TaxTMI 
TaxTMI 
2026 (7) TMI 538
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.... Officer, BPU, Mumbai under Section 24(4) of PBPTA. Thus, the attachment of the impugned property comprising of 2,50,00,000 shares of M/s Responsive Industries Ltd. held by M/s Parshvanath Comtrade LLP (PCL) was set aside. 2. Ld. Counsel for the Appellant submitted that an 'Information' was received from DDIT (Inv.) which revealed that the shares of M/s Responsive Industries Limited (RIL), i.e. alleged benami property, were sold by M/s Wellknown Business Ventures LLP (hereinafter referred to as 'WBVL') to M/s Fairpoint Tradecom LLP i.e. alleged Beneficial Owner (hereinafter referred to as 'FTL'). It was seen that M/s Fairpoint Tradecom LLP (i.e. alleged beneficial owner) transferred 2,50,00,000 shares to M/s Parshvanath Comtrade LLP i.e. alleged benamidar on 12.04.2018 in pursuance to a Share Purchase Agreement (SPA), at the rate of Rs. 40/- per share even though the closing share price as per stock exchange data was @ Rs. 73.35 on the date of transfer i.e. 12.04.2018. As per the terms of aforesaid share purchase agreement, only Rs. 10 lakhs were paid by M/s Parshvanath Comtrade LLP i.e. alleged benamidar (PCL) to M/s Fairpoint Tradecom LLP (i.e. alleged benefici....
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....in the account of Purchaser but marked with lien/pledge in the depository system. The lien/pledge shall be unmarked/removed only after full payment has been received by the Seller..." In essence, therefore, the shares were transferred in the name of PCL but the shares were of no use to PCL as the lien had been marked on these shares. It is thus clear that FTL continued to be in full control of the shares even though these were held in the name of PCL. Even more strangely, the same Clause 2 (ii) continues, "Notwithstanding anything written above, seller [FTL] can unmark/remove the pledge partially/fully on receipt of partial/full payment anytime during the next three years." This clause amply demonstrated the fact that the shares were in total control of FTL. By including this condition in the agreement, FTL had essentially kept the option open to unmark/remove the pledge even upon partial payment by PCL, thereby keeping the door open to exercise absolute control on the shares, including in the form of transfer/disposal of the shares, trading in the stock markets through the account of PCL, retransfer of the shares from PCL to FTL, and so on. The same Clause 2 (ii) continues, "In th....
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....saction would not materialize. In that case, FTL would have simply taken the shares back without him having to pay any compensation or damages. This is something that is nowhere documented in the SPA. It must be mentioned here that Shri Rishab Agarwal in his statement before this office had stated that if PCL was unable to find any investors till the end of the credit period, then either FTL will extend the time or FTL would receive back the shares because of non-payment of dues, as per the agreed terms in the SPA. This strengthens the belief that there was some other informal oral arrangement among the parties, which had led to the subject benami transaction. Shri KK Agarwal in his statement completely failed to mention anything about the so-called MoU dated 27.03.2018. The SPA was the only document pertaining to 2.50 crore shares of RIL which was mentioned. Shri K K Agarwal had stated that the genesis of the transaction price of Rs. 40/- per share (as in the SPA) was the price prevailing on the stock exchange on 31.01.2018, i.e., the grandfathering date with respect to calculation of capital gains on shares, as proposed by the Union budget on 01.02.2018. Thus, the SPA price of Rs....
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....ven though it was contended that the intention was to sell these shares at a beneficial price to the future investors. The payments received from the investors were to be repatriated to the promoters entity after retaining the compensatory percentage of profit by Shri Anil Gupta. In a way Shri Anil Gupta was to act as an agent/ facilitator only. The so-called MoU and Sale and Purchase Agreement were nothing but afterthought and colourable device created to accord a semblance of credibility and a facade of legality to an otherwise incredulous arrangement. This fact has not been appreciated by the Adjudicating Authority and the Ld. Adjudicating Authority has erred in holding that it is a genuine transaction that too having fallen prey to the bogey of necessity to have corporate structure for sake of liquidating promoters shares. Moreover, the Initiating Officer had clearly stated that while the market price of the share was Rs. 73.35/-, as it was the price prevailing on the stock exchange on 31.01.2018, whereas the transaction price of Rs. 40 per share was arrived at with respect to the grandfathering date after making calculation of capital gains on shares, as proposed by the Union ....
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....r passed in favour of the Respondents. In 2022 as per the terms of the SPA, FTL, Respondent No. 2, proceeded to cancel the SPA when the Respondent No. 1 failed to honor its commitment and this was primarily on account of the judicial entanglements ensuing from the illegal proceedings of the Appellant which led to the cancellation of the SPA whose validity was until 31.03.2021 and the situation was further exacerbated by the COVID pandemic which caused financial turmoil in the markets that went plunging. Respondent No. 1 could not find a potential investor and pay the balance amount as per terms of SPA. The said subject property i.e. shares of M/s Responsive Industries Ltd. were taken back by FTL invoking its rights over the pledged shares and also agreed to return the amounts paid by the Respondent No. 1. Certain amounts have already been refunded back to the Respondent No. 1 and balance amount is likely to be received in due course. Therefore, the said shares are no longer held by Respondent No. 1 and this important fact cannot be ignored and hence placed on record. 7. Ld. Counsel for the Respondent No. 1 contended that the two ingredients of Section 2(9)(A) have been satisfied....
