TaxTMI 
TaxTMI 
2025 (4) TMI 720
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....ntly, on dated 22.03.2018 a search and seizure action u/s 132 of the Act was conducted in the case of Aachman Group and other related entities by the DDIT (Investigation), Unit- 6(1), Mumbai. The case of the Assessee was also covered under such search and seizure operation and consequently notice dated 06.12.2019 u/s 153A of the Act, was issued to the Assessee, in response to which the Assessee filed its return of income on dated 10.12.2019, declaring total income at Rs."14,090/-". 4. Thereafter, various statutory notices were issued, in response to which the Assessee from time to time, attended the proceedings and filed the requisite details, as called for. On verification of the details filed by the Assessee during the course of assessment proceedings and examining the return of income, it was observed by the Assessing Officer (AO) that the Assessee, during the assessment year under consideration, has purchased following shares: Sl. No. Name of the share Number of shares Consideration amount 1. M/s. Navratan Management Pvt. Ltd. 3000 Rs.3,00,000/- 2. M/s. Muktamani Distributors Pvt. Ltd. 50,000 Rs.50,000/- 3. M/s. Mecons Pro Comotrade ....
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....ns of section 56(2)(viia) of the IT Act 1961 which is reproduced here under. "where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested, (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation. For the purposes of this clause, "fair market value of a property. being shares of a company not being a company in which....
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....perty (including wearing apparel and furniture) held for personal use by the assessee or any member of his family dependent on him, but excludes- a) jewellery; b) archaeological collections; c) drawings; d) paintings; e) sculptures; or f) any work of art" Any stock in trade [other than the securities referred in sub clause(b)] consumable stores of raw materials held for the purposes of his business or profession. From the above definition it is crystal clear that securities held for the purposes of business is not a capital asset unless it is for investment purposes. 1.4. Moreover, if the meaning of property as provided in clause (d) to para (h) of section 56(2)(vii) is read in its true sense and strictly your goodself will appreciate that all the assets mentioned in this clause i.e. from (i) to (ix) are in the nature of enduring and capital assets only and the concept of valuation of fair market value strictly applies in case of a property in the nature of capital asset. Therefore, to treat out of these capital assets shares and securities as non capital asset will defeat the purpose of this section b....
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....sessee, but found the same not acceptable, on the following reasons: "That section 56(2)(viia) of the Act was inserted by Finance Act, 2010 to prevent the practice of transferring of unlisted shares at a price different from the fair market value (i.e. no or inadequate consideration) of the shares and also included within its ambit transactions undertaken in shares of the company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration, where recipient is a firm or a company (not being a company in which public are substantially interested). The Assessee has claimed to be engaged in the business of investments and trading of the shares and securities, however, from the website https:// www.zaubacorp.com, the Assessee is identified being engaged in the business of other wholesale includes specialized wholesale not covered in any of the previous categories and wholesale is a variety of goods without any particular specialization. Further, the Assessee also contended that the section 56(2)(viia) of the Act is an extension of section 56(2)(vii) and section 56(2)(viia) of the Act is applicable only ....
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....ase value) for purpose of section 56(2) (viia) r.w.r 11UA is calculated here as under: Sl No. Navratan Management Put. Ltd. Muktamani Distributors Put. Ltd Financial Year 2016-17 No. of shares bought during the year 30,000 50,000 FMV per share as per valuation report) Rs. 93.97 Rs.49.43 Aggregate Value fair value 30,000 x 93.97 = 28,19,100/- 50,000 x 49.43= 24,71,500/- Total Consideration paid Rs.3,00,000/- Rs.50,000/- Difference amount Rs.25,19,100/- Rs.24,21,500/- Total Difference as per section 56(2)(viia) Rs.49,40,600/- 10. The AO on the analysis of financials of M/s. Aachman Vanijya Pvt. Ltd. and M/s. Mecons Pro Como Trade Pvt. Ltd., worked out the fair market value of such shares as under: F.Y 2016-17 1 M/s. Aachman Vanijya Pvt Ltd M/s. Mecons Commtrade Pvt Ltd 2 Book value of assets as per financials 97,79,52,293/- 10,46,76,888/= 3 Amount of tax paid as deduction or collection at sources 2,19,72,240/- 20,51,300/- 4 Amount of tax paid as advance tax 45,00,000/- 0 5 Amount of tax claimed as refund 0 0 6 Any amount ....
