holding that a dire....
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.... 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; 3. The AO / CIT(A) failed to appreciate that, on the facts and circumstances of the case and in law, the provisions of sect....
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....os. 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 Arrangement, the assets & liabilities were accounted in the books by the transferee company at fair value. The AO noted that, the assessee had inter alia received 13,09,88,822 equity shares of M/s. Zee Entertai....
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.... 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. The Ld. CIT(A), accordingly, held that Jayneer did not actually gift the shares of WWIL, but that Jayneer had exchanged the shares of WWIL for receiving the shares of ZEEL, and therefore directed the AO to tax suc....
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....ee 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 date, the fair market value of the share shall be the observable price of such share on the stock exchange: ii) On the date of valuation i.e. September 21, 2011, the value of each share of Zee Limited as per recognized stock exchange was Rs. 116.5. Hence the total value of....
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....ment 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 permitted to be challenged by the petitioners, without locus standi, in a collateral proceeding in the present writ petition. An amalgamation order can only be challenged under the Companies Act by an appeal under Section 391(7) by any one of the parties, but no such appeal was ever filed. From 1993 onwar....
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....he 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 recorded by the Ld. CIT(A) in the matters of Jayneer had since been deleted by this Tribunal in ITA No. 4477/Mum/2017 dated 28-02-2019, copy of which was placed on our record. 17. Countering the report of the AO placed before us by the Ld. CIT, DR, the Ld. AR pointed out that the AO had cited the valuation methodolog....
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....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 to have factually erred in holding that the assessee was previously a shell entity and that, the scheme was undertaken between EBPL and assessee with the sole intent to transfer shares of ZEEL so as to avoid tax. 20. It is noted that, the AO had made reference to several other schemes of arrangement entered into by diffe....
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....ed. 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 scheme of arrangement are intimated to the Income-tax Department, then that is the only opportunity afforded to the Department to object to the scheme of arrangement. If something is found prejudicial to the interest of Revenue, then necessary comments/ objections ought to be sent to the concerned CIT or the Regional Director, MCA ....
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....ee, 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 that jurisdictional High Court has approved the scheme of Amalgamation without considering the ratio laid down by Hon'ble Apex Court in the case of Marshall & Sons as the Department has initiated separate proceedings considering the violation of section 2(1B) of the Income-tax Act, 1961? (ii) Whether on the facts and in the circumstances of the cas....
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....ccounted 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 there is no imputation in the order that these monies have been actually paid to the appellant, in whatever manner. Thus the question of genuinity also becomes redundant. Accordingly, I direct that the addition made under Sec. 68 of the Income-tax Act, 1961 on account of Amalgamation Reserve credit in the books be deleted. These grounds of appeal are allowed". ... 6. With regard to w....
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....e 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 the assets & liabilities received pursuant to the scheme of amalgamation under the 'purchase method' i.e. all assets and liabilities of the transferor companies would be recorded at their respective fair values and the gain/excess, if any, would be credited to a Capital Reserve. The AO noted that, upon revaluation and recording of assets at their fair values, the assessee had derived significant gain, which was credited to the Capital Reserve. A....
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....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 after the winding up of the first-mentioned company;" 29. From the facts placed before us, it is noted that the terms of the scheme of amalgamation was in consonance with Section 2(1B) of the Act and the assessee had complied with the conditions laid down therein upon giving effect to the scheme of amalgamation. We therefore do not see any reason for the lower authorities to deny the benefit of exemption set out in Section 47(vi) of the Act. Before us, the Revenue has laid much emphasis on the va....
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....e 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 the assessee, the decisions in the cases of CIT v. Texspin Engg. & Mfg. Works (129 Taxman 1) & Forbes Campbell & Co. Ltd. v. CIT (15 Taxman 473) have been referred to. It was submitted that there is no transfer as understood in general law because as a consequence of merger, EBPL does not survive and is dissolved. According to Ld. AR, therefore, the provisions of Section 56(1) of the Act are anyways rendered otiose. Also, as a result of amalgamation, the assessee, being the transferee company, will incre....
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..... 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 Essel Media Entertainment Limited, copy of inward proof alongwith the appellant's bank statement reflecting the inflow of share issue proceeds along with the refund of share application money. Form 2 for allotment of shares. It is seen that the investor company was incorporated in Republic of Mauritius on 3rd June 2011. The certificate issued by Shri Jeewala Kanhiya, CA, reveals that the source of investment in the appellant's company is funding by way of contribution from the shareholders of the investor com....
