TMI Blog2022 (7) TMI 1041X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant by : Shri Aarsi Prasad, CIT.D.R. Respondent by : Shri Milin Mehta, Shri Bhavin Marfatiya, Shri Nirmit Mehta Ms. Amrin Pathan, A.Rs. ORDER PER MAHAVIR PRASAD, JM: The captioned four Revenue s appeals in case of four different assessees arise from the respective orders of the Commissioner of Income Tax (Appeals) ( CIT(A) ) against different assessment years as tabulated below: IT(SS)A Nos. Name of assessee AY CIT(A) s order dated AO s order dated AO s order under Section 318/Ahd/17 Smt. Seema Dalmia 2008-09 21.03.17 29.12.17 153C r.w.s. 153A r.w.s. 143(3) of the Income Tax Act, 1961 (in short the Act ) 319/Ahd/17 Smt. Mita Anil Patel 2008-09 -Do- 26.02.16 -Do- 321/Ahd/17 Shri Anil R. Patel 2008-09 -Do- 07.03.16 153A r.w.s. 143(3) of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts and circumstances of the case and in law, the Ld. CIT(A)-12,Ahmedabad has erred in deleting the entire addition of Rs. 3,45,20,508/-. The addition was based on the evidences found during the course of search, which clearly shows that Shri Atul N Dalmia has also sold his shareholdings to Lupin Ltd. at the rate of Rs. 154.37 per share, neither the conditions preceding the transfer of shares by Shri Anil R Patel to Shri Atul N Dalmia nor the conditions succeeding the transfer of shares justify the value at which the shares have been transferred by Shri Anil R Patel to Atul N Dalmia at the rate of Re.l per share. Hence, the addition has erroneously been deleted by the Ld. CITf(A)-12, Ahmedabad. (b) The Ld. CIT(A)-12, Ahmedabad has erred in considering that there is no incriminating material found in the search, for assuming jurisdiction by the AO. There is a hugely incriminating material found in the form of emails(when compared with Share Purchase Agreement). Hence, the Ld. CIT(A)-12, Ahmedabad has erroneously concluded that there is no incriminating material found,, for assuming jurisdiction by the AO. 4. With regard to issues under consideration, the AO observed as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of Rs 5,68,61,048/- in proportion of your shareholding in the company should not be added to your income and taxed in your hands as undisclosed receipts. .. .. 5.2 In response to the same, assessee has furnished its reply dated 01.02.2016. The main contentions raised by the assessee are as follows: a. Assessee has mainly contended that with respect to A.Y.2008-09, the assessment proceedings have been deemed completed under section 143(1) of the I T Act and hence the scope of assessment would be limited to incriminating material itself. b. Further with respect to the issue of difference in sale consideration, assessee has stated that the offer of Rs 42.50 crore was subject to some adjustments and hence the final deed was done only at Rs 36.81 crore thus there is no suppression of income. 5.3 This office has carefully perused the arguments given by the assessee but they are not acceptable for following reasons: 5.3.1 Rebuttal of objection at point a: 1. With respect to first objection regarding scope of assessment, it is to be noted that in the entire scheme of section 153A of the Act, there is no prohibition for the assessing authority to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 153A clearly states that total income of the six assessment years has to be assessed. Had the intention of the act has been to restrict the scope to the incriminating material found, act would have mentioned so in the provisos. But here again section is very clear that for 153A assessments have to be made in totality . The AO shall assess the total income of six assessment years which means the said total income includes income which was returned in the earlier return, the income which was unearthed during search and the income which was not the subject matter of aforesaid two incomes. Thus here again when the section says in clear language that total income has to be assessed , no different interpretation can be attached to it. 4. The objection of the assessee that only pending assessment shall abate and completed assessments will not be disturbed is also not in line with the section itself. Further this can be specifically understood when we compare this with earlier block assessment schemes under section 158BC. Block assessment proceeding would lead to one block assessment for undisclosed income and regular assessment were preserved resulting into multiple assessments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is drawn, all the relevant six assessment years would get reopened irrespective of any incriminating material is found or not in respect of any particular assessment year falling within the relevant six assessment years. 7. Without prejudice to the above facts, it is stated that the above objections as stated by assessee are not applicable to the case of his as the incriminating material has been found and related to the above issue. During the course of search various incriminating documents have been found from the hard disk which was found and seized from the premises at Rubamin Limited, Synergy House, Baroda, annexed as Annexure A-10. These documents are in the nature of various mails exchanged between Shri Atul Dalmia and various heads of Rubamin . The transaction mentioned in the mail is related to transfer of shares of Rubamin Laboratories Llimited. Further an offer letter from Finance head of Lupin has also been found and inventorised in Annexure A-7(Hard Disk Information) which has bearing on the determination of income on this issue. Now these documents which were found during the search were not available .when the assessment order u/s 143(1) of the I T Act was passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs 42,50,00,000/- as per the offer letter dated 28th August 2007. Thus purchase consideration is Rs 42,50,00,000/- and value of inventory is over and above the same. 4. Further it is to be mentioned that the adjustments on account of land and fees to yes bank have neither been mentioned in offer letter nor in final agreement. But with respect to land as per para 2(vi) of the offer letter, it is mentioned that Rubamin has clear title and ownership to all part and parcel of land admeasuring approximately 30 acres, on part of which Rubamin has present manufacturing activity. The cost for clear title has to borne by promoters. Thus the land cost has no bearing on the offer made of Rs 42.50 crore. Further para 4 of the offer letter mentions that Rubamin will facilitate the purchase of adjacent land about 10 acres. But it has no bearing on the transaction under discussion. It means that promoters have received the extra consideration for facilitating the transaction of land discussed above and the offer of 42.5 crore does not include the consideration for this facility. So there is no force in the argument of assessee that 70 lacs have to be reduced from the offer value. 5. Wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und that the offer for sale of Rubamin has come upto 44 crore. Lupin itself has made the offer for Rs.44 crore as per the mail attached above. Thus, it can be said that Lupin has initially made offer for Rs. 44 crore and after certain adjustment, the official offer was made of Rs. 42.5 crore which was also accepted by Rubamin. 8. Thus on the basis of above discussion, it is held that the actual consideration received from the Lupin is that of Rs 42.50 crore. Thus value of share comes to Rsl78.21/share. The assessee was in possession of 6,52,432 shares which were sold to Lupin alongwith business of the company at the rate of Rs 178.21/share. Thus the consideration received is of Rs.11,62,69,907/- from the sale of 6,52,432 shares at the price of Rs.178.21/- per share instead of Rs. 7,02,99,053/- as shown by the assessee. Thus there is difference of Rs.4,59,70,854/- and suppression of income to that extent. Penalty proceedings u/s 271(1)(c) of the Act are being initiated separately for concealment of income. 6. Issue of Capital gain vs Business Income 6.1 On verification of share purchase agreement between sellers and Lupin Ltd, it was observed by the AO that Lupin has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oned in the Clause B of the Agreement that the sellers [Shri Atul N Dalmia, Shri Anil R Patel and persons set out in Annexure 1A, acting through their constituted attorney Mr. Shri Atul N Dalmia] are the legal and beneficial owners of 23,84,783 share (hereafter defined) which represent 100% of the current issued and paid up share capital of the company, more particularly described in Annexure 1 hereto. 3. Further 'Business has been defined under Article 1.1.4 as the business of manufacture, marketing, distribution and sale of fine chemicals, API and intermediates used in the pharmaceutical industry. 4. Transaction has been defined in Article 1.1.2 to mean the sale of the shares comprising the entire shareholding of the company by the sellers to the purchaser and the purchase thereof by the purchaser from the sellers along with the Business at and for the Purchase Consideration in accordance with the terms set out in this Agreement. Further there are various clauses mentioned below which further elaborates the fact that Lupin has acquired the shareholding of the company along with the entire business of the company; Rubamin Laboratories Ltd. 5. Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company, free of all encumbrances, along with the Business of the company as a going concern. Therefore, through this Agreement, Lupin Pharma has acquired the Business of the company i.e. the business of manufacture, marketing, distribution and sale of fine chemicals, API and intermediates used in Pharmaceutical industry on a going concern basis along with the entire shareholding of the company. Further, it has been noticed that the company acquired by Lupin continued to function after its acquisition. 6.3 In this background, section 28(va) becomes applicable as follows: Profits and gains of business or profession. 28. The following income shall be chargeable to income-tax under the head Profits and gains of business or profession ,- [(va) any sum, whether received or receivable, in cash or kind, under an agreement for- (a) not carrying out any activity in relation to any business; or (b) not sharing any know-how, patent, copyright, trade-mark, licence, franchise or any other business or commercial right of similar nature or information or technique likely to assist in the manufacture or processing of goods or provision for services: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of the agreement. In addition, the sellers i.e. the shareholders of the company were to hand over the Employee Database, Products Database, Customer Support, New Client proposals in pipeline, Other prospects and customer's database, Payment Recovery and Customer. 2danagement cases, Contract, Verbal Commitments, Banking Information, software/licenses and any other property that was acquired under the tenure of the Sellers working with the Company. Because of the complexity of the handing over operation by the sellers i.e. the shareholders of the company to the Managing Director of the new company, the parties entered into agreement on 26.3.2005 and had completed the process on 24.7.2005. If it was a mere sale of the investment by way of shareholding by the assessee then the said exercise was not required. Even the sale consideration agreed upon between the 13 parties including the consideration on account of non-compete covenant was paid in installment over a period of time. Further the transfer of shares in effect translated into renunciation of management by the seller Directors in favour of the purchaser which is apparent from Article 5.1.1 of the agreement whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, of which he was the Managing Director and was also engaged in carrying on the business on day-to-day basis. Such investment was in the business being carried on by the assesses and in view of the terms of the agreement agreed upon between the parties i.e. nonpayment of upfront share price of the shares sold by the assessee and the fixation of the agreed sale price of the shares which was not in consensus with the market price tabulated from the results shown by the assessee and also non- compete covenants agreed upon by the assessee and other shareholders for carrying on the business of BPO in the specified area of Chandigarh, full y support the view taken by the authorities below. In the entirety of the facts and circumstances, we are in agreement with the orders of the authorities below that the gain arising from the transfer of share is to be assessed as income from business. The provisions of section 28(va) of the Act are squarely applicable to the present facts of the case. Consequently, the ground of appeal raised by the assessee is dismissed. 18. The facts and the issues arising in ITA No.1102 /Chd/2009 are similar to the facts and issues in ITA No.1101/Chd/2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the head of business income. Hence, the sale proceeds received by the assessee, on sale of share alongwith business of Rubamin Laboratories Ltd. in proportion tohisshare holding, of Rs. 11,62,69,907/- is treated as business income of the assessee for the year under consideration instead of long term capital gain as has been claimed by the assessee. Penalty proceeding u/s 271(l)(c) of the Act are being initiated for furnishing of inaccurate particulars of income and thereby leading to concealment of income. [Business income : Rs.11,62,69,907/-] 7. Issue of transfer of shares of Rubamin Limited at Rs 1/- per share. 7.1 During the course of assessment proceedings, it was noted by the AO that one of the Directors of the company Shri Anil R Patel has transferred 10,90,000 shares of Rubamin Limited at the price of Rs 1/- per share to Shri Atul Dalmia. On the basis of facts on record and seized material, assessee was given show-cause notice which read as follows: .. 3. During the course of assessment proceedings, it is found that you have purchased 10,90,000 shares of Rubamin Limited from Shri Anil R Patel at the price of Rs 1/-per share. The shares have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares at Rs I/- per share is totally out of sync with the conditions precedent to the transfer of shares. The agreements entered prior to share transfer and instance of share transfer is totally opposed to each other. Further the copy of seized material mentioned at (d) shows that price of share was much more than the price of Rs 1/-per share. -Shares were allotted to employees under ESOP at Rs 80/-per share in March 2007 -Shares of Rubamin Limited (No of shares- 2198531) transferred to India Advantage Fund-V through its investment manager ICICI Venture Fund management Company at Rs 318.39/-per share(Rs 10/- per share + premium of Rs 308.39/- per share), date of transfer -06.07.2007 -Share transaction between same promoters at Rs 94/-per share in 2003 and thereafter there has been substantial improvement in the performance of the company -Two associate partnership firms were acquired by company in recent past the date of transfer and shares allotted by company at Rs 225/- per share Thus on the basis of the seized documents and facts available on record, it is seen that market value of shares of Rubamin limited as on the date of transfer was m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urther these are the important documents which show the intent behind the transaction of transfer of shares. Though they pertain to period before date of search, these agreements are vital for considering the history and intent of transfer of share. Thus there is no point in argument of assessee that the agreements are not relevant. 7.2.3 Further it is to be mentioned that annexure A-10 seized from the premises of Rubamin Limited contain the mails which are relevant for considering this transaction. The mail dated 01.07.2007 written by Milin Mehta, auditor of the company to Rajesh Gupta and copy to Atul Dalmia and others discuss about this transaction. It mentions that the earlier shareholder agreement has to be replaced with new one and earlier formula for determination of value of share has to be replaced with new formula giving the fair market value of shares.. Further it mentions that the transaction should happen in such a way so as to avoid tax from such. Thus these mails are important document which contain valuable discussion of the pricing of shares between the two promoters. Thus there is no point in assessee's argument w.r.t no incriminating material being found. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther it is mentioned that if the shares are acquired over a period of time jn different lots in different financial years, the financial figures applicable to the respective years would be the basis for deciding the valuation of the shares. Moreover, it is mentioned that where the valuation of the shares is required to be determined on any date during the first quarter of the financial year, then the valuation shall be carried out based on the figures of the first day of the financial year. In case, if the transfer of the shares takes place on any other day other than the first quarter of a financial year, then the valuation will be carried out as of the first day of the financial year and thereafter the aggregate valuation will be increased by the proportionate profits of the company up to the date of the close of the immediately preceding quarter for the incomplete year during which the shares are proposed to be transferred. Further under point no. 6.5 it is mentioned that it has been agreed between the parties that Dalmia group will be permitted to determine the manner in which the shares of the Patel group is to be acquired and also use the mode of buyback of shares at the rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the method is logical and was incorporated to protect the interest of each party without compromising the interest of the company. 7.2.5 Further, certain modifications/amendments were introduced vide shareholder's agreement dated 31st day of August 2005 mentioned on page no.48 to 55 of Annexure A-l. The copy of evidence is attached in assessment order as Annexure B. From the perusal of clause no.l mentioned on page no.50 of annexure A-l, seized from the office of Rubamin Ltd., it is evident that the shares acquired by Dalmia group shall have a lock-in period of l(one) year from the date of acquisition of such shares and those shares cannot be transferred by Dalmia group at a price higher than the price at which the shares are so acquired from Patel group. However, if this condition is not followed by Dalmia group then the excess so realized on the transfer of those shares acquired from Patel group shall be distributed between Dalmia group and Patel group in the ratio of their inter-se shareholding, immediately prior to acquisition of shares by Dalmia group. 