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....9.07.2021 submitted a report without making any objection and/or doubting the MOU, but supporting the assessment order. Thus, the Assessee in response to the remand report, filed its reply vide letter dated 20.07.2021, challenging the remand report and reiterating its claim again. 14. Thereafter, the case of the Assessee was considered by the Ld. Commissioner but not found acceptable and therefore he ultimately affirmed the aforesaid addition, by observing and holding as under: "10. During the appeal proceedings, it is contended that the appellant company is in the business of investment and trading in shares and securities. To support its contention, the appellant has submitted a copy of memorandum of association. It is submitted that, the alleged shares were purchased for the purpose of trading and not as an investment. In the Balance sheet also, these shares are shown as stock in trade and not as an investment. The provisions of section 56(2)(viia) are applicable for investment in capital assets and not for the regular business/trading activities. The appellant has further submitted that, on the similar facts in case of related concerns namely Muktamani Distributors ....
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....om the A.Y 2013-14 onwards it is seen that the turn- over of the appellant is insignificant and does not reflect the trading activity in shares. The details of return income filed are as under: - Sr. No A.Y Returned of Income 1. 2013-14 Nil 2. 2014-15 16,550/- 3. 2017-18 14,087/- 4. 2020-21 NIL 5. 2022-23 NIL 6. 2023-24 37,150 The revenue from the operation is either NIL or meagre. These facts show that the appellant has not carried out any business activities over the years. 11.5 The details of balance sheet as on 31.03.2023 are as under .- 1. Share capital Rs. 14,85,000 -. 2. Reserve & Surplus - Rs 1,10,55,950 -. 3. Current and non-current liabilities - Rs 79,350. 4. Noncurrent investment Rs 69,80,470. 5. Inventories 49,23,000. It is seen that the reserve and surplus is mainly on account of receipt of security premium. In the profit and loss account the total receipts are shown as Nil. From the above, It can be seen that the appellant itself is a paper company not carrying out any business activity. 11.6 From the perusal of the financials....
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....igher authorities or courts which failed. The appeal was consequently allowed and the judgment of the High Court was set aside." 11.8.3 The Honble Supreme Court in case of Taparia Tools Ltd Vs JCIT (55 taxmann.com 361) has held as under- "19 ....... merely because a different treatment was given in the books of account cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been held repeatedly by this Court that entries in the books of account are not determinative or conclusive and the matter is to be examined on the touchstone of provisions contained in the Act [See Kedamath Jute Mfg. Co. Ltd. v. CIT (1971) 82 ITR 363 (SC); Tuticorin Alkali Chemicals & Fertilizers Ltd. v. CIT [1997] 227 ITR 172/93 Taxman 502 (SC); Sutlej Cotton Mills Ltd. v. CIT [1979] 116 ITR 1 (SC) and United Commercial Bank v. CIT [1999] 240 ITR 355/ 106 Taxman 601 (SC)." 11.8.4 Hon'ble Supreme Court in the case of Taparia Tools held that merely because a different treatment was given in the books of accounts cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction. It has been....
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.... 17. As the additional grounds raised by the Assessee are legal in nature and emanates from the assessment proceedings and even otherwise goes to the route of the case and adjudication of the same does not require any independent material, except already available on record and, thus the same were admitted for adjudication and are being disposed of, before proceeding to the merits of the case. 18. Coming to the additional ground no. 3 raised by the Assessee, we observe that the Assessee has challenged the sanction/approval dated 27.12.2019 u/s 153D of the Act, for initiating the proceedings and/or making the assessment or re-assessment u/s 153A and 153B of the Act. The Assessee has claimed that draft assessment orders of the Assessee for seven assessment years, along with covering letter dated 27.12.2019 were submitted to the office of the Additional Commissioner of Income Tax, Central, range-8, Mumbai (in short "the Ld. Add. Commissioner") for approval u/s 153D of the Act. The Ld. Add. Commissioner approved the same, on the very same day/date i.e. 27.12.2019 and thereafter assessment orders including in the instant case, was made on the very same date i.e. 27.12.2019 itself. Th....
