TMI Blog2019 (3) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Act, there is requirement to issue notice under section 143(2) of the Income Tax Act . Learned Counsel for the Assessee did not dispute this legal proposition. It may also be added here that the assessee in response to notice under section 153A dated 28th December 2012, filed the return of income on 21st March 2013 and A.O. issued notice under section 143(2) and 142(1) on dated 22nd May, 2013. In response thereto, the assessee and their Counsel appeared before assessing officer. Therefore, notice under section 143(2) have been issued and served upon assessee within the period of limitation, though, it was not required as per the above Judgment. - Ground of assessee dismissed Validity of assessment in absence of proper sanction as required u/s 153D - Assessee voluminous reply filed on 29th January 2014 - AO written a letter to the Addl. CIT, Chandigarh on 30th January 2014 with draft assessment order for his consideration and approval - The AO is stationed at Faridabad and the Addl. CIT is stationed at Chandigarh - The Addl. CIT, Chandigarh granted approval u 153D on 31st January 2014 Addl. CIT, Chandigarh did not mention in the approval, if he has gone through the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Main Agreement - full value of consideration cannot be construed as the market value, but, as the price bargained for by the parties to the Sale. - HELD THAT:- It is not in dispute that the assessee was owner of the impugned shares of M/s. R.S. Infrastructure Pvt. Ltd. The assessee agreed to sell the shares to M/s. Lowe Realty Pvt. Ltd., for a consideration of ₹ 526 crores through the initial Agreement, but, later on its conditions were amended through Addendum to the Agreement and total consideration was reduced to ₹ 520 crores. The observations of the authorities below had been that such consideration could not be changed. Section 62 of the Indian Contract Act, 1872 provides effect of novation recession and alteration of contract If the parties to contract - - agree to substitute a new contract for it, or to rescind or alter it, the original contract need not be performed. The above Section of Contract Act approves the action of the assessee and the purchaser in altering the terms of the contract. The assessee has executed fresh agreement in the nature of Addendum to the Main Agreement, through which, the consideration was reduced from ₹ 526 crores to & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shri Rohit Jain, And Shri Bharath Janartharan Advocates. For Revenue: Smt. Paramita Tripathi, CIT-D.R. ORDER PER BHAVNESH SAINI, J.M. This appeal by assessee has been directed against the order of Learned CIT(A)-3, Gurgaon, Dated 10th March, 2018, for the assessment year 2012-2013, on the following grounds : 1.0. That on the facts and circumstances of the case and in law, the CIT(A) erred in upholding the validity of the assessment order dated 31.01.2014 framed under section 153B(l)(b) of the Income-tax Act, 1961 ( the Act ), without appreciating that the same is without jurisdiction, illegal and bad in law. 1.1. That the CIT(A) erred on facts and in law in not appreciating that since no search was conducted in the case of the appellant, the assessment completed under section 153B(l)(b) of the Act, is without jurisdiction, illegal and bad in law. 1.2. That the CIT(A) erred on facts and in law in not appreciating that the assessment having been completed without issuance and service of valid notice under section 143(2) of the Act, is illegal and bad in law. 1.3. That the CIT(A) erred on facts and in law in not appreciating that since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll 8,00,000 shares of M/s. R.S. Infrastructure Pvt. Ltd.,, a concern of M3M Group, for a total consideration of ₹ 526 crores. The assessee is a partnership firm, having Shri Basant Bansal, Shri Roop Bansal, Smt. Abha Bansal, Shri Pankaj Bansal and M/s. RSSG Builders Pvt. Ltd., as partners. The said firm was having 7,99,000 shares of another Group Company M/s. R.S. Infrastructure Pvt. Ltd., was having about 18 acres of land in Golf Course Extension Road, Gurgaon with Commercial CLU. 3.1. During the course of search and seizure action at Corporate Office of M/s. M3M India Limited at Gurgaon on 30th June, 2011, papers regarding some high value RTGS transactions were found and seized. The papers seized from pages 75, 76, 83, 85, 86 and 87 of Annexure-A12. Page-75 show remittance of ₹ 58.5 crores from assessee firm to Smt. Abha Bansal. Page-76 shows the remittance of ₹ 58.5 crores from the assessee firm to Shri Pankaj Bansal. Page- 83 shows cheque of ₹ 239 crore for RTGS withdrawal. Page-85 shows remittance of ₹ 61 crores from assessee to Shri Basant Bansal. Page-86 shows remittance of ₹ 61 crore from assessee to Shri Roop Kumar Bansal. Page-87 sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve been signed by Shri Suresh Chawla, V.P. Taxation of M/s. M3M Group. There is a handwritten entry in the trial balance dated 25th June, 2011 which says out of 8 lakh shares transferred 4,88,000 . The Advance Received column shows a figure of ₹ 243.99 crores where a handwritten entry mentions the word Lowe . There is a further handwritten entry below the table, which says, After advance received from Lowe Reality . Further, during the course of search on 25th July, 2011, a copy of Bank Statement of assessee i.e., M/s. M3M India Holdings with Kotak Mahindra Bank was found, which was seized as page-11 of Annexure-AA1. It shows deposit of ₹ 243.99 crores, against which, advance for shares transferred is mentioned. The scanned image of this bank statement is reproduced in the assessment order. 