TMI Blog2019 (2) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... ercial expediency - HELD THAT:- The assessee made investments in subsidiary for commercial expediency. It was also explained by assessee that no borrowings were specifically made for the purpose of making investments. Therefore, there is no question of disallowing any expenditure. Considering the above discussion and considering the fact that assessee did not earn any exempt income in assessment year under appeal, therefore, no disallowance under section 14A of the I.T. Act can be made against the assessee. We, accordingly, set aside the Orders of the authorities below and delete the addition. Disallowance of interest considered for demerged entity - HELD THAT:- The assessee explained that loan was taken for the purpose of business and it is later on only when some business have been transferred to SPVs of the assessee, the aforesaid issue have been raised for disallowance of interest - the entire amount of loan have been taken for the business purpose of the assessee and the liabilities vests in the books of account of the assessee. Therefore, assessee were liable to pay interest on the same loan. The assessee also explained that all the infrastructure cost was lying with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c, addition shall be deleted because assessee has not claimed deduction of the expenditure as per the above explanation. Entry passed in books of account June Allocation - Different accounting year - HELD THAT:- The assessee explained that the June Allocation expenses in the financial statement was carried-out because of the fact that accounting year followed by the assessee-company was from July to June but for Income-tax purposes previous year is for the period April to March. Learned Counsel for the Assessee submitted that details were filed before the authorities below and no double deduction have been claimed by assessee. Assessee, rightly contended that this fact may be verified by the AO/TPO. It may also be noted here that except for the month of April to June, 2011, AO has allowed the claim of assessee of the similar expenditure. Therefore, the matter requires reconsideration at the level of the AO/TPO. We, accordingly, set aside the Orders of the authorities below and restore this issue to the file of AO/TPO for verification of the facts and passing the Order afresh. Disallowance on account of consultancy charges paid to Siva Ventures Limited - HELD THAT:- The assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he rest of the amount incurred on repair and maintenance, according to explanation of assessee, show cause notice was given for part amount, but addition was made on substantial amount, without giving opportunity of being heard to the assessee. These facts, therefore, show that explanation of assessee requires reconsideration. We accordingly, set aside the Orders of the authorities below and restore this issue to the file of AO/TPO for fresh adjudication. T.D.S credit - HELD THAT:- Since part of the interest income is assessable in the hands of assessee-company, therefore, assessee-company would get credit of the TDS certificate to that extent only. The DRP, therefore, rightly directed the AO to allow credit as per Rule 37BA(3) of the I.T. Rules. Since the SPVs have declared part of the interest income in their return of income, therefore, Learned Counsel for the Assessee rightly contended in the alternative contention that they will be given credit of the TDS which was in the name of the assessee-company. Since the entire amount of the tax is lying with the Income Tax Department and the TDS certificate was in the name of the assessee-company, therefore, the authorities below a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, there is no violation in the case of assessee as no cash payment have been made by the assessee. Even in case, it may presume that payment is made on behalf of assessee partly in cash through M/s. Aishwarya Enterprises, Rule 6DD(k) (supra) would allow because where the payment is made by any person to his Agent who is required to make payment in cash for goods or services on behalf of such person, then, there would be no violation of provisions of Section 40A(3). The genuineness of the payment to M/s. Aishwarya Enterprises have not been doubted by the authorities below, therefore, in such circumstances, there would be no violation of Section 40A(3). Notional interest on advance - Surplus fund - No interest charged on loan - HELD THAT:- The assessee produced copies of the MOU through which advance was given for the purpose of business to M/s. Charita City Homes Jaunpur Pvt. Ltd. There is no provision under the Income-tax Act to make addition on account of charging of notional interest. The assessee also explained that it has availability of sufficient funds, therefore, when amount of advance have been given out of the capital and reserves available with the assessee, there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of business which is different from the details mentioned in the MOU. Additions delted Disallowance of business and administrative expenditure - HELD THAT:- the matter requires reconsideration at the level of the AO/TPO. Learned Counsel for the Assessee submitted that complete details were filed before AO and is also noted by the DRP in the order. He has, therefore, suggested that matter may be remanded to the AO/TPO for fresh adjudication which is also not disputed by the Ld. CIT-D.R. Disallowance of Commission and brokerage expenses - AO observed that assessee has failed to justify the claim of the expenditure - HELD THAT:- We are of the view that the matter requires reconsideration at the level of the AO/TPO. PB-524 is invoice dated 12.01.2012 though in the name of Aamby Valley City, but it was with respect to commission for Aamby Valley Limited. Further, details with regard to brokerage paid to Colliers International (India) Property Services Ltd., the assessee explained that this property was obtained on rent and it was used for the purpose of business. Therefore, commission and brokerage was paid for the same. The details have not been examined by the auth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Orders of the authorities below and restore this issue to the file of AO/TPO with a direction to re-decide this issue as per Law by verifying the facts from record by giving reasonable, sufficient opportunity of being heard to the assessee. Disallowance of interest on delayed payment of indirect tax - HELD THAT:- We are of the view that the interest paid in respect of delay in payment of indirect tax i.e., Service Tax and VAT is not penal in nature. Addition to be deleted Disallowance of consultancy charges paid - AO observed that the expenditure was not relatable to assessee’s business as the expenditure relates to aviation activity which have been transferred to business SPVs - HELD THAT:- This fact may be verified and in case this expenditure is connected with business SPVs, same could not be allowed in the case of assessee. However, the same is allowable in the hands of SPVs. AO shall pass Order accordingly, by giving reasonable, sufficient opportunity of being heard to the assessee. Ground No.23(i) of the appeal of Assessee is allowed for statistical purposes. Disallowance of professional charges - Charges paid for defending criminal case against an employee of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We, therefore, hold that provisions of Section 56(2)(viia) cannot be applied in respect of this transaction as it is a case where the transfer in the case of assessee falls under section 47(vii) of the Income-Tax Act. - Issue decided in favour of assessee. Balance sheet as on 31st March 2011 has to be considered as per the rules. The valuation date has been defined to be the date on which property has been received by the assessee. As per the Composite Scheme, the assessee has received the property as on 31st March 2011, therefore, the balance sheet as on 31st March 2011 has to be considered. The “appointed date” as fixed by the Honourable High Court is also the “closing hours of the business on 31st March 2011”, therefore, in our view, the balance sheet as on 31st March 2011 has to be considered for the purpose of determining the value of the property under Rule-11UA of the I.T. Rules. MAT computation - HELD THAT:- Honorable Supreme Court in the case of Apollo Tyres Limited [2002 (5) TMI 5 - SUPREME COURT], held that “once accounts including profit and loss account are certified by the authorities under the Companies Act, it is not open to the Assessing Officer to contend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. 1961 (herein referred to as Act ) of ₹ 46999,38,00,000 on account of increase in general reserve on transaction related to the Composite Scheme of Arrangement and Amalgamation. Investment received on Composite Scheme of Arrangement and Amalgamation considered as income amounting to ₹ 26,197.67 crores. 5. On the facts and in the circumstances of the case and in law, the learned AO/DRP has erred in making an addition under section 56(2)(viia) of the Act of ₹ 26197.67,80,998 on account of transaction related to the Composite Scheme of Arrangement and Amalgamation. Foreign exchange gain on loan considered as income amounting to ₹ 507.75 crores : 6. On the facts and in the circumstances of the case and in law. the learned AO/ DRP has erred in making an addition of ₹ 507,75.75.010 on account of foreign exchange gain on loan given to 100% foreign subsidiary. Disallowance of ₹ 240.13 crores u/s.14 A : 7. On the facts and in the circumstances of the case and in law. the learned AO./DRP has erred in making disallowance of ₹ 240,13,43,296/- u/s.14A of the Act. Disallowance of interest considered for deme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry balances written off considered as income amounting to ₹ 0.93 crores : 16. . On the facts and in the circumstances of the case and in law. the learned AO./DRP has erred in making a disallowance of ₹ 93,68,989/- on account of sundry balances written off. Disallowance of expenses amounting to ₹ 0.79 crore on non-deduction of TDS : 17. On the facts and in the circumstances of the case and in law. the learned AO./DRP has erred in making disallowance of ₹ 79,19.474 on account of nondeduction of TDS. Further, learned AO /DRP has erred in not allowing the amount of ₹ 79.19,474 in subsequent year as the parties have paid their taxes in subsequent year. Reduction of CWIP amounting to ₹ 0.39 crores u/s.40A(3) : 18. On the facts and in the circumstances of the case and in law. the learned AO./DRP has erred in making a reduction of ₹ 39,58,925 of CWIP by applying the provision of section 40A(3) of the Act. Disallowance of expenses of ₹ 0.13 crores u/s.40A(3) : 19. On the facts and in the circumstances of the case and in law. the learned AO./DRP has erred in making a disallowance of ₹ 13,55,918 by apply ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 711 Prior period expenditure f. Property tax 29,66,510 Property tax invoice in the name of Sahara India Commercial Corporation Ltd. i.e., demerged company of 2007. g. Business and administration expenditure 18,18,684 Lack of proper documentary evidences H Interest on statutory dues 18,18,684 Lack of proper documentary evidences h. Interest on statutory dues 5,86,819 Interest on late payment of service tax considered as interest on late payment of TDS. I Consultancy charges 5,51,500 Disallowed considering for Airport business SPV. j. Professional charges 3,00,000 Defending the criminal case against its employee not considered as business expenses TOTAL 15,83,13,722 2. We have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... individual business. The restructuring also involved amalgamation of Aamby Valley V Ventures Pvt. Ltd. with Aamby Valley Ltd. (Assessee). The assessee was asked to explain as to why its account should not be audited under section 142(2A) of the I.T.Act. After giving opportunity of being heard to the assessee and upon approval of Pr. CIT, Central-1, the assessee was directed to get accounts for the assessment year under appeal be audited by M/s. T.R. Chaddha Co. New Delhi. The assessee-company accordingly filed Special Audit Report on 27.09.2015. The Order of TPO dated 20.01.2016 under section 92CA(3) was received by the AO and a copy of the same was served on the assessee. As per this order, the transfer pricing officer has recommended to enhance the income of the assessee-company by ₹ 322,83,54,184/- on account of cumulative adjustment under section 92CA of the I.T. Act, 1961. The draft assessment order dated 30.03.2016 was sent to assessee requiring him to follow the procedure as per section (2) of sub-section 144C and file its acceptance or file objection if any, with Dispute Resolution Panel ( DRP ). The assessee had filed objection against the draft assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther, the loan is provided in foreign currency and the repayment of the said loan by AVML also takes place in foreign currency. Thus, due to the above transactions with AVML, there is a foreign exchange gain/loss arising to the assessee either on the balance-sheet date or on every repayment of loan by the AVML. Hence, the assessee revises value of the said land in its balance-sheet on account of any gain/loss arise or accrued on forex fluctuations. This treatment followed by the assessee is in accordance with the provisions of Accounting Standard-11 which specify that in case of a capital asset, any gain or loss arising on account of forex is to be added or deducted from the cost of the asset. Hence, loan given by the assessee being a capital asset for the assessee, any loss/gain on account of forex is added/ subtracted to the loan. The assessee drew the attention to Para-46A of AS-11. The said para states that any exchange differences arising on reporting of long term foreign currency monetary items can be accumulated in a Foreign Currency Monetary Item Transaction Difference Account , in the enterprise s financial statements and amortized over the balance period of such long te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in the case of CIT vs. Woodward Governor India Pvt. Ltd., (supra) citing the example of the valuation of the closing stock. As per Accounting Standard-11, the assessee has amortized the same throughout the life of the long term asset. Thus, the assessee is correct in creating reserve and offering only the amortized amount to tax. However, the said amortized amount should also be not offered to the tax as being of capital nature under consideration. The Special Auditor has referred to emergence of ICDS, the concept of monetary assets would also be applied to the Income Tax provisions, as per CBDT Notification No.33/2015 Dated 31.03.2015 mentioned by the Special Auditor which would be applicable for subsequent A.Y. 2016-2017. No hypothetical or notional income can be brought to tax under the Income Tax Act. As regards justification as to why the amount of ₹ 18,10,01,586/- is not amortized during the year under consideration and as to show cause as to why the same should not be added while calculating the book profit under MAT as per Section 115JB of the I.T. Act, 1961, the assessee submitted that earlier the assessee had closed the books on 30th June. However, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the capital on which interest was earned. PB-23 is the details of Loans and Advances in the financial statements of assessee to the above subsidiary AVML shown in the assets on the assets side. Its reschedule on increase in value due to foreign fluctuations. PB-32 + PB-14 are the fluctuations on loan/capital. Learned Counsel for the Assessee referred to decision of the Hon ble Supreme Court in the case of CIT vs. Woodward Governer India Pvt. Ltd., 312 ITR 254 (SC) in which the issue was of difference arising in foreign currency on revenue items. The loss suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balance-sheet was found to be an item of expenditure under section 37(1) of the I.T. Act. However, in the case of the assessee, it was of capital account. He has relied upon decision of the Hon ble Supreme Court in the case of Sutlez Cotton Mills Ltd., vs. CIT 116 ITR 1 in which Judgment of Hon ble Supreme Court in the case of CIT vs. Canara Bank Ltd., (1967) 63 ITR 328 (SC) have been referred to in which it was held since the sum of ₹ 3,97,221/- was, on the finding of fact reached by the revenue authorities, held of capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is not taxable. He has submitted that ultimately, interest have been offered to tax by the assessee. 7. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that foreign exchange gain accrued to the assessee and as per report of the Special Auditor assessee has amortized the income. However, income accrued on mercantile system and the foreign gain accrued to the assessee. The Ld. D.R. relied upon decision of the Hon ble Supreme Court in the case of Woodward Governor India Pvt. Ltd., (supra). 8. We have considered the rival submissions. The Hon ble Supreme Court in the case of Sutlez Cotton Mills Ltd., (supra) has held that any foreign exchange gain or loss on capital asset will be adjusted with the value of such asset. It was further held that The law may, therefore, now be taken to be well settled that where profit or loss arises to an assessee on account of appreciation or depreciation in the value of foreign currency held by it, on conversion into another currency, such profit or loss would ordinarily be trading profit or loss if the foreign currency is held by the assessee on revenue account or as a trading asset or as part of circ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and circumstances of the case. There was, thus, no justification for the authorities below to make the addition against the assessee. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. The Ground No.6 of appeal of assessee is allowed. It may also be stated here that assessee has also raised Additional Ground of Appeal Dated 08.10.2018 connected with this ground amounting to ₹ 67,06,69,129/- already amortized and offered to tax. Since we have allowed this ground of appeal of assessee, therefore, there is no need to adjudicate separately on the additional ground of appeal. A.O. is directed to take into consideration findings on this issue while giving effect to the appellate order. Additional Ground of Appeal is also disposed off accordingly. Ground No.7 : 9. This ground relates to disallowance under section 14A of the I.T. Act of ₹ 240.13 crores. In the show cause notice to the assessee, it was observed that assessee has made investments which are capable of earning exempt income and have also incurred financial expenses which are not directly attributable to any particular income. Circular No.5/2014 dated 11.02.20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that the said investments only existed in the last year i.e., A.Y. 2011-2012. As there is no addition or deletion made in such investments, the nature of the investments remain same, therefore, no disallowance under section 14A could be made. It was submitted that Aamby Valley V Venture Ltd., ( AVVVL ) is a 100% subsidiary of assessee had investments in different business verticals i.e., real estate, adventure, retail business etc. The said investments were carried at cost in the balance-sheet of the subsidiary. Copy of the balance sheet of the AVVVL for A.Y. 2011-2012 was filed. However, pursuant to the scheme of arrangement, AVVVL got merged into assessee-company ( AVL ) and all the assets and liabilities of the amalgamating company were transferred to the resultant assessee company. As per the scheme, the said investments are reflected in the balance sheet of the assessee company at respective fair market values. Hence, it can be seen from the above that only investments are converted from cost to FMV pursuant to scheme and therefore, no borrowings are involved for investments showing in assessee s balance-sheet. As no borrowings are made by the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpt income. Further, the assessee made investments in subsidiary for commercial expediency. It was also explained by assessee that no borrowings were specifically made for the purpose of making investments. Therefore, there is no question of disallowing any expenditure. Considering the above discussion and considering the fact that assessee did not earn any exempt income in assessment year under appeal, therefore, no disallowance under section 14A of the I.T. Act can be made against the assessee. We, accordingly, set aside the Orders of the authorities below and delete the addition. Ground No.7 of the appeal of assessee is allowed. Ground No.8 : 12. Ground No.8 relates to disallowance of interest considered for demerged entity amounting to ₹ 114.77 crores. 13. It is noted in the show cause notice that the Company has incurred interest expenditure of ₹ 174,91,01,514/- which seems to be common in nature i.e., incurred for entire Aamby Valley City - (1) Interest on loan from Sahara India Commercial Corporation (SICCL) ₹ 89,73,79,829/- (2) Interest on debentures issued to Sahara Housing Investments Corporation Ltd., (SHICL), ₹ 72 crores and (3) Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id in the previous year i.e., A.Y. 2011-2012. The said amount is depicted under the Head Interest Accrued and Due on Borrowings in the Note-8 i.e., Other Current Liabilities . But, there has been no increase in the amount of debentures issued to SHICL. During the assessment year under appeal, the term loan from UCO Bank and Punjab National Bank amounting to ₹ 400 crore was acquired for the purpose of financial assistance for completing the assessee s project. The same were also repaid by the assessee out of the sizeable advances received from customers against purchase of flats during the year under consideration. It was submitted that the Hon ble Bombay High Court had not given any direction to allocate the said loan to other SPVs and therefore, as per the approved order of the Hon ble Bombay High Court, the said liability remains with the assessee. The interest allocation can be done only when its respective liability is also transferred. Thus, the disallowance on proportionate interest is unjustified. Thus, in the absence of loan transferred, the said liabilities vest in the hands of assessee-company. Since the liabilities vest in the books of account of the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ace which was for business purposes and consequent to demerger the liability remains with the assessee as per Section 2(19AA)(ii) of Explanation (2). Therefore, interest is allowable in favour of the assessee. Learned Counsel for the Assessee relied upon decision of the Hon ble Supreme Court in the case of Sassoon J. David Co. Pvt. Ltd., vs. CIT (1979) 1 Taxman 485 (SC) in which it was held as under : 3. The expression 'wholly and exclusively' used in section 10(2)(xv) does not mean 'necessarily'. Ordinarily, it is for the assessee to decide whether any expenditure should be incurred in the course of his or its business. Such expenditure may be incurred voluntarily and without any necessity and if it is incur red for promoting the business and to earn profits, the assessee is entitled to deduction even though there was no compelling necessity to incur such expenditure. The fact that some body other than the assessee is also benefited by the expenditure should not come in the way of an expenditure being allowed by way of deduction under section 10(2)(xv) if it satisfies otherwise the test laid down by law. 13.3. The Learned Counsel for the Assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entire loan amount have been used for the purpose of business of the assessee. The assessee also explained that loan was taken for the purpose of business and it is later on only when some business have been transferred to SPVs of the assessee, the aforesaid issue have been raised for disallowance of interest. But the fact remains that the entire amount of loan have been taken for the business purpose of the assessee and the liabilities vests in the books of account of the assessee. Therefore, assessee were liable to pay interest on the same loan. The assessee also explained that all the infrastructure cost was lying with the assessee and that the assessee remain in the business of real estate and for that, the borrowed loan shown in the financials of the assessee has to be first utilised against the cost of the infrastructure. These facts, therefore, clearly prove that assessee utilised the borrowed funds in question for the purpose of business. Therefore, interest paid thereon are allowable deduction in the hands of the assessee under section 36(1)(iii) of the I.T. Act. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. Accordingly, gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pital of company was 10.57%, the money needs to be advanced by levying the suitable mark up on same. (viii) Search conducted by the assessee to arrive comparable rate of interest available in public domain is not applicable as it is not within the purview of provisions of Rule 10D(3). (ix) SBI base rate as suggested in Safe Harbour Rules should be adopted as a basis of benchmarking interest on loan. 17.1. The assessee however submitted that when the transaction is of lending money, in foreign currencies, to its foreign subsidiaries i.e., A.E's, the comparable transaction thereof should be of foreign currency lent by unrelated parties and not of interest rates charged by the Indian Banks on lending money. When the international transaction entered between A.E. is in foreign currency, then the domestic base rate should have no applicability and the international rate fixed being LIBOR has to be considered. The assessee submitted that SBI is a Bank who is in the business of lending of funds to third parties. The assessee is not a Bank or a financial institution, therefore, the methodology of advancing loan of Bank/Financial Institutions cannot be called an un-controlled method ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he financial year ended 31.03.2012, AVML has paid an interest rate of 3 month LIBOR + 300 basis points of ECB amounts. Accordingly, international transaction is at Arm s Length. PB-398 is reply of the assessee to the TPO in which it was explained that Sahara Grovernor House Hospitality Ltd., a Company currently holding Grovernor House Hotel had also availed loan from Bank of China for the purpose of acquisition of the said Hotel. Accordingly, the Sahara Grovernor House Hospitality Ltd., entered into an Agreement with Bank of China Dated 20.10.2011 (PB-400) granting the Sahara Grovernor House Hospitality Ltd., credit facilities of GBP 305,000,000. As per this Agreement, the rate of interest was @ LIBOR + 250 bps. It was an independent transaction which was considered as external CUP for the purpose of benchmarking. In the case of assessee, it was a higher rate of interest. PB-409 to 411 are the Orders of the TPO for A.Ys. 2013-2014 and 2014- 2015 in which no addition have been made of the similar nature and CUP method applied by the assessee have been accepted. Learned Counsel for the Assessee referred to pages 28 and 29 of the Order of the TPO to show that SBI rate have been applie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to interest of LIBOR+500bps. However, through the Addendum Agreement, the tenure of the loan shall be for a period of 07 years from the effective date and the rate of interest was fixed LIBOR+300bps. The authorities below have not adversely commented upon the same. Even otherwise, for a longer period, the rate of interest is generally reduced, it would have no impact on the genuineness of the agreement between the parties. The TPO has applied lending rate of SBI for the purpose of making the addition. The assessee explained that when the transaction is of lending money in foreign currencies to it s AE-Foreign Subsidiary, the comparable transaction thereof, should be of foreign currency lend by unrelated parties and not of interest rate charged by the Indian banks of lending money. Once the transaction between the assessee and the A.E. was in foreign currency and the transaction was an international transaction, then the transaction would have been to be looked upon applying the commercial principles in regard to international transactions. If that was so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease in free reserves of the Company. The assessee was required to explain the nature of these amounts written off to general reserves along with supporting documents. The assessee submitted that notice have been issued on the observation of the Special Auditor. It was submitted that assessee is engaged in the business of construction of real estate over the years. During the year under consideration, the assessee was constructing about 200 Villas in Aamby Valley near Lonavala. Further, the assessee credited the following three provisions to the general reserve during assessment year under appeal, they are provision for sale of land, (2) provision for obsolete source and (3) provision for cost of sale of land. 21.1. The assessee as regards provision for sale of land and provision for cost of sale of the land submitted that these are basically provisions made for loading of infrastructure facilities which were to be built in future vis - vis the property sold during the respective years. Due to the Composite Scheme of Arrangement and Amalgamation, the provision has been transferred to general reserve. It was submitted that usually the provisions for any contingencies are created ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revious year is not acceptable in the absence of identification of specific entries in the books of account. The addition was accordingly made of the amount of ₹ 84,05,69,987/-. 21.2. The Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that on transfer of asset, an entry was made to reserve through the provision which is also mentioned in the reserve being expenses related to same. DRP has taken bad debt but assessee had never claimed it to be bad debt. No deduction was claimed in earlier years. The findings of the DRP and AO are wrong. The assets have gone to SPVs so provision will be reversed on that account, therefore, no addition is required. 22. The Ld. D.R. however submitted that these facts needs verification by the AO 23. After considering the rival submissions, we are of the view that the matter requires reconsideration at the level of the AO/TPO. The assessee has given the justification for making the provisions to general reserve. The assessee also claimed that the same provision have not been debited to the P L A/c, therefore, it has no impact on the taxability of the income of the assessee. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve expenditure in the trial balance. The assessee did it as per revised schedule provided by Ministry of Corporate Affairs. To comply with the said Amendment in revised Schedule- VI, the aforementioned expenses which were incurred by the assessee prior to the month of June under various heads were grouped together under the Head June Allocation . To bring this accounting head in the books of account, assessee debited the June Allocation account and correspondingly credited the closing and inventory of workin- progress with the same amount. In nutshell, it was submitted that June Allocation entry is only for the presentation purpose and there is no tax impact or double deduction of any expenditure by the assessee. In the present case, assessee has first debited the amount of June Allocation in its closing inventory account and increased its profit by the following expenditure and then added the same in the respective heads of expenditure to calculate the correct profit for the year. Copies of the respective ledgers were filed. This exercise was required to be undertaken because of the accounting year followed by the assessee company was from July to June but for Income-tax purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntures Limited through cheque and TDS has also been deducted thereon, still not able to establish that the payment were relatable to business activities and the quantum of payment are relatable to the work rendered by the party. The assessee however explained that assessee is into real estate project and for the purpose of its business the assessee had taken consultancy services from Siva Ventures Limited for its project and therefore, same could be allowed to the assessee. Further, the Special Auditor have agreed regarding the justification of the expenditure. However, the Special Auditor was of the view that services were utilised for entire Aamby Valley Project and thus, the same may be allocated. It was submitted that this issue has also arisen in assessee s own case in previous year i.e., from A.Ys. 2007-2008 to 2011-2012 and the Ld. CIT(A) has allowed the appeal of assessee on this ground accepting the contention made by the assessee, In relation to the allocation of said expenditure to various SPVs, it was submitted that the said action of the AO is totally arbitrary and cannot be accepted in view of the fact that entire services rendered by the said party pertains to the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with all related assets, liabilities, employees, development rights, licenses, permits and registration etc., were transferred to various separate companies. It was further explained that assessee will manage infrastructure for all the SPVs. Thus, the assessee will receive the maintenance charges fees from SPVs to manage their Infrastructure. Therefore, in order to manage the current project and to undertake the business model on various SPVs, the assessee made Consultancy Agreement with SVL on 01.09.2009. On the basis of scope of services, assessee has obtained report from SVL. In the said report, Siva Ventures Limited has provided its consultancy services. During the year under consideration, assessee had received gross income of ₹ 111.70 crores from construction and other related services. To generate the said large turnover, assessee has obtained above consultancy services from the Siva Ventures Limited. Thus the assessee has incurred the above expenditure for business purposes. Therefore, same should be allowed fully. 30. On the other hand, Ld. D.R. relied upon the Order of the DRP. 31. We have considered the rival submissions. This issue relates to disallow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion/possession of the property was handed-over. The balance advance received for sale of land and Villa amounting to ₹ 1,41,45,420/- were shown as advance only as construction of Villa was not completed during the year under consideration. No adverse view have been taken by the Special Auditor. The DRP however, noted that in case of seven parties, there are balances with the customers aggregating to ₹ 9.33 crores in respect of which details of registration of plot/land were not provided to the Special Auditor for verification. The AO asked for the details of registration of plots/lands in respect of these seven identified parties. The assessee made an explanation as noted above that either the amount have been offered in subsequent year or that balance have been shown in the books because construction was not completed and part addition was not appealed. The explanation of assessee in respect of the seven parties are noted in the Order of the DRP in which it was explained that in many cases the amount were treated as advance and on completion of the work, the amount was offered for taxation in subsequent year or that the construction was not completed. The DRP, however ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... written-off the amount in question. It was further explained that Land written-off is of ₹ 1,47,44,380/-. As per the Forest Department, assessee has to give land to Forest Department, if the assessee used the Forest land. Therefore, the assessee provided Satara land as compensation to utilize the forest land in Lonavala. The said land is part of WIP and therefore, the assessee had claimed it as business loss. The assessee has obtained certificate of the Chartered Accountant on both the items written-off. The assessee has further shown repair and maintenance expenses of ₹ 4,28,86,538/-. AO has asked for justification of part amount of ₹ 1,78,33,808/- but later on without giving opportunity of being heard made the addition of the entire amount of ₹ 4.28 crores. ₹ 4,94,144/- was incurred for the purpose of consultancy charges for coordinating with the Government Office regarding water resources. ₹ 1,73,39,664/- was incurred for the maintenance of road. However, the DRP did not agree with the contention of assessee. The DRP referred to the tax audit report of Special Auditor in which it was mentioned that assessee did not provide documentary evidenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ued in assessee s name. For this purpose, no objection certificate have been obtained from SPVs giving their consent to such claim. Further, an indemnity bond indemnifying the Government for any liability arising out of the T.D.S. claim has also been obtained and submitted. The D.R.P. however, noted that in the Draft Assessment Order the A.O. has stated that tax payer will not be entitled for the excess T.D.S. credit of the impugned amount and the claim of T.D.S. made by the tax payer will be reduced by the above amount while computing the tax liability of the assessee for the year under consideration. Therefore, the same has been disallowed. The assessee has not been able to reconcile the TDS credit against the principle of matching concept as the income in respect of the credit has not been reflected by the assessee. As per the provisions of Section 199 read with Rule 37BA(3) the TDS credits is to be given as under : 37BA(3) : ( i) Credit for tax deducted at source and paid to the Central Government, shall be given for assessment year for which such income is assessable. ( ii) Where tax has been deducted at source and paid to the Central Government and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of TDS may have to be given to the SPVs who have offered income for taxation in their return of income. 42. On the other hand, Ld. D.R. relied upon the Orders of the authorities below and submitted that Section 199 read with Rule 37BA(3) would govern the issue. The income is to be declared then only credit of the tax can be given. In this case, income is offered by the other company, therefore, credit of the tax cannot be given to the assessee. The Ld. D.R. submitted that SPVs is not before the Tribunal, therefore, no further direction is required in the matter. 43. We have considered the rival submissions and perused the material available on record. It is not in dispute that originally the FDRs were in the name of assessee and after the Order of the Hon ble Bombay High Court under section 391 of the Companies Act, the interest income on FDRs were transferred to business SPVs who have admittedly offered the interest income for taxation in their respective return of income for assessment year under appeal. The TDS certificate was however issued in the name of assessee-company because originally FDs were held by the assessee-company in their name. These facts make it clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against their performance. Assessee had accepted the request of the employees and written-off the said loan and advance against them. 44.3. ₹ 10,32,142/- was given as loan to employees. Subsequently, employee left the organisation and could not recover the amount from him. 44.4. ₹ 15,07,562/- was paid to various employees during the course of employment. However, the employees did not provide proper supporting documents against the said advance. Since the same was nominal in nature, therefore, same was written-off. The DRP however, did not accept the contention of the assessee because even before Special Auditor no documentary evidences have been filed in this regard. The addition was, therefore, confirmed. 45. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and submitted that the claims of assessee were rejected because no evidences have been filed. There is no discussion on merits of the case. It is a case of business loss which was supported before the authorities below by evidence and material on record. He has, therefore, submitted that matter could be remanded to the AO/TPO for fresh adjudication. 46. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012 w.e.f. 01.04.2013. The effect of the said proviso is to introduce legal fiction where the assessee fails to deduct tax in accordance with the provisions of Chapter-XVIIB. The Honourable Delhi High Court in the case of C.I.T. vs. Ansal Landmark Township ( P ) Ltd., ( 2015 ) 377 ITR 635 ( Del. ) has held that the said proviso is curative and retrospective. However, the decision has not been accepted by the department and the department has filed SLP against the said decision. The addition was, therefore, confirmed and objection of assessee was rejected. Learned Counsel for the Assessee reiterated the submissions made before the DRP. 49. On the other hand, Ld. D.R. relied upon the Orders of the DRP. 50. After considering the rival submissions, we are of the view that the matter requires reconsideration at the level of the AO/TPO. The contention of assessee was that confirmation from all the parties were filed to prove that amount which is in dispute has already been offered to tax by the deductee while filing their return of income. Therefore, according to second proviso to section 40(a)(ia) of the I.T. Act, 1961, assessee could not be deemed to be assessee in default. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to which, ₹ 13,55,918/- to be disallowed in the current year and ₹ 39,58,925/- to be disallowed in the year in which expenses is charged to the P L A/c. The assessee claimed that some of the expenses were incurred in cash due to the fact that site Office is located at a place where there is limited availability of banking facilities near the village and the assessee at times required to make payment in cash to the parties relating to purchases made. The DRP has however noted that under Rule 6DD, there is no clause as per which, cash payment are allowed, in case limited availability of banking facilities. It is only in case where banking facilities are not available that cash payment in violation of section 40A(3) is admissible. Therefore, expenses of ₹ 13,55,918/- was confirmed. 51.1. In respect of ₹ 39,58,925/- assessee has claimed that it has made payment through cheque to M/s. Aishwarya Enterprises, who in turn, has made payment for purchase of land on assessee s behalf. Since M/s. Aishwarya Enterprises is acting on behalf of the assessee, therefore, it is an Agent of the assessee and the payment has been made on assessee s behalf. Therefore, Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties below to that extent. However, as regards payment of ₹ 39,58,925/- the assessee has explained that it has made an agreement with M/s. Aishwarya Enterprises for purchase of land on assessee s behalf. The said party has done the work for the assessee. According to the agreement, the assessee was required to make payment in cheque to the said party and accordingly, the assessee had made a payment in cheque only. The assessee further explained that the said party M/s. Aishwarya Enterprises has made further payment to the farmers, partly in cash and partly through cheque. Therefore, these were independent agreements between Assessee and M/s. Aishwarya Enterprises and further between M/s. Aishwarya Enterprises and Farmers (sellers). Therefore, there is no violation in the case of assessee as no cash payment have been made by the assessee. Even in case, it may presume that payment is made on behalf of assessee partly in cash through M/s. Aishwarya Enterprises, Rule 6DD(k) (supra) would allow because where the payment is made by any person to his Agent who is required to make payment in cash for goods or services on behalf of such person, then, there would be no violation of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, addition is wholly unjustified. PB-505 is the details of advance granted to M/s. Charita City Homes Jaunpur Pvt. Ltd., out of the own funds of the assessee. It provides that as on 31.03.2010 assessee after giving part advance, has capital balance of ₹ 441.44 crores and as on 12.03.2012 after giving the impugned advance to the aforesaid party, assessee still had availability of the capital balance of ₹ 853.62 crores. He has, therefore, submitted that addition is wholly unjustified. 57. On the other hand, Ld. D.R. relied upon the orders of the authorities below and submitted that clarification on the above amounts have not been explained. No documentary evidences have been filed of other parties. Purpose of the lands to be purchased is not explained. The details of availability of the sufficient funds needs verification. 58. After considering the rival submissions, we do not find any justification to make the aforesaid addition. The assessee produced copies of the MOU through which advance was given for the purpose of business to M/s. Charita City Homes Jaunpur Pvt. Ltd. There is no provision under the Income-tax Act to make addition on account of charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue relates to diversion of interest bearing funds of ₹ 90,13,188/-. The AO disallowed the above interest expenditure of ₹ 90,13,188/- The AO observed that assessee had obtained ₹ 109.01 as OD from Axis Bank. Out of which, ₹ 107.41 crores were transferred to group concern as interest free advance. Therefore, interest pertaining to ₹ 107.41 crores should be disallowed. Further, assessee had transferred its Axis Bank F.D. to business SPV and therefore, interest expenditure cannot be netted-off against the interest income. 