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....nted by the Ld. Commissioner was not substantive or final approval but the same was conditional, as the Ld. Addl. Commissioner in the approval has given certain directions to the AO to follow up and/or accorded the approval in following format and conditions mentioned therein: 21. The Assessee thus, has further claimed that such approval is invalid and bad in law, specifically in view of the judgment passed by the Hon'ble Tribunal in the case of Rishab Build Well Pvt. Ltd. vs. DCIT & ors. (ITA No.2122/Del/2018 decided on 04.07.2019), wherein the approval granted u/s 153D of the Act, was subjected to fulfillment of similar conditions, like ensuring comments in the approval and final assessment order was required to be sent to the file of the JCIT and therefore the Hon'ble Tribunal held such approval as conditional and invalid. 22. The Ld. Counsel Mr. Dhaval Shah, with regard to the approval u/s 153D of the Act, has also raised following various issues: "That in the instant case, the draft assessment order was submitted by the AO, to the Ld. Addl. Commissioner at the fag end of the assessment proceedings, on 27-12-2019 being a Friday, whereas the time barring d....
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....aft orders put before him were correct and legally valid. Mere mentioning that the draft orders have been perused and approved without even briefly stating how they are correct, cannot satisfy the conditions of law. "The Hon'ble Madhya Pradesh High Court as well in the case of CIT Vs. S. Goyanka Lime and Chemicals Ltd. (56 taxmann.com 390) also dealt with the situation, wherein the Ld. Commissioner accorded the approval by using the words "Yes, I am satisfied" without making any records as to how he was satisfied. Thus, the Hon'ble High Court held such approval as a mere mechanical approval. The Ld. Counsel further submitted that such order of the Hon'ble High Court has stands affirmed by the Hon'ble Apex Court in the case of S. Goyanka Lime and Chemical Ltd. 64 taxmann.com 313". Further instruction given vide at point no.(1)(2)(vi) in the approval dated 27.12.2019 by the Ld. Additional Commissioner is not even remotely related to the case in hand and nowhere discussing the contents and the quality of the draft assessment order and the correctness of the proposed additions in the assessment order. "The Hon'ble Pune Tribunal in the case....
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...., the Ld. D.R. refuted the claim of the Assessee by submitting that approval was duly accorded by the concerned Addl. Commissioner. The procedure normally followed in such cases is that after centralization of the case, periodic discussions are held between the Range Head and the AO, where the appraisal report and the relevant seized material are duly discussed. Submitting of the draft assessment order, is the culmination of the discussion process, not the initiation of the involvement of the Range Head, who is the approving authority. The Ld. D.R. further submitted that the decisions relied upon by the Assessee are distinguishable from the facts of the present case, as summarized below: "(i) Pr. CIT V/s Smt. Shreelekha Damani, ITA no. 668 of 2016, decision dated 27/ 11/2018 In the aforesaid order, the Hon'ble High Court of Bombay dismissed the appeal of the Revenue against the order of the ITAT, wherein the Hon'ble ITAT had held that there was no application of mind on the part of the authority granting approval. In this case, while granting approval u/s 153D, the AddI. CIT had himself noted in the approval letter that " .... However, this draft order has....
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....30-12-2017. ....... It is humanly impossible to go through the records of 85 cases in one day to apply independent mind to appraise the material before the Approving Authority. "(Page 228 of the Case Law Paper Book no. 2). In the instant case, approval, though granted on the same day, was granted in 7 cases of one group. There is a massive difference in the number of cases seen and approved in the relied upon case and the present case. The Id. AR also produced a chart showing that approval had been granted by the same Addl. CIT in 12 cases on 27/12/2019. Even if this number, though unverified from records, is treated as correct, 12 is still significantly less than 85, which was the number approved in the case of Sapna Gupta in a single day. Further, the 12 cases comprise of 7 cases of the present group and 3 other assessees. This number cannot be held comparable to the number approved in the Sapna Gupta case. (iv) Rishabh Buildwell P. Ltd. v/s DCIT ITA No. 2122/Del/2018 & others ITAT Delhi In the above case, the approval was held to be invalid as the Approving Authority had directed the DCIT to ensure that seized materials and the findings of the appraisal report ....
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.... day of granting the approval on 27.12.2019, the AO passed the assessment order under consideration. It is also a fact that the Addl. Commissioner/Approving Authority, has also granted the same approval u/s 153D of the Act, on the very same day, in other 12 cases. Admittedly, from the approval, it is nowhere appearing that what evidence/document/statement/material/ proposed addition(s) etc. were examined by the Approving Authority before granting the approval. It is also not clear, whether the approving authority has applied its mind and on what basis or material the approval was accorded. The aforesaid facts create the suspicion about the validity of the approval. Therefore, we will test the approval, in view of dictum laid down by various courts. 28. Coming to the first decision by the Hon'ble Orissa High Court in the case of ACIT vs. Serajuddin & Co. (supra), which is paramount for adjudication of the instant issue, as observed above, the Hon'ble High Court has dealt with almost identical situation/issue, wherein the approving authority has granted the approval in many cases but by a single approval and at the fag end of the time period prescribed for completion of th....
