TaxTMI 
TaxTMI 
2025 (6) TMI 964
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....e and brevity. It was agreed by all the party that the case of Sangita Kshetry be taken as the lead case and the decision will be equally applicable to the other case also as the facts are pari materia. 2.1. The assessee Sangita Kshetry has raised the following grounds of appeal in her appeal ITA No.1876/Del/2023: 1. That, in view of the facts and circumstances of the case and in law, the final assessment order passed by the Assessing Officer ("AO") dated 23.05.2023, the directions issued by the Dispute Resolution Panel ("DRP") dated 20.04.2023 and the draft assessment order dated 24.09.2022 passed under the provisions of the Income Tax Act, 1961 ("the Act") for Assessment Year ("AY") 2016-17 and also the addition made therein is illegal, bad in law, without jurisdiction and void ab-initio. The addition/disallowance made is erroneous, unjustified and illegal. 2. That, in view of the facts and in the circumstances of the case and in law, the order passed by the AO, the directions of the DRP and the draft assessment order are illegal, bad in law, without jurisdiction as the mandatory procedure and process of law as prescribed under the Act has not been followed. ....
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....e Valuation Officer. The reference is not warranted on the facts of the present case. Hence, the reference is illegal and thus the corresponding proceedings and also the impugned orders including the final assessment order is barred by limitation. 10. That in view of the facts and circumstances of the case and in law, the AO had no jurisdiction to refer the matter to the DVO as Section 142A is not applicable in the facts of the present case. Furthermore, admittedly till date there is no report submitted by the DVO and thus the proceedings are time barred. In any case, in the absence of the report of the DVO, the addition made in the assessment order and the proceedings are also illegal. On merits also, no addition is called for 11. That, in view of the facts and circumstances of the case and in law, the AO/DRP has erroneously considered the Assessee and Toshiba to be 'related parties for the purpose of the Act. The same is factually incorrect. 12. That, in view of the facts and circumstances of the case and in law, the AO/DRP failed to appreciate that the sale price of the shares was determined using the formula defined in the Shareholding Ag....
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....s not the owner of such assets and was not even entitled to claim depreciation. 18. That, even otherwise, the holding period, the full value of consideration and cost of acquisition are all wrongly considered and illegally computed by the AO/DRP. The capital gains so computed by the AO/DRP is not in accordance with law. Other grounds 19. That in the view of facts and circumstances of the case and in law, the documents, explanations filed by the Assessee and the material available on record has not been properly considered and judicially interpreted and has been wrongly ignored. The addition made, thus is based on surmises and conjectures and therefore, illegal, bad in law and unjust. 20. That in view of the facts and circumstances of the case and in law, the AO/DRP has erred on facts and in law in making the addition without giving adequate and reasonable opportunity and to enable the Assessee to represent the case properly. 21. That in view of the facts and circumstances of the case and in law, the AO/NFAC has erred on facts and in law, in charging interest under Section 234A, 234B, 234C of the Act. The interest has been also wrongly wo....
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....rounds of objections filed by the Assessee vide directions dated 20.04.2023 observing that the basis taken by the Ld. AO for determining the nature of the capital gain is neither clear nor self-explanatory. Accordingly, the AO was, inter alia, directed to factually and legally verify the Assessee's contention as submitted vide summary dated 23.02.2023 and pass a speaking and reasoned order. 7. Pursuant to directions issued by the DRP, the AO passed order dated 23.05.2023 under Section 147 r.w.s 144C of the Act concluding that the Assessee under the garb of share transaction, has transacted the underlying assets of the company UEM and determined the capital gains by substituting the full value of consideration received by the Assessee (i.e. Rs. 14,25,24,594.16/) with the total capitalized value of tangible assets of the Company (i.e. Rs. 484,13,00,000/-) for computing the short-term capital gains. Accordingly, the AO computed the Short Term Capital Gains at Rs. 29,06,24,755/- and added the same to the total income of the Assessee. 8. Aggrieved the assessee is before us. 9. Ground 1 and 2 and 19 are general. Ground 3 to 8 are in respect to validity of proceedings u/s 148....