7.2.6 Further, another Shareholder's Agreement was entered into on 15th day of December 2006 between Shri At ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 84 of Annexure A-l under point no. C D, the copy of agreement is attached herewith as Annexure D. Though there is no mention of the methods of valuation of shares, nonetheless it can be rightly concluded that the soul of this 'agreement' derives its strength from the Shareholder's Agreement dated 6th day of June 2003: wherein the methods of valuation of shares are specifically mentioned. Further, various modifications were made to the Shareholder's Agreement dated 6th June 2003; as discussed earlier, wherein concern has been reflected by parties to the Agreement regarding the subsequent sale of shares by Dalmia group at a higher price than the price at which the shares would be transferred to Shri Atul N Dalima group, then the excess so received would be shared between Dalmia group and Patel group in proportion as existing prior to the Agreement. Further concern is also shown regarding the value of shares determined as per the methods of valuation mentioned in Schedule 3 of Shareholder's Agreement dated 6th June 2003, being less than the market rate. In that case, to protect the interest of the seller of transferor i.e. Shri Anil R Patel (Patel group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares are transferred in favour of Dalmia group. This issue has been discussed in point no. 11 of Arbitration Agreement dated 5th June 2007. The copy of agreement is attached herewith as Annexure E. As per clause 11(3), it is mentioned that the old shareholders' agreement required Patel group to dispose-off shares to Dalmia group at the price determined as per the formula provided for in the shareholders' agreement, irrespective of true value of the share and the potential of the company. Further, it is mentioned that for better running of the company a new shareholder's agreement ought to be entered into between the parties wherein no such clauses (the price determined as per the formula provided for in the shareholder's agreement ) should be found and the Patel group should be entitled to get the true value of the shares. 7.2.9 Hence, if all the Shareholder's Agreement and the Arbitration Agreement are read together, it can be reliably construed that the basic concern of Patel group was to receive the true value/ market value of share based on the potential of the company and its future progress. Therefore, the determination of the value of shares at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N Dalmia at Rs.94 per share. Further, it is mentioned a new shareholding agreement has been entered upon by Shri Atul N Dalmia and Shri Anil R Patel, whereby prefixed formula for share valuation for inter-se transfer of shares was substituted with fair value determined by valuer. In addition, it is mentioned that no right is given to either party to either forcefully sell or forcefully purchase the shares from other promoters. It is also mentioned on the mail that through this shareholder's agreement it was agreed by the two parties (Shri Atul N Dalmia and Shri Anil R Patel) that the shareholding pattern between the promoters inter-se should be changed to 60:40 from existing 51:49. This would involve transfer of 9% shares of Shri Anil R Patel to Shri Atul N Dalmia. In addition, the mail also mentions certain other facts which shows that price of share was much more than the price of Rs 1/- per share and which should be considered. The above mail is reproduced in assessment order. - It is mentioned that shares were allotted to employees under ESOP at Rs.80 per shares; 1,40,000 shares were allotted in March 2007 at Rs.80 per share. -Company is signing an agreement with pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in the recent Finance Bill 2006, to consolidate all the zinc oxide business of the group at one place, M/s Zincollied (India) and M/s Zincollied Industry, two partnership firms of the group having Zinc Oxide {Metal grade} manufacturing plants in Daman are being merged into Rubamin Limited on going concern basis w.e.f. 1st July 2006. The purchase consideration will be the book value of the firms as on 30th June 2006 which is Rs, 10.94 crores (subject to change after completion of due diligence). The book value of Rubamin Limited (excluding Pharma Business) is Rs. 52.63 crores (subject to change after completion of due diligence). The total No. of shares of RL as on 1st July 2006 was 25.00 lacs, hence book value per share is Rs. 210.51. Based on this valuation, total 5,19,871 shares of RL will be issued to partners of these two firms as purchase consideration. 3. Rubamin Limited is issuing bonus shares in the ratio of 3 shares against each shares. Hence after this bonus issue, company's paid up share capital will increase from Rs. 2.50 crores to Rs. 10,00 crores. The reserves of the company will reduce to that extent. 4. We are working to raise the share capi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve created subterfuge transactions to avoid payment of taxes. Shri Anil R Patel has adopted the mechanism of colorable transaction in collusion with Shri Atul N Dalmia, whereby he has avoidend paying the capital gains-tax by creating a 'form' or transaction which is devoid of ay rationale and serves only motive of avoidance of taxation. It also helped Shri Atul Dalmiya in parking his unaccounted income in acquiring assets in the form of shares from Shri Anil R Patel. 7.2.14 Ex-post Facto, it is evident to trace the path of circumstances (events) which led to the transfer of shares. From the genesis of discord or dispute i.e. the Shareholder's Agreement dated 6th June 2003 till the Arbitration Agreement dated 5th June 2007 (prior to the transfer of shares) it is clearly visible and evident that the Shareholder's Agreement and the Arbitration Agreement aimed at securing the rights and obligations of each party (Patel group and Dalmia group). In the course of these Agreements, Patel group has reiterated its rights in the form of receiving the true value of shares on its transfer to Dalmia group. This true means the fair market value of the share (which is also discu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nderson Co Ltd, the Hon'ble Supreme Court has observed that if certain conditions are satisfied as mentioned in the first proviso to section 12B(2) of 1922 Act, the market value of the assets transferred, though not equivalent to the full value of the consideration for the transfer, may be deemed to be the full value of the consideration. To give rise to this fiction the two conditions of the first proviso are 1. That the transferor was directly or indirectly connected with the transferee and 2. That the transfer was effected with the object of avoidance or reduction of the liability of the assessee u/s 12B of 1922 Act. In the instant case both the conditions are fulfilled i.e. the transferor is directly or indirectly connected with the transferee and the transfer was effected with the object of avoidance or reduction of the liability. The transferor and the transferee are the co-promotors of the company and there is substantial reduction of the liability to pay tax by Shri Anil R Patel as he has not transferred the shares at the fair market value or not even at the value at which he has not sold the shares previously to Shri Atul N Dalmia. Further the transfer has also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , a reasonable inference has to be drawn which shows that there is understatement or concealment of consideration in respect of the transfer. Market value of shares is the price which has accrued to the assessee on the transfer of shares which is the full value of consideration accruing to the assessee. On the basis of above mentioned analysis, it is seen that Shri Anil R Patel and Shri Atul N Dalmia have created a sham transaction which is devoid of any logic and reasoning. The transaction is in favour of one party at the detriment of the other party which is totally in contradiction with the existing facts and circumstances precedent to the share transfer. Therefore, artificial form has been created by the assessees Shri Atul R Patel and Shri Atul N Dalmia to circumvent the substance underlying the transaction. On the basis of the above mentioned discussion, it is evident that Shri Anil R Patel has transferred the shares to Shri Atul N Dalmia at Rs 1 per share by creating a mechanism of colorable transaction as discussed supra. Therefore it is apparent that Shri Anil R Patel has received part of the sale proceeds out of the books and Shri Atul N Dalmia has paid part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciated Rubber industry Ltd. [1986] 157 ITR 77 (SC), where the court held thus: it is the duty of the court, in every case where ingenuity is expended to avoid taxing and welfare legislations, to get behind the smoke screen and discover the true