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......... ................................................................................................................................................................. ................................................................ 24.............................................................................................................................................................. ................................................................................................................................................................. ................................................................................................................................................................. ................................................................. 25. For all of the aforementioned reasons, the Court finds that the ITAT has correctly set out the legal position while holding that the requirement of prior approval of the superior officer before an order of assessment or reassessment is passed pursuant to a search operation is a mandatory requirement of Section 153D of the Act and that such approva....
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....#39;ble High Court also laid down the following dictum: "That the approval whenever required under the law must be preceded by application of mind and consideration of relevant factors, before the same can be granted. The approval should not be an empty ritual and must be based on consideration of relevant material on record". 31. The Ld. D.R. on the contrary has claimed that in the aforesaid case, the approval was sought only on 31.12.2010, whereas in the instant case the draft order was submitted on 27.12.2019 and the time barring date was 4 days away, unlike in the relied upon case, when the draft order was submitted on the time barring date itself, therefore the facts of the relied upon case, are different from the facts of the present case. 32. To answer the contention of the Ld. DR, judgment of the Hon'ble Madhya Pradesh High Court in the case of Commissioner of Income Tax, Jabalpur Vs. S. Goenka Lime and Chemical Ltd. (2015) 56 taxmann.com 390 (MP) is relevant, wherein the Hon'ble High Court, also dealt with an identical situation/issue, wherein exercise for according the approval for reopening of the block assessments and issuing the notice u/s 148 of the Act....
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....36. The provisions of section 153D of the Act are having its own history, as the same were made applicable from 01.06.2007 onwards in order to avoid arbitrary, unwanted and whimsical assessments or reassessment under clauses (a) and (b) of section 153A of the Act. For brevity and ready reference, the provisions of section 153D are reproduced herein below: Prior approval necessary for assessment in cases of search or requisition. "Section 153D of the Act: No order of assessment or reassessment shall be passed by an Assessing Officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of section 153A or the assessment year referred to in clause (b) of sub - section (1) of section 153 B, except with the prior approval of the Joint Commissioner. Provided that nothing contained in this section shall apply where the assessment or reassessment order, as the case may be, is required to be passed by the Assessing Officer with the prior approval of the Commissioner under sub- section (12) of section 144BA." 37. The CBDT vide circular no.3 of 2008 dated 12.03.2008, also illustrated the origin of the provisions o....
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....on the very same date of submitting the draft orders on 27-12-2019, granted the approval in 13 cases simultaneously and it is a fact that 28th & 29th of December 2019 were holidays being Saturday and Sunday and 31st December 2019 was the last date for making the assessment order and therefore the approving authority has left with, only two working days i.e. 27th & 30th December 2019. However, the approving authority accorded the approval on the very same day (27-12-2019) of submitting the draft order and in less than 12 hours, which goes to show that the Approving Authority has not applied his mind due to paucity time and therefore granted the approval in mechanical and haste manner. It is also a fact that the AO on the very same day of getting the approval, completed the assessment proceedings and passed the assessment order dated 27.12.2019, which also creates suspicion. As we have observed above that granting of approval is not a technical or mechanical exercise or ritual formality but must demonstrate the examination of the relevant material and finding/reasoning, as to why the approval has been granted. And therefore the contention of Ld. DR to the effects "that the procedu....
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....Number of shares Consideration amount 1. M/s. Navratan Management Pvt. Ltd. 3000 Rs.3,00,000/- 2. M/s. Muktamani Distributors Pvt. Ltd. 50,000 Rs.50,000/- 3. M/s. Mecons Pro Comotrade Pvt. Ltd. 60,000 Rs.6,00,000/- 4. M/s. Aachman Vanijya Pvt. Ltd. 3,30,000 Rs.33,00,000/- 41. On perusal of the financials, the AO observed that fair market value of the shares of M/s. Navratan Management Pvt. Ltd. and M/s. Muktamani Distributors Pvt. Ltd. appears to be more than the face value of which the shares were purchased and therefore the AO asked the Assessee to furnish the valuation of shares. The Assessee furnished the valuation report of shares of M/s. Navratan Management Pvt. Ltd. and M/s. Muktamani Distributors Pvt. Ltd. On perusing the valuation reports, it was seen by the AO that fair market value per share of M/s. Navratan Management Pvt. Ltd. and M/s. Muktamani Distributors Pvt. Ltd. was more than the purchase value per share. Therefore, he show caused the Assessee "as to why the provisions of section 56(2)(viia) of the Act should not be invoked for the purchase of shares of said companies and the differential amount (of the fair m....