61.1. The assessee submitted that it had received interest free fund from SICCL. The balance left over with the assessee was parked with FDs. Sahara Adventure Sports Limited ( SASL ), one of the group company of the assessee required funds. Since the assessee has deep interest in SASL, the assessee had obtained bank OD against the pledge of the aforesaid FDs and transferred loan to SASL. In a nutshell, assessee had transferred its interest free fund to its group company, therefore, interest cannot be disallowed. The assessee had not transferred its Axis Bank FD to business SPV and therefore, interest expenditure can be netted-off agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that assessee-company holds investment to the tune of ₹ 170 crores in SASL which is group company of the assessee group. Further, the assessee has executed MOU with SASL on 09.03.2010 which is engaged in business of developing and promoting various sports activities. The said entity was in process of bidding for new IPL Franchise team for Twenty-Twenty Cricket Competition organized by the Board of Control for Cricket in India. On becoming successful bidder, the aforesaid party has entered into an understanding with the assessee for promotion of brand name of assessee Aamby Valley along with its various business verticals, revenue sharing with the IPC Franchise and allotment of equity share capital in the range of 10% to 15% to the party of the First part of its nominee, based on Fair Market Value acceptable to the First Party. Due to this MOU assessee had made a commitment to give financials assistances for business purposes. It was, therefore, explained that assessee had advanced the loan to SASL for expansion of business operations. These facts clearly prove that the assessee has a business interest in SASL and for the business purposes assessee has made advance to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and is required to be worked upon and developed so that it can be used for business purposes. Therefore, development expenses were incurred on the same. The DRP however did not accept the contention of assessee because as per MOU M/s. Aishwarya Enterprises is responsible for removing Kul, Boja, Navin Shart, private forest etc., from the proposed land. Therefore, when the amount is already included in the cost of the land, no further amount is to be allowed as deduction. The objection of the assessee was rejected. 66. Learned Counsel for the Assessee reiterated the submissions made before the authorities below and referred to PB-472 which is an agreement in question with M/s. Aishwarya Enterprises and submitted that the removal of Kul, Boja, Navin etc., is the term for clearing the title and that PB-480 to 485 are the invoices issued by M/s. Aishwarya Enterprises for completion of the development work in the lands newly purchased by Company which includes escalation, leveling, making, fencing, construction of compound wall, bush cutting etc. He has, therefore, submitted that development work is different from the work mentioned in the MOU with the said party. So, there is a wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing amount incurred towards certain business and administrative expenditure. The assessee submitted that out of ₹ 7.92 crores the assessee has provided evidences to the extent of ₹ 1,71,98,273/-. However, the AO disallowed the entire amount without providing further opportunity to the assessee. The DRP noted details of the expenses in the order and found that assessee has not been able to provide documentary evidences which is also mentioned by the Special Auditor in the report. Therefore, objections of assessee was rejected and this ground of appeal of assessee was dismissed by the DRP. 70. After considering the rival submissions, we are of the view that the matter requires reconsideration at the level of the AO/TPO. Learned Counsel for the Assessee submitted that complete details were filed before AO and is also noted by the DRP in the order. He has, therefore, suggested that matter may be remanded to the AO/TPO for fresh adjudication which is also not disputed by the Ld. CIT-D.R. Accordingly, we set aside the Orders of the authorities below and restore this issue to the file of AO/TPO for fresh adjudication in accordance with law. Assessee is directed to cooperate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO/TPO. PB-524 is invoice dated 12.01.2012 though in the name of Aamby Valley City, but it was with respect to commission for Aamby Valley Limited. Further, details with regard to brokerage paid to Colliers International (India) Property Services Ltd., the assessee explained that this property was obtained on rent and it was used for the purpose of business. Therefore, commission and brokerage was paid for the same. The details have not been examined by the authorities below. We are, therefore, of the view that the matter requires reconsideration at the level of the AO/TPO. We, accordingly, set aside the orders of the authorities below and restore this issue to the file of AO/TPO for fresh adjudication as per Law, by giving reasonable, sufficient opportunity of being heard to the assessee. 74.1. Ground No.23(c) of appeal of Assessee is allowed for statistical purposes. Ground No.23(d) : 75. This issue relates to advertisement and sales promotion and business promotion expenses of ₹ 1,08,81,770/-. The AO proposed the above disallowance on account of advertisement and sales promotion and business promotion expenses. The AO observed that proportionate expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en from a business point of view and have to be respected by the authorities, regardless of the fact that it may appear, to the latter, to be expenditure incurred unnecessarily or avoidably, 76.1. He has also relied upon decision of Hon ble Delhi High Court in the case of CIT vs. Discovery Communication India (2015) 370 ITR 57 (Del.) in which it was held as under: Held, dismissing the appeals, that the assessee was earning revenue in view of the functions being performed. Expenditure incurred on advertisement was clearly relatable and laid out for the purpose of business of the assessee and was not extraneous or unconnected with it. Consequently, it could not have been disallowed on the ground that it was not laid out or incurred wholly or exclusively for the purpose of business. One of the functions to be performed by the assessee being to incur the advertisement and promotion expenditure, the expenditure incurred for the purpose should be allowed under section 37(1) as incurred wholly and exclusively for purpose of the assessee. However, adequate compensation/price should be paid for the same by the associated enterprise, with reference to the functions, risk and ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,452/- (-) ₹ 5,79,95,741/- offered by the assessee] on account of prior period expenses during the year under consideration. The AO observed that the contention of assessee has no merit as the expenses are to be claimed in the year to which they pertain. The assessee however submitted that it has filed the appeal only on the addition of ₹ 39,66,711/-. The assessee has not claimed any expenditure in earlier year. The tax rate is uniform in both the assessment years. The assessee had wrongly offered prior period income amounting to ₹ 5,90,341/-. The said income was reversal of excess provision of expenses which were disallowed by the assessee in previous year. The DRP however noted that such deduction can be allowed on mercantile basis in the year when the liability was determined and crystallized. The contention of assessee was found to have merit. Therefore, AO was directed to verify the year in which the income has actually become due and the expenses have crystallized accordingly to tax the income if it has become due or accrued and allow the expenses if they have crystallized, in A.Y. 2012-2013 under appeal. The objection of assessee was accordingly disposed of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsel for the Assessee, therefore, submitted that matter may be remanded to the AO/TPO for fresh consideration. 81. The Ld. D.R. also suggested that the matter may be sent back to the AO/TPO. 82. After considering the rival submissions, we are of the view that the matter requires reconsideration. The assessee claimed that it has not made any claim of expenditure in earlier year and that appeal is filed for deduction of the aforesaid amount only. The assessee claimed that the amount was crystallized during the assessment year under appeal. Therefore, it is an allowable deduction. No findings have been given by the AO on this issue despite directions given by the DRP to verify the claim of the assessee and in case expenses have crystallized in assessment year under appeal, then issue may be allowed in favour of the assessee. 82.1. Since the additional ground is raised on this issue and according to Learned Counsel for the Assessee the amount was already added back by assessee being prior period expenses. therefore, we admit the additional ground of appeal for the purpose of adjudication. Further, no findings have been given by the authorities below. Therefore, this shall have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 which is bill in question in the name of SICCL. PB- 498 is the letter filed with the Gram Panchayat for change of the records as per demerger as approved by the Hon ble Bombay High Court. PB-526 is the current receipt of the same property issued in the name of assessee-company in respect of the same property. Ld. D.R. submitted that matter may be restored to the file of AO/TPO for verification of these facts. Considering the submissions of both the parties in the light of material produced now, it is clear that now the property tax has been paid of the same property by the assessee. Therefore, this fact could be verified by the AO/TPO and thereafter pass a reasoned order on the same. We, accordingly, set aside the Orders of the authorities below and restore this issue to the file of AO/TPO with a direction to re-adjudicate the issue as per law by giving reasonable, sufficient opportunity of being heard to the assessee. Accordingly, Ground No.23(f) of the appeal of assessee is allowed for statistical purposes. 84.1. In the result, Ground No.23(f) of the appeal of assessee is allowed for statistical purposes. Ground No.23(g) : 85. This issue relates to addition of &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessee reiterated the submissions made before the authorities below and submitted that the decision relied upon by the DRP in the case of Prakash Cotton Mills P. Ltd., (supra) is of P.F. He has relied upon the Order of ITAT, Kolkata Bench in the case of DCIT, Circle-3(1), Kolkata vs. M/s. Narayani Ispat Pvt. Ltd., Kolkata in ITA.No.2127/Kol/2014 Dated 30.08.2017 in which the issue was with regard to interest paid on late deposit of Service Tax and TDS respectively. The Tribunal noted that the issue of delay in payment of Service Tax is directly covered by Judgment of the Apex Court in the case of Lachmandas Mathura vs. CIT 254 ITR 799 (SC) which is decided in favour of the assessee wherein it has been held that interest on arrears of tax is compensatory in nature and not penal. The Tribunal, therefore, held that the interest expenses on delayed payment on Service Tax is an allowable deduction. Learned Counsel for the Assessee also relied upon the Order of ITAT, Mumbai Bench in the case of Chander K Raichandani, Mumbai vs. ACIT, Circle-2, Kalyan in ITA.No.799/Mu/2012 dated 08.02.2013 in which the Tribunal similarly held that interest payment of MVAT is an allowable deduction und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding criminal case against an employee of the assessee. The AO observed that expenses related to defending criminal case against an employee filed by a guest who visited assessee s place can not be said to be business expenditure. The assessee however explained that one of the customer made an allegation for unethical behavior of employee during the business hour. To defend the case, assessee-company had paid ₹ 3 lakhs to criminal lawyer. The said expenditure was incurred to protect its own business and maintain the goodwill and therefore, the same is an allowable deduction. The DRP, however, noted that such expenditure cannot be allowed against the income from business and profession because it was a criminal case filed against the employee in his personal capacity. The addition was accordingly confirmed. 95. After considering the rival submissions, we are of the view that no interference is required in the matter. The AO in the assessment order has recorded the submission of the assessee in which it was explained by the assessee that during the year under consideration, a guest who visited assessee s place filed a complaint against an employee of the assessee-company of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of increase in general reserve on transaction related to the Composite Scheme of Arrangement and Amalgamation, to book profit of the assessee for computing the tax under section 115JB. 96.2. The Learned Counsel for the Assessee submitted that all the facts and supporting documents are available on record on this additional ground which is legal in nature and connected with Ground Nos. 4 and 5 of the appeal above. He has, therefore, submitted that same may be admitted and may be decided along with ground Nos. 4 and 5. There is no serious challenge to the submissions of the assessee from the side of the Revenue. Since the additional ground is legal in nature and connected with Ground Nos. 4 and 5 of the appeal, therefore, it is admitted for hearing and disposal of the appeal. 97. The AO considered the taxability on transactions related to Composite Scheme of Arrangement and Amalgamation. Show cause notice was issued to the assessee to clarify regarding taxability on transfer under the scheme and show cause why the net increase in general reserve on overall impact of the Scheme, shall not be taxable in the hands of the assessee-company. The reply of the assessee to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny ( Resulting Companies ) w.e.f. 31.03.2011. Further, another pertinent point to note that assessee has transferred the said assets and liabilities to SPV s at NIL Consideration. The above is also evident from clause 5 of the scheme dealing with Consideration . The relevant para of the scheme pertaining to the consideration is reproduced below CONSIDERATION The Business SPVs are indirect wholly owned subsidiaries of the Demerged Company. The Scheme is intended to restructure within the group of companies controlled by the Demerged Company, holding of the demerged undertakings in a more efficient manner with due regard to project specific risks and consistent with the diverse needs of business and does not involve any movement of assets or liabilities to any company outside the group controlled by the Demerged company. Hence the Business SPVs shall not be required to pay any consideration/issue any shares to the Demerged Company or its shareholders As a result of the above stated facts due to the composite scheme of arrangement, there is a net increase in general reserve of the assessee company. Now, the moot question which needs your honour s attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ves arising in the books of the assessee company is nothing but arising due to recording of Investments held by amalgamating company at their respective fair values. In other words, we would like to submit that the surplus arising on account of the scheme has been created by recording of assets i.e. Investment held by AVVPL i.e. the amalgamating company at their Fair Market Values. Thus, the said surplus is in the nature of capital account transaction i.e. on scheme of arrangement. Hence neither there is any profit nor is the same realized by the assessee company and hence the question of offering it to income tax does not arise. Further, it is hereby important to note that the Scheme of Arrangement Amalgamation between assessee and AVVL had been done as per the provisions of the section 2(1B) of the Income Tax Act, 1961. We would like to reproduce the said section as under:- amalgamation in relation to companies, means the merger of one or more companies with another company or the merger of two or more companies to form one company (the company or companies which so merge being referred to as the amalgamating company or companies and the company with which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the real nature of income or its taxability in a particular year. The entries in the books of account are immaterial and what is material is whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto. In view of the above facts and circumstances of the case and legal precedents, we submit before your honour that characterization of particular item in the Books of Account is not the determinative under the income tax matters. The General Reserves in the assessee company has arisen due to recording of Investments held by amalgamating company at its Fair Market Value. The said treatment in the Books of Account does not give rise to any real income in the hands of the asessee company. It is a well settled position of law that under the provisions of the I.T. Act only real income can be brought to tax. No hypothetical or notional income can be brought o tax under the I.T. Act. There are plethoras of decisions available which time and again have held that it is only the real income which could be taxed under the provisions of the I.T. Act. Any hypothetical income and income which has not been received cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would like to reproduce section 72A f the Income Tax Act, which is as follows: 72A. ( 1) . .. ( 4) Notwithstanding anything contained in any other provisions of this Act, in the case of a demerger the accumulated loss and the allowance for unabsorbed depreciation of the demerged company shall- ( a) where such loss or unabsorbed depreciation is directly relatable to the undertakings transferred to the resulting company, be allowed to be carried forward and set off in the hands of the result company; ( b) where such loss or unabsorbed depreciation is not directly relatable to the undertakings transferred to the resulting company, be apportioned between the demerged company and the resulting company in the same proportion in which the assets of the undertakings have been retained by the demerged company and transferred to the resulting company, and be allowed to be carried forward and set off in the hands of the demerged company or the resulting company, as the case may be . Section 72A of the Act provides for eligibility towards allowability of brought forward losses and unabsorbed depreciation, directly or proportionately, related ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es continuation of carrying on of the same business by the assessee. They do not provide that unabsorbed loss shall be set off against income from the same business. As far as the assessee is concerned it I still carrying on the business. The assessee was engaged in development of real estate and housing projects in the Aamby Valley City. It was in the business of sale of land and villas, building etc. constructed there upon over 67 acres of land and the said business is still being continued by the assessee. It is only few of the segments which have been decentralized and it cannot be said that the whole of the business has been discontinued by the assessee. The assessee during the year ending 31.03.2012 has shown income from its business activities at ₹ 1,17,70,36,457/-. In the subsequent year i.e. year ending 31.03.2013 the total revenue from operations generated by the assessee company was to the tune of ₹ 2,12,87,16,077/- and in the year ending 31.03.2014 the same was to the tune of ₹ 60,38,64,1992/- etc. Thus the figures are of revenue from operations and not in respect of other incomes, and, therefore, to say that the assessee has discontinued its bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company received the shares of SPVs. On applicability of section 56(2)(viia) of the Income Tax Act ( Act ) on the said transaction, our submission is as under : Firstly, we would like to reproduce Section 56(2)(viia) of as follows:- 56. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head Income from other sources , namely: - ( 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 o before the 1st day of June, 2010, 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, he aggregate fair market value of such property as exceeds such consideration: The provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ), to include the value of such shares in the definition of income; ( ii) 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). These amendments are proposed to take effect from 1st June 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. B. The provisions of section 56(2)(vii) were introduced as a counter evasion mechanism to prevent laundering of unaccounted income under the grab of gifts particularly after abolition of the Gift Tax Act. He 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-intrade, raw material and consumable stores of any business of such reci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he shares are transferred at the time of Business Reorganization, Amalgamation and Demerger. If the law makers included the said transactions then the shares received at the time of Business Reorganizations, Amalgamation and Demerger would get automatically covered under the purview of the said section and therefore the said section will apply on each and every amalgamation that would have happened in India. This can never be the intention of the law maker to cover the transactions undertaken at the time of amalgamation under the purview of the said section. Further, the above section was introduced after the abolition of Gift Tax and replaces the Gif Tax Act so as to prevent the laundering of unaccounted income under the pretext of gift. Thus, the said section was introduced in place of gift tax and in the present case the shares are received by the assessee pursuant to the composite scheme of amalgamation duly approved by the High Court. Thus, there is no intention on the party of the assessee to avoid tax liability as the same is no received as gift but by way of amalgamation. Thus, we humbly submit that the said section will never be applicable when the shares are r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on. The section itself does not mention that the consideration should be in monetary terms. Thus, the extinguishment of interest by the assessee in the AVVL will be considered as consideration for the said transaction and thus, the provisions of section 56(2)(viia) would not be applicable as the shares of SPV s transferred are not without consideration or inadequate consideration. Section cannot be applicable when there is ultimate receiver (beneficiary) is the same. At this juncture, we would first like to state that the insertion of Clause (viia) of Section 56 is extending the concept of deemed gifts to firms and unlisted company. Post abolition of gift tax in 1998, a practice started gaining ground whereby unaccounted income was laundered under the pretext of gifts or transfer/ issue of shares of closely held companies at lower value than Fair Market Value ('FMV'). To curb such unaccounted flow of income, the government introduced Section 56(2)(viia) vide Finance Act 2010. Based on this understanding and section 56(2)(viia) being a successor to donor based gift tax provision, it can be argued that even for donee based gift taxation, the pre- requisite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulting Companies) at respective fair values. The amalgamating company being wholly owned subsidiary of the amalgamated company and thus, the assesse company on scheme becoming effective became the 100% holding company of all the Resulting Companies i.e. SPV's either directly or indirectly. Mail dated 17-09-2015: An issue has been raised as to whether the provisions of section 56(2)(viia) would be applicable to such vesting. It is submitted that section 56(2)(viia), by a fiction, deems the receipt by a company (not being a company in which the public are substantially interested) of any shares of a company not being a company in which the public are substantially interested without consideration or for a consideration which is less than the aggregate fair market value of the property as income. In the present case there is no receipt by AVL of any shares. As a consequence the vesting of the assets and liabilities of V Ventures into AVL, the shares held by AVL in V Ventures got extinguished T h er ef or e , prior to the transaction the assessee was the 100% shareholder of V Ventures who in turn was the 100% shareholder of the resulting companies. As a consequence ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the consideration for the receipt of shares of the resulting company is the extinguishment of the shares held by assessee in AVVL. Under the amalgamation entire company is merged and not individual assets and liabilities. Thus, Section 56(2)(viia) of the Act should not apply . 