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....l in the categories stipulated by the CBDT in its aforesaid Instruction and therefore, the issuance of the impugned notice in the present case is illegal, bad in law and without jurisdiction. 14. Grounds No. 11 to 18 are in respect of merits of the case. The ld AR argued that the addition made, on merits of the case, is also illegal for the following reasons a. The Assessee and Toshiba has erroneously been considered as related parties. b. The sale price of shares was pursuant to the formula as defined in the Shareholding Agreement and not the DCF methodology/Valuation report as the AO has challenged. The AO has erred in ignoring this vital aspect. c. The AO has disputed the Valuation Report/DCF Methodology, at the same time has placed reliance on the "Total Capitalised Value' as the value of underlying assets to be sold from the same report. d. The AO/DRP erred in arbitrarily rejecting the valuation report and computing short term capital gains by computing the full value of consideration and reducing cost of acquisition. e. Section 50 of the Act is inapplicable since there has been sale of shares and not sale of underlying asset....
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....osition that "A shareholder has got no interest in the property of the company though he has undoubtedly a right to participate in the profits if and when the company decides to divide them". 18. It was further submitted that the SHA read along with 'Put option exercise' notice dated 01.07.2015, shows that the transaction is for sale of shares held by the Assessee whereas, the Ld. AO has sought to adopt "look through approach" holding that the transaction is not for "sale of shares" but for "sale of underlying assets", completely disregarding the substance of the transaction as here what has been transferred by the Assessee are the shares of M/s UEM India Pvt. Ltd. held by her and not the assets of the company. For disregarding an apparent transaction there has to be some information or material on record to digress from "looking at" the transactions and sans any material, such a recharacterization of transaction by "look through" approach is purely hypothetical, based on surmise and presumption which cannot be permitted. Reliance in this regard was placed on the judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. v. Union of India a....
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....nt u/r 11UA as per the DCF method is incorrect. No reason has been pointed out why the valuation as in FY 2015-16 cannot be adopted and thus the Ld. AO has erred in adopting the said approach. It may be seen that the calculation of total capitalised value for perpetuity (not the underlying assets) for the FY 2020-21 which has been erroneously taken by the Ld. AO as 484.13 crores. The total capitalised value that is considered by the AO as the sale consideration, is in fact the value for the purpose of calculation of value in perpetuity and not the value of the assets of the company and thus the Ld. AO has erred in taking the same. It can be inferred that Ld. AO finally relied on the valuation report submitted by the valuer but either mistakenly or under misconception adopted the figures projected for the FY 2020-21 as against value per share worked out for the FY 2015-16. The Ld. AO has not pointed out any reasons why he adopted the figures for FY 2020-21 as against the figures to be adopted for the FY 2015-16. As against the estimated price per share at Rs. 234.91 per share the agreed price with Toshiba Corporation was Rs. 248.12 per share. 21. Thus, it is submitted that the su....
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....50CA is not applicable to the present proceedings as where unquoted equity shares are transferred prior to 01-04-2018, the apparent sale consideration cannot be substituted by Fair Market Value by invoking the valuation prescribed u/s 50CA read with Rule 11UA. Since, the shares in the present case were transferred in FY 2015-16 the provisions of section 50CA cannot be invoked to determine the FMV for taking it as full value of consideration for the computation of capital gains u/s 48. This view is also supported by the decision of ITAT Bangalore in ACIT v Sri. Manoj Arjun Menda 2021 (1) ТМІ 159 - ITAT BANGALORE. 25. It is submitted that the reference to Departmental Valuation Officer (DVO) is bad in law. (Ground No. 9 and 10). It is stated that despite the illegal reference to DVO, no valuation report has been received till date. Further, the AO had made a reference to the VO for valuation of shares and took the benefit of the extension of limitation by six months, as allowed under clause (v) of Explanation 1 to Section 153 of the Act. However, the VO did not send the valuation report within six months which violated Section 142A of the Act. The Assessee hereby....
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....re the reason to believe is based on an information received after the assessment is made, the same may not be a change of opinion' as under: "41. We, however, may hasten to add that if "reason to believe" of the assessing Officer if founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under Section 147 read with Section 148 of the Act." 30. Further, we find that the hon'ble Delhi Court, deliberating on the issue of section 147 in the case Experion Developers Pvt Ltd Vs ACIT 422 ITR 355(Del), referred to various decisions on the subject and held as under: "In Commissioner of Income Tax v Usha International, [2012] 348 ITR 485 (Delhi), the principle of "change of opinion" was discussed extensively: 16. Here we must draw a distinction between erroneous application/interpretation/understanding of law and cases where fresh or new factual information comes to the knowledge of the Assessing Officer subsequent to the passing of the assessment order. If new facts, material or information comes to the knowledge of the Assessing Officer, which w....