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....ubmitted that the Appellant had failed to comprehend the nature of the transaction and further was not willing to see the reasoning in the Impugned Order. Ld. Counsel also contended that the statements recorded under Section 131 of the Income Tax Act, 1961 can be used only for proceedings under the Income Tax Act, 1961. He asserted the Respondents have successfully got the transaction clear from the Income Tax Authority. Ld. Counsel has also challenged the Appeal on the grounds that the Appellant is prejudiced, since it had made the pleading that the Ld. AA made general observations and not gone into itemized details and reasoning. Ld. Counsel therefore pleaded to dismiss the Appeal. 9. Ld. Counsel for the Respondent No. 2 M/s Fairpoint Tradecom LLP (FTL) also submitted that the Impugned Order was well reasoned and comprehensive. He stated that the Memorandum of Understanding (MoU) dated 27.03.2018 and SPA dated 06.04.2018 had been approved by the Ld. CIT (A), 53, Mumbai, vide its Order dated 13.05.2022 and by the Hon'ble ITAT, Mumbai, vide its order dated 23.12.2022. Ld. Counsel contended that the contract of lien of the shares by the Respondent No. 2 did not alter the ownershi....
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....rotect the genuine interest of Shri Anil Gupta, who was respected professional. M/s PCL had not invested in the shares of RIL with a view to make a quick buck. Ld. Counsel asserted that Respondent No. 1 had control over the shares. 11. Ld. Counsel for the Respondent No. 2 submitted that the transaction price was arrived at by adopting the average price of the share on the exchange for a period of 6 months prior to the transaction. The average works out to Rs. 40.45/-, and hence a round figure of Rs. 40/- was adopted after negotiations. The question asked of Sh. K.K. Agarwal, was specifically in reference to the Income Tax Act, and pertained to capital gains that might arise on the transaction. In response, it was stated that the probability of their being taxable income as a result of the transaction was minimal since the recently introduced provisions for computing capital gains on share transactions had introduced the concept of grandfathering price, which coincidentally was close to the transaction price. Ld. Counsel further submitted that Shri Rishabh Agarwal has explained that he had negotiated with Shri Anil Gupta, and that he was unaware that Shri Anil Gupta, was a partne....
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....er transaction for the purchase made by Respondent No. 2. In the impugned transaction Respondent No. 2 was the seller of the subject shares and entitled to receive the consideration as per the SPA. It is important to further clarify that in any transaction where credit is extended to the buyer, the seller has actually paid the original consideration in the first place to the erstwhile sellers to transfer the ownership rights to itself. It appears that as per the flawed logic of the Ld. IO all sale transactions for credit would tantamount to being benami transactions. Thus, in light of the foregoing it is safe to say that the due consideration as per the terms of the SPA had only emanated and got paid from the Respondent No. 1 and there was no evidence to the contrary that had been brought on record by the Ld. IO and thus he failed to establish the first limb of the benami test prescribed in Section 2(9)(A). The 2,50,00,000 shares of RIL were transferred and registered in the name of the Respondent No. 1 as can also be confirmed from M/s RIL and certified to that effect. This is also reflected and corroborated in the Statement of Holding issued by the NSDL Agent M/s Arch Finance Ltd....
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.... (SPA) are testimony to this. There is nothing on record to doubt genuineness of these documents. These documents basically put in suitable restriction (lien/ pledge) in order to safeguard the interest of promoters and the basic intention was to sell these shares at a beneficial price to the future investors. The payments received from the investors were to be repatriated to the promoters entity after retaining the compensatory percentage of profit by Mr. Anil Gupta. In a way Mr. Anil Gupta was to act as an agent/ facilitator only. It is not disputed that his only asset was his professional expertise and he was not expected to arrange for the entire consideration for 2.5 crore shares of RIL. Sale on credit of the shares by the promoter entity to Shri Gupta's entity was a requisite of the adventure undertaken. Relevant safeguards were built in the SPA to protect the interest of the promoters entity such as condition to sell share not below a determined price beneficial to the promoters of RIL; of putting in loan/ pledge etc. Similarly interests of Shri Gupta were also safeguarded by building in terms such as first right of sale of his quota of shares; ownership over the dividend....
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....had no credit worthiness and was not carrying out any business activity which could give business and economic rationale for the said transaction. Ld. IO also noted that the SPA dated 06.04.2018 between FTL and M/s PCL provided for lien on the shares transferred in the account of M/s PCL. Thus, FTL continued to hold effective control over the shares even though on paper it was owned by M/s PCL. Ld. IO concluded the following in paragraph 10.2 of its Order: "10.2 As discussed in detail in preceding paragraphs the so-called Share Purchase Agreement dated 06.04.2018 between FTL and PCL is nothing but a colourable device created to accord a semblance of credibility and a façade of legality to an otherwise incredulous and sham transaction. For all purpose, the control over the shares of RIL transferred by FTL to PCL lies with FTL only. The shares of RIL under question are presently at the disposal of FTL even though they are merely held in the name of PCL. Thus, the above referred transaction meets the conditions of being a Benami Transaction as per Section 2(9)(A) of the PBPT Act, 1988 wherein the purchase consideration for the purchase of aforesaid shares have been pai....