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.... shares at a price different from the fair market value. The Assessee though contended that it is engaged in the business of investments and trading of shares and securities, however, from the website "https://www.zaubacorp.com" the Assessee is identified being engaged in the business of other wholesale, includes specialized wholesale, not covered in any of the previous categories and wholesale in a variety of goods, without any particular specialization. The AO also rejected the contention of the Assessee that section 56(2)(viia) is an extension of section 56(2)(viia) of the Act by holding that section 56(2)(vii) of the Act is applicable to individual and HUF only, whereas section 56(2)(viia) of the Act is applicable to firms and private company. Beside, this section 56(2)(viia) of the Act is applicable to the disallowance of shares of private companies only but not "any property" as mentioned in the section 56(2)(vii) of the Act. The AO further observed that explanation applicable to section 56(2)(viia) is only related to "fair market value" as described in the explanation to section 56(2)(vii) of the Act, not the other explanations. The AO therefore on the aforesaid reasons, ....
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....ee has classified/shown the same as stock in trade, the real intent of the transactions will not alter entries in the books of account and are not determinative or conclusive. The Ld. Commissioner further held that merely because a different treatment was given in the books of account, cannot be a factor which would deprive the Assessee from claiming the entire expenditure as a deduction, as held by Hon'ble Supreme Court in the case of Taparia Tools Ltd. Vs. Jt. CIT [2015] 55 taxmann.com 361. The Ld. Commissioner also observed that on perusing the decisions of the then Ld. CIT(A)/predecessor, he differs with the said decisions. 47. The Assessee, before us, on merit has raised various issues such as: various observations made by the Ld. Commissioner are incorrect and devoid of merits under the facts and circumstances of the case, to the effect that the shares purchased by the Assessee were held as "stock in trade" for a long time in order to fetch good price later on. Whereas the Assessee got good deal of purchasing the shares at face value, as the said companies did not perform well and after Covid-19 no buyer was available to give good price and therefore the shares were he....
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....g the rule of consistency and parity the Ld. Commissioner should have followed the decisions of his predecessor but still the Ld. Commissioner differed with the view of his predecessor, without assigning any reason, which is against the judicial discipline and parity. The Assessee further claimed that the provisions of section 56(2)(vii) and section 56(2)(viia) of the Act are anti evasive provisions, to counter tax evasion for laundering of unaccounted money and are not applicable to regular trading transactions, as can be seen from Memorandum explaining the Finance Bill 2009 and Finance Bill 2010. In the instant case, no allegation has been made by any of the authority qua laundering of unaccounted money in the garb of issue of shares by the Assesse. The Assessee further submitted that the explanation to section 56(2)(vii) of the Act, gives meaning to the word "property" but not the section 56(2)(viia) and therefore the said definition may be applied to the provisions of section 56(2)(viia) of the Act, which are merely an extension of section 56(2)(vii) of the Act, as can be seen from Memorandum explaining the Finance Bill 2010, wherein section 56(2)(viia) of the Act was int....
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...., there should not be addition or substitution of words in the construction of statutes and its interpretation. When a definition is not embedded in a particular provision itself, then only meaning can be imported from analogues section. Hence, the claim of the Assessee "for importing the definition of word "property" from section 56(2)(vii) of the Act, when the definition is contained, within section 56(2)(viia) itself to mean share of a company not being a company in which the public are substantially interested", is untenable. Vide proviso to section56(2)(viia) of the Act, the legislature in its wisdom has exempted transactions arising from business re-organization, however no exception has been provided, if the shares are purchased as "stock in trade" and in the absence of any such exemption, the exemption cannot be inserted into the provisions of the Act, by drawing parallels with analogues section. From the provisions of clause 13.2 and 13.4 of the Circular no.5/2010 dated 03.06.2010, it is clear that the intention of the legislature was not to remove the stock in trade from the purview of section 56(2)(viia) of the Act. The legislature was clearly alive to the fact, for exem....
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.... other than cash on or before the date of the agreement for the transfer of such immovable property, (c) any property, other than immovable property. (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that where the stamp duty value of immovable property as referred to in sub-clause (b) is disputed by the assessee on grounds mentioned in sub-section (2) of section 50C, the Assessing Officer may refer the valuation of such property to a Valuation Officer, and the provisions of section 500 and sub-section (15) of section 155 shall, as far as may be, apply in relation to the stamp duty value of such property for the purpose of sub-clause (b) as they apply for valuation of capital asset under those sections: Provided further that this clause shall not apply to any sum of money or any property received- ....
