TaxTMI 
TaxTMI 
2023 (9) TMI 1530
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.... Provisions of Section 263 not applicable 2. For that the Principal Commissioner of Income Tax failed to appreciate that there was no error or prejudice much less both to warrant the invocation of the provisions of Section 263. 3. For that the provisions of section 263 are not invocable in the facts and circumstances of the case. Chargeability of proceeds received on termination of call option agreement: 4. For that the Principal Commissioner of Income Tax erred in not appreciating that the proceeds received on termination of call option agreement were to be treated as capital gains. 5. For 'that the Principal Commissioner of Income Tax erred in considering the proceeds on termination of call option agreement as assessable under the head 'Business or Profession' 6. For that the Principal Commissioner of Income Tax erred in considering that the impugned proceeds would be chargeable to tax as income u/s.28(va) of the Act 7. For that and without prejudice, the Principal Commissioner of Income Tax erred in not appreciating that revision proceedings cannot be initiated when two views are possible and where on....
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....DR further submitted that Ld. AO did not apply his mind to the submissions made by the assessee on 17.12.2019 which is evident from the fact that the assessee voluntarily accepted disallowance u/s 14A to the tune of Rs. 24.87 Lacs on account of expenditure incurred for investment made for earning the exempt income. However, no such disallowance has been made by Ld. AO in the assessment order. Non-consideration of the said disallowance clearly establishes that Ld. AO did not apply his mind on the submissions made by the assessee on 17.12.2019. The Ld. AO failed to make the additions based on the consent given by the assessee during the course of original assessment proceedings. 3.2 The Ld. CIT-DR further submitted that Ld. AO did not verify the genuineness of the investment activity of the assessee company since the financial statements would show that the assessee was merely acting as conduit for making investments for Kalpataru group in order to exploit 2G license of Aircel Ltd. There was no other activity carried out by the assessee. The activity of the assessee, as per Ld. CIT-DR, was not in accordance with the activity of investment company as defined in Rule 1A(g) of Wealth....
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.....50 Crores which falls under the revisionary jurisdiction as per Explanation-2 to Sec. 263. Arguments on behalf of Assessee 4.1 The Ld. AR, in the written submissions, controverted the arguments of revenue on the ground that it was one particular notice only on which DIN was not cited. The assessment order bears DIN and also specifically mention about assessee's reply dated 17.12.2019 in response to the said notice. Therefore, the validity of notice could not be challenged in this appeal. The fact that AO noted the assessee's reply dated 17.12.2019, would show that the same was received and considered in assessment proceedings. There is distinction between notice conferring jurisdiction and notice calling for information. If there is technical defect in notice calling for information, such a notice could not be considered as an invalid notice. It was further submitted that although the proceedings were e-proceedings and the notices were issued electronically, the scheme had just become operational and personal hearing used to take place. The reply was clearly received in TAPAL on 17.12.2019 i.e., ten days prior to passing of the assessment order which was passed on 28.12.2019....
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.... it has been submitted that the assessee has not earned any exempt income during the year and hence the question of disallowance u/s 14A do not arise as per the decision of Hon'ble Apex Court in the case of State Bank of Patiala vs CIT (259 Taxman 314) and CIT vs Chettinad Logistics P. Ltd. (257 Taxman 2). The Ld. AR took support of CBDT Circular No.14 (XL-35) dated 11.04.1955 which state that AO should not take advantage of the ignorance of the assessee. 4.6 The Ld. AR also supported the case of the assessee on merits. It has been submitted that in terms of Explanation-2 to Sec. 2(14), the term 'property' includes and shall be deemed to have always included 'any rights in or in relation to an Indian Company', including rights of management or control or any other rights whatsoever. In the present case, the right to buy shares of Aircel Ltd. has been relinquished in favour of Global Communications Service Holdings Ltd. (GCSH) against consideration of Rs. 100.50 crores. The call options being the right to purchase shares of Aircel Limited clearly fall within the purview of the term 'capital asset'. There is transfer of profit earning apparatus of the company and hence the conside....
