TaxTMI 
TaxTMI 
2025 (5) TMI 810
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.... Galaxy Infrastructure Developers Pvt. Ltd. during the year under consideration. 2. That on the facts and circumstances of the case and in law the Ld. CIT(A) grossly erred in directing the Ld.AO to make the said addition failing to appreciate that the said receipt of shares of M/s. DHFL were purely loan, liable to be returned and, therefore, did not constitute any benefit arising out of a business transaction chargeable to tax u/s. 28(iv) of the Act. 3. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. CIT(A) grossly erred in not appreciating that the FMV of shares of DHFL on the date of receipt as loan cannot be considered as benefit, since the same value was purely notional value and the benefit, if any, could be considered as the difference between the loan received against such shares on pledge and the actual value realized on subsequent sale/liquidation of said shares, which also results in loss to the assessee company. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in directing the Ld. AO to recompute the book profits of the Appellant for the purposes of section 115....
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....reference:- 28. In support of its claim that addition cannot be made u/s 68, the appellant furnished its replies and also produced certain documents in support of the grounds of appeal. The same has been considered. 29. It is seen that M/s Galaxy over the years had accumulated shares of DHFL. The shares were transferred to the appellant in his DMAT account. Such transfers were made from D-MAT account of M/s Galaxy. During the course of assessment proceedings vide letter dated 17.09.2021, the appellant had given the details of net worth of Galaxy which is as under:- F.Y. Networth of Galaxy No. of Shares of DHFL held by Galaxy Cost of DHFL investments as reflected in Balance Sheet of Galaxy Dividend Income as per P& L of Galaxy 2018-19 734919749/- 5500000 711182812/- 26088510/- 2017-18 732164504/- 10435404 1200132537/- 62612424/- 2016-17 384241083/- 10435404 1200132537/- 31306212/- 2015-16 352998827/- 10435404 1200132537/- 73047828/- 2014-15 279797838/- 5217702 1200132537/- 46959218/- 30. In support of the above contentions, the annual accounts and the balance sheet of....
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....s and phone no. of Mr. Batra or Shri Jain, Director of Galaxy. It is not known as to why an unknown person will give shares worth Rs. 240 Crores without any agreement if it was really in the nature of loan. Had it been really a transaction of loan, in that case there would have been written agreement and various terms of loan and repayment. If it was transaction of loan then the loans are repayable. In this case, there was no terms/clarity of repayment of the shares. Subsequent event establishes that the appellant has neither returned the shares nor is in a condition to repay the shares. These facts indicate that the transactions were not of loan. ............ 41. The transaction of receipt of share from Galaxy was not that of loan. However, for the sake of argument only, even if it is believed that the transaction was that of loan, even in that case, the amount is Income in the hands of the appellant. The appellant is not liable to pay back the shares to Shri Batra. During the course of statement rendered during the course of survey, the director stated that profits would be shared by the two and losses will be borne by Shri Batra only. If that was the condition/....
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....s deduction in the year in which the dispute get resolved (Hon'ble Supreme Court in the case of M/s Swadeshi Cotton & Flour Mill Pvt. Ltd. (1964) 53 ITR 134). However, this issue has not been raised in appeal therefore, the appeal is not decided on this ground. ..................... 51. If the entire transaction of the appellant is examined, then it is seen that the appellant connived with Shri Jalaj Batra (working on behalf of promoters of the DHFL Group) to artificially raise the price of DHFL's shares in stock exchange. The appellant was a share broker (a trading member of the exchange) but the impugned transactions were carried out in its proprietary account. The shares were transferred to the appellant in Its own D-MAT account. It is hot a case wherein the shares were traded by the appellant in the capacity of the broker on behalf of its client M/s Galaxy. As a matter of record, M/s Galaxy was not a client of the appellant and the appellant did not make any transaction in the client code of the Galaxy. As the appellant received the shares from Galaxy in its own D-MAT account and traded according to his wish/strategy, the appellant became the real owne....
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....iscussion above, the reply of the appellant is not acceptable. 61. The taxability of a receipt or benefit is to be decided on the nature of transaction and not on the basis of the treatment in the books of accounts (Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Company). Although the appellant finally treated the receipt as loan in his books, but the facts discussed above establishes that it was not a loan transaction but in the nature of benefit of business taxable u/s 28(iv) of the Act. 62. The entire gamut of facts discussed above establishes that the transaction was not of loan but it was in the nature of business transaction involving the receipt of shares without any cost to the appellant. 63. In view of the above, it is held that the receipt of shares is taxable as business Income u/s 28(iv) of the Act in the hands of the appellant during the year under consideration. .................. 68. The appellant had initially received 40,00,000 DHFL shares but sold 1,50,000 shares. Finally the appellant was in possession of 38,50,000 shares of DHFL. The benefit arising to the appellant is to be computed on the date....