97.1. The AO considered and decided this issue against the assessee as under : 1.3. The submissions made by the assessee before the undersigned and the Special Auditor have been considered and found as under: 1.3.1 During the year under consideration, a Composite Scheme of Arrangement and Amalgamation was approved by the Hon'ble High Court of Bombay. The appointed date of the composite scheme was on closing hours of business on 31.03.2011 i.e., 01-04-2011 and the effective date was 20.03.2012 (i.e., date of Form 21 for intimation of the order to Registrar of Companies filed by the company). The objective of the composite scheme was to transfer several business verticals (eleven business undertakings) mainly for the purpose of effective management of each individual business segment. 1.3.2. For the entire arrangement, assessee incorporated a subsidiary in the name of Aamby Vall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terested,- ( 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 the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);] The assessee had received the shares of eight Business SPVs which were not earlier with the assessee as evident from the investment schedule of the audited financial statements and as the part of Composite Scheme. Though the assessee is emphasising that the receipt of shares are on account of amalgama ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have the meanings respectively assigned to them in section 44DB ;] Capital asset under instant case are not shares of a co-operative bank, hence this clause is not applicable. vid) any transfer or issue of shares by the resulting ompany, in a scheme of demerger to theshareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;] The case is not of demerger, hence this clause is not applicable. vii) any transfer or issue of shares by the resulting ompany, in a scheme of demerger to theshareholders of the demerged company if the transfer or issue is made in consideration of demerger of the undertaking;] The case is not of demerger, hence this clause is not applicable. vii) any transfer by a shareholder. in a scheme of amalgamation. of a capital asset being a share held by him in the amalgamating company, if (a) the transfer is made in consideratiion of the allotment to him of any share or shares in the amalgamated company, and (b) the amalgamated company is an Indian com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 56(2)(viia), the fair market value of the shares of eight Business SPVs, received by the assessee without consideration, will be considered as 'Income from Other Sources' in the hands of the assessee. The method for valuation of shares for the purpose of Section 56(2)(viia) of the Act has been prescribed under Rules 11U and 11 UA of the Income Tax Rules,1962, which requires determination of FMV as on the valuation date. As per the meaning of 'Valuation Date' and 'Balance Sheet' under Rule 11U of the Income Tax Rules, 1962, the FMV of shares received by the assessee is required to be computed as on the date of receipt of shares based on the audited Balance Sheet under the Companies Act as on date of receipt of shares by the assessee. However, the assessee has not prepared/provided any audited balance sheet of the eight Business SPVs drawn as on the valuation date i.e., on 01-04-2011 being opening hours of business after closure of business on 31-03-2011 and after giving the effect of approved composite scheme. Hence, the Audited Balance Sheets of eight Business SPVs as on 31.03.2011 and 31.03.2012 which were available, has been analysed for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been given in Annexure-B to this order. 97.2. The assessee filed objections before DRP. The assessee contended that the AO erred in proposing to make an addition under section 56(2)(viia) of ₹ 26197.67 crores on the transactions related to Composite Scheme of Arrangement and Amalgamation. The assessee prayed that proposed action of the AO is bad in law. It was also submitted that AO has erred erroneously in considering the fair market value of the shares instead of book value of shares. The DRP vide Order dated 30.12.2016 under section 144C(5) of the I.T. Act decided the objection of the assessee as under : 6.8 Amount to be taxed under section 28(iv) 1. The following is the increase in General Reserve as per the Special Audit Report : (Rs. In Crores) Particulars Book Value in AVVPL as on 1.03.2011 FV of assets as on31.03.2012 Remarks Assets Investments in 100% subsidiaries AVCDL 0.20 36.807 Net Present Value as on 06.03.2012 determined by Kranti Karmasey Co. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO is directed to tax the increase in General Reserve amounting to ₹ 46,999.38 Cr. under section 28(iv). This view is supported by the judicial decisions discussed above. 6.10. Net Amount To Be Taxed Under Sections 56(2)(viia) and 28(iv) As discussed above, the addition made by the AO under section 56(2)(viia) amounting to ₹ 26,197.68 Cr. is justified and is upheld. Further, the AO is directed to tax the increase in General Reserve amounting to ₹ 46,999.38 Cr. under section 28(iv). Obviously, these two additions are two facets of the same transaction and only the higher amount should be taxed. The amount being computed under section 56(2)(viia) is lower because of the valuation rules prescribed u/s 56(2)(viia) by way of Rule 11UA. Considering the facts, the AO is directed to add Rs..46,999.38 Cr. under section 28(iv) and ₹ 26,197.68 Cr. under section 56(2)(viia) and thus, make a net addition of ₹ 46,999.38 Cr. under section 28(iv) as this is the higher amount and the ₹ 26,197.68 Cr. is covered in the ₹ 46,999.38 Cr. being added. It is clarified that if the addition of ₹ 46,999.38 Cr. under section 28(iv) is not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the said Explanation, the DRP always had the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. Section 144C(8) and the Explanation appended thereto reads as under:- 144C(8) The Dispute Resolution Panel may confirm, reduce or enhance the variations proposed in the draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order. Explanation. - For the removal of doubts, it is hereby declared that the power of the Dispute Resolution Panel to enhance the variation shall include and shall be deemed always to have included the power to consider any matter arising out of the assessment proceedings relating to the draft order, notwithstanding that such matter was raised or not by the eligible assessee. 24. The said Explanation was introduced through the Finance Act of 2012. But, it was to take effect retrospectively from 01.04.2009. The Dispute Resolution Panel s directions were issued after the Explanation had come into operation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has powers of enhancement. A similar view has been taken by the Hon'ble Bombay High Court in the case of Vodafone India Services Pvt Ltd. the Hon'ble High Court observed that proceedings before the DRP were continuation of assessment proceedings and the final assessment order was passed only after the directions of the DRP. 5. C onsidering the facts discussed above, while passing the final assessment order, the AO shall consider initiation of penalty proceedings u/s 271(1)(c) in respect of the enhancement in income consequent to above directions. 97.3. The AO in the light of submissions of the assessee, report of Special Auditor and findings of the DRP, concluded this issue against the assessee. His findings are reproduced as under : 1.4. Accordingly, in view of the submissions of the assessee before the undersigned and to the Special Auditors on this matter and the findings of DRP the addition on this issue is made as under: 1.4.1 The increase in General Reserve amounting to ₹ 46,999.38 Cr. is taxed under section 28(iv) and ₹ 26,197.68 Cr. is added to the income of the assessee under section 56(2)(viia). Obviously, these two additions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l computation as well as book profit 2. The above referred two grounds arise out of the same transaction that was entered into during the previous year relevant to the assessment year 2011-12. Since the disputed additions are arising out of the composite scheme of arrangement, they are discussed with together hereinbelow. Composite scheme of arrangement 3. The appellant is engaged in the business of construction of residential and commercial complexes, townships including development of a hill city called Amby Valley , near Lonavala in the State of Maharashtra. The appellant had 100% subsidiary called Amby Valley V Ventures P. Ltd (hereinafter referred to as the AVVL in short). The said AVVL had in turn 11 subsidiaries/step down subsidiaries (hereinafter referred to as the SPVs in short). The names of various companies and their interrelationship are depicted in the following chart: 4. The appellant along with AVVL and the SPVs filed a scheme of arrangement before the Hon ble Bombay High Court (Pg. 101 to 149 of PB No. 1). The scheme provided as under: 5. Part I of the scheme contained certain definitions. According to para 1.2, appointe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies was as under : 10. The other salient terms of the amalgamation were as under: ( a) Pursuant to the amalgamation, all assets and liabilities of AVVL became assets and liabilities of the appellant with effect from the appointed date . ( b) Shares held by the appellant in AVVL will be cancelled. ( c) There would be no consideration to be discharged by the appellant for vesting of the assets and assumption of the liabilities of AVVL. ( d) All assets and liabilities of AVVL were to be recorded in the books of appellant at their fair value. Such fair value was determined by an independent valuer. The main assets of AVVL were the shares of the various SPVs, which were valued at 47,002 cr. as per Discounted Cash Flow Method. The excess credit arising out of recording of assets and liabilities at fair values was credited to a general reserve. ( e) The business of AVVL was to be carried on by that company in trust on behalf of the appellant from the appointed date till the effective date . ( f) On the effective date , AVVL is to be dissolved. 11. The above scheme was sanctioned by the Hon ble High Court vide its order da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions on several counts. It was submitted, first, that the effective date of vesting is 31.03.2011 and, accordingly, nothing can be taxed in A.Y. 2012-13. As regards the taxability u/s. 56(2)(viia) of the Act, it was contended that it could not be said that the shares have been received without consideration. It was also contended that the intention of the Legislature was never to tax an alleged benefit arising as a consequence of a corporate restructuring like an amalgamation. However, during the course of hearing, the DRP proposed to levy tax on the basis that the provisions of S. 28(iv) of the Act were attracted, to which the appellant objected stating that there is no benefit arising in the course of the business. 15. The DRP rejected all the contentions raised by the appellant and held that: ( i) the date of transfer falls during the year under consideration and, hence, the taxability arises in the year under consideration, ( ii) the amount is taxable u/s. 28(iv) of the Act as the appellant has received the benefit which is in the course of the business. The DRP quantified the value of such benefit at ₹ 46,999.38 cr. being the value of shares at whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The fourth question is as follows: Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that income earned or accruing or arising after July 1, 1971, to December 31, 1971, is not to be included in the total income of the assessee for the assessment year 1972-73 ? This question is nothing but a corollary to the questions Nos. (1), (2) (3). When the obvious answer to questions Nos. (1), (2) (3) is that the effective date of amalgamation is 1st July, 1971, as a corollary, the answer to question No. (4) would be that the income after 1st of July, 1971, would be the income accruing and arising to the assesseecompany and not to the bank. Moreover, in answering this question, para 16 of the Tribunal s order is also relevant. The said paragraph is as follows: In the above connections, clause (3) of the scheme would also play a prominent and effective role. This clause has received the approval of the High Court as one of the clauses of the scheme of amalgamation. Under the said clause with effect from 1st of July, 1971, the transferor-company shall be deemed to have carried on all business and activities for and on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings are pending before the court, both the amalgamating units, i.e., the transferor company and the transferee company may carry on business, as has happened in this case, but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the transferor company (subsidiary company) shall be deemed to have carried on the business for and on behalf of the transferee company (holding company) with all attendant consequences. It is equally relevant to notice that the courts have not only sanctioned the scheme in this case, but have also not specified any other date as the date of transfer/ amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income-tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the transferor company (subsidiary company) should be deemed to have been carried on for and on behalf of the transferee company. This is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orthwith of very substantial sums of money, in the case of Crossplan, sums aggregating in excess of 25m. Those demands are succeeded by specific directions as to how payment of those very substantial sums of money could be effected by electronic transfer to a specific account of IBRC, or by delivery to IBRC at a specific address. The reference in the seventh paragraph to the payment not being received by close of business must be interpreted by reference to the nature of the demand for payment and the manner in which payment could be made to IBRC. That the object of the demand is that IBRC will receive by electronic transfer or by delivery of a bank draft in the case of each company a substantial sum of money by close of business , must lead to the interpretation of the phrase by close of business as meaning the end of the business banking day, as the trial judge found. The reality is that beyond the end of the banking business day, the objective could not be achieved, in that, for example, there would be no way of delivering a bank draft to IBRC, as the doors would be closed to bank customers. 37. The end of the banking business day is the point in time when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the closing hours of 31.03.2011 can be said to be the same as opening hour of 01.04.2011. Therefore, there is no logic or substance in the finding of the DRP and, hence, the same is required to be jettisoned. Further, the DRP in coming to its conclusion has relied upon the order of Pune Bench of the Tribunal in the case of Finolex Cables. Suffice to say that the observations made by Pune Bench of the Tribunal, which are reproduced by the DRP on page No. 25, do not support the finding of the DRP in any manner whatsoever. On the contrary, the Tribunal has followed the decision of the Hon ble Supreme Court in the case of Marshall Sons and Co. (India) Ltd. (223 ITR 809) and that of the Hon ble Bombay High Court in the case of CIT v. Swastik Rubber Products Ltd. (140 ITR 304) which are relied upon by the appellant. Taxability u/s. 28(iv) of the Act 28. In order to examine the applicability of provisions of S. 28(iv) of the Act, the relevant provision is reproduced hereinbelow: 28 The following income shall be chargeable to income-tax under the head Profit and gains of business or profession,- .. ( iv) the value of any benefit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a non-monetary asset in lieu of a monetary gain as a consequence of a transaction in the course of the carrying on of the business, like rent-free accommodation in consideration of services rendered. The relevant paragraphs from the said Circular are reproduced hereinbelow: 82. A new clause (iv) has been inserted in section 28, with effect from 1-4-1961, by section 7 of the Finance Act, 1964, under which the value of any benefit or perquisite (whether convertible in money or not) arising from business of the exercise of a profession will be chargeable to tax under the head Profits and gains of business or profession . A corresponding amendment has been made to section 2(24), including the value of such benefit or perquisite in the definition of the term income vide new sub-clause (va) inserted in section 2(24) by section 4(c)(i) of the Finance Act, 1964. 83. The effect of the abovementioned amendment is that in respect of an assessment for the assessment year 1964-65 and subsequent years, the value of any benefit or amenity, in cash or kind, arising to an assessee from his business or the exercise of his profession, e.g., the value of rent-free residential acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at are availed in addition to consideration earned in carrying out a profession or while doing business. A benefit that is passed on by one party to another, in addition to cost or sale price, is covered in this proviso. This is clear from the example quoted. In our humble opinion, this section cannot be invoked under the present facts and circumstances. 8.4. Be it as it may the co-ordinate Bench of the Tribunal (F-Bench, Mumbai) in the case of Helios Food Improvers (P) Ltd. (supra) held that s. 28 is a charging section and takes into account the receipts of specified categories of all incomes as well as the receipts which could be generally construed as income in the ordinary sense. But the fact remains that all the receipts mentioned in s. 28 are inherently of income nature except in case of receipt under a given amount of insurance policy. It also states that s. 28(iv) refers to any benefit or perquisite and this means that such benefit or perquisite should be in the nature of income from the very beginning or it must have characteristics of income before it becomes chargeable at a later stage if the original transaction is completed as designed. The Bench further observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion or the business done between the seller and the purchaser of the shares. No case has been made out that privilege or benefit or concession has been passed on by the seller to the buyer as part and parcel of a business transaction. A benefit has been assessed by the CIT(A). Mere purchase of shares by way of investment cannot be considered as business of the company though the objects of the company enable it to invest as well as deal in shares. As already stated there is no event which can be said to have resulted in accrual of income to the assessee. Thus on this factual matrix, mere purchase of shares, as an investment, with the lock-in-period of holding, for a consideration which is less than the market value, cannot be brought to tax, as a benefit or perquisite under s. 28(iv) of the Act. The assessee has not in this case, secured any benefit or perquisite in consideration of a business transaction undertaken with the sellers of the shares. Thus this issue is decided in favour of the Revenue and against the assesse. 33. It is next submitted that the benefit or perquisite arising to the appellant must be one that arises in the course of carrying on of the business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entures P. Ltd. The only relationship between two companies were that of holding and subsidiary company. The reserve arose out of the amalgamation pursuant to the scheme sanctioned by the Hon ble High Court. In this factual background, it cannot be said that the amalgamation reserve arose out of any business activity of the appellant. 