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....nd. Moreover, Ld. Pr. CIT, vide para 6 of the impugned order, specifically noted that the primary object of the assessee company was to carry on the business of an investment company. Finally, Ld. AR submitted that the aforesaid transactions resulted into giving up a source of income itself in favor of another company and therefore, the same should be treated as transfer of capital asset resulting in capital gains. 4.10 On the issue of disallowance u/s 14A, it has been submitted that there is no exempt income in this year and this disallowance is unwarranted. On the issue of bank interest not offered to tax, Ld. AR demonstrated that the same has been reckoned as business income and treatment of interest as business income is tax neutral and does not prejudice the revenue in any manner. On the issue of set off of business losses, Ld. AR submitted that there was no bar against setting-off of business losses against Long Term Capital Gains in terms of Sec.71(2). 4.11 The Ld. AR summarized its arguments, inter-alia, by submitting that the impugned issue of head of income was already examined by Ld. AO during the course of original assessment proceedings. Based on appreciation of ....
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....nt proceedings itself. The assessee's submissions, in the regard, as made during the course of original assessment proceedings were brought to the notice of Ld. Pr. CIT. The same has been extracted on page nos. 5 to 8 of the impugned order. In these submissions, the assessee submitted that the assessee was an investment company. The entire funds were invested in certain shares which were held as long-term investments. The equity shares in DDNPL were held as long-term investments under the head 'non-current investment'. The purpose of call option agreement with DDNPL was to purchases the shares of Aircel Ltd. which were held by DDNPL. Considering that the shares were supposed to vest in the assessee company and the same were to be held as investment and further that the call option was not exercised, it should be treated as capital asset. The right to purchase the share was a capital asset. The capital asset as defined in Sec. 2(14) would include property of any kind. As per Explanation as inserted vide Finance Act, 2012, 'property' include any rights in relation to an Indian Company. Therefore, the call option being right to purchase shares of Aircel Ltd. clearly fall within the pu....
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....ial to the interest of revenue Therefore, all the four issues were set aside to the fie of Ld. AO for making detailed examination after affording opportunity of hearing to the assessee. Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and Adjudication 7. Upon perusal of assessment order, it could be seen that one of the notices u/s 142(1) was issued to the assessee on 05.10.2019 calling for certain details. The assessee filed requisite details vide replies dated 25.11.2019, 17.12.2019 and 27.12.2019. The assessment order takes note of the replies of the assessee in opening paragraph. In notice dated 05.10.2019, the assessee was, inter-alia, directed to give a detailed note on business activity carried on by it during the year along with audited financial statements and return of income. The assessee, vide detailed reply dated 17.12.2019, furnished various details and submissions. In Para-2 of the reply, the assessee explained the transaction of Termination of Call option agreement and substantiated its stand as to why the aforesaid income would be taxed as capital gains. To support the same, the assessee relied on the decision of Hon'ble Supre....
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....se of State Bank of Patiala vs CIT (259 Taxman 314) and CIT vs Chettinad Logistics P. Ltd. (257 Taxman 2). 10. Another argument of Ld. CIT-DR is that Ld. AO did not verify the genuineness of the investment activity of the assessee company since the financial statements would show that the assessee was merely acting as conduit for making investments in order to exploit 2G license of Aircel Ltd. There was no other activity carried out by the assessee. However, the genuineness of assessee's activities has not been questioned either in assessment order or in impugned revisionary order. The Ld. Pr. CIT merely held an opinion that the income earned by the assessee was to be assessed as 'business income' instead of 'capital gains'. Therefore, this argument has no substance. 11. The argument that the payment received by the assessee was in relation to non-compete and non-solicit application is not supported by the terms of the termination agreement. In the present case, the assessee had a definite right to buy certain shares and the assessee has transferred this right to another entity for a sale consideration which has been offered to tax. The consideration was not received for not ....