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....d to GIDPL. The remaining 38,50,000 shares were ultimately recorded in the books of account at the market value thereof on the date of receipt of loan, with a corresponding credit aggregating to Rs. 2,34,24,06,824/-as 'unsecured loan' from GIDPL. (iv). The aforesaid shares were, thereafter, pledged for loan or margin to NBFC lenders or Brokers between 18.09.2018 to 19.09.2018. Immediately thereafter, on 21.09.2018, there was a steep and unprecedented fall in the market price of shares of DHFL on Stock Exchange, which was purely market driven. On this date, the share-price of DHFL witnessed fall of 42.58% on a single day from the opening price of Rs. 615.15 to low of Rs. 274.75. Thereafter, there was a continuous decline in share-price of DHFL which went to a low of Rs. 149 by end of the relevant financial year. (v). As a result of steep decline in the share-price of DHFL on 21.09.2018, the lending NBFC and Brokers, in order to recover their loan amount, diluted substantial shares of the assessee as also of its clients pledged with them, including the aforementioned 38,50,000 shares, at the reduced stock price prevailing on that date. The 38,50,000 shares of DHFL p....
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....was selected for scrutiny and during the assessment proceedings, the assessee was, inter-alia, asked to explain the transactions carried out with GIDPL in relation to shares of Dewan Housing Finance Corporation Limited (DHFL), during the year under consideration. (xi) In the assessment order, the ld. AO, without accepting the explanations of the assessee, doubted the identity of GIDPL, the genuineness of the transaction, and the credit-worthiness /capacity of GIDPL to hold such shares, treating the value of 40,00,000 shares of DHFL (i.e. including the returned 1,50,000 shares), as an unexplained cash credit in the hands of the assessee within the meaning of section 68 of the Act. Moreover, the Ld. AO erroneously computed the value of impugned shares by considering the highest per share price (on the date of credit of shares), as the relevant price. Consequently, the Ld. AO made the addition of Rs. 250,28,50,000/- under section 68 of the Act, vide the assessment order passed u/s 143(3) of the Act dated 27.09.2021. (xii) On further appeal by the assessee, the Ld. CIT(A), accepted that an addition under section 68 of the Act could not be made in respect of the impugn....
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....ed by Mr. Nitish Surana, the director of GIDPL on 29.06.2018. The documents signed on behalf of GIDPL were uphold to the online portals of National Stock Exchange ('NSE'), Bombay Stock Exchange ('BSE') and Central Depository Service [India] Limited ('CDSL') for opening of Demat and trading account. Hence it cannot be said that there was any afterthoughts in the transactions. Upon opening the Demat account, GIDPL transferred stock of DHFL shares to the assessee as loan of shares. Significantly, when the assessee received the shares from GIDPL as a loan, it was a mandatory requirement to transfer such shares via Delivery Instruction Slips ('DIS'). The DIS clearly indicated that shares were transferred by GIDPL to the assessee as a 'loan'. The respective DISs were submitted to CDSL, NSE & BSE via online portals. The DISs explicitly stated the receipts of shares of DHFL from GIDPL as and by way of loan. The DISs placed on the online portals at the time of transfer of shares to the assessee would thus clearly establish the intent of the transferor (GIDPL) and transferee (the assessee) that the impugned transfer of shares was by way of loan to the assessee. The copy of DISs were also pro....
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....e oral understanding that shares were received by way of loan on returnable basis. The AO has also not disputed the nature of transactions to be loan but rather doubted creditworthiness of the lender i.e. GIDPL and consequently invoked deeming provision of s. 68 of the Act to treat loan as unexplained credits chargeable to tax as income of the assessee. Since the assessee has established genuineness of receipt transactions and creditworthiness of lender GIDPL towards acquiring and holding of shares of DHFL before transfer, the CIT(A) reversed the additions made under the deeming provision of s. 68 of the Act. The assessee thus contends that having accepted the creditworthiness and genuineness of receipt of shares, there was no justification for the CIT(A) to modify the tenor and colour of DHFL transactions and seeking to tax under the other provisions of the Act [s. 28(iv) of the Act] merely to sustain the additions made by the AO. 9.3 The assessee thereafter adverted to the observations of the revenue that at the time of survey, the accounting entries towards receipt of shares were not made giving rise to adverse inference. In reply, the assessee submits that owing to huge loss....