state of affairs. The court is not to be satisfied with form and leave well alone the substance of a transaction. In CIT v. Durga Prasad More (1971) 82 ITR 540, the Supreme Court held as hereunder: it is true that an apparent must be considered real only if it is shown that there are reasons to believe that the apparent is not the real. The Taxing Authorities were not required to put on blinkers while looking at the documents produced before them. They are entitled to look into the surrounding circumstances to find out the reality of the recitals made in those documents. It would also be pertinent to refer to what has been pronounced by the Hon'ble Supreme Court in the judgment in Sumati Dalyal v. CIT (1995) 214 ITR 801, reiterating the law laid down in CIT v. Durga Prasad More (1971)82 ITR 540(SC) that an apparent must be considered real only if it is shown that there are reasons to believe that the apparent is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h evidence is required to be assessed by the Assessing Officer in a reasonable way. Genuineness of the transaction can be rejected in case the assessee leads evidence which is not trustworthy, and the department does not lead any evidence on such an issue. Mid East Part Folio Management Ltd. Vs. CIT (2003) 81 TTJ (Mum)(SB)37, it was held that McDowell is more of an approach to the facts of a particular case than any inviolable rule laid down regarding tax evasion. It is a call to the Courts and Tribunals to expose subterfuges, colorable devices and dubious methods in tax cases. It is a caution administered that lawful dues to the state cannot be withheld under schemes acquired off-the -shelf or through transactions that have no commercial or economic value or by taking certain preordained steps which are calculated to cancel out each other. The approach in such cases must be to take the entire transaction or arrangement as a whole and see if it makes any economic or commercial sense without attaching weight to the steps that go to make up the scheme, each of which may be legally valid. The genuineness of the arrangement has to be viewed not in relation to every step taken. McDow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the parties by ignoring the apparent has to be and has always been conceded, that in case of make believe arrangement or a subterfuge or a dubious or a colourable device adopted , the Court will be merely removing the facade to expose the real intention of the parties cleverly cloaked and if that intention is discovered to be the evasion of taxes, it cannot be given effect to merely because all the steps taken as component parts of the arrangements are legally correct or valid, that the right of the parties to enter into transactions according to their free will and choice has always been protected, the only rider being that both the professed intention and the real intention should be the same, that all commercial arrangements and documents or transactions have to be given effect to even though they result in a deduction of the tax liability, provided that they are genuine, bonafide and not colourable transaction. On the basis of the above mentioned discussion it is evident that Shri Anil R Patel has transferred the shares (10,90,000 shares of Rubamin Limited) to Shri Atul N Dalmia at Rs 1 per share by creating a mechanism of colorable transaction as discussed supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. Hence, the transfer of shares at Re. 1 by Shri Anil R Patel to Shri Atul N Dalmia is devoid of any reasonableness and business prudence. The act of Shri Anil R Patel is more bewildering considering that the shares were transferred at the rate of Rs. 154.37 per share within two months of the transfer by Shri Anil R Patel to Shri Atul N Dalmia at Re. 1. Considering the above fact, assessee was issued showcause notice as follows: 4. Further on verification of record, it is seen that you have purchased 1,98,000/-shares of Rubamin Laboratories Limited on 04.07.2007 at Rs I/- per share from Shri Anil R Patel and subsequently the same shares alongwith the business of the company were transferred by you to Lupin limited at Rs 154.37/- per share. You have also transferred your remaining shares to Lupin Limited at Rs 154.37/- per share on 25.09.2007. This fact of purchase of shares at less than market value seems bewildering after consideration of seized documents and facts on record which are discussed hereunder -In the context of Rubamin Laboratories Limited, there is separate shareholder's agreement dated 30.06.2007, which is found annexed in Annexure A-7(back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Under point no. C D the reasons for entering into Shareholder's Agreement between Patel group and Dalmia group are mentioned which can be read as under C. The Shareholders have agreed that their respective rights and obligations with regard to their business relationship between them inter se and with the Company will be interpreted, acted upon and governed solely to accordance with the terms and conditions of this Agreement and the Memorandum of Association and Articles of Association of the Company. D. The Shareholders have agreed to .. this Agreement for the purpose of recording the .. agreements concerning the financing, operation and management of the Company and their mutual rights and obligations. NOW THEREFORE, in consideration of the above premises and the mutual promises and covenants herein, the mutual benefits to be derived therefrom and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Definitions and Interpretation _____________________________________________________________ 1.1 Definitions. In this Agreement, unless the context otherwise requires or expressly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right to acquire all the shares held by the Patel Group from the successors in law of Anil Patel or any Person to whom such shares have been bequeathed under the Will of Anil Patel or otherwise and the other Shareholders of the Patel Group at the FMV, payable no later than ninety days from the date of exercise of this right by Atul Dalmia. Clause no 10.4 mentions about the appointment of an Independent Valuer who shall determine the fair market value of the shares on the basis of the value of the company on a going concern basis and after taking into account of underlying assets and future prospect of the company. Therefore on perusal of this clause also it is evident that the shares have to be transmitted to Shri Atul N Dalmia at the fair market value after the death of Shri Anil R Patel. Hence there should not be any reason to believe that there were conditions present which warranted the shares to be transferred by Shri Anil R Patel to Shri Atul N Dalmia at Re. 1 per share, i.e. much below than the FMV of the shares on the date of transfer. 8.2.5 Hence, on the basis of conditions precedent to the share transfer by Shri Anil R Patel to Shri Atul N Dalmia it is clearly evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red by Shri Anil R Patel to Atul N Dalmia at the rate of Re.l per share. Therefore, there is neither any reason nor any rationale for transferring 194800 shares of Rubamin laboratories ltd at the rate of Rs.l per share by shri Anil R Patel to Shri Atul N Dalmia when it is clearly evident that all the shares of Rubamin Laboratories Ltd was to be purchased at the rate of Rs. 154.37 per share within two months of the transfer of these shares. It is not possible that the shareholders were ignorant of market price of the shares held by them or the negotiations with parties (including Lupin) for the acquisition of Rubamin Laboratories Ltd as both are the co promoters of the company. 8.2.7 On the basis of above mentioned discussion it is imperative to discuss the motive for entering into such an arrangement (transfer of shares at the rate of Rs. 1 per share) which is merely a sham transaction or colorable transaction having no rationale and the purpose is only to evade taxes due on the transfer of shares by Shri Anil R Patel to Shri Atul N Dalmia. Shri Anil R Patel and Shri Atul N Dalmia were fully aware of the negotiations with Lupin and other persons interested in acquiring Rubamin L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort term capital gain. But in real sense there is no loss as the assessee has received Dividend in excess of Rs 3 crores on the record date. 8.2.8 From the perusal of the mail server data, Annexure A-10, it has been found that several mails have been written to the auditor of the company as well as the mails have been exchanged between the key persons of the company, wherein the concern regarding taxation on the sale of shares to Lupin Pharma have been raised. In this regard, a mail dated 01/07/2007 (copy enclosed herewith), written by the auditor of company to Mr. Rajesh Gupta, Price House Water Coopers asking for his expert -pinion is found (copy has been marked to Shri Atul N Dalmia Rajesh Agarwal and Ajay Agarwal). As per this mail it is clearly mentioned that through a shareholder's agreement entered into the year 2003, the shareholding was changed to 51:49 between Shri Atul Dalmia and Shri Anil R Patel respectively and 1% of shares of Shri Anil R patel was purchased by Shri Atul N Dalmia at Rs. 94 per share. Further, it is mentioned a new shareholding agreement had been entered upon by Shri Atul N Damia And Shri Anil R Patel, whereby prefixed formula for share valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... down in CIT v. Durga Prasad More (1971) 82 ITR 540(SC) that an apparent must be considered real only if it is shown that there are reasons to believe that the apparent is not the real and that the Taxing Authorities are entitled to look into the surrounding circumstances to fine out the reality and the matter has to be considered by applying the test of human probabilities. Therefore, it is clear from the above judgments that the burden is on the assessee to show that the receipt is not of an income nature by giving an explanation; the income Tax Officer is not expected to put blinkers and accept it as it is; it is open to him to probe further and find out whether the apparent is real or not and take a decision on such probing, in the light of human probabilities. 