37. In this regard, reliance is placed upon the order of Kolkata Bench of the Tribunal in the case of ITO v. Shreyans Investments (P.) Ltd. (141 ITD 672, 679- 681) (copy already on record). In the said order, it was held that a reserve arising out of the amalgamation cannot be treated as income u/s. 28(iv) of the Act. While holding so, the Tribunal has relied upon the judgment of the Bombay High Court in the case of Mahindra Mahindra (261 ITR 501) [since upheld in 404 ITR 1 (SC)]. The relevant paragraphs from the Tribunal s order are reproduced hereinbelow: 7. Section 28 sets out the incomes which are chargeable to income-tax under the head 'Profits and gains of business and profession', and clause iv) thereto refers to the value of any benefit or perquisite, whether convertible into money or not, arising from the business or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mal connotations of the expression income'. Howsoever liberal or narrow be the interpretation of expression 'income', it cannot alter character of a receipt, i.e. convert a capital receipt into revenue receipt or vice versa. The crucial distinction between capital and revenue cannot be blurred or nullified by even the most liberal interpretation of expression 'income'. It is also important to bear in mind that, as held by Hon'ble Supreme Court in the case of Dr. K George Thomas v. CIT [1985] 156 ITR 412/23 Taxman 46, the burden is on the revenue to establish that the receipt is of a revenue nature though once a receipt is found to be of revenue character, whether it comes under exemption or not, it is for the revenue to establish . It is thus clear that capital receipts are inherently outside the scope of an income which can be taxed under section 28(iv), and Hon'ble Bombay High Court, in the case of Mahindra Mahindra Ltd. (supra) also holds so. As to what constitutes capital receipt, we find guidance from Hon'ble Madras High Court's judgment in the case of CIT v. Seshasayee Bros. (P.) Ltd. [1996] 222 ITR 818/89 Taxman 13 wherein Their Lords ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss and to withstand the recessionary trend in the economy of the business undertaking concerned and for administrative convenience and to obtain advantage of economies of large scale, the present scheme is proposed to amalgamate the transferor company (i.e. VVPL) with the transferee company (i.e. the assessee) . As a result of amalgamation, the assessee, being the transferee company, will increase its assets and liabilities, and, even if there be any benefit in the process, such a benefit can only be in the capital field because it is relatable to the nontrading assets and capital. What it affects is the capital structure of the assesse company and the manner in which business is consolidated. As the Assessing Officer himself observes, this exercise of amalgamation is also aimed at bolstering the capability of the assessee to conduct business more dynamically and earn more profit. So, the enhancement of its capital reserve, as a result of this amalgamation can only be construed as a benefit accrued to the assessee , but then it is not even the case of the Assessing Officer that the benefit is in the revenue field, and unless the Assessing Officer is to discharge the onus of dem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember of the Tribunal is as good as decision of Special Bench and sanctity of the Third Member decision and Special Bench decision is of the same nature. This has been so held in the case of DCIT vs. Oman International Bank [286 ITR (AT) 8 (SB)]. Therefore, following the above referred decision of Third Member, it may kindly be held that creation of general reserve does not give rise to any tax liability u/s. 28(iv) of the Act. 41. Reliance is also placed upon the order of Kolkata Bench of the Tribunal in the case of ITO v. Kyal Developers (P) Ltd. [63 SOT 93 (URO)] (copy already on record). 42. It is worthwhile to note that the special auditor has considered the above issue in detail and also various judicial pronouncements. After considering the issue in-depth, the special auditor had opined that the reserve arising out of amalgamation cannot be taxed in the hands of the appellant. It is worth noting that in respect of several additions the Assessing Officer and DRP have wholly relied upon on the report of special auditor, whereas in respect of this huge addition they ignored the view of the special auditor. 43. The appellant would also like to point out that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany Ltd. v. ACIT discussed hereinabove. Taxability u/s. 56(2)(viia) of the Act 45. The provisions of S. 56(2)(viia) of the Act are reproduced hereinbelow. S. 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 such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause clause (vid) or clause (vii) of section 47. Explanation.- For the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a company (not being a company in which public are substantially interested). Section 2(18) provides the definition of a company in which the public are substantially interested. It is also proposed 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. 48. Keeping the above in mind, it can be concluded that the value of shares vested in the appellant pursuant to the scheme of amalgamation sanctioned by High Court cannot be taxed. 49. It is further submitted that by virtue of amalgamation, there is only a vesting of the assets including the shares in the hands of the appellant. Although, the provisions of S. 56(2)(viia) of the Act uses the phrase receives any property, being shares , the receipt must be by way of a transaction that results in a transfer. This is borne out by the Memorandum explaining the provisions of the Finance Bill 2010 wherein it has been stated that the clause has been inserted to prevent the practice of transferring unlisted shares (the relevant circular is already on record). Thus, for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he capital invested by the assessee in the said companies and by the said amalgamations the assessee became the sole owner of the entire capital of the transferorcompanies. By virtue of the said amalgamations the assessee as the transferee-company became the sole repository of all the rights which flowed from or were imbedded in the shares held by the assessee in the transferor-companies. 52. The above decision was followed by the Bombay High Court in the case of Forbes Forbes Campbell and Co. Ltd. v. CIT (150 ITR 529). 53. In any case, the provisions of S. 56(2)(viia) of the Act are applicable only in a case where the shares were received for no consideration or inadequate consideration. It is submitted that if the scheme is looked into as a whole, there is no question of no consideration or inadequate consideration. The appellant has transferred assets of various undertakings to SPVs (Part II of the scheme), and acquired the shares of SPVs from 100% subsidiary company (Part III of the scheme). In the process, the shares of Aamby Valley V Ventures P. Ltd. held by the appellant were cancelled. The net position is that the appellant is the owner of the same assets bef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is made in consideration of the allotment to the shareholders of any share or shares in the amalgamated company and the amalgamated company is an Indian company. It is submitted that what is covered by the proviso, especially having regard to the rationale for its introduction as explained in the memorandum is a receipt of shares by an assessee as a consequence of an amalgamation. If one incorporates the provisions of clause (vii) of section 47 in its entirety then the exception carved out by the virtue of the provision can never apply because on a literal interpretation what is covered in clause (vii) are the shares held by a shareholder in the amalgamating company which as a consequence of amalgamation would get extinguished and would never be received by anybody else. Therefore, it is submitted that the exception carved out by the proviso to section 56(2)(viia) can never apply and, hence, one would have to give a purposive interpretation to section of 56(2)(viia) and hold that the provisions thereof would never apply to a receipt of shares as a consequence of an amalgamation. As the Appellant has received the shares of the 8 SPVs as a consequence of the merger of AVVPL into the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the provisions of the Act as earlier it had provided a condition which was impossible to comply with. To set right such unintended situation, the Legislature has proposed the amendment. It could never be the intention of the Legislature to rectify the situation for A.Y. 2013-14 and subsequent years and to retain the lacuna for A.Y. 2012-13. Keeping in mind the following authoritative pronouncements, the amendment should be held to be retrospective in nature. ( i) CIT v. Vatika Township P. Ltd. [367 ITR 466, 469 (SC)] An amendment made to a taxing statue can be said to be intended to remove hardships only of the assessee, not of the Department. Imposing a retrospective levy on the assessee would have caused undue hardship and for that reason Parliament specifically chose to make the proviso effective from June 1, 2002. Where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... med, without admitting, that the date of transfer is 01.04.2011, the balance sheet as on 31.03.2012 could not be taken into account. This is for the reason that there was no such discretion available to the authority to take any balance sheet of their choice for the purpose of valuation. 60. The argument of the Assessing Officer and DRP that since the entries have not been passed in the books of account as on 31.03.2011, the balance sheet as on that date cannot be considered is without any logic and contrary to the legal position. There is no such pre-condition in the Act, or Rules, that there has to be a particular entry in the books of account. The rules mandatorily prescribe a particular balance sheet to be taken into account. Therefore, the authorities below have erred in adopting the balance sheet as on 31.03.2012. 61. Reliance placed by the DRP on the judgment of Madras High Court in the case of CWT v. S. Ram and Ors. (147 ITR 278) is inapplicable as that was a case where the issue arose in connection with gift tax proceedings. Further, there was no rules which were governing the valuation or valuation date. The High Court has made certain observations in this fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The use of the words in accordance with the provisions of Parts II and III of Sch. VI to the Companies Act was made for the limited purpose of empowering the assessee authority to rely upon the authentic statement of accounts of the company. While so looking into the accounts of the company, the AO under the IT Act has to accept the authenticity of the accounts with reference to the provisions of the Companies Act which obligates the company to maintain its account in a manner provided by the Companies Act and the same to be scrutinized and certified by statutory auditors and will have to be approved by the company in its general meeting and thereafter to be filed before the Registrar of Companies who has a statutory obligation also to examine and satisfy that the accounts of the company are maintained in accordance with the requirements of the Companies Act. In spite of all these procedures contemplated under the provisions of the Companies Act, it is difficult to accept the argument of the Revenue that it is still open to the AO to re-scrutinize this account and satisfy himself that these accounts have been maintained in accordance with the provisions of Companies Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Companies Act, it was not open to the Assessing Officer to contend that the Profit Loss A/c was not prepared in accordance with the provisions of the Companies Act. It may be noted that in the case, the contention of the revenue was that the appellant has intentionally prepared a wrong P L A/c. 67. Reliance is also placed upon the order of Mumbai Bench of the Tribunal in the case of Forever Diamonds P. Ltd. v. DCIT (57 SOT 113) (copy already on record). In the said order, the Mumbai Bench of the Tribunal has considered their earlier order in the case of Bombay Diamond Co. P. Ltd. v. DCIT for A.Y. 2004- 05 being ITA No. 7488/Mum/2007 dated 30.11.2009 (which has been relied upon by the DRP). The Hon ble Tribunal has followed the decision of the Supreme Court in the case of CIT v. Apollo Tyres (255 ITR 273) and has held that the Assessing Officer has no power to modify the figure of profit as per the audited P L A/c. In the above referred decision, the Tribunal has also considered the earlier decision of Bombay High Court in the case of CIT v. Veekaylal Investment Co. P. Ltd. (249 ITR 597) and that of Mumbai Bench of the Tribunal in the case of Sumer Builders (P.) L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) Being aggrieved, the Respondent Assessee filed an appeal to Commissioner of Income Tax (Appeals) (the Commissioner). By order dated 16 September 2002, the Commissioner allowed the appeal by relying upon the decision of the Supreme Court in the case of Apollo Tyres Ltd. V/s. CIT, [2002] 255 ITR 273 (SC) wherein it is held in the context of MAT provisions that the Assessing Officer has to accept the authenticity of the accounts maintained in accordance with the provisions of Companies Act, 1956, which are duly audited and passed in the general body meeting of shareholders. It was held that the Assessing Officer has no power to disturb the profits in the Profit and Loss account as except to the extent provided in the explanation to Section 115JA. ( c) On further appeal by the Revenue the Tribunal by the impugned order dismissed the Revenue s appeal. The impugned order places reliance upon the decision of the Apex Court in Apollo Tyres Ltd., wherein it was held that it is not open to the Assessing Officer to question the correctness of the Profit and Loss account when the same have been prepared in accordance with the provisions of the Companies Act, duly scrutinized by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d with. In view of the fact that the impugned order has followed the decisions of the Apex Court in Apollo Tyres and is in accordance with the decision in National Hydroelectric, the Explanation to Section 115JA of the Act would not be triggered. Thus question 2 raises no substantial question of law for consideration. 71. It may kindly be observed that in the above case also, the argument of the revenue was same as that of the DRP in the present case, i.e. appellant should have routed the amount through P L A/c. However such argument was rejected by the Bombay High Court. 72. The decisions relied upon by the DPR in the case of Bombay Diamond Co. P. Ltd. v. DCIT, Sumer Builders (P) Ltd. v. DCIT and Veekaylal Investment Co. P. Ltd. were duly considered by the Tribunal in the case of Forever Diamonds, relied upon hereinabove. The decision of Delhi High Court in the case of CIT v. Sain Processing Wvg. Mills (P.) Ltd. (325 ITR 565), relied upon by the DRP pertains to a case where notes to accounts referred to current year s depreciation which was not debited to P L A/c. The High Court decided the issue in favour of the assessee by observing that notes to accounts are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a colourable device as the Department cannot allege that a scheme sanctioned by the High Court is not in accordance with law. The Hon ble High Court sanctioned the scheme of restructuring as being fair and reasonable, not in violation of any provision of law in public interest and not prejudicial to the interest of any party concerned. Therefore, such scheme can never be said to be against the provisions of law, including the Income-tax Act and cannot be held to be colourable device. (Electrocast Sales India [170 ITD 507 (Cal) (copy already on record). In that case, the Tribunal further held that if a scheme is formulated for evasion of tax then it cannot be held to be in public interest and, accordingly, be sanctioned under the provisions of the Companies Act. The Tribunal further noted that in terms of Section 394 of the Companies Act before any order is passed in an application filed under Sections 391 to 394 of the Companies Act, the court is mandated to give notice to the Central Government and to take into consideration the representations, if any, made to it by the government. In these circumstances, having regard to the aforesaid orders of the Kolkata Bench of the Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 49 or Section 43(1) of the Act would be inapplicable. ( f) If an assessee has the choice of effecting a transaction in more than one permissible methods, the Department cannot reject the method employed by the assessee merely because the resulting tax burden is less. (Vodafone Essar Gujarat Ltd v. Department of Income-tax [24 taxmann.com 323 (Guj)] (copy already on record); Capegemini India Pvt. Ltd. (Company Scheme Petition No. 434 of 2014) (copy already on record). ( g) Even if the Revenue was correct in its contention that the scheme is to be disregarded, the sequitur would be that one has to ignore the same and the steps taken pursuant thereto and if that were so, then the question of the appellant having received any benefit that could be taxable under section 28(iv) or Section 56(2)(viia) of the Act cannot arise because if one ignores the scheme one would disregard the demerger as well as the merger, and status qua ante would be restored viz, the various undertakings would continue to vest in the appellant. ( h) Accordingly it is submitted that the entire basis of the revenue s arguments that there has been a tax advantage sought to be derived as a cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary 2011 and stood dissolved in March 2012. The Appellant submits that as noted hereinbefore even if the Appellant had directly transferred the undertakings to the 8 SVPs and received shares in the SVPs or its shareholder received shares in SVPs, nevertheless, there would be no adverse tax consequences flowing and, hence, this argument too could not be sustained to support the assessment made on the Appellant. As pointed out earlier, even if the Appellant had entered into a tax neutral demerger, then, there would have been no liability to tax in the hands of the Appellant. Assuming the SVPs had not issued shares to the shareholders of the Appellant but had issued shares to the Appellant itself, then also, there would have been no liability to capital gains to the Appellant and, accordingly, no tax which would otherwise have become payable stands avoided as a consequence of the present structure being adopted. Therefore, the Appellant submits that there is no basis whatsoever in law to support the revenue s contentions that there is a liability under section 56(2)(viia) or section 28(iv) as a consequence of the transaction entered into which the revenue alleges is a device ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. The assessee has not reduced its claim of depreciation for A.Y. 2011-12 by filing any revised return. The scheme was sanctioned by the Hon ble High Court vide its order dated 20.01.2012 but became effective only from 20.03.2012. However, the revised return was filed on 09.02.2012 which was prior to the date on which the scheme became effective i.e. 20.03.2012. Therefore, there was no occasion to give impact of the scheme in the revised return. In any case, there was no question of reducing the claim of depreciation as the assessee has used the assets for the entire year, the transfer being effective from the closing hours of business on 31.03.2011. It may be noted that SPVs have not claimed any depreciation on the transferred assets for the A.Y. 2011-12 and, accordingly, no excess depreciation has been claimed. 84. No revised return has been filed pursuant to the scheme become effective. As there was no change in the total income for A.Y. 2011-12, there was no need of filing revised return. It may be noted that the appointed date of transfer was closing hours of business as on 31.03.2011. 85. Some of the SPVs have issued bonus shares out of reserves creat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counting as contemplated in AS 14. As per Accounting Standard 14, if the High Court has prescribed any accounting treatment which is contrary to AS-14, then the assessee is required to follow the treatment prescribed by the Court. Thus, the assessee, by following High Court prescribed treatment, has followed AS-14. A. Date of Transfer 90. Assessee has not obtained valuation of assets as on 31.03.2011 and hence, the transfer cannot be said to have taken place on that date. As per clause 13 of Part III of the scheme transfer is to take place after giving effect to Part II. The said Part II requires the valuation report of the transferred assets. As per clause 13 of the scheme, the transfer takes place on the appointed date and that too without any act, deed, matter etc. to be done by the parties. Thus, as per the scheme sanctioned by the High Court the transfer takes place on the appointed date. The act of obtaining valuation report is bound to take place subsequent to filing of the scheme in the High Court. It is prudent to take valuation reports after filing the scheme as the valuation report may become irrelevant if the scheme is not proceeded with. The date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fer. D. Date of valuation 96. The valuation of shares cannot be as on 31.03.2011 as the entry for recording of shares was not passed on that date. Rule 11UA clearly prescribes the balance sheet which has to be taken into account for the purpose of valuation. There is no such further prescription as to the passing of an entry in the books. The conditions which do not exist cannot be read into the statute. E. Additional Ground (Book Profit) 97. Assessee has prepared the books of account by employing colourable device and hence, Assessing Officer has a power to modify it for the purpose of computing book profit. This is completely new stand which is contrary to the stand taken by the lower authorities. For the detailed reasons given hereinabove, the ld. DR has no power to take a contrary stand. In any case, there is no colourable device employed by the assessee, as explained hereinabove. The Assessing Officer has no right to tamper with the audited Profit Loss A/c. 98. Since assessee has created a general reserve in its Balance sheet without routing it through Profit Loss account, the amount of reserve is required to be added back to arriv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and enhanced capital base and enhanced valuation in the process. d. The underlying design is not to offer the taxation the resultant profit and still enjoy the hidden profit earned by way of such sale which is liable to have been offered for tax for A.Y. 2012-13. e. Absence of commercial purpose/prudence is evidence from: i. The creation and extinction of AVVVL, AVVVL has carried out no commercial activity and no business except facilitating execution of the design of scheme of Arrangement . There is no conceivable commercial purpose in this action except creating a series of artificial transactions and accounting entries under the guise of SOA. ii. The design of transferring the assets discretionarily, and in blatant disregard of accounting standards, at different rates of amounts in the hands of Transferor (at book value) and of transferee (at Fair Market Value). There is absolutely no commercial purpose in such a treatment. iii. The fundamental accounting principles, Accounting Standards and even common sense accounting treatments have been given a go-bye under the scheme of arrangement , without there being any commercial substance in such g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... II. General arguments of addition on merits u/s 56(2)(viia) 28(iv). III. The merits of applicability of section 56(2)(viia). IV. The merits of applicability of section 28(iv) I. Appointed Date A). Main argument of the Ld AR is that the appointed date for the scheme of restructuring as approved by the Hon'ble HC is 31.03.2011. Therefore addition on account such scheme of restructuring if at all required), than the same has to be done in AY 2011-12 (FY 2010-11) and not in impugned AY 2012-13 (FY 2011-12). Ld AR has argued that appointed date as approved by Hon 'ble High Court is the date of transfer, which cannot be tampered with by the Income Tax Authority assessing the income. He relied on mainly the following Judicial pronouncements i) CIT Vs Swastik Rubber Products Ltd 140 ITR 304 (Bombay HC) ii) Marshall Sons and Co.