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....tion 56(2)(vii) of the Act were introduced as a counter evasion mechanism to prevent laundering of unaccounted income and made applicable to the individual and HUF and therefore there was lacuna or vacuum for the cases of Firm or Company and thus vide Finance Act 2010 w.e.f. 01-06-2010, the sub clause (viia) in section 56(2) of the act, was introduced, which read as under: "56(2)(viia)" where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010 but before the 1st day of April, 2017, any property, being shares of a company not being a company in which the public are substantially interested,- (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property; (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration: Provided that this clause shall not apply to any s....
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.... attracted by the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). It is also provided to exclude the transactions undertaken for business reorganization, amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. 13.3 Applicability -This amendment has been made effective from 1st June, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 13.4 The provisions of section 56(2) (vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of b....
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....t the assessee is importing diamond for re-export after sorting and grading. It is also not disputed that for carrying out such activity, assessee has a registered unit in SEZ, Surat. So it is governed under the SEZ Act. Section 10AA of the Act, which is introduced in the statute by virtue of SEZ Act, provides exemption for a specified period to SEZ units in respect of profits and gains derived from export of articles or things manufactured or produced or from services. It is the claim of the assessee from the very inception that import of diamonds for re-export is in the nature of services. Admittedly, the expression 'services' has not been defined either under Section 2 or Section 10AA of the Act. Therefore, we have to look to the meaning of 'services' as defined under the SEZ Act and the rules framed thereunder since the provision of Section 10AA of the Act was introduced by the SEZ Act. As per the definition of 'services' under the SEZ Rules, 2006, trading also comes within its ambit. Section 51 of the SEZ Act has Solitaire Diamond Exports an overriding effect to the extent that it makes clear that if there is any inconsistency between the SEZ Act and ru....
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.... a company falls in the definition of "property" then the provisions of section 56(2)(viia) of the Act would be triggered. 56. As per the provisions of section 56(2)(vii) of the Act the "property" is defined as under: d) "property" means the following capital asset of the assessee, namely: i. immovable property being land or building or both; ii. shares and securities; iii. jewellery; iv. archaeological collections; v. drawings: vi. paintings; vii. sculptures; viii. any work of art; or ix. bullion 57. Admittedly, vide Finance Act, 2010 w.e.f. 01.06.2010, the provisions of section 56(2)(viia) of the Act were introduced in statute and the definition of "property" has been amended to provide that section 56(2)(vii) of the Act will have application to the "property" which is in the nature of "capital asset". 58. Definition of "capital asset" is defined in section 2(14) of the Act, which read as under. 2(14) "capital asset" means (a) property of any kind held by an assessee, whether or not connected with his business or profession; (b) any securities held by a Fo....
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....analyzations, we are in agreement with Mr. Shah that the "stock in trade" would not be subjected to rigour provisions of section 56(2)(viia) of the Act and/or the shares held as "stock in trade" in regular course of business for trading purposes, cannot be subjected to addition with the aid of the provisions of section 56(2)(viia) of the Act. 60. Thus the question posed, is answered accordingly. 61. Coming to other aspect of the case, we observe that the Assessee, before the Ld. Commissioner, in order to support its claim qua investment and trading shares and securities, also submitted the MOU/AA, wherein at serial numbers 9 and 23 under the head "other objects", the following objects, are mentioned: "(9) to carry on business of money lending and providing securities on any terms that may be thought fit and particularly to carry on business as financials and investors and to purchase or otherwise acquire, issue, reissue, sale place and deal in shares, stocks, bonds, debentures and securities of all kinds and to give any guarantee or security for payment of dividends or interest thereon or otherwise in relation thereto and to carry out all such operations and transact....
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....herefore simply because the Assessee held the shares as "stock in trade" for a long time and the turnover of the Assessee is insignificant, cannot be the foundation for doubting the genuine transactions carried out in regular course of business. 65. We reiterate as observed above that sub provisions i.e. (vii) and (viia) to section 56(2) of the Act, were introduced as anti abuse measures/provisions to prevent laundering of unaccounted income but not to tax the transactions entered into the normal course of business or trade, the profits of which are taxable under specific head of income, as it is clear from the relevant extract of circular No.05/2010 dated 03.06.2010 and circular No.01/2011 dated 06.04.2011 (explanatory note to the provision of the Finance Act, 2010) wherein it was specifically clarified that definition of "property" has been amended to provide that section 56(2)(vii) of the Act will have application to the "Property", which is in the nature of capital asset of the recipient and therefore would not apply to "stock in trade", raw material and consumable stores of any business of such recipient. As the intention of introducing the provisions i.e. vii & viia to the....