3.2. On perusal of the financial statements of M/s. R.S. Infrastructure Pvt. Ltd., it was seen that the company was involved in business of land trading. A comparison of its financial particulars is reproduced in the assessment order. It was further seen that as on 31st March, 2010, there were 8 lakh issued shares, out of which, M/s. Krishna Flexi Solutions (now the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 3.4. The copy of the share purchase agreement amongst Assessee (Promoters), M/s. R.S. Infrastructure Pvt. Ltd., (Company) and M/s. Lowe Realty Pvt. Ltd., (Party) furnished by the assessee, forms pages 12-32 of Annexure- AA1 seized from the O/o. M3M Group at Sushant Lok, Gurgaon on 25th July, 2011. As on the date of agreement i.e., 22nd June, 2011, assessee was owner of 7,99,999 shares of the company M/s. R.S. Infrastructure Pvt. Ltd. As per this agreement, M/s. Lowe Realty Pvt. Ltd.,, agreed to purchase from assessee and assessee agreed to sell and transfer to M/s. Lowe Realty Pvt. Ltd., 100% of its equity shares held in M/s. R.S. Infrastructure Pvt. Ltd., on the terms and conditions as per the agreement. In consideration of the sale and transfer of 7,99,999 shares to M/s. Lowe Realty Pvt. Ltd., would pay to the Promoter i.e., assessee, an amount of ₹ 6575/- per equity share, as purchase price aggregating to ₹ 526 crores. Further, as per the agreement, the purchase consideration was to be paid by M/s. Lowe Realty Pvt. Ltd., to the assessee in two installments. It was stipulated that M/s. Lowe Realty Pvt. Ltd., would pay to the assessee, an amount of ₹ 244 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng officer, therefore, noted that in this case the total sale consideration for 4,88,000 shares works to ₹ 320.86 crores, out of which, ₹ 244 crores has been received. Therefore, as per the provisions of the Act, amount of ₹ 320.86 crores is in the nature of full sale consideration for taxability on transfer of shares. Shri Roop Kumar Bansal was confronted on this issue, who after consulting his Financial Experts, (V.P. Finance and Head Taxation) and other Partners, admitted that capital gain on the above transaction is to be computed by taking 320.86 crores as full sale value. His statement is noted in the assessment order. The Assessing Officer also noted that as per share purchase agreement, the closing date is defined i.e., within a period of 90 days from the Agreement date or any other date, as may be extended by M/s. Lowe Realty Pvt. Ltd.,, at its sole discretion. The transfer of 3,11,999 number of remaining shares shall take place simultaneously on receiving of cheques for remaining consideration. The Assessing Officer, therefore, noted that transfer of 4,88,000 shares constitutes a complete transfer for sale, on which, capital gain arise. Shri Roop Kumar B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reality Pvt. Ltd. 3.7. The assessing officer, thereafter, discussed the issue of short term capital loss. The Assessing Officer noted that assessee has shown short term capital loss amounting to ₹ 155.75 crores [ i.e., cost of acquisition at ₹ 175.25 crores (-) Sale Consideration received of ₹ 19.50 crores ]. Thus, the short term capital loss was declared to ₹ 155.75 crores. The Assessing Officer asked for the details on the same. However, no details were provided by the assessee. The assessing officer, therefore, issued show cause notice to the assessee as to why the short term capital loss, be not treated as non-genuine, in the absence of supporting details /evidences. The assessee filed reply before assessing officer, in which, the assessee briefly submitted that in assessment year under appeal in the month of September/October, 2011, 05 companies [referred to as Seller] approached the assessee-firm with a business proposition, whereby they were agreeable to sell Compulsory Convertible Debentures [CCDs ] of a Private Limited Company to the Assessee-Firm and the offer was to sell CCDs at the price at which they were bought these debentures during financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , [ Arch ] for registration of CCDs in Debenture Register of M/s. Arch. However, M/s. Arch vide letter dated 16th December, 2011 refused the request of the assessee firm and stated that CCDs cannot be a transfer in the name of the firm due to non-compliance of DSA. The letter of M/s. Arch was also filed before assessing officer along with complete details. The assessing officer asked the assessee to produce books of account. The assessing officer noted that the books of account and other details were not produced before him. The