2019 (10) TMI 1395 - AT - Income Tax

Revision u/s 263 - transfer of shares by way of gift - Capital gain chargeability - whether there is any prohibition of transfer of shares by way of gift by a company to another company? - HELD THAT - When the assessee had duly explained that the transfer of shares by way of gift at Nil consideration could not be brought to tax as it is either exempt u/s 47(iii) or not taxable u/s 45 or 56 of the Act and more specifically when there is no prohibition of transfer of shares by way of gift by a company to another company by placing reliance on certain decisions which were placed on record by the ld AO the action of the ld AO in duly considering and appreciating the same would not amount to non-consideration or non enquiry of the said issue both on facts as well as on law. This is a case where it could be safely concluded that the ld AO had duly made proper enquiries in the assessment by raising the relevant questions and assessee replying thereon and thereafter the ld AO on proper appreciation of facts and legal position thereon duly supported by various decisions that were placed on record had taken a only possible view in the matter. Hence his order by any stretch of imagination cannot be construed as erroneous so as to warrant any revision u/s 263 of the Act by the ld CIT. We find that the ld CIT at the beginning of his show cause notice stated that no enquiry was made by the ld AO in the instant case on the subject mentioned transactions of gift of shares of Dish TV India Ltd by assessee to its related concern. But in the final para of his order stated that the ld AO had concluded without making proper enquiries. This shows the complete departure by the ld CIT from his show cause notice. We find that by his version in final para of his order the ld CIT had conceded the fact that the ld AO had indeed made enquiries on the impugned issue of transfer of shares by way of gift to another related concern. Hence once an issue which had been enquired by the ld AO and assessee having given detailed reply explaining the purpose factual and legal position thereon and ld AO having taken a possible view thereon it cannot be said that the order passed by the ld AO is erroneous and hence no revision proceedings u/s 263 of the Act would lie on the same. - Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Whether the Principal Commissioner of Income Tax (CIT) was justified in invoking revisionary jurisdiction under Section 263 of the Income Tax Act.
2. Whether the transfer of shares by the assessee to its related party at NIL consideration constitutes a valid gift and is exempt from capital gains tax.
3. Whether the Assessing Officer (AO) made proper enquiries during the assessment proceedings regarding the transfer of shares.

Detailed Analysis:

Issue 1: Invocation of Revisionary Jurisdiction Under Section 263
The primary issue was whether the CIT was justified in invoking revisionary jurisdiction under Section 263. The CIT treated the AO's order as erroneous and prejudicial to the interests of revenue because the AO accepted the assessee's claim that the transfer of shares at NIL consideration was a gift without making proper enquiries. The CIT issued a show-cause notice and ultimately set aside the AO's order, directing a fresh assessment.

Issue 2: Transfer of Shares as a Valid Gift
The assessee, engaged in media distribution, transferred 2,45,74,137 equity shares of Dish TV India Limited to its related party at NIL consideration, claiming it was a gift. The assessee argued that the transfer was for administrative convenience and complied with corporate laws, including board approvals and SEBI disclosures. The assessee cited several judicial precedents, including the Delhi High Court in DIT v. Copal Research Limited and the Gujarat High Court in Vodafone Essar Gujarat Ltd., which upheld that corporate transfers without monetary consideration for business exigencies are valid and not tax avoidance schemes.

Issue 3: Proper Enquiries by the AO
The assessee contended that the AO made proper enquiries during the assessment proceedings. The AO issued a notice under Section 142(1) asking for details and documentary evidence of the transfer. The assessee provided detailed replies, including board resolutions, demat statements, and legal arguments supported by judicial precedents. The AO's acceptance of these explanations indicated that the AO had made due enquiries and formed a considered opinion.

Findings of the Tribunal:
1. Proper Enquiries by AO: The Tribunal found that the AO had indeed made proper enquiries into the transaction. The assessee's detailed submissions and the AO's subsequent acceptance indicated that the AO had considered both factual and legal aspects before concluding that the transfer was a valid gift exempt from capital gains tax.

2. Transfer as a Valid Gift: The Tribunal agreed with the assessee's argument that the transfer of shares at NIL consideration constituted a valid gift under Section 47(iii) of the Act. The Tribunal cited various judicial precedents, including the Mumbai Tribunal in DP World (P.) Ltd. and the Chennai Tribunal in Redington (India) Ltd., which upheld that corporate entities can make gifts and such transfers are not taxable as capital gains.

3. CIT's Revisionary Jurisdiction: The Tribunal held that the CIT's action of invoking Section 263 was unjustified. The AO had made proper enquiries, and the CIT's attempt to substitute his opinion for that of the AO was not permissible. The Tribunal emphasized that for Section 263 to be invoked, the order must be both erroneous and prejudicial to the interests of revenue, which was not the case here.

Conclusion:
The Tribunal quashed the CIT's revision order