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..... The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of income .... " On the basis of the same, it could be inferred that provisions of section 56(2)(vii) were introduced as an anti- abuse measure and to prevent laundering of unaccounted income under the garb of gifts, after abolition of the Gift Tax Act. Upon perusal of orders of lower authorities, we find that there are no such allegations and no case of tax evasion or tax abuse has been made out against the assessee. In fact, the transactions are ordinary transactions of issue of right shares to existing shareholders in proportion to their existing shareholding and therefore, no case of abuse or tax evasion could be made out against the assessee." 66. We further observe that co-ordinate Bench of the Tribunal at Jaipur in the case of Shri Satendra koushik vs. ITO, Ward-2 Jhunjhunu {ITA no.392/JP/2019 decided on 23.04.2019} has also considered the provisions of section 56(2)(vii) of the Act and held that provisions of section 56(2)(vii) of the Act we....
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....e appellant has requested to delete the impugned addition made u/s 56(2) (viia) of the Act at Rs.51,69,985/ -. The appellant has made elaborate submissions as above and the same are considered carefully. The main contention of the appellant is that during the year under appeal the shares under consideration were purchased for trading purposes during the normal course of business and the same were held as stock in trade in its books of account and hence the provisions of sec 56(2) (viia) of the Act are not applicable. 7.4.2 It is an admitted fact that during the course of assessment proceedings, the appellant had submitted before the Ld. AO that the shares under considerations were purchased for trading purposes and held as stock in trade. It was also submitted before the Ld. AO that the appellant is engaged in the business of investments and trading of shares and securities. The appellant had further contended that provisions of sec 56(2)(viia) are applicable to only capital assets. The said fact has been acknowledged by the Ld. AO in Paras 6.2 and 6.2.1 of the impugned assessment order. From perusal of the impugned assessment order, it is observed that the Ld. AO has spec....
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....iscussed in the assessment order. 7.4.4 From perusal of the Balance sheet of the relevant year it is observed that the appellant has shown shares both as "Investment" under Non-current Investment and as "Inventories". The appellant has shown the Investment in shares at Rs.86,81,950/-and "Inventories" at Rs.6,15,000/- I am in agreement with the contentions of the appellant that any assessee can have shares both as investment and stock in trade, since legally there is no bar on the same. I am also in agreement with the arguments of the appellant that the entries in books of accounts need to be treated as true until and unless proven that the same is false or otherwise / The Ld. AO has not raised any doubt in respect of entries of inventory of shares made by the appellant in its books of account, except quoting the information available https://www.zaubacorp.com. Further the Ld. AO neither has specifically rejected the contentions on said the Ld. AO neither has rejected the books nor e contentions of the ie appellant that the shares under considerations were purchased for trading purposes during the normal course of business and held as stock in trade. It is also a fact that ....
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....ons of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the garb of gifts, particularly after abolition of the Gift Tax Act. The provisions were intended to extend the tax net to such transactions in kind. The intent is not to tax the transactions entered into in the normal course of business or trade, the profits of which are taxable under specific head of Income. It is, therefore, proposed to amend the definition of property so as to provide that section 56(2)(vii) will have application to the property which is in the nature of a capital asset of the recipient and therefore would not apply to stock-in-trade, raw material and consumable stores of any business of such recipient." The above clarifications in the Memorandum to Finance Bill 2010, does not leave any doubt that the transactions which are in the nature of business or profession and income thereof is taxable under the head "Profits and gains of business or profession" is outside the purview of provisions of sec 56 of the Act. It is pertinent to note that the said clarification in respect of "Property" u/ s 56(2)(vii) has been given in the Memorand....
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.... the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii)". From the above it is also evident that the Explanation to sec 56(2)(viia) of the Act also refers to "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested. Hence, before provisions of sec 56(2)(vila) of the Act can be invoked in respect of any shares of a company not being a company in which the public are substantially interested, first it has to be proved that the same falls within the definition of "Property". Further, said Explanation to sec 56(2)(viia) of the Act, does not stipulate that the "fair market value of a property, being shares of a company not being a company in which the public are substantially interested, shall be determined as prescribed in Explanation to clause (vii), but the same provides that "shall have the meaning assigned to it in the Explanation to clause (vii)". So, the Explanation to sec 56(2) (viia) of the Act borrows the meaning of "fair market v....