(India) Ltd Vs ITO 223 ITR 809(SC) Ld. AR relied on definition of closing time as time at which public office closes as defined in advanced law lexico. He further relied on the definition of end of the day in Wikipedia to mean end of trading of a financial market. He argued that closing time of 31.03.2011 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... going concern in the following manner. 4.1.1. In respect of all the movable assets of the Demerged Company comprised in the respective Business Undertakings and the assets which are otherwise capable of transfer by physical delivery or novation or endorsement and delivery including cash on hand shall be so transferred to respective Business SPVs and deemed to have been physically handed over by physical delivery or notation or by endorsement and delivery as the case may be to respective Business SPVs to the end and intend that the property and benefit therein passes to respective Business SPVs with effect from the Appointed Date. 4.1.2. In respect of the assets of the Business Undertakings other than those mentioned in Clause above, including actionable claims, sundry debtors outstanding loans advances recoverable in cash or kind or for value to be received and deposits with the Government semi-Government, local and other authorities and bodies and customers, the Demerged Company shall if so required by the Business SPVs and SPVs Business may, issue notices in such form as Business SPVs may deem fit and proper stating that pursuant . to the High Court having sanctioned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.1. The Business SPVs are indirect wholly owned subsidies of the Demerged Company. The Scheme is intended to restructure within the group of companies controlled by the Demerged Company the holding of the demerged undertaking in a more efficient manner with due regard to project specific risk and consistent with the diverse needs of business and does not involve any movement of assets or liabilities to any company outside the group controlled by the Demerged Company. Hence, the business SPVs shall not be required to pay any consideration/issue any share to the Demerged Company or its shareholders. 6. ACCOUNTING TREATMENT 6.1. In the books of the Demerged Company 6.1.1. The book value of all the asset and liabilities pertaining to the Demerged undertaking which cease to be asset and liabilities of the Demerged Con1pany shall be reduced by the Demerged Company at- their respective book values. The differences that is excess of the book value of assets over the book value of the liabilities pertaining to the demerged undertaking and demerged from Demerged Company pursuant to this schemes shall be adjusted against the General reserve arising pursuant to Part I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank account) power of attorney given by assessee to execute in favour of the transferor company shall vest in and become available to transferor company as if they were originally obtained by transferor company. In so far as the various incentives subsidies rehabilitation schemes special status and other benefits or privileges enjoyed granted by nay government body local authority or by any other person or and ailed of by Transferor company are concerned the some shall vest with and be available t respective transferor company on the same terms and conditions as applicable and or sanctioned and or allowed to transferor company. 1.3.4. The transfer and vesting of the undertaking of transferor company as aforesaid shall be subject to the existing securities charges mortgages and other encumbrances if any subsisting over or in respect of the property and assets or any part thereof. 14. CONSIDERATION : 14.1. Since the entire share of the transferor company is held by Transferee Company and its nominee no consideration shall be payable / dischargeable for this section and share capital of the transferor company shall stand cancelled. 15. ACCOUNTING TEREATME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14,784,283,433 6 Aamby Valley Airport Project Limited 254.8 14,141,083,036 7 Aamby Valley Global Sports 48.32 2,681,830,231 8 Limited Aamby Valley Mega Retails Limited 46.97 2,395,701,868 9 Aamby Entertainment Services Limited 318.85 2,894,538,000 10 AVL Hotels Resorts Limited 155.75 7,634,914,377 11 AVL Land Holdings Corttpany 30.01 351,152,100 Limited Total 6420.7 374,722,010,515 Note: As per details/Documents provided it is understood that above mentioned APVs are 100% subsidiaries of M/s Aamby Valley Limited. In addition to that approximately 916.76 acres is under Aamby Valley Limited and has a fair market value of approximately ₹ 2988,54,10,000. Hence the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6,563.89 47,001 i v). The assessee has filed original return of income for A.Y. 2011-12 on 30.11.2011 as page 2 of Departmental Paper Book A-1 prior to date of the order approving the scheme. The assessee has filed revised return of income for AY 2011-12 on 09.02.2012 as per page-30 of Departmental Paper Book A-1. A perusal of original and revised return of income reveals that the assessee has not taken effect of the scheme of demerger and amalgamation for transfer of assets in revised return of income which is evident from glaring fact that the depreciation in original and revised return of the income has remained same as per page no. 33 of paper book A-1 (revised) and page no. 4 of paper book A-1 (original return for AY. 2011-12), return of income. The depreciation (if such scheme was affected) is bound to change as there are block of depreciable assets transferred such as building and plant machinery etc. This proves that the transfer of assets had not taken place as on 31.03.2011. v). Now I will deal with the judicial pronouncement on this issue Application of Judicial Pronouncement relied by Ld. AR Ld. AR has argued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its holding company. On February 3, 1983 the Income- tax Officer permitted the subsidiary company to change the accounting year, subject to certain conditioning year, subject to certain conditions. In December, 1982, the subsidiary company passed a resolution proposing to amalgamate with the holding company with from January 1, 1982. An application was made to the company court. Under the scheme amalgamation, the entire undertaking of the subsidiary company was to be transferred to the holding company with effect from the transfer date which was defined to mean January 1, 1982 : the subsidiary was to be amalgamated with the holding company with effect from that date and be deemed to have carried on its business for and on behalf of the holding company from that date and the implementation of the scheme was conditional upon the scheme being sanctioned by the by the court and nine-tenth of the shareholders of the subsidiary company becoming shareholders in the holding company. Pursuant to the orders of the court, resolutions approving the amalgamation were passed by the shareholders at meetings,. The company court at Madras sanctioned the amalgamation on November 21, 1983, and on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of taxes. On appeal to the Supreme Court: Held accordingly. Reversing the decision of the High Court, that since the company courts had not only sanctioned the scheme of amalgamation as presented to the, but had also not specified any other date as the date of transfer/amalgamation, it followed that the date of amalgamation/date of transfer was the date specified in the scheme as the transfer date. In such a situation, it would not be reasonable to say that he scheme of amalgamation took effect on and from the date of the order sanctioning the scheme. The business carried on by the subsidiary company should be deemed to have been carried on for and on behalf of the appellant-company. This was the necessary and the logical consequence of the court sanctioning the scheme of amalgamation as presented to it. The order of the court sanctioning the scheme, the filing of the certified copies, the allotment of shares, etc., might have all taken place subsequent to the date of amalgamation in the circumstance of this case would be January 1, 1982. Therefore the notices issued by the Income-tax Officer were not warranted in law. The said judgment was delivered after consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with effect front July 1, 1971. On the Petitions made to the High Court under ss. 391 and 394 of the Companies Act; 1956, the High Court passed orders that with effect front July I, 1971, the whole of the business and Property and liabilities of the bank shall stand transferred to the assessee without any further act or deed. According to cl. (15) of the schen1e of amalgamation the assessee was to approach the Controller of Capital Issues for the Purpose of sanction of increase in share capital and the said sanction was obtained on December 31, 1971. Clause 15 also Provided that even though the scheme of amalgamation was to be operative from 1, 1971, it was to take effect finally from the date on which any of the sanctions was last obtained. The ITO held that the date of amalgamation for the purpose of s. 170 was December 31, 1971. On appeal, the Tribunal took the view approval of the controller of Capital Issues was a mere formality in view of the order of the High Court that the amalgamation was to be effective from July, 1 1971, Moreover for the purposes of income-tax, what was, crucial was the date on which the assets liabilities vested in the assessee. Accordingly the Tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, Accordingly we refuse to draw up a statement of the case and refer it to the Hon ble High Court. Our reasons are as follows. The respondent-assessee to these applications is M/s Swastik Rubber Products Ltd., successors to M/s Bank of Maharashtra Ltd., Pune, and it is hereinafter called the assessee . The Bank of Maharashtra Ltd. carried on banking business until 19th of July, 1969. By virtue of the Banking Companies (Acquisition Transfer of Undertakings) Act, 1970, the entire undertaking of the bank including all assets and liabilities was transferred to end became vested in the Bank of Maharashtra a statutory corporation. The Bank of Maharashtra Ltd., hereinafter called the Bank became entitled to a compensation of ₹ 2.30 crores. Except for a sum of ₹ 12.300, the balance of the compensation was received by the bank in the form of Central Government securities carrying interest of 510/0 per annum. The shareholders of the bank in their meeting dated 27th of April, 1971, passed a resolution a proving a scheme of amalgamation with the assessee. The shareholders of the assessee approved the assessee s scheme of amalgamation on the 29th of April, 1971. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heme of amalgamation it was agreed between the parties that even though the se action was to be operative from the appointment date, i. e. 1st of July, 19 1 it was to take effect finally upon and from the date on which the sanctions or orders shall be last obtained. The order of the Controller of Capital issues for case of the assessee's capital as mentioned earlier was obtained on 1st of December. 5. On the above facts, in the opinion of the ITO, the date of amalgamation was 31st of December 1971 as the last order in the scheme of amalgamation being the order of the Controller of Capital Issues for the permission to the assessee to increase the share capital was made on that date. This view of the ITO was upheld by the AAC. However, when the matter came to the Tribunal in the second appeal by the assessee the Tribunal gave a factual finding that the date of amalgamation was 1st of July, 1971. Facts Circumstances of the present case which differentiates the cases- relied by Ld AR. Analysis of the relevant findings of Hon'ble Supreme Court in the case of Marshal Sons Hon'ble Bombay High Court in the case of Swastik Rubber-Products Pvt. Ltd are sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of para 4.1.3 in reproduced as under. 4.1.3. In so far as the immovable properties comprised in the respective Business Undertakings are concerned, the immovable properties shall stand transferred pursuant to this Scheme to the respective Business SPV parties shall register the certified copy of the order of the Bombay High Court approving the Scheme with the offices of the relevant sub-register of assurance or similar registering authority in Maharashtra and shall also execute and register as required such other documents which may be necessary in this regard. All the assets which are subject matter of pending litigations shall stand transferred only to the extent permitted by law and subject to outcome of such litigation. Therefore, as per this para of the scheme, the immovable property will not vest with SPV from appointed date . It may be mentioned here that the entire dispute is on account of reserve created on account of transfer of immovable property only. To find out the date of vesting of immovable property in SPV, it is necessary to examine the terms of accounting treatment as provided in para 6 of the scheme. As per clause 6.1.1, the book value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ea of land admeasuring 6563 acres was owned by SPVs. Area of land area was 6420.7 acres in valuation as on 2.11.2011 used for part II. Therefore area of land mentioned in valuation report for implementing para III is more than mentioned in valuation report implen1enting part II. The area land for valuation as on 6.03.2012 held by SPVs is more than area of land held by SPVs as on 2.11.2011. If the date of transfer/vesting is taken as 30.11.2011 the how there would be different land area owned by same SPVs. In view of the above facts it is clear that for part III, Date of vesting in immovable property held by SPVs is appointed date and after giving effect to part II, which is 02.11.2011 as submitted in earlier para by virtue of para 13.l.As per para 13.3 date of vesting in immovable property will be effective date i.e. 20.3.2012. As per accounting entries mentioned in the scheme fair market value of asset liabilities of transferor company will be recorded. Therefore, the primary requisite of transfer vesting of property is to get fair market value of the assets and liability ascertained. The assessee has made valuation of assets liability of immovable property of Transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... date. iii) In the scheme of limited demerge the, there is specific mention of accounting entries to be recorded in the books of accounts i.e. the properties transferred in special purpose vehicle company has to be at market value. The assessee has valued the immovable property in form of land as on 02.11.2011. iv) If there is complete demerger of the company, then a view might be possible that what even value of assets and liability, the same would be transferred. Here demerger is only part of the assets and liability of assessee company. Therefore, prerequisite is to make entry in books of assets liability of Assessee Company transferred. Therefore for vesting/transfer there is prerequisite to make entry in books of accounts which requires valuation as per the scheme. v) The fair market value has not been ascertained as on appointed date. Therefore, entry in the book of account can't be affected to transfer of immovable property with effect from 31.3.2011. In these circumstances there is impossibilities to transfer/vesting of the property on 31.3.2011. vi) As far as amalgamation of AVVPL into assessee is concerned, the transfer/vesting of property AVV ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty. In any case both these dates of valuation as on 2.11.2011, 26.03.2012 fall in F.Y 2011-12 relevant of A.Y 2012-13. Therefore, addition on account of such arrangements have rightly been made in A.Y. 2012- 13. The arguments of Ld. AR on appointed date is not supported by the facts of the case. Neither the method of valuation, nor valuation report was enclosed in the scheme for approval. Therefore, just defining of appointed date in the scheme without its workability has no meaning but only a legal fassad. Hence, the arguments of Ld. AR on appointed date needs to be rejected. B) Without the prejudice to the above stand, it is submitted that the scheme envisaged in part II is no complete demerger as all assets and liabilities of Assessee Company are not demerged with SPV Companies. The assessee has also accepted that the condition for demerger contained in section 2(19AA) of I.T. Act, 1961. Part III is amalgamation of AVVPL with the assessee. It may be pointed out that AVVPL has been brought into existence only for implementing the scheme of restoration. It has taken birth with SPV companies on 24.02.2011 and has died with the order of Hon'ble High Court. Thus, AVVPL h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition made by the assessing officer. Further, DRP has also made addition u/s 28(iv) of IT Act for ₹ 46,999.38 crores held that since addition u/s 28(iv) is more than the quantum of addition u/s 56(2)((viia), the net addition of higher amount should be made as the taxation arises on two aspects of same transactions. B) Ld. AR has made mainly two arguments against addition on merits in general. 1. The entire arrangements has not made the assessee company richer as the entire transaction in only restructuring of business of the group and reserve is not created due to business activity but due to amalgamation hence a capital reserve. 2. The business restructuring scheme is tax natural. C) My Submission on facts. Firstly I would like to summarise the effects facts of the entire arrangements :- i) As per part II of the scheme of arrangements various 11 undertaking of the assessee company have been transferred on a going concern basis to respective identified business verticals (Resulting companies) as follows: a. Real Estate Hold Co Undertaking into Aamby Valley City Developer Limited; b. Real Estate Villas Undertaking into AVL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... At the time of demerger of these undertaking, accounting method were prescribed in para 6 which requires that demerged company i.e. assessee will reduce the book value of the respective assets and liabilities and business SPVs shall record the assets and liability of demerged undertaking at fair market value. Business SPVs will record the excess of assets over liability so recorded as general reserve which shall constitute free reserve available for all purposes by business SPVs at its discretion. To give the effect of these accounting entries, the assessee has obtained valuation report of various undertaking as on 02.11.2011 from M/s Kanti Karamsey Co, Mumbai. In respect of land of various undertakings valuation reports of the fixed assets and miscellaneous assets from Dr. Shankar Bhattacharya as on 31.03.2011. A Creation of general reserve in the books of SPVs is on account of valuation of Land held in various undertaking, which was held as inventory in the hands of the assessee as tabulated on page 22 of DRP reproduced as under : S. No. Name of the Company Land Area Value of Land in the bo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 9379.23 37473.20 General reserve to the extent of being difference of market value and book value ₹ 28,094 is created on account of determination of market value of land which was inventory in nature in the books of account of the assessee. ii) Amalgamation of Aamby Valley 'V' Venture Pvt. Ltd. into AVL (assessee) is governed by part III of the scheme. It may be mentioned that Aamby Valley 'V' Venture Pvt. Ltd. (AVVPL in short) was the holding company of all the SPV con1panies. Accounting treatment is given in para 15 of the scheme which states that investment in equity shares capital of the transferor (AVVPL) as appearing in the books of accounts shall stand cancelled and transferee company shall record the assets and liability pertaining to transferor company including its investment in Business SPVs at respective fair market value. To give effect these accounting treatments, the assessee has got valuation of SPVs which is basically land belonging to SPV vide valuation of M/s Kanti Karamsey and Co. as on 6.03.