8.3. Thus on the basis of above discussion and facts on record, the full value of consideration is calculated adopting the fair market value of shares on the date of transfer. From the various evidences as discussed above, it is gathered that fair market value of shares of Rubamin Laboratories Limited was much more than Rs l/-per share at which the transaction is recorded in his books of accounts. It is pertinent to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 153A in unabated assessment, AO has not been able to demonstrate as to how and why the contrary and binding view in the assessment had- remained unabated as on the date of the search. After perusing the Authorities relied upon by both the sides, I have also noted that though AO has relied on Kerala HC decision in Jurisdictional HC decisions in Saumya Construction Put. Ltd. 387ITR 529 (Guj) and in Desai Construction 387 ITR 552 (Guj) supporting AR's contention must not be followed. At the same time, I have noted that the AO in the assessment order has certainly referred to and relied upon some seized documents before making the impugned additions. As per the AR, these seized documents referred to by the AO are not incriminating because these are simple routine documents/communications in normal course and the contents of these documents do not disclose even remotely any unaccounted transaction/receipt/payment, the information about which, has been or might have been withheld from the department or which unearths or even remotely is indicative of any unaccounted transaction or any undisclosed income, and hence the ratio of Saumya Construction (supra) and Kabul Chawla 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant and other sellers of shares of RLL undoubtedly did expect, want, visualize or dream the deal with Lupin possibly to be fetching amounts of Rs. 44-45 crores. As such, the email of the appellant printed by the AO on page 14 of the assessment order also refers to expected or desired total consideration for the deal at Rs. 45+15 crores, though, it is explained by the AR that it is evident from the very e-mail on page 15 of the assessment order that 15 in the said e-mail refers to debt-component on the asset side of balance-sheet and is not even remotely indicative of expected consideration , and, 45 does refer to expected initial consideration which was of course subject to various pros and cons as is to be normally expected to be in-built in such commercial deals. As per the AR, the AO has contradicted his own inference/conclusion in, on one hand relying on offered consideration as per the Offer Letter, while at the same time, on the other hand, overlooking the figure of 45+15 in one of the emails, and also in overlooking contents of clause 2 of the Offer Letter, thereby emphasizing AO's own demonstrated suspicion about validity of his own action of relying on an exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... *Adjustment on account of Supplementary Agreement 0.1805 5.8665 Net Consideration receivable as per Share Purchase Agreement dated 26-9-2007 36.8140 (36.6335) 154.37 (153.61) *re-payment (refund) made as per supplementary SPA dated 26/9/2007 9. Emphasizing the obvious sanctity, integrity and conclusiveness of evidence of consideration for the deal at Rs. 36.8140 crores as per SPA, which has only been conjecturally and needlessly doubted by the AO without even attempting to impeach by bringing in any relevant evidences by the AO, the AR has also brought to my notice, and established by producing the copies of bank statements, that the deal consideration as per SPA dated 26/9/2007 was even further required to be reduced as per the very terms of SPA by way of execution of a. supplementary SPA, though unsigned and undated (page 187-191 of paper book). As per this supplementary agreement, a net adjustment amount of Rs. 18.05 lacs (Rs.47,07,000/- To be paid. Less - Rs.29,01,236/- To be received) has been reduced from earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assessment order) which in any case have been exchanged before even the Offer Letter dated 28/8/2007, have absolutely no bearing or relevance for the issue to be decided (amount of consideration received or accrued ) enabling or empowering the AO to discard the welldocumented full value of consideration of Rs. 36.82 crores as depicted in SPA. As such, Section 48 of the Act explicitly refers and requires the AO to adopt only full value of consideration received or accruing as a result of the transfer for computing the Capital Gains. Without any evidence of receipt by or accrual to the appellant of any additional/unrecorded consideration, no substitution or replacement of documented consideration on presumptive basis is permissible in law. As such, I unhesitatingly agree with the Ld. AR that there is absolutely no credible material with the AO to even suspect that more than what is stipulated in SPA has been received as consideration for transfer of shares by the appellant. The sound and tenable explanation offered by the appellant for difference between consideration as per Offer Letter9 and consideration as per SPA , for which the provision is made in the Offer Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of in these matters. 10. Thus and therefore, it is held that the consideration under the SPA paid by Lupin and received by the appellant and others, as evidenced by SPA, is no more than Rs. 36.814 crores giving a pershare consideration of Rs. 154.37. Accordingly, there is no understatement of full value of consideration received by or accruing to the appellant disclosed by him in the return of income at Rs.7,02,99,053/-. It is therefore also held that the amount of Rs.4,59,70,854/-held by the AO as unrecorded consideration as having been received by the appellant has no merits and therefore the addition so made to the tune of Rs.4,59,70,854/- is deleted. Grounds 2.2 and 2.3 are thus allowed. 13. Per contra, the AO who attended relied heavily on assessment order and also drew my attention to the statutory provisions of s. 28(va) to point out that exclusion provided by proviso is only for sub-clause (a) of clause (va) and not for clause (b). In other words, it was the submission of the AO that sums received under non-sharing know-how or copy rights etc shall still be taxable u/s 28(va)(b), and therefore, if not the whole, at least part of the consideration received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich follow (i.e. transfer of control/management and transfer of business) on account of transfer of shares can have no bearing, and no such bearing has been envisaged u/s 2(14) or u/s 28, so as to enable the AO on facts or in law to consider such transfer as business . As such, newly inserted Explanation below s. 2(14) categorically and specifically includes rights including the rights of control and management in relation to an Indian Company within the definition of property for such rights to be Capital Asset. Thus, the major pillar of AO's action falls and has no validity in law. As rightly submitted by the AR, the CBDT Letter No. F.No.225/12/2O16/ITA.II dated May 2, 2016 also clearly prescribes such interpretation in general. The factors to be considered relevant by the AO as per para 3 of the CBDT letter, cannot obviously and by no stretch of imagination, include the scenario when shares held as investment are sold as a bulk in a solitary transaction. The AO is absolutely wrong in unreasonably stretching and twisting the facts and observing that it is clearly evident that Lupin has paid the purchase consideration for the non-compete and non-solicit clauses as e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered opinion that a transaction of sale of entire shareholding in a company held as investment/capital asset which results eventually into complete transfer of the company along with rights of control and management, lock, stock and barrel, as are the facts in the present case, remains chargeable under the Head 'Capital Gains' as held by Delhi High Court in Shiv Raj Gupta (supra). The AO has erred in attempting to bring the transaction within u/s 28(va) by unreasonably stretching and twisting the facts. The AR is absolutely right that once the gains are offered as Capital Gains, it has to be firstly shown by the AO that the amount is wrongly shown under this head rather than attempting to show that how it could