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....ntended 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 the valuation report obtained from Chartered Accountant under the DCF Method. He showed us that the inward remittance proof, name of investor, certificate of incorporation, CA certificate regarding source of funds, etc. were also furnished before the AO, which are available at Pages 83, 100, 101 of the Paper Book. He also drew our attention to the bank statement of the assessee (Pages 81 & 82 of paper book) to show that the funds were received through proper banking channel. He also brought to our notice the relevant board resolutio....
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....her 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 entities behind the investment, which according to them, was intended to hide the real source of money. In our considered view, merely because multiple corporate bodies may have been involved in the entire process of collecting funds in EMEL and then investing the same in the assessee company, by itself would not be sufficient to establish a sham transaction or the use of a colourable device. In this regard, we may gainfully refer to the decision of the Hon'ble Bombay High Court in the case of Pr. CIT Vs Aditya Birla Telecom Ltd (105 taxmann.....
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.... 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 belief that the materials on record prove genuineness and financial capacity of the persons making investment. The Commissioner (Appeals) was under the directive of the High Court of Bombay to dispose of the appeal within a short time. It was for this reason that in his appellate order, he had recorded that further investigation into the additional documents was pending and therefore, in compliance with the order of the High Court, he was disposing of the appeal. Thus, the order of the Appellate Commissioner cannot be seen as the decision on merits of the matter for w....
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.... 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 proviso...." (ii) Pr. CIT vs. Apeak Infotech (88 Taxmann.com 695) [Bom HC]: "Similarly, the amendment to section 68 of the Act by addition of proviso was made subsequent to previous year relevant to the subject assessment year 2012-13 and cannot be invoked. It may be pointed out that this court in CIT v. Gagandeep Infrastructure (P.) Ltd. [2017] 80 taxmann.com 272/247 Taxman 245/394 ITR 680 (Bom.) has while refusing to entertain a question with regard to section 68 of the Act has held that the proviso to section 68 of the Act introduced with effect from April 1, 2013 will no....
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....air 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 brought to our notice that, based on the law as it stood then in AY 2012-13, the quantum of share premium had no connection or relation to justify the three ingredients prescribed in Section 68 of the Act. Gainful reference may be made in this regard to the following findings recorded by the Hon'ble Delhi High Court in its judgment in the case of CIT Vs Anshika Consultants Pvt Ltd (62 taxmann.com 192) wherein it was held as follows: "Whether the assessee-company charged a higher premium or not, should not have been the subject matter of the enquiry in the first instance. Instead, the issue was....
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....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 that the addition was rightly made under the provisions of Section 68 of the Act. We find that the following observations made by this Tribunal with regard to share premium charged in the context of applicability of Section 68 of the Act, are also relevant to the issue involved in the present case: "No doubt a non est company or a zero balance company asking for a share premium of Rs. 490 per share defies all commercial prudence, but at the same time one cannot ignore the fact that it is a prerogative of the Board of Directors of a company to decide the premium amount and it is the wisdom of the shareholders ....
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....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 the assessee did not pay any sum for acquisition of these shares and that, upon amalgamation, the assessee had only recorded these investments at its fair value by way of book entry. The Ld. CIT(A) thus held that, as there was no utilization of borrowed funds for acquiring these shares, the disallowance of Rs. 12,47,28,867/- made under Rule 8D(2)(ii) ought not to have been made. The Ld. CIT, DR appearing before us was unable to countenance these facts. We therefore do not see any reason to interfere with the order of Ld. CIT(A) deleting the interest disallowance made by the AO under Rule 8D(2)(ii). 55. Now we proceed to exami....
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.... 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 regard to the several judgments of High Courts holding that, in absence of exempt income, no disallowance u/s 14A of the Act is warranted; had raised an additional ground seeking deletion of the voluntarily disallowance wrongly offered u/s 14A of the Act in the return of income. This Tribunal admitting this additional claim answered the question in favour of the assessee, by holding as under: "9. We have considered rival submissions and perused the material on record. No doubt, assessee has voluntarily disallowed an amount of Rs. .12,98,664/- under section.14A of the Act r.w.r. 8D. However, before ld. Commissioner (Appeals) the assessee has ....
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.... 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 115JB of the Act as well. Also, the Special Bench of this Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. (165 ITD 27) has held that the computation mechanism provided under Rule 8D of the Rules cannot be applied for computing addition in terms of clause (f) of Explanation 1, for arriving at the book profit u/s 115JB of the Act. Hence, the impugned disallowance made by the AO while computing book profit u/s 115JB is held to be unsustainable in law. 60. For the aforesaid reasons, Ground No. 8 of the Revenue's appeal is dismissed and Ground No. 3 & 4 of the CO and Ground No. 3 & Additional ground of the assessee's appeal stands allowed. 61. ....