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration received by the assessee is nil at the time of transfer of inventory to its SPVs. Therefore, there is tax implication hidden in the scheme Secondly in the assessee's hand general reserve is created in range of ₹ 46999 crores on account of transfer of its inventory which are required to be taxed in the hands of the assessee, as per the provision of Income Tax Act. III. Issue of addition made by AO in draft assessment order and approved By DRP amounting ₹ 26917.67 crores u/s 56(2)(viia) i) Facts of addition: -As per part III of scheme of restructuring of the assessee i.e. amalgamation of AVVPL into assessee, the assessee has received share of 8 SPVs at market value as per clause 15.1.2 of the scheme held by AVVPL. At the time of amalgamation the assessee has received these shares without any consideration as per clause 14 of the scheme. Therefore, the assessing officer invoked section 56(2)(viia) to tax value of shares of SPV, companies after considering the reply of the assessee invoking rule 11UA after considering balance sheet of these SPVs as on 31.03.2012. The details of company wise FMV of share are reproduced as under which is tabulated in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was required to implement the section in proper perspective. Ld. AR relied on following Judicial pronouncement that the amendment in clause (vii) should be read retrospectively. i) CIT Vs. Vatika Township Pvt. Ltd. (2014) 367 ITR 466 (SC) ii) Allied Motors Pvt. Ltd. Vs CIT (1997) 224 ITR 677 iii) CIT Vs. Calcutta Expert Company (2018) 404 ITR 64 (SC) c) Ld. AR has relied on the following judicial pronouncements where transfer on account of amalgamation has not been held as transfer i) CITVs Texspin Engg. Mfg. works (2003) 129 Taxman 1 (Bom.) ii) Shaw Wallace Co. Ltd. (1979) 119 ITR 399 (Cal) iii) Forbes Forbes Campbell Company Ltd. (1984) 150 JTR 529. d) Ld. AR has finally argued that if at all the addition has to be made u/s 56(2)(viia), the same has to be done strictly as per rule 11UA which requires that the valuation of shares of SPV has to be done as per the balance sheet as on 31.03.2011. i.e. appointed date where the balance sheet of these SPVs were prepared as on 31.03.2011 without transfer of assets from the assessee company or without creation of the huge general reserve. iii) My submission on the issue of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56(2)(viia) is not transfer but receiving of shares. By virtue of proviso to said subsection as reproduced above, if such receiving of share is by way transaction as mentioned in clause (via) or (vic) or (vicb) or (vid) or (vii) of section 47, then the main provision will not apply. In view of the above position the arguments of Ld. AR that if as there is no transfer of shares, provision of section 56(2)(viia) will not apply, is not in accordance with provisions of law. b) Now the issue is whether clause (via) or (vic), or (vicb) or (vid) or (vii) of section 47 will apply. The Ld. AO Ld. DRP has examined the issue which is tabulated in page 26 27 of assessment order which is reproduced as under : Relevant Clause of section 47 Exclusion regarding Applicability in the case of the assessee (Via) Any transfer, in a scheme of amalgamation of a capital asset being a share or shares held in an Indian Company, by the amalgamating foreign company to the amalgamated FOREIGN COMPANY, if At least 25% of the share holders of the amalgamating foreign company continue to remain sharehold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amated company *Except where the share holder itself is the amalgamated company. The amalgamated company is an Indian Company This clause woud have been applicable in case the shares of AVVPL were transferred by AVL as AVVPL is the amalgamating company in the instant case. However, shares of business SPVs are being received by AVL which were held as investment by AVVPL hence this clause of also not applicable, since it does not contain any provision regarding indirect holding of shares. * added by finance Act, 2012 w.e.f. 01.04.2013 The only clause which even needs examination for applicability in assessee case is clause (vii), as this clause is applicable for amalgamation of Indian company. Other clauses are not even remotely connected. The provision of clause (vii) of section 47 is reproduced above in the said table. This clause would have applicable only if shares of amalgamating company i.e. AVVPL in present was transferred. This clause is attracted if there is transfer by a share holder in the scheme of amalgamation share of amalgamating company. In present case, AVVPL is the amalgamating company. Therefore for attracting the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot a composite scheme like present case when of share of SPVs are transferred to amalgamated company. SPVs are neither amalgamating nor amalgamated company. c) Now I will deal with various judicial pronouncement relied by Ld. AR for non applicant of sec 56(2)(viia) i) Texspin Engineering and manufacture works (2003) 129 taxmann 1 (Bombay) In that case the issue was taxing the difference in market value asset of firm and which was converted into a private Ltd. company treating it as a transfer u/s 2(47)(iii) and taxing under the head 'capital gain' . The transaction was treated as transfer by AO which was not approved by Hon'ble ITAT the view of ITAT was Confirmed by Hon'ble High Court. In para 6 of the order Hon'ble High Court has not treated it as a transfer in view of the fact that necessary condition for transfer i.e. existence of party counter party incoming consideration qua transfer is not satisfied. In present case the facts are entirely different, the taxing provision in sec 56(2)(viia) and not section 45 where the 'transfer' is the prime requisite for attracting capital gain. The requirement for attracting section 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) All the property, rights and Powers of the subsidiary companies would be transferred to the assessee as from the 1st January, 1966, and vest in the assessee, (b) All liabilities and debts of the subsidiary companies would as from the said date be transferred to and become the liabilities and debts of the assessee (c) The assessee being the beneficial owner of the entire issued share capital, there would be no issue of shares to the assessee. (d) The subsidiary companies would be dissolved without winding up. In the assessment year 1967.68, the assessee claimed a capital loss of Rs. on the ground that the loss had occurred on amalgamation of the subsidiary companies with the assessee. The ITO held that the claim was not admissible on account of s.47(vi) of the 1961 Act. On appeal, the AAC confirmed the order of the ITO and disallowed the assessee's claim. On further appeal to the Tribunal, the assessee contended that s. 47(vi) of the Act was not applicable inasmuch as the capital loss had occurred on the extinguishment of the rights of the assessee in the shares of the subsidiary companies as a result of the amalgamation, that the extinguishment of such rights was for a con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets of the subsidiary companies inasmuch as the assessee held 100 per cent. shares of the subsidiaries and there cannot be any element of gain or loss when the assessee rearranged its capital base, for, instead of keeping the capital in the name or in the control of its subsidiaries the assessee brought back the same under its direct control. Therefore, the Tribunal was right in rejecting the contention of the assessee that the loss representing the difference between the cost of the shares held by the assessee in the subsidiary companies and the net assets taken over by the assessee from the respective companies as a result of the scheme of amalgamation should be allowed as a capital loss. In present case, transfer as per provision of sec 2(47) need not be established as the income has not been taxed under the head 'Income from other sources' i.e. u/s 56(2) (viia). In sections 56(2)(viia), the word used is 'received' and not 'transfer'. The assessee has received shares of SPVs. This is uncontroverted fact. Hence, the above judicial pronouncement will not apply. iv) Forbes Forbes Campbell Company ltd. Vs. CIT (1984) 150 ITR 52a ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determination of valuation of shares is the valuation date. In present case, as discussed in earlier para, transfer of undertaking to SPVs and amalgamation of AVVPL in the assessee company as per part II part III of the scheme respectively are related to valuation of the undertaking. The assessee has submitted the valuation report as on 2.11.2011 8.3.2012 respectively. Therefore vesting and transfer of property cannot be assumed prior to 8.3.2012. The assessee, has not submitted the entries made in the books of accounts for transferring the property and resolution of the company to effect the restructuring through specifically asked by Hon'ble bench during the hearing . Therefore, just mentioning the appointed date in the composite scheme, the appointed date cannot be considered as date of transfer. Only evidence in support of affecting the scheme in the balance sheet of the assessee and SPVs as on 31.3.2012. Therefore, nearer date of receiving., the shares of SPVs company in the hands of assessee is 31.3.2012. In view of the-' above of facts, the assessing office has rightly considered the audited balance sheet of SPV companies as on 31.3.2012 for determining fair mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)ITAT Chennai, CIT Vs Stads Ltd. Madras High Court ITA No. 118 of 2015 CIT Vs. Shreya Investment P. Ltd. ITA No. 1485 of 2011 found not applicable on facts of the case. B) Ld. AR's main argument against the addition U/s 28(iv) of IT Act are as under:- a) Benefit must arise from business for attracting Section 28(iv). In present case he argued that reserve in the books of accounts is created only due to amalgamation. Hence it can't be said to arise from business. Ld. AR argued that reserve created on account of amalgamation is capital in nature can't be said to be created on account of business activity. He relied on the following judicial pronouncements:- i) Nerka Chemicals P. Ltd. Vs. DCIT ITA No. 4423/ Mum/2014, 4585/ Mum/2015 4850/ Mum/2016 ii) Spencer Co. Ltd. Vs. ACIT, Chemical, Madras ITAT 440/Mad/2011 iii) CIT Vs Stad Ltd., ITA No. 118 of2015 (Madras High Court) iv) Oman International. v) ITO Vs Shreyas Investment P. Ltd. , ITA No. 1485/Kol/2014, Kolkatta ITAT. b) The Ld AR argued that for attracting Section 28(iv) benefits should be akin to prerequisite. Such is not facts of the present case. He relied on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22 of DRP order). Therefore, reserve created at the time of demerger in the books of SPV companies was only on account of enhanced fair market value of land which was inventory in assessee's hand, and got transferred to SPV companies. All the SPV companies were wholly owned subsidiaries of AVVPL. As per Part III of the scheme, AVVPL got merged with the assessee. Here also asset liability of those SPV companies were entered in the book of account of assessee company at fair market value. Asset other than land was valued at Book value. The land held by the SPVs was valued at ₹ 47001 crores as on 06.03.2012. These land which were held by the assessee as inventory and transferred to these SPV companies. Enhanced fair market value of land is the basis of creation of general reserve at the time of amalgamation of AVVPL with the assessee company. Therefore, it is established that the general reserve created in the books of accounts of assessee is created on account of difference in fair market value book value of land held by the assessee company as inventory which were transferred to SPV in overall effect of the scheme. The difference in fair market value book value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions 143 and 147, of the Income-tax Act, 1961- Revision of orders prejudicial to interest of revenue - Assessment year 2002-03- whether income-escaping assessment order passed under section 143(3), read with section 147, is an assessment order passed by Assessing Officer; therefore, any issue, which Commissioner thinks that Assessing Officer has not considered in said assessment, can be brought to life by Commissioner in exercise of his powers under section 263 - Held, yes - Whether in such a case, revisional power of Commissioner cannot be denied on ground that issue considered in income-escaping assessment and issue proposed to be considered in revisional proceedings are different - Held, yes [In favour of revenue] Section 47, read with section 2(47), of the Income-tax Act, 1961 - Capital gains Transactions not amounting to transfer - Assessment year 2002-03 During relevant assessment year, a company namely, SIFL, got amalgamated with assessee company - Pursuant to amalgamation, assets and liabilities and rights and obligations of SIFL vested with assessee-company and those items had been recorded at their fair values - Excess of fair value of net assets taken over by asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 28(iv) under head Profits and gains of business or profession'- Held, no [Para 9} [In favour of assessee} The facts of this case is entirely different as in present case, the reserve is general reserve which is defined in the scheme which can be used for any purpose. Therefore it is not a capital reserve. The reserve represents benefit arising out of business activity. Therefore, this decision is not applicable. d). Rupee Finance Management P. Ltd Vs. ACIT (2009) 120 lTD539 (Mumbai). Ld. AR argued that u/s 28(iv), the word 'benefit' has to be interpreted in same manner as the word prerequisite relied on the above decision also circular explaining the provision of 28(iv) scheme this section was brought in statue in 1964. Hon'ble ITAT in the cited decision has considered the above circular has arrived at the conclusion in para 8.3 8.4 of the said decision, that for attracting section 28(iv) benefit or prerequisite should be in nature of income. The word benefit has to be interpreted in time same manner that is at the time of execution of business transaction one party should give to other party an irretrievable benefit or advantage, as an obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme of amalgamation, the details of the combined share capital of the four companies prior to the amalgamation and post-amalgamation was explicitly given.. Based on the same, the assessee claimed that the combined share capital of the four companies before amalgamation was ₹ 3,04,48,600/- and equity share capital of the company postamalgamation was ₹ 87,60,380/- and the difference was ₹ 2,16,88,220/-. The assessee showed the said difference under the category Reserves and Circulars in the balance sheet. Para 8). The Department took a view that it is a profit gains or profession, more particularly it is a value of benefit or perquisite arising from business or exercise of profession. But the Commissioner of Income Tax {Appeals) set aside the view of the department, which the Tribunal has confirmed by a one line order. Probably, that prompted the Revenue to pursue the matter before this court forcing us to right more explicitly and detailed order on the interpretation of section 28(iv), which Sri T. Ravikumar, learned standing counsel wants us to interpret in the present case. Para 9). The short point that arises for consideration in this appeal is w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auditor to examine the taxability of Income. Only reference was to examine books of accounts and give factual findings. Term of references are mentioned on page 58 59 of special audit report volume I (main volume). The special auditor was required in point no. 8 on page 59 to examine the issue of demerger and amalgamation thoroughly and give report on correctness of transfer of assets and liability and also as to whether valuation of the assets especially cost of land has been done correctly, as per the scheme approved by Hon'ble High Court of Bombay. Therefore such findings of special auditor on the non applicability of sec 28(iv) has no binding value. However, it is necessary to examine judicial pronouncement relied by special auditor to arrive at such conclusions. Special auditors have relied in following decisions to arrive such conclusion. ( i) Income Tax Officer v/s M/s Kyal Developers Pvt. Ltd. ITA No. 6298/Kol/2012, ITAT (Kol.) ( ii) Spencer Company Ltd. Vs ACIT (ITA No.440/Mds.2011) !TAT, Chennai (iii)CIT.V/s STADS Ltd Madras AC- March 2015- Tax case (Appeal) No. 118 of 2015. The decision in the case of Spencer Company Ltd STADS Ltd ci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has above becomes the income of the assessee in its hand. That question no more remains res Integra. The Supreme Court in the case of CIT vis. T. V. Sundaramb {engar and Sons Ltd. [19961222 ITR 344 has concluded this question as also the claim of the assessee that these amounts which were in the nature of deposits or credits did not change !heir character and could not be said to be an income in the hands of the assessee. The Supreme Court, by majority, has answered the question that such amounts after they were treated to be profits, as has happened in this case, changed character and therefore could be held to be income particularly because the assessee had become richer by reason of such amount having been treated as a profit and further having been transferred to the general reserve. The apex court came to the following conclusion (head note):that if a common sense view of the matter were taken, the assessee, because of the trading operation, had become richer by the amount which it transferred to its profit and loss account. The moneys had arisen out of ordinary trading transactions. Although the amounts received originally were not of income nature, the amounts remained wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company is nothing but accumulated profit of the assessee company in it inventory of which was transferred. Therefore, the same arises on account of business of the assessee. iii) The creation of general reserve is therefore a benefit arising from business which is not in cash as receipt is of shares of SPV companies at market value. iv) The general reserve can't be said as capital reserve as the source of the creation of reserve in transfer of its inventory where profit was in built which came on surface because of its valuation at market rate. Additional ground on MAT. The assessee has raised additional grounds for non applicability of the provisions of MAT u/s 115JB of I.T. Act on account of addition of general reserve created during the year. Additions made under MAT:- i) Hon'ble DRP in para 6.11 has treated general reserve created in to assessee's books of account for the purpose of MAT on the ground only because a receipt is not passed through Profit Loss account through revenue in nature does not escape from the application of MAT. Ld. DRP has relied on following judicial pronouncement for taxing general reserves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ond Co Ltd. Murnbai v/s DCIT ITA NO 7488/M/107 in para 14 plea was taken that decision of Apollo tyres is not applicable Hon'ble ITAT therefore after considering the decision of Apollo tyres has given the decision that if P L is not prepared as per part II of the Schedule VI of companies act the adjustment for creating of general resources is permissible. 99.1. The Ld. D.R. apart from filing the above written submissions also relied upon draft assessment order. He has also submitted that SPVs did not do any business earlier. Application for Amalgamation was made for the period retrospectively to which Income-tax Department was not informed of the Scheme. There is no Valuation Report of the assets as on 31.03.2011. In case of amalgamation, Valuation Report should be there to each other transaction. The difference in fair market value and actual value is taxable which is not capital reserve. It is revenue reserve. The assets were transferred after appointed date. No details of fair market value of appointed have been filed. The report dated 31.03.2012 on market value of fixed assets dated 31.03.2011 was filed from Dr. Sarkar Bhattacharya. There is a huge difference in valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reason or occasion for the assessee to feel aggrieved by the order of the Tribunal . 99.4. The Ld. D.R. referred to the decision of Hon ble Delhi High Court in the case of Rollatainers Ltd., vs. CIT (2011) 333 ITR 54 (Del.) in which it was held as under : BUSINESS INCOME - REMISSION OR CESSATION OF TRADING LIABILITY-WAIVER OF LOAN TAKEN FOR PURCHASE OF CAPITAL ASSET-NOT IN REVENUE FIELD - LOAN WRITTEN OFF IN CASH CREDIT ACCOUNT - TAXABLE INCOME - INCOME-TAX ACT, 1961, s.41(1). 99.5. The Ld. D.R. referred to the decision of Hon ble Delhi High Court in the case of SREI Infrastructure Finance Ltd., vs. Income-tax Settlement Commission (2012) 251 CTR 129 (Del.) in which it was held as under : When a scheme under sections 391 to 394 of Companies Act, 1956 is sanctioned by Court, it is treated as a binding statutory scheme because scheme has to be implemented and enforced but this cannot be a ground to escape tax on 'transfer' of a capital asset as per provisions of Act. 100. We have considered the rival submissions made by the parties orally as well as in the written submissions and have perused the material available on record. The Facts as n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Real Estate Apartments Undertaking, Golf Course Undertaking, Airport Undertaking. Adventure Sports Undertaking, Retail Undertaking, Entertainment Undertaking. Hospitality Undertaking and Land Holding Undertaking of the Demerged Company shall stand transferred to and vested in or deemed to be transferred to and vested in Real Estate Hold Co SPV. Real Estate Villas SPV, Real Estate Canals SPV, Real Estate Apartments SPV, Golf Course SPV. Airport -SPV, Adventure Sports SPV, Retail SPV. Entertainment SPV, Hospitality SPV and Land Holding SPV respectively as a going concern in the following manner : 4.1.1. In respect of all the movable assets of the Demerged Company, comprised in the respective Business Undertakings and the assets which are otherwise capable of transfer by physical delivery or novation or endorsement and delivery, including cash on hand, shall be so transferred to respective Business SPVs and deemed to have been physically handed over by physical delivery or novation or by endorsement and delivery, as the case may be, to respective Business SPVs to the end and intent that the property and benefit therein passes .to respective Business SPVs with effect from the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obtain the consent of any third party or other person who is a party to any contract or arrangement by virtue of which such debts, liabilities, contingent liabilities, duties and obligations have arisen in order to give effect to the provisions of this sub-clause. 4.1.5. The transferor and vesting of Demerged Undertakings as aforesaid shall be subject to the existing securities, charges, mortgages and other encumbrances if any, subsisting over or in respect of the property and assets or any part thereof refutable to Business Undertakings to the extent such securities, charges, mortgages, encumbrances are created to secure the liabilities forming part of the Business Undertakings, 5. CONSIDERATION 5.1. The Business SPVs are indirect wholly owned subsidiaries of the Demerged Company. The Scheme is intended to restructure within the group of companies controlled by the Demerged Company, the holding of the Demerged undertakings in a more efficient manner with due regard to project specific risks and consistent with the diverse needs of business and does not involve any movement of assets or liabilities to any company outside the group controlled by the Demerged Compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther act or deed, be transferred to or be deemed to lie transferred to Transferee Company, so as to become from the Appointed Date the debts, liabilities, contingent liabilities, duties and obligations of Transferee Company and it shall not be necessary to. obtain the consent of any third party or other person who is a party to any contract or arrangement by virtue of which such debts, liabilities, contingent liabilities, duties and obligations have arisen In order to give effect to the provisions of this sub-clause. 