assessee filed further reply before assessing officer, in which, similar facts were explained. The assessee further explained that when M/s. Arch refused to register CCDs in the name of assessee firm due to non compliance of DSA, the assessee firm took-up the matter with the Seller. However, no assistance was accorded by them on this issue. As per condition of DSA, any dispute between the parties of the said Agreement, should be decided by the Arbitrator as per Arbitration and Conciliation Act, 1996. The assessee firm invoked the Dispute Resolution Clause of DSA and asked M/s. Arch to appoint Arbitrator to resolve the matter. The arbitration proceedings wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situation. Thus, to reduce this risk, the above Partners of the Firm were interested in acquiring the CCD s in consideration. 3.9. The assessing officer noted that the explanation given by the assessee for purchase of Debentures of M/s. Prithvi Realcon Pvt. Ltd., [now M/s. Arch Propbuild Pvt. Ltd.] is that in Financial Years 2009-2010 and 2010-2011 M/s. Popular Infracon Pvt. Ltd., [Now known as M/s. M3M India Holdings Pvt. Ltd., (-) Assessee] which is a Holding Company of M/s. M3M India Limited, of which, the partners of the assessee firm are promoters, received advances against subscription of debentures of the company M/s. Arch for the above consideration. M/s. Arch received the consideration from the above 05 parties (Seller). The assessing officer on perusal of the balance sheet and ITR of M/s. Arch noticed that Company is not doing any business and does not have any income and the only asset is the advance of ₹ 175 crores received as advance for subscription of debentures as given in the chart reproduced at pages 30 and 31 of the assessment order. The assessing officer on the basis of the reply filed, has conducted enquiries in order to verify the genuineness of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Chandigarh communicated by letter dated 31st January 2014 in accordance with section 153D of the Income Tax Act, 1961. 4. The assessee challenged the assessment order on legal as well as factual grounds before Ld. CIT(A). However, appeal of assessee has been dismissed on the same reasoning as given by the assessing officer. The assessee is, thus, in appeal before the Tribunal on the following Grounds reproduced above. 5. We have heard the Learned Representatives of both the parties and perused the material available on record. The Grounds of Appeal are decided as under. Ground Nos.1.0 and 1.1: 6. Learned Counsel for the Assessee submitted that no search under section 132 of the Income Tax Act was conducted in the case of the assessee and no panchanama have been drawn. Therefore no assessment order could be passed under section 153B(1)(b) of the Income Tax Act. The assessing officer has no jurisdiction to pass the order. 7. The Learned Departmental Representative was, therefore, directed to produce if there is any warrant of authorisation or panchanama executed in the case of the assessee vide order dated 13th September 2018. The Ld. D.R. in pursuance of directio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s covered against the assessee by Judgment of Honorable Delhi High Court in the case of Ashok Chadda vs. ITO (2011) 337 ITR 399 (Del.) in which it was held that in proceedings under section 153A of the Income Tax Act, there is requirement to issue notice under section 143(2) of the Income Tax Act . Learned Counsel for the Assessee did not dispute this legal proposition. It may also be added here that the assessee in response to notice under section 153A dated 28th December 2012, filed the return of income on 21st March 2013 and A.O. issued notice under section 143(2) and 142(1) on dated 22nd May, 2013. In response thereto, the assessee and their Counsel appeared before assessing officer. Therefore, notice under section 143(2) have been issued and served upon assessee within the period of limitation, though, it was not required as per the above Judgment. Therefore, the contention of Learned Counsel for the Assessee has no merit. The same is accordingly dismissed. In the result Ground No.1.2 of appeal of assessee is dismissed. Ground No.1.3 : 11. On Ground No.1.3, Learned Counsel for the Assessee submitted that no proper sanction as required under section 153D have been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebruary 2014 [PB 48]. There is no other documentary evidence available on record. It is, therefore, clear that approval/sanction of the Addl. CIT was received after passing of the assessment order. Therefore, assessment order is illegal and bad in Law. The assessing officer was not in possession of the valid sanction/approval of Competent Authority before passing the assessment order. Learned Counsel for the Assessee submitted that the Tribunal can in fact call for production of the assessment record for itself to determine whether the satisfaction was received, before passing the assessment order by the Assessing Officer ? Reliance was placed upon the Judgment of the Allahabad High Court in the case of S K Gupta and Co. vs ITO 246 ITR 560 (All.). He has