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....ther hand, strongly relied upon the first appellate order. The CIT DR submitted that firstly, there is no formal loan agreement for such staggering value of shares handed over by an unknown party to the assessee and thus the onus is squarely on the assessee to establish character of such receipts; secondly, the statement recorded of the director of the assessee co. at the time of s. 133A and thereafter under s. 131 of the Act, gives rise to an impression that the assessee was only obliged to share profits arising from transactions in DHFL and in view of the heavy losses, the assessee is not required to return money or be under obligation qua GIDPL. The shares have been received with an understanding to make profits with an intent to share and divide profits. The act of pledging the shares as margin with financiers etc. shows the capacity of assessee to be an owner of such shares which gave it such right. Thus such transactions were not in the nature of loan as rightly held by the CIT(A) but a pure business arrangement which did not work out. However, the loss incurred by the assessee has given rise to a situation where the liability arising on account of receipt of shares is reduce....
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....loss of around Rs. 100.10 crores to the assessee owing to such steep fall in the value of DHFL scrip. The assessee treated such receipt of shares from GIDPL to be a loan transaction in its books. The AO accepted such stand of the assessee on the nature of receipt being loan but however invoked the deeming provisions of s. 68 of the Act on the ground that creditworthiness of lender GIDPL is not satisfactory. The CIT(A) in first appeal however reversed the aforesaid additions made by the AO under s. 68 but however simultaneously invoked the provision of s. 28(iv) to treat the receipt of value of 38,50,000 shares of DHFL as value of benefit arising from business. This was done on the premise that the assessee received shares at NIL consideration with embedded object to share business profits if any, which may arise to the assessee in future as attributable to such shares transferred. The CIT(A) observed that the assessee has not traded in the shares in the name of lender but in its own name and thus was the real owner indulging in trade. The CIT(A) held that transfer of DHFL transactions were business transactions and not in the nature of loan transactions as incorrectly claimed by th....
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....e minutes of meeting of director of two cos.; the reply of the lender to AO against notice issued to them under s. 133(6) of the Act; e-mail conversations; absence of any relations to spur transfer actuated by personal considerations etc. The AO in fact, duly accepted the factum of such receipt in the nature of loan notwithstanding his action to resort to s. 68 due to alleged non satisfactory explanations on creditworthiness and capability of lender to make such large scale lending. 11.4. While the CIT(A) has rightly deleted the additions made by the AO under the umbrella of s. 68 of the Act in view of the clinching evidences towards creditworthiness of the lender and genuineness of the transactions etc. the CIT(A) has resorted to s. 28(iv) to tax the unreturned shares holding such receipt of shares to be a 'benefit' accruing to assessee as contemplated under s. 28(iv) of the Act. 11.5. The action of the CIT(A) prima facie appears to be totally incomprehensible and without any tangible basis and based on colossal misunderstanding of s. provisions of s. 28(iv) of the Act. Sub-section (iv) of s. 28 brings to chargeability, the value of any benefit or perquisite, whether convert....
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....me of enquiry on the lender under s. 133A of the Act and email communication seeking return of shares clearly fortifies the case of the assessee. The conduct of returning sale proceeds on sale of 1.5 lakhs is clearly impinges upon the fundamentally flawed view entertained by the CIT(A). S. 28(iv) itself seeks to tax a benefit emanating in the course of business. The commercial consideration in a transaction is thus implicit to invoke s. 28(iv) of the Act. A party to transaction (lender) ending up getting not even a right to recovery of value of shares lent from the borrower can by no stretch of imagination be regarded as transaction guided by commercial wisdom and in the assessee of any commercial traits, the operation of s. 28(iv) automatically gets excluded. Element of quid pro quo is the bedrock of any business or commerce. The CIT(A) has apparently proceeded on un-dimensional assumptions and extremely peripheral considerations. The retention of additions taking shelter of s. 28(iv) of the Act thus militates against the very scheme of s. 28(iv) itself. There can be plethora of reasons for failure to execute a formal loan agreement reduced in writing. The need for written agreeme....