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....eased) vs. Mst. Bibi Hazra 1974 AIR 171, 1974 SCR (1) 701)] and has framed the following six questions: "Analysis of SC decisions on benami transactions, and applicability thereof 7.1 In several judgements, the Hon'ble Supreme Court has laid down the following six criteria for evaluating whether a transaction is benami in nature: a. the source from which the purchase money came; b. the nature and possession of the property, after the purchase; c. motive, if any, for giving the transaction a benami colour; d. the position of the parties and the relationship, if any, between the claimant and the alleged benamidar; e. the custody of the title deeds after the sale; and f. the conduct of the parties concerned in dealing with the property after the sale." It is interesting to note that the Ld. IO has analysed each of the six questions and its response thereto are reproduced as follows: Response to question no. 1: "In this case, the 2.50 crore shares of RIL, the market value of which on the date of SPA was more than Rs 125 crores, have been effectively transferred by FTL to PCL for a nominal payment....
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....ioned here that Shri Anil Gupta, Shri Amit Jain and Shri Rishab Agarwal are all directors in M/s Westbury Tradecom Ltd, which has over 90% shareholding of Shri Rishab Agarwal (as stated by Shri Anil Gupta in his statement u/s 19 of the PBPT Act, 1988 recorded on 12.12.2019). Further, Shri Anil Gupta is also a director in M/s Westbury Securities and Services Ltd along with Shri Rishab Agarwal. Thus, by no stretch of imagination can these three persons Shri Amit Jain, Shri Rishab Agarwal and Shri Anil Gupta be considered as unrelated, especially considering the other facts and circumstances brought out about the alleged benami transaction." Response to question no. 5: "As stated by Shri Anil Gupta in his statement recorded on Oath u/s 131 of the IT Act on 22.10.19 during the course of survey proceedings, the SPA was kept in the custody of FTL since FTL was in commanding position during the negotiation of the deal. Further, as noted above, FTL remains firmly in control of these shares even after executing the SPA, by way of placing lien on transfer of these shares." Response to question no. 6: "Even though PCL is the legal owner of the RIL shares under question....
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.... family; (ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 (22 of 1996) and any other person as may be notified by the Central Government for this purpose; (iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual; (iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual; or......" (10) "benamidar" means a person or a fictitious person, as the case may be, in whose name the benami property is transferred or held and includes a person who lends his name; (12) "beneficial owner" means a person....
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....angement rather than a transaction for the transfer of the said shares. It is on record that the property viz 2.5 crore shares of RIL had been transferred from FTL to PCL. It is also not disputed that such transfer had occurred before the full consideration had been paid by PCL to FTL. Further it is not disputed that FTL in turn had paid full consideration for the transfer of the said shares from WBVL to FTL. It therefore follows that except for Rs. 10 lakhs which had been paid immediately by M/s PCL, for the transfer of shares, the consideration for the transferred shares had been provided by M/s FTL. 20. The Respondents have challenged the proposition that for the transfer of shares to PCL the consideration had been paid by FTL. It is contended by the Respondents that any transaction where credit is extended to the buyer, the seller has actually paid the original consideration in the first place to the erstwhile seller, so as to transfer the ownership right to itself. The Respondents have maintained that the transaction for the sale of 2.5 crore shares from WBVL to FTL, was separate and distinct from that of the transfer from M/s FTL to M/s PCL. The argument runs that it is ab....
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....ment of the objective. Right from the beginning, there were doubts about the efficacy of the arrangement to attain its aforementioned projected objective. The culmination of the arrangement makes it certain that the projected objective could not have been achieved in this manner. It thus raises serious questions about the bona fides of those who designed and implemented it. 21. The temporal flow of events lends further credence to the arrangement being benami in nature. We find that on 20.03.2018 WBVL became partner of M/s FTL through a Deed. This enabled WBVL to sell 1.25 crore of shares of RIL to FTL on 26.03.2018 and again 1.25 crore of shares of RIL to FTL on 03.04.2018 as capital infusion of Rs. 50 crores on each occasion. Shri Anil Gupta along with his wife acquired M/s PCL on 05.04.2018. On the very next day i.e. 06.04.2018 M/s FTL sold 2.50 crore shares to M/s PCL. On 13.04.2018 on an advance from its partner Shri Anil Gupta, M/s PCL paid Rs. 10 lakhs as the first tranche against the payment for buying 2.50 crore shares worth Rs. 100 crores. On 15.06.2018 M/s PCL received dividend of Rs. 25 lakhs on the impugned shares from M/s RIL. M/s PCL in turn repaid Rs. 15 lakhs to....