submitted that to the same effect there is another Judgment of the Allahabad High Court in the case of M.D. Overseas Ltd., vs., DGIT 333 ITR 407 (All.) He has, therefore, submitted that the approval in this case though not conveyed to the Assessing officer on time, but, is also given in a mechanical manner. Learned Counsel for the Assessee relied upon Judgment of the Honorable Bombay High Court in the case of Pr. CIT vs Smt. Shreel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... approval to the draft assessment order. She has submitted that Addl. CIT does not say that he has not gone through the material on record and also did not apply his mind before grant of approval in the matter. Ld. D.R, therefore, submitted that this ground of appeal of assessee may be dismissed. 13. We have considered the rival submissions. It is not in dispute that search and seizure action was taken in the case of the assessee on 30th January 2011. Therefore, assessing officer rightly proceeded against the assessee firm under section 153A of the Income Tax Act, 1961. The assessing officer also rightly passed the assessment order under section 153B(1)(b) of the Income Tax Act, 1961. Further, Section 153D of the Income Tax Act provides that no order of assessment or reassessment shall be passed by the assessing officer below the rank of Joint Commissioner in respect of each assessment year referred to in clause (b) of sub-section (1) of Section 153A or assessment year referred to in clause (b) of sub-section (1) of Section 153B except with the prior approval of Joint Commissioner. Therefore, for passing the impugned assessment order, the assessing officer who is in the rank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded to the Addl. CIT, Chandigarh. No details/explanation were furnished as to on which date the assessment record was received by the Addl. CIT, Chandigarh. The assessee, on inspection of the record, intimated the assessing officer that no original approval under section 153D is available on record. Learned Counsel for the Assessee referred to PB 48, which is Fax message received on 5th February 2014, communicating the approval of Addl. CIT to the assessing officer. This Fax message is not legible. The Hon ble Bombay High Court in the case of Pr. CIT vs. Smt. Shreelekha Damani (supra), held as under IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 668 OF 2016 The Pr. Commissioner of Income Tax ..Appellant v/s. Smt. Shreelekha Damani. ..Respondent. Mr. A.R. Malhotra a/w Mr. N.A. Kazi for the appellant Mr. Jehangir Mistri, Senior Counsel a/w Mr. Atul Jasani for the respondent CORAM: AKIL KURESHI M.S. SANKLECHA, J.J. DATED: 27th NOVEMBER, 2018. P.C. 1. This appeal is filed by the Revenue challenging the judgment of Income Tax Appellate Tribunal ( the Tribunal for short) dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice letter dated 20.12.2010, the Assessing Officers were asked to submit the draft orders for approval u/s 153D on or before 24.12.2010. However, this draft order has been submitted on 31.12.2010. Hence there is no much time left to analise the issue of draft order on merit. Therefore, the draft order is being approved as it is submitted. Approval to the above said draft order is granted u/s 153D of the I.T. Act, 1961. 7. In plain terms, the Additional CIT recorded that the draft order for approval under Section 153D of the Act was submitted only on 31st December, 2010. Hence, there was not enough time left to analyze the issues of draft order on merit. Therefore, the order was approved as it was submitted. Clearly, therefore, the Additional CIT for want of time could not examine the issues arising out of the draft order. His action of granting the approval was thus, a mere mechanical exercise accepting the draft order as it is without any independent application of mind on his part. The Tribunal is, therefore, perfectly justified in coming to the conclusion that the approval was invalid in eye of law. We are conscious that the statute does not provide for any format in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ridabad on the very next day would lead to suspicion, in explanation of A.O. if any, valid draft order was transmitted to the Addl. CIT within the time or if the Addl. CIT has communicated the approval under section 153D to the Assessing Officer at Faridabad on 31st January 2014. These facts would clearly show that the action of the Addl. CIT, Chandigarh granting approval in this case was, thus, a mere mechanical exercise, accepting the draft order as it is, without any independent application of mind on his part. Nothing has been clarified during the course of hearing to the effect that if Addl. CIT has gone through the assessment record, before accepting the draft assessment order. Thus, there was no application of mind on the part of the Addl. CIT before granting approval. The Addl. CIT, Chandigarh has merely gone through the draft assessment order as per PB-47. Therefore, the contention of Learned Counsel for the Assessee is justified that the approval was granted in a most mechanical manner without application of mind and such approval was intimated to