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....fair market value" in sec 56(2)(viia) would fail. 7.4.9 It is also pertinent to note that the Memorandum to the Finance Bill 2010, through which the provisions of sec 56(2) (viia) of the Act were inserted in the statute also explained that consequential amendment are proposed in section 2(24) to include the value of such shares in the definition of income and section 49, to provide that the cost of acquisition of such shares will be the value which has been taken into account and has been subjected to tax under the provisions of section 56(2). The simple logic of bringing said consequential amendment in sec 49 of the Act was that having taxed the fair market value as per provisions of sec 56(2)(viia) of the Act, in order to avoid double taxation such enhanced cost to be allowed to the assessees when they transferred such shares subsequently. It is an admitted fact that provisions of sec 49 of the Act is applicable to capital asset and computation of Capital gain. In this respect, it is important to note that the provisions of sec 49(4) of the Act, which provides that where the capital gain arises from transfer of a property, the value of which has been subject to income ta....
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....rities and Exchange Board of India Act, 1992 (15 of 1992) but does not include any stock-in-trade, other than any securities referred in (b) above, consumables stores or raw materials held for the purposes of his business or profession. From the above, it is evident that the stock-in-trade, other than (b) above, is specifically excluded from the definition of "Capital asset" 7.4.12 In view of the above discussions and the provisions of the Act, I am of the considered opinion that provisions of sec 56(2)(viia) of the Act are not applicable to any shares of a company not being a company in which the public are substantially interested, which was purchased for trading purposes during the normal course of business and held as inventory or stock in trade. Hence, the Ld. AO was AO was not justified in invoking the provisions of sec 56(2)(viia) in respect of shares under consideration, which were purchased for trading purposes during the normal course of business and held as inventory or stock in trade. Therefore, the impugned addition of Rs.51,69,985/- made 56(2)(viia) is DELETED. The Ground/Revised Ground No. 1 raised in appeal is ALLOWED." 68. Coming to th....
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....in this case, the Assessee has been able to establish that it is also involved in the business of investments and trading of shares and securities and during the year under consideration had purchased the shares under consideration for trading purposes in the normal course of business and held the shares as "stock in trade" in its books of account. The objects clauses as appear in MOU/AA of the Assessee also support the claim of the Assessee qua share trading etc .. Further, admittedly, MOU/AA was verified by both the authorities below and was not doubted. Further, definition of any term, except of "fair market value" has not prescribed in the provisions of section 56(2)(viia) of the Act, which was expanded through the provisions of section 56(2)(vii), by Finance Act, 2010 and the circular no.1/2011 dated 06.04.2011 and therefore the definition of "property" as prescribed in the provision of section 56(2)(vii) of the Act, is required to be imported for interpreting the terms mentioned in sub clause (viia) of section 56(2) of the Act. Further, the definition of "property" as prescribed under sub clause (vii) of section 56(2) of the Act, was amended by the CBDT vide Circular no. 1/20....
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....essment order in the case of M/s Utility Supply Private Limited (PAN: AABCUO100B) for A.Y. 2012-13 to A. Y. 2017-18- reg. Ref .: No. DCIT-CC-8(4)/APPROVAL u/S 153D/2019-20 dt.27.12.2019; Reference the subject cited above. 2. The draft assessment orders for approval u/s. 153D of the Income Tax Act, 1961 submitted vide covering letter dated 27.12.2019 have been perused. The assessed income in the captioned case for the relevant assessment years have been proposed as follows: A.Y. Assessed U/s Return Income(in Rs.) Assessed income (In Rs.) 2012-13 153A r.w.s. 143(3) 9,77,800/- 22,29,700/- 2013-14 153A r.w.s. 143(3) NIL 87,29,576/- 2014-15 153A r.w.s. 143(3) 16,550/- 1,11,70,825/- 2015-16 153A r.w.s. 143(3) 10,230/- 10,230/- 2016-17 153A r.w.s. 143(3) NIL NIL 2017-18 153A r.w.s. 143(3) 14,090/- 14,70,99,938/- 2018-19 143(3) NIL NIL The draft assessment orders made in these are hereby approved u/s. 153D of the I.T. Act, 1961. Subject to the following conditions: Here /a. chefersturns ve office note under the head "note-not for the advised to be kept in the assessment order actions and your conclusion on the direction contained in the Appraisal Repo....