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.... that income to the extent of Rs. 14,25,24,594/- has escaped assessment in the case of Sangita Kshetry. In view of above, I am satisfied that it is a fit case for reopening by issue of notice u/s 148 of the I.T. Act for the AY 2016-17". 32. On the basis of the aforesaid reasons, recorded for the granting approval by the Addl. CIT, we are of the opinion that the approval under Section 151 is granted by an independent analysis and appreciation of facts of the case. The approval is based on assessment of the information and the reasons recorded by the AO and therefore is not based on borrowed satisfaction nor can it be said mechanical. The facts of the case of CIT vs. SPL'S Siddhartha decided by the hon'ble Delhi Court in the case Ltd 345 ITR 223(Del) is clearly distinguishable. Our view is fortified by the hon'ble Delhi High Court where in the case of Experion Developers Pvt Ltd Vs ACIT (supra), the issue of approval was deliberated at length as follows: 42. Further, it is the case of the petitioner that there was no independent application of mind by the sanctioning authorities for according approval. Whilst it is the settled position in law that the sanctioning auth....
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....to 7 are, therefore, dismissed. 34. On the merits of the case, we find from the facts that UEM India Private Limited ('UEM'), whose shares transfer is under dispute with regard to its valuation, was incorporated in 1981 by Mr. Krishan M. Kshetry and father of Mrs. Sangita Kshetry. As in 2010, the 51% of shares of UEM was held by IVF Trustee Company Pvt Ltd (IVF) and the balance 49% was owned by Promoters shareholders i.e., Krishan M. Kshetry, Sangita, Nina and Hersh (through inheritance) and Subhash and Usha Sapra (sister and brother-in-law of Sangita who owned 0.97% of the shares. (In 2014, Mrs. Sangita Kshetry bought 0.97% of Usha and Subhash Sapras shares). 35. On December 26, 2013, IVF Trustee Company Private Limited, Mr. Krishan M. Kshetry, Mrs. Sangita Kshetry, Ms. Nina Kshetry, and Mr. Harsh Vardhan Kshetry, Toshiba Corporation and UEM India Private Limited executed a shareholding agreement (SHA) for the sale of UEM shares to Toshiba Corporation, an unrelated Japanese concern/third party at the time of the agreement's execution. It is pertinent to note at this stage that the AO has failed to establish any direct or indirect relation of the Assessee with Tos....
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....M. The AO has nowhere alleged that the assessee did not hold the shares of UEM Shares as investments and capital assets. We are of the opinion that for invoking section 50, twin condition must be satisfied, i.e., capital asset should fall in the block of asset and depreciation should have been actually allowed in that block and the said depreciable assets in the block of assets are transferred. We have seen from the above narration that the shares in question do not fall in the block of assets nor they are depreciable assets where depreciation has been allowed on them. There is no sale of assets of the company UEM India Pvt Ltd as the company continued to hold the asset which were in its balance sheet before transfer of the shares and after transfer of the shares. Further, the assessee never owned the underlying assets of UEM India Pvt Ltd nor the assessee transferred the assets of the UEM. Therefore the sale of shares by assessee do not fall under the mischief of deeming provisions of section 50 of the Act. 39. As discussed above, we find that the AO has re-characterised the nature of transaction of "sale of shares" to "sale of assets" without any foundation or enabling statuto....
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....ld have invoked the enabling provisions of Section 50CA read with Rule 11UA for determining the Fair Market Value (FMV) of the shares and substitute the same with the sales consideration adopted by the assessee. Section 50CA provides that where consideration received or accruing as a result of transfer of a capital assets being unquoted shares of a company, is less than the fair market value determined in the manner as prescribed in Rule 11 UA, then the value so determined shall, for the purpose of section 48, be deemed to be full value of consideration received or accrued as a result of such transfer. There is however legal difficulties in invoking the deeming fiction of section 50CA in the present proceedings, as the unquoted equity shares of UEM, were transferred in FY 2015-16 prior to 01-04-2018. The hon'ble Delhi Court in the case of PCIT vs Sh. Praveen Kumar Malhotra on 11 March, 2024 in ITA 568/2019 has held that the provisions of section 50CA cannot be invoked for period before 01.04.2018 to determine the FMV for taking it as full value of consideration for the computation of capital gains u/s 48. Similar law was laid down in the decision pronounced by Hon'ble Delhi High Co....