assessing officer only on 5th February 2014, after passing of the assessment order on 31st January 2014. The above decisions a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration only. He has submitted that the expression used in the Section full value of consideration cannot be construed as the market value, but, as the price bargained for by the parties to the Sale. In support of his contention, he has relied upon Judgment of the Hon ble Supreme Court in the case of CIT vs George Henderson and Co. Ltd. 66 ITR 622 (SC), Judgment of the Delhi High Court in the case of CIT vs., Smt Nilofer I. Singh 309 ITR 233 (Del.) and Judgment of Delhi High Court in the case of CIT vs Shakuntala Devi 316 ITR 46 (Del.). Learned Counsel for the Assessee, therefore, submitted that addition is wholly unjustified. 17. On the other hand, Learned Departmental Representative relied upon the Orders of the authorities below and submitted that Addendum to the Agreement was executed after the search. 18. We have considered the rival submissions. It is not in dispute that the assessee was owner of the impugned shares of M/s. R.S. Infrastructure Pvt. Ltd. The assessee agreed to sell the shares to M/s. Lowe Realty Pvt. Ltd., for a consideration of ₹ 526 crores through the initial Agreement, but, later on its conditions were amended through Addendum to the Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 08.11.2011 written by M/s. Arch informing the Seller that informal approval for transfer was granted. PB 191-195 are the letters dated 11.11.2011 whereby Seller informed the assessee firm that in principle approval was provided for transfer of CCDs by M/s. Arch. The assessee relying upon these representations, accepted the transfer of CCDs as genuine and agreed to purchase CCDs from the Seller. PB 201-225 is the MOU dated 15.11.2011 for purchase of CCDs. PB 226-227 are the transfer of consideration through banking channel by the assessee. PB 230-339 are the execution of the share transfer forms for transfer of the original CCD Certificates dated 03.12.2011. PB 228-229 are the letter dated 05.12.2011, whereby assessee firm approached M/s. Arch for registration of the CCDs in the Debenture Register of M/s. Arch. PB 240 is the letter dated 16.12.2011, through which, M/s. Arch refused the request of the assessee firm for transfer of CCDs due to noncompliance of Terms of DSA. PB 241-244 are the letters for initiation of arbitration proceedings to determine whether M/s. Arch has violated any obligation for not transferring the CCDs in question and whether assessee was entitled to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rms, then the same cannot be termed as sham transaction and relied upon decisions of the Hon ble Supreme Court in the cases of Union of India vs., Azadi Bachao Andolan 263 ITR 706 (SC) and Vodafone International Holdings BV vs., Union of India 341 ITR 1 (SC). Learned Counsel for the Assessee submitted that merely because the transaction is entered into between Group concerns, it cannot be considered to be sham transaction and relied upon decision of Delhi High Court in the case of CIT vs. Gillette Diversified Operations Pvt. Ltd., 324 ITR 226 (Del.) and decision of Gujarat High Court in the case of CIT vs. Special Paints Ltd., 356 ITR 404 (Guj.). He has also relied upon the Order of ITAT, Delhi F-Bench, in the case of ACIT, CC-12, New Delhi vs. M/s. R.J. Corporation Ltd., New Delhi in ITA.No.3661/Del/2014, Dated 01.10.2018, in which it was held that the Learned CIT(A) rightly came to the finding that the assessee company has genuinely entered into purchase and sale of shares and if any, loss have been suffered by the assessee company, A.O. cannot treat the same as non-genuine due to extraneous consideration or irrelevant reasons in the assessment order. 20. On the other han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee through the Agreement/MOU and sale consideration paid by assessee have not been doubted by the authorities below. Later on, when the assessee approached M/s. Arch for transfer of CCDs in the Debenture Register, M/s. Arch informed the assessee about their refusal to register the CCDs in the name of assessee due to non-compliance of terms of DSA. Since, there was a dispute between the parties with regard to transfer of CCDs, therefore, assessee adopted the Arbitration Proceedings as per the MOU and the Arbitrator was appointed by the concerned parties, who has, however, passed the Arbitration Award against the assessee and held that assessee shall have to bear the loss suffered in the transaction. The assessee obtained a legal opinion and assessee was informed that there are bleak chances for getting relief from the Court. Therefore, assessee had no option, except to sale shares to M/s. Zealous Financial Services Pvt. Ltd., at a lower price. It is well settled Law that Arbitration Award is Decree of the Court and is executable as it is. Therefore, when the matter is decided by the Arbitrator against the assessee and Award is given against the assessee, it would amount to D ..... X X X X Extracts X X X X X X X X Extracts X X X X
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