13.3. With effect, from the Appointed Date and upon the Scheme becoming effective any statutory licenses, permissions or approvals or consents held by Transferor Company required to carry on operations of Transferor Company shall stand vested in or transferred to Transferee Company without any further act or deed, and shall be appropriately mutated by the statutory authorities concerned therewith in favour of Transferee Company and the benefit of all statutory and regulatory permissions, environmental approvals and consents, registration or other licenses, consents, certificates, authorities (including for the operation of Sank accounts), power of attorneys giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty new business, nor alienate, charge, mortgage, encumber or otherwise deal with (he assets or any part thereof except in the ordinary course-of business without The prior written consent of the Board of Directors of Transferee Company or pursuant to any preexisting obligation undertaken prior to the date of acceptance of the Scheme. 16.1.2. Transferee Company shall be entitled, pending the sanction of the Scheme, to apply to the Central/State Government(s) and all other agencies,- departments and authorities concerned as are necessary under any Law for such consents, approvals and sanctions which Transferee Company, may require to carry or the business of Transferor Company. 17. CONTRACTS, DEEDS AND OTHER INSTRUMENTS. 17.1. Subject to the other provisions contained In this Scheme, alt contracts, deeds, bonds, agreements and other Instruments of whatever nature to which, any of Transferor Company is a party subsisting or having effect immediately before the Scheme coming into effect shall be in full force and effect against or in favour of Transferee Company, and may be enforced as If, instead of Transferor Company, Transferee Company had been a party thereto. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court Dated 20th January 2012 is effective from 20th March 2012 as the assessee-company has filed Form No.21 before Registrar of Companies on 20th March 2012, but operative from the appointed date i.e., 31st March 2011. Honorable Bombay High Court had not modified the appointed date and found the above Scheme of Arrangement and Amalgamation to be fair and reasonable as it did not violate any provisions of law and was also not contrary to public policy. The assessee recorded the entries in the books of account as per Judgment of the Honorable Bombay High Court. The assessee did not offer any income in its return of income as according to the assessee there is no income or gain arising out of the said Composite Scheme of Arrangement and Amalgamation. The A.O. however, did not accept the contention of assessee and made the addition under section 56(2)(viia) of the Income Tax Act, 1961. The value of the shares were determined in accordance with Rule 11UA of the I.T. Rules by taking the fair market value as on 31st March 2012 ignoring the fact that the Scheme was operative from the closing business hours of 31st March 2011. The A.O. for the purpose of determining the value of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appointed date 31st March 2011 is not relevant. In the background of these facts and submissions of both the parties, the question would be, whether the transfer of the undertaking and the assets to the various SPVs have taken place during the assessment year under appeal or preceding A.Y. 2011-12 as per the Composite Scheme of Arrangement and Amalgamation entered into among the assessee as well as various SPVs. In this case, the transfer of undertakings as well as amalgamation has taken place on 31st March 2011. Therefore, there is no question of making the addition on account of transaction arising during the assessment year under appeal. No addition, therefore, could be made in assessment year under appeal. In this case, the Composite Scheme of Arrangement and Amalgamation have been approved by the Honorable Bombay High Court without modifying or amending any terms and conditions of the Scheme as referred to above. This Scheme is divided into 04 Parts [PB-120(c)]. Part-1 of the Scheme deals with definition, date of taking effect and share capital. Part-II deals with transfer of business, undertakings of AVL into business SPVs. Part-III deals with amalgamation of AVV Venture Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent that Scheme shall be operative from the effective date but shall be effective from the appointed date. In view of this, we are of the view that the Scheme has to take effect from the appointed date i.e., from the closing hours of business as on 31st March 2011 as defined in the Scheme. As per the various Clauses of the Scheme referred to above, it is clear that the transfer and vesting of the whole of the undertakings and properties of AVVL including the investment in business SPVs takes place under the Scheme as per the Judgment of the Honorable Bombay High Court on the appointed date. As per the sanctioned Scheme, the transfer took place without any further act, deed, matter or things stands transferred. No basis have been shown by the Ld. D.R. to fix the date of vesting of the properties as per the Scheme on 1st April 2011. Nothing is brought on record by the Ld. D.R. as to how 1st April 2011 shall be the appointed date despite appointed date have been defined in the Judgment of the Bombay High Court as 31st March 2011. The Honorable Supreme Court in the case of Union of India versus Amrit Lal (2004) 3-SCC-75 held that Judges interpret statutes, they do not interpret judgme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ointed date till the Scheme become effective, the transferor-company shall carry on its business activities in trust for the transferee-company. It clearly provides that the transferor-company carrying on business and holding the assets on behalf of the transferee-company from the date of the Composite Scheme till it is approved by the Honorable Bombay High Court and certified copies filed with the Registrar of Companies. Therefore, there may be difference in properties of various undertakings, the land on the appointed date as well as on the date when Scheme came into operation after the same was approved by the Bombay High Court, as during this period transferor-company might have acquired the land, but that will naturally be held as trustee on behalf of the transferee-company. We also do not agree with the contention of the Ld. D.R. that immovable properties will not vest in SPVs until and unless valuation report are procured and necessary book entries in this regard are made in the books of account. Determination of the fair market value of the assets of the demerged undertaking as well as recording of the entries in respect of the transfer and vesting of the assets in the SPVs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the Assessee also relied upon Judgment of the Honourable Supreme Court in the case of Marshall Sons and Company (India) Ltd., vs. ITO (supra) which is also applicable to the present case. The appointed date as defined in the Scheme means closing hours of business on 31st March 2011. However, the closing hours of the business has not been defined in the Scheme. Generally, closing hours of the business would mean the time when business closes or up-to what time a business enterprise carrying on business. Learned Counsel for the Assessee referred to the dictionary meaning as well as referred to the Judgment of the Supreme Court of Ireland (supra), according to which, the closing hours of business, in any case, has to be before the closing hours of the day. We, therefore, hold that the closing hours of the business means before closing hours of the day of 31st March 2011 which can never be extended up to 1st April 2011. In view of the above discussion, we hold that transaction of Composite Scheme of Arrangement and Amalgamation takes place in previous year relevant to the A.Y. 2011-12 and no transaction took place in previous year relevant to assessment year under appeal i.e., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 1,73,817. The question was whether this amount was a revenue receipt: Held, on the facts, that the appreciation of the money did not arise in the course of any trading operation. Assuming that the amount of ₹ 3,97,221 was originally stock-in-trade, when it was blocked and sterilised and the bank was unable to deal with that amount, it ceased to be its stock-in-trade and the increase in its value owing to exchange fluctuation was a capital receipt. If by virtue of exchange operations profits are made during the course of business and in connection with business transactions, the excess receipts on account of conversion of one currency into another would be revenue receipts. But if the profit by exchange operations comes in, not by way of business of the assessee, the profit would be capital. Held also, that as the statements of case were agreed to by the parties, and the Commissioner did not challenge in the High Court the finding that the monies were lying idle in the Karachi branch of the bank, and further conceded before the High Court that there was no evidence that the blocked balance was in fact employed by the Karachi branch for internal banking operations in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m other than the money; (iii) It may be convertible into income or not; (iv) It must arise from business or exercise of a profession carried on by the recipient; (v) it must be in the nature of revenue; 104. The ITAT, Mumbai bench in the case of Rupee Finance Management (P) Ltd., vs. ACIT (2009) 120 ITD 539 explained the scope of Section 28(iv) of the Income Tax Act in para 8.5 of the Order which reads as under : 8.5. Applying these propositions to the case on hand, the purchase of shares at a particular price which is below the market price as an investment is not income by any stretch of imagination. It cannot also be deemed as income under s. 28(iv) as it is neither benefit nor perquisite that has arisen to the assessee from the business or in the exercise of a profession. The Hon ble Gujarat High Court in the case of CIT vs. Bhavnagar Bone Fertiliser Co. Ltd. (1987) 59 CTR (Guj) 116 : (1987) 166 ITR 316 (Guj) has upheld the Tribunal s finding that there must be a nexus between the business of the assessee and the benefit which the assessee has derived for the purpose of attracting provisions of s. 28(iv). At p. 320 it has observed as follows : After refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that it is incorrect to suggest that the assessee has not become richer by its composite scheme. The assessee s income was accumulated in the form of inventory i.e., land transferred to SPVs as the same is basically difference between the fair market value and the book value. The reserve created in the books of account of assessee is basically in lieu of transfer of inventory. Reserve as per the terms of the Scheme is free reserve which can be used for any purpose as per the Scheme. Ld. D.R, therefore, contented that assessee has become richer to the extent of increase in reserve. It may be clarified that the inventory has been transferred to SPVs with valuation of SPVs worth ₹ 47,001 Crores which is basically reserve in the books of the assessee. The assessee has transferred its inventory to SPVs which are separate legal entities. Therefore, even though those SPVs are group concerns but the same is different legal entity. Hence the legal transfer of inventory at market value in excess of book value is a gain in assessee s hands, arising out of the business. 107. The question before the Tribunal is that whether the net increase in the general reserve of the assessee ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . D.R, thus, cannot be accepted that for applicability of provisions of Section 28(iv), it is not necessary that the benefit or perquisite must arise from the business or the exercise of profession carried on by the recipient. The ITAT, Kolkata Bench in the case of ITO vs Shreyans Investments Private Limited 141 ITD 672 (Kolkata-Tribunal) relying on the decision of the Honorable Bombay High Court in the case of Mahindra and Mahindra 261 ITR 501 (Bom.) had taken a view that reserve arising out of amalgamation cannot be treated as income under section 28(iv) of the Income-Tax Act, 1961. The decision of the Honourable Bombay High Court in the case of Mahindra and Mahindra (supra), has been upheld by the Honorable Supreme Court reported in 404 ITR 1. Learned Counsel for the Assessee also relied upon decision of the Chennai Bench of the Tribunal in the case of Spencers and Company Limited vs., ACIT 137 ITD 141 (T.M.) (Madras-Tribunal). In this case, the surplus arising out of the amalgamation was transferred to a general reserve which were treated by the Assessing officer as an income chargeable to tax under section 28(iv) of the Income Tax Act, 1961. When the matter went to Third Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies except that assessee is in the business, therefore, the benefit cannot be said to be arisen from any activity other than the business. We do not agree with the submission of the Ld. D.R. In our view, the net increase in the general reserve of the assessee-company is neither a benefit nor a perquisite nor it is arisen out of carrying on of the business or profession by the assessee. The transaction of Composite Scheme of Arrangement and Amalgamation cannot be regarded to be the one carried into during the course of carrying on the business. We, therefore, hold that provisions of Section 28(iv) is not applicable to the facts and circumstances of the case. We, accordingly, set-aside the orders of the authorities below and delete the addition of ₹ 46,999.38 crores made under section 28(iv) of the Income Tax Act. 108. The next issue is regarding applicability of provisions of Section 56(2)(viia) of the Income Tax Act, 1961. The A.O. took the view that in consequence of Composite Scheme of Arrangement and Amalgamation the assessee received the shares of SPVs without adequate consideration and, therefore, said Section is applicable on transfer of shares. In the present case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance Act 2004 reads as under : In order to curb bogus capital building and money lending, a new sub-section has been inserted in Section 56 to provide that any sum received without consideration on or after First day of September 2004, by an individual or HUF from any person shall be treated as income from other sources. A threshold limit of 25000 rupees is also provided. If the amount so received exceeds this limit, the whole of the amount shall become taxable. 108.2. From its explanatory note, it is apparent that these provisions were brought into the statute to curb bogus capital building and money laundering. When the clause- (viia) was inserted in Section 56(2), the Memorandum explaining this provision of Finance Bill 2010 (supra), states In order to prevent the practice of transferring unlisted shares at prices much below their market value, it is proposed to amend Section 56(2) 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 recipient is a Firm or a Company . Section-2(18) provides the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous SPVs. Even no such evidence was brought on record. Therefore, in this view of the matter, the provisions of Section 56(2)(viia) would not apply to this case. It may also be noted here that Section 56(2)(viia) excludes the transaction of business reorganisation and amalgamation which are not regarded as transfer under various subclauses of Section 47 of the Income Tax Act including subsection (vii) of Section 47 of the Income Tax Act. The assessee stated that it has received the shares in consequence of the amalgamation and, therefore, the case would fall within the exception provided under section 47(vii) of the Income Tax Act, 1961. This Section provides any transfer by a shareholder in scheme of amalgamation, of a Capital Asset being a share or shares in the amalgamating company, if (a) the transfer is made in consideration of the allotment to him of any share or shares in the amalgamated company except where the shareholder itself is the amalgamated company and (b) the amalgamated company is an Indian Company . 108.3. The word in the aforesaid Section except where the shareholder itself is the amalgamated company , has been inserted in Section 47(vii) by Finance Act 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Section 47(vii) clearly states that provisions of Section 47(vii) could not have applied where in case of amalgamation, amalgamated company hold all the shares of amalgamating company . This clearly denotes that in such situation existing provisions of Section 47(vii) was unworkable and unintended consequences has arisen and the amendment has been made obviously to provide the remedy to remove the defect. We are, therefore, of the view that the above provisions are retrospective in nature and it is clarificatory in nature only. We do not agree with submission of the Ld. D.R. that it is not a case of amalgamation of AVVPL into the assessee-company. No doubt in view of the para-II of the Composite Scheme of Arrangement and Amalgamation, various undertakings will first vest in various SVPs, but, subsequently due to the applicability of Para-III of the Scheme, the holding Company of all the SVPs i.e., AVVPL got amalgamated into the assessee-company and all the assets and liabilities of the amalgamating company, immediately before the amalgamation becomes the property and liability of the assessee-company by virtue of the amalgamation and due to the simultaneously retrospective amen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the dispute relates to balance-sheet of which date has to be considered for determining the fair market value of the assets under this Rule. 111. The Revenue has taken the value as per balance sheet as on 31st March 2012, as according to the Revenue, the assessee has incorporated the entries effecting the Scheme in the balance sheet of the assessee and SPV Companies in the balance sheet as on 31st March 2012. 112. Learned Counsel for the Assessee, however, contended that balance sheet as on 31st March 2011 has to be considered as per the rules. The valuation date has been defined to be the date on which property has been received by the assessee. As per the Composite Scheme, the assessee has received the property as on 31st March 2011, therefore, the balance sheet as on 31st March 2011 has to be considered. The appointed date as fixed by the Honourable High Court is also the closing hours of the business on 31st March 2011 , therefore, in our view, the balance sheet as on 31st March 2011 has to be considered for the purpose of determining the value of the property under Rule-11UA of the I.T. Rules. This issue is decided in favour of the assessee by holding that no additio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt previous year in accordance with the provisions of Parts II and III of Schedule VI to the Companies Act, 1956 (1 of 1956) :] Provided that while preparing the annual accounts including profit and loss account,- ( i) the accounting policies; ( ii) the accounting standards adopted for preparing such accounts including profit and loss account; ( iii) the method and rates adopted for calculating the depreciation, shall be the same as have been adopted for the purpose of preparing such accounts including profit and loss account and laid before the company at its annual general meeting in accordance with the provisions of section 210 of the Companies Act, 1956 (1 of 1956) : Provided further that where the company has adopted or adopts the financial year under the Companies Act, 1956 (1 of 1956), which is different from the previous year under this Act,- ( i) the accounting policies; ( ii) the accounting standards adopted for preparing such accounts including profit and loss account; ( iii) the method and rates adopted for calculating the depreciation, shall correspond to the accounting policies, accounting standards and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f)] or [***] section 11 or section 12 apply, if any such amount is credited to the profit and loss account; or [( iia) the amount of depreciation debited to the profit and loss account (excluding the depreciation on account of revaluation of assets); or ( iib) the amount withdrawn from revaluation reserve and credited to the profit and loss account, to the extent it does not exceed the amount of depreciation on account of revaluation of assets referred to in clause (iia); or] ( iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account. Explanation.-For the purposes of this clause,- ( a) the loss shall not include depreciation; ( b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil; or] ( iv) to (vi) [***] ( vii) the amount of profits of sick industrial company for the assessment year commencing on and from the assessment year relevant to the previous year in which the said company has become a sick industrial company under sub-section (1) of section 17 of the Sick Industrial Companies (Special Provisions) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtifying that the book profit has been computed in accordance with the provisions of this section along with the return of income filed under sub-section (1) of section 139 or along with the return of income furnished in response to a notice under clause (i) of sub-section (1) of section 142. ( 5) Save as otherwise provided in this section, all other provisions of this Act shall apply to every assessee, being a company, mentioned in this section.] [( 5A) The provisions of this section shall not apply to any income accruing or arising to a company from life insurance business referred to in section 115B.] [( 6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be:] [ Provided that the provisions of this sub-section shall cease to have effect in respect of any previous year relevant to the assessment year commencing on or after the 1st day of April, 2012.] 115. From the above provisions, it is apparent that book profit has to be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be added to the profit for the purpose of computing the book profit. This is an undisputed fact that net reserve in the general reserve for which the addition was made amounting to ₹ 46,999.87 crores has not been debited to the profit and loss account, though, we have already deleted the addition and the additional ground has become infructuous at this stage, but, we may note that this question has been answered in favour of the assessee by the Judgment of the Honorable Supreme Court in the case of Apollo Tyres vs., CIT 255 ITR 373 (SC) in which it was held that Assessing Officer does not have the jurisdiction to go behind the net profit shown in the profit and loss account except to the extent provided under Explanation to 115JA of the I.T. Act, 1961. The Honorable Bombay High Court in the case of CIT vs. Adbhut Trading Company Private Limited 338 ITR 94 while interpreting the meaning of book profit for the purpose of section 115JB following the decision of the Honorable Supreme Court in the case of Apollo Tyres Limited (supra), held that once accounts including profit and loss account are certified by the authorities under the Companies Act, it is not open to the Assessi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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