and possibly should have been offered under the Head Business' . It is important to note that in Shiv Raj Gupta (supra), the consideration for transfer of shares (for entire shareholding) was offered and brought to tax only under the head Capital Gains, .and AO further held that the consideration received was actually more by an amount colourably received by the appellant under a separate agreement purportedly for non-compete restraints (and claimed wholly ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finality of the issue, which, in my opinion, has not at all been even attempted to have been discharged by the AO. It is also evident that the AO has indeed erred in only partially, conveniently and twistedly reading the email of Milin Mehta dated 1/7/2007. The said e-mail, seeking opinion/advice, is not at all seeking advice on tax-avoidance through dubious means as has been read by the AO, but is, while giving full details of the back-ground, merely seeking advice on structuring the deal while avoiding litigation on various issues including the tax-matters. The AO has held and treated the transaction to be sham and colourable , without categorically pointing out that how the purchase which in fact has been undertaken at Re.1 and the back-ground for which is established by credible and cogent evidences, and when the seller also is not shown to have received any other benefits by direct or circuitous means, can at all be considered sham simply because receipt/payment of such low consideration somehow frustrates the AO. Appellant is also right that why of a transaction is primarily for the parties to a transaction to decide, and when the AO suspects non-genuineness , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e whole Arbitration proceedings and Arbitration Award to be sham or collusive. While it is true, and rightly so pleaded by the AO both in the assessment order and during hearing, that AO is not required to put blinkers on her eyes and that she may take recourse to surrounding circumstances and aspects of human probabilities , as ruled by Apex Court, but it is also equally true that these rulings of the SC do not certainly authorize the AO to act on no evidence or to act arbitrarily or draw adverse inference from wholly irrelevant material (mail dated 1/7/2007) that too by reading the same partially and conveniently. While AO must not put blinkers , she must also not, more importantly, sec twistedly or start seeing what is not visible to others or which does not exist at all. The AO has indeed not appreciated that the pre-2007 SHAs doubtlessly indicate the growing concerns and taking of positions by parties thereto. When the two groups jointly agree for Arbitration proceedings and also act upon the consequent Award, it is wholly unconceivable why AO finds the same unbelievable or 'sham without bringing in any relevant evidence even after action u/s 132. Moreover, and mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibly also found myself in agreement with the AO. Similarly, had there been any evidence on record, as against mere presumption, that any unaccounted payment has in fact been made by the appellant to Shri Anil Patel, then also possibly I would have concurred with the AO's finding of colourability. I have for my satisfaction and as an abundant caution also obtained the bank accounts of Patel members for May-August 2007 and I find no receipt from any member of Dalmia. However, in complete absence of even an iota of evidence in this behalf, Ld. AR is absolutely right that attribution of colourability or dubiousness to the transaction by the AO remains baseless and therefore also the finding of the AO that the impugned transaction between the appellant and Anil Patel is a subterfuge must be held to be based on no evidence on one hand and against the evidence on record on the other. The AR is also right in submitting that what the AO in law could have done, in the face of the legally unquestionable transaction, was to examine whether the appellant is chargeable to tax u/s 56{vii)(c) or whether Shri Anil Patel is chargeable under the Gift Tax Act. As such, as rightly submitted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vodafone as quoted in Shiv Raj Gupta (supra) and from Delhi High Court decision in D. S. Bist Sons (supra) wliich touch upon the concept of colourability, and which sanctify my finding that the impugned deal of transfer of shares of RL at Re. 1 per share cannot in law be treated as sham or subterfuge (Emphasis mine): 31. Hon'ble the Chief Justice S.H. Kapadia referred to Furniss (Inspector of Taxes) v. Dawson [1984] 1 All EF 530 (HL.) and observed that the. decision was an extension of Ramsay principle Ramsay W.T, Ltd. v. IRC 1982 AC 300 (HL)) as it held that on facts the inserted step had no business purpose other than deferment of tax and Dawson reconstructed the transaction not on the dictum that anything done to defer tax should be ignored but on the premise that inserted transaction did not constitute disposal under the relevant Finance Act. Hon'ble the Chief Justice thereafter had no hesitation in recording that the tax authorities in England started rejecting every case of strategic investment/tax planning on the pretext that it amounted to and was with the object of evading tax. Noticing this ill-disposed effect, in Craven (Inspector of Taxes) v. White ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture has to be ignored as a fiscal nullity. Thus, W.T Ramsay Ltd'scase (supra) laid down a principle of statutory interpretation rather than imposing a tax avoidance doctrine on tax laws. It was elucidated that Westminster principle does not compel the court to look into the document or the transaction in isolation from the context to which it properly belonged. The task of the court was to ascertain the real nature of the transaction and while doing so, the court has to look at the entire transaction as a whole and not adopt a dissecting approach. The contention that we cannot look through and examine the real nature of the transaction in view of the authoritative pronouncement of the Supreme Court in Vodafone International Holidays B.V. Ltd's. case (supra) approving the view taken AzadiBachaoAndolan'scase (supra) is not apposite and congruous. 32. In his concurrent judgment, K.S, Radhakrishnan, J. has elaborately examined the Indian and English decisions on the question of tax avoidance and tax evasion. The following observations of Lord Tomlin in Westminster's case (supra) were quoted:- Every man is entitled if he can to order his affairs so as that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e International Holidays B.Vs case (supra) does not prescribe criterion simply predicated on preordained, circular or self cancelling transactions with a step or steps having no commercial or business purpose other than obtaining tax advantage. The decision does not exert the doctrine of economic substance. The ratio steers clear from using the said tests or principles. The said propositions and premise as specific tests stands disapproved and rejected. 41. The precise test enunciated and prescribed as a tenet, negates and disqualifies colourable device, deceit and sham as a legitimate and acceptable tax event. These terms have some-what ethical and casuistical connotations and are the elective test or differentiating tax planning from abusive tax avoidance. 42. To appreciate the concept of abusive tax avoidance, it would be appropriate to first delineate with precision the expressions tax mitigation and tax evasion as their boundaries and confines would enable us to draw lines amongst the four concepts; tax mitigation, tax evasion, acceptable tax avoidance and abusive tax avoidance. Each of the said expressions involves an element of tax planning. It would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit or advantage of a provision which the tax code intends and wants to confer. Deductions under Chapter VIA, exemptions under Sections 10A, 10AA, 10B etc. of the Act are all provisions relating to tax mitigation. If an assessee takes benefit or advantage by complying with the stipulated conditions therein to reduce his tax liability, it would be a case of tax mitigation. 44. Tax evasion is illegal and consists of willful violation or circumvention of applicable tax laws to minimise tax liability. The assessed breaches the relevant law and it involves contumacious behaviour or actual knowledge of wrong doing. This can happen when an assessee deliberately fails to report an item in the income tax return, or knowingly claims a deduction which he is aware he is not entitled to, or consciously omits to supply information even when there is duty to furnish the said details. It can also apply to situations when the assessee fails to clarify a matter, which has been misunderstood by the income tax authorities, and keeps quiet. In these cases, there is element of willfulness, dishonesty or contemptuous conduct or even absence of honest belief . If the taxpayer cannot show that he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational Holidays B.Vs case (supra) is ethically principled and moralistic as tax avoidance is disapproved when the assessee adopts a colourable device, dubiousness and otherwise indulges in a sham arrangement or transaction. This would mean that pre-ordained, circular or self-cancelling transaction with a step or steps having no commercial purpose or lack of economic or business purpose could in a given case be, though not necessarily, a relevant fact, yet they are not the touchstone, yardstick or the final test. These could be circumstances or facts to infer and discern whether the taxable event selected was a colourable device, sham or deceit and not the tax event intended by the parties. Right to choice to select the most beneficial legal way and manner to execute a transaction is unquestionable and perennial. A tact is not the test; rather the corrupt and mendacious conduct, i.e. colourable device, sham or deceit, is the specified bright line, dividing acceptable tax avoidance from abusive tax avoidance. 50. The assessed is well within his right to choose any one event between two or more events and select an event to minimize or reduce his tax liability. The Act, i.e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties intended and the document(s)/transaction(s), is at variance with the actual intent. The assessed in such cases does not choose the real event as one from the multiple choices, but adopts a sham or colourable event. The assessed then acts fraudulently, deceitfully or in a corrupt manner. He does not choose an event which is useful, viable and tenable, but employs deception and visors to pretense a state of affair which is different from the actual or real state of affairs. The event propounded is contrary to his intention. When the event selected is artificial it can be treated as colourable, deceitful or sham. The artificial event is one which purports to be one thing but in fact is another. Thus, abusive tax avoidance is a matter of evil intention and a result of dishonest behaviour of the assessed...... The Delhi High Court in D. S. Bist Sons held as under: The agreement, dated 20-8-1963, had been held to be a valid agreement entered into by two parties who were dealing with each other at arm's length. As the agreement was genuine, as held by the Tribunal, and the two parties had independently come to that agreement as commercially expedient, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e satisfied for making the addition u/s 69B are that there must be evidence on record that payment has been made and second that such payment/ in vestment has not been recorded in the books of account. None of the conditions can be said to have been satisfied merely on the basis of inference/ surmise when no categorical evidence has been brought on record or even referred to by the AO. The facts are covered by a series of decisions relied upon by the AR and also by Supreme Court decisions in George Henderson Co. (supra) as also in Gillanders Arbuthnot Co. (supra), and therefore the addition being wholly without merit, stands deleted. 15.5 In conclusion, it is held that the transaction of purchase of shares of RL by the appellant from Anil Patel is a genuine transaction. There is no evidence on record to conclude that appellant paid any amount more than Re. 1 per share for this purchase. Consequently, addition of Rs.34,59,55,100 made by the AO is deleted. Grounds 4.2 to 4.4 are allowed. 17.2 I have duly considered the facts on record and perused the assessment order and the written submissions of the appellant. In my considered opinion, except the absence of Arbit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... even if the transaction is held to be a subterfuge, no addition as unaccounted investment u/s 69B can be made in the hands of the appellant in the absence of any positive evidence of extra and unaccounted payment brought on record by the AO. Thus, it is held, following the reasoning given in para 15 above that the transaction of purchase of shares of RLL by the appellant at Re. 1 per share is a genuine transaction and not at all a sham, collusive or colorable transaction. Thus, there is no merit in the addition of Rs.3,45,20,508/- made by the AO. The addition is therefore deleted. Appellant gets equivalent relief. Related grounds succeed. Legal Grounds 1.1, 1.2, 3.1, 4.1 and 5.1 18. Now I turn to the legal grounds based on the ratio of Saumya Construction (supra) raised by the appellant. As discussed at appropriate places (supra), I have categorically held that there is no credible material, seized or otherwise, in possession of the AO justifying any of the adverse observations made, adverse inferences drawn, adverse findings given or for any of the additions made by her. After hearing to vehement arguments of the AR, after perusing the written submissions filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credible and independent material brought on record by the AO to support his finding that in fact Rs.42.5 crores has been received as consideration towards transfer of entire shareholding in RLL, I have come to a considered conclusion that none of the above five seized documents would qualify to be incriminating . As rightly submitted by the AR, the plain dictionary meaning of incriminating is to be making someone appear guilty of a crime or wrongdoing . Thus, the document to be incriminating so as to be validly conferring jurisdiction u/s 153A or 153C for triggering AO's interference has necessarily to record a transaction which at least prima fade indicates unaccounted/cash/doubtful transaction. The document relied upon by the AO as pertaining to the appellant and treated by her as incriminating are unquestionably not incriminating in as much as none of them record any completed or proper transaction, leave aside such transaction pointing towards guilt or wrong-doing or act of tax evasion of appellant. As already held by me, the e-mail communications and the Offer Letter of Lupin are themselves futuristic and tentative in nature and probabilistic in tenor. In my cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO during original assessment could rightly be treated as incriminating . In my considered opinion, these internal communications undertaken at negotiation stage have become redundant and irrelevant once final transactions have taken place, and therefore whether or not the same were not produced or might not be produced before the AO is an irrelevant consideration. Moreover, when a businessman or his associates enter into hundreds of mail-communications, which of them might not be produced is an unending and an equally meaningless enquiry. The AO, therefore, doubtlessly and positively must show incriminality in the very seized documents relied upon by her to validate her getting triggered for unsettling a concluded issue. Finally, my findings on merit (supra) would also indicate that I have already held these documents to be irrelevant and consequently and obviously therefore to be not incriminating. Thus, I agree with the Ld. AR that AO has exceeded her authority, as explained in Saumya Construction (supra) by Gujarat High Court, in interfering with an already concluded issue and in making the addition on an issue for which there was no relevant and credible enabling i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 24 Shareholders' agreement dated 6/6/2003 Formal document. Nothing suspicious. Declared void by Arbitration award dated 5/6/2007. No evidentiary value. 2 24 Shareholders' agreement dated 31/8/2005 As above. 24 Shareholders' agreement dated 15/12/2006 As above. 4 32 E-mail of Milin Mehta dated 1/7/2007 Seeks an advice on the structure of future transaction. Nothing fishy or incriminating . 5 35 Note on restructuring of RL No negative inference or suspicion possible. 6 36,37 Valuation Certification K.A. 31iah a Co. Evidence that market value of shares of RL is higher than Re. 1 per share, which information the AO already has. Nothing incriminating to trigger interference . 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more than the transacted consideration without simultaneously showing that a higher consideration than the transacted consideration of Re.1 has changed hands can, with regard to transaction of purchase of shares by the appellant, be regarded as incriminating. I agree with the Ld. AR therefore, that the transactions showing the true value of the shares of RL at Rs.80, Rs.94, Rs.318 etc. was already disclosed in the returns of income and in the Balance Sheet of RL and that there is no incriminating seized material relied upon by the AO which can be said not to be already with the Department or which might not be produced by the appellant. I also agree with the Ld. AR that there is nothing incriminating in these documents so as to validate the assumption of jurisdiction by the AO in interfering with the closed and concluded issue and making the addition. As such Saumya Construction (supra) is squarely applicable and in absence of any meaningfully incriminating seized material in possession of the AO, the AO could not have made this addition of Rs. 34,59,55,100/- in this unabated assessment . Ground No. 4.1 stands allowed. Addition of Rs.3,45,20,508/- as Unaccounted Inves ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evisiting this issue in assessment u/s 153A, in my considered opinion, would be a loose paper/document/diary or any such inherently incriminating material, or which records some other dubious and circuitous arrangement, which prima facie indicate that consideration, in cash or in kind, of an amount more than at Re.l per share has been paid or planned. The shareholders' agreement relied upon and considered by AO to be incriminating is a bald document with regard to any incriminality and the AO has merely used the document to argue that her conjecture that appellant must have paid Rs.3,45,20,508/- from unaccounted sources is well-founded. I therefore hold that there is no incriminating material in possession of the AO so as to authorize her to re-visit the issue of purchase of shares of RLL by the appellant at Re. 1 and to make the impugned addition while framing re-assessment u/s 153A in this assessment which had attained finality before the date of the search and had therefore remained unabated within the meaning of second proviso to section 153A. In other words, the AO indeed exceeded her authority u/s 153A while making the addition de hors any incriminating seized material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.8665 Net Consideration receivable as per Share Purchase Agreement dated 26-9-2007 36.6335 153.61 13.2.1 Detailed explanation of all the above adjustments has been given in the original submission dated 17-11-2016 from Para 50 to 57. The sale consideration was fixed after considering the above adjustments. The ld. AO has completely ignored these adjustments and adopted the initial offer value. 13.2.2 The Assessee in the submissions made before the ld. AO had explained each and every adjustment with corroborative evidences. 13.2.3 Issue regarding bad inventory, we can see that in the offer letter, in point no iii) of para 2, it is mentioned that the Offer Value shall be subject to adjustments on account of non-moving/unrealizable inventory, unrecoverable debts, receivables that are outstanding for a period of 180 days and are found unrecoverable/non-saleable in mutual discussions with management to the satisfaction of Lupin, and any other assets that are susceptible to diminution in value. The statement showing non-moving inventory as on 31-08-2007 was filed before the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 70.00 lacs. This increased the liability of RLL and accordingly, the purchase price was reduced by the said sum. It is submitted that RLL discharged the said liability to RL. 13.7 Issue regarding fees to Yes Bank, it is fact that the Assessee had availed services of Yes Bank for facilitating transfer of shares to Lupin Ltd. Lupin Ltd had incurred expenditure in regards to fees to Yes Bank on behalf of the Assessee, for availing these services. Hence, the amount of fees amounting to Rs. 85 Lacs incurred by Lupin Ltd has been recovered by way of reducing the same from the initial offer value. Copy of the bill raised by YES Bank is attached at page no. 341 of the paper book. It is pertinent to mention that the ld. AO has doubted that no services were provided by Yes Bank without even appreciating that the AO herself relied on the emails which are exchanged by the person (Mr. Vikas Dawra) working in Yes Bank and therefore this contention of the AO is devoid of any merit and merely a product of suspicion. 13.8 Supplementary Agreement to Share Purchase Agreement Rs. 18,05,764, it is submitted that the ld. AO ignored the Supplementary Agreement to the Share Purchase Agreement date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessee. Further, the email is even before Initial Offer Letter and hence redundant. E-mail from Assessee to Vikas Dawra (Yes Bank) 13-08-2007 14 No evidence of unaccounted transaction. Merely an opinion of Assessee. Further, the email is even before Initial Offer Letter and hence redundant. E-mail from Assessee to Ajay Agrawal 16-08-2007 15 No evidence of unaccounted transaction. Further, the email is even before Initial Offer Letter and hence redundant. 13.12 We are of the opinion that considering the above, it can be appreciated that none of the documents relied upon by the ld. AO are incriminating in nature and therefore no addition can be made based on such documents. Hence, it is submitted that ld. CIT(A) has correctly deleted the addition of Rs. 11,62,69,907 on account of alleged unaccounted consideration. 13.13 We hold that the ld. CIT(A) has correctly deleted the addition considering the decision of Hon ble Gujarat High Court in the case of PCIT v. Saumya Construction (387 ITR 529) wherein it has been held that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l be taxable under the head capital gains. 13.14.5 The AO has invoked provisions of Section 28(va) of the Act to treat gain on transfer of RLL shares as business income. Your kind office will appreciate that clause (i) of proviso to section 28(va) provides that section 28(va) shall not apply in case of any sum received or receivable in cash or kind, on account of transfer of the right to manufacture, produce or process any article or thing or right to carry on any business or profession, which is chargeable under the head Capital gains . It is submitted that the right of management and right to carry on business is squarely covered under the definition Capital Asset as per explanation to Section 2(14). Therefore as per clause (i) of proviso to section 28(va), the income cannot be treated as business income u/s 28(va). 13.14.6 Our attention was drawn to the facts that Section 50 B of the Act duly provides that sale of the undertaking or division would be treated as sale of the capital asset and taxed accordingly. It is submitted the term undertaking is defined in Explanation 1 to Section 2 (19AA) which mention that undertaking means a business as a whole. This would include ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (10,90,000 x Rs.318.39). Consequently, the AO made addition of Rs. 34,59,55,100 (Rs.34,70,45,100 Rs.10,90,000) to the income of the Assessee. 13.15.2 The Assessee and ARP had entered into an arbitration agreement to resolve the differences pertaining to shareholding in RL. ARP has given a detailed account of circumstances that existed due to which he and the Assessee entered into arbitration. In the arbitration proceedings, all the above mentioned facts were taken into cognizance, and accordingly direction was given to the transferor to transfer the shares to the Assessee at Re. 1 per share. It is submitted that the price of Re. 1 has been ruled by the arbitrator keeping the nature of transaction and the above mentioned circumstances in mind. Since, this is an inter transfer of shares, and the main purpose of the said transaction was to change the shareholding of the company, the price of Re. 1 was adjudged by the arbitrator. There was no intention of the shareholders to enrich themselves on the sale of their shares in RL. 13.15.3 As we can see that all the above facts were also presented at the time of regular assessment of ARP for the year under consideration, in which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above, we have noticed that in the statement recorded during the course of search itself the Arbitration Award was referred for transfer of shares. This itself shows that the transfer of shares to the Assessee by ARP was under special circumstances and based on the order of the Arbitrator. We therefore submit that the allegation of the AO that the award was a colorable devise without bring any material suggesting so is purely based on imagination and far from truth. 13.15.7 Based on the above statement, the Assessee on oath has clearly confirmed the existence of arbitration award/order which gave clear statutory direction to the transferor to transfer the shares of RL at Rs. 1 per share. Further, a statement recorded u/s. 132(4) being spontaneous is considered to true and correct unless pointed out otherwise. 13.15.8 As we can see that against the above, the AO has not brought on record any material to show how the Arbitration Award is colorable. We therefore submit that the allegation of the AO are to be rejected and the issue may please be decided in favour of the Assessee. 13.15.9 It is fact that no provision in any law, permits arbitrary adoption of value of unquoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares of RLL to Lupin. Further, the Assessee has explained in detail the reason and circumstances behind the decision of making an internal transfer of shares at a price of Rs. 1 per share in the Ground No. 2. 14. On the other hand, learned D.R. relied on the assessment order and has nothing to controvert the finding of learned CIT(A). 15. Considering the above, since during search no incriminating material was seized or found from the possession of the assessee, we hold that the ld. CIT(A) passed detailed and reasoned order and has correctly deleted the addition of Rs. 3,45,20,508 as income of the Assessee. Thus, order of learned CIT(A) does not require any kind of interference at our end. 16. In the result, we dismiss the appeal of the Revenue. 17. Since, we have dismissed the appeal of the Revenue in connecting ITA No.322/Ahd/2017 18. Since, we have dismissed the appeal of the Revenue in connecting IT(SS)A No.322/Ahd/2017 (in case of Shri Atul Dalmia) for A.Y. 2008-09, in similar facts and circumstances, therefore, the same shall apply mutatis mutandis in other three appeals. 19. In the result, all captioned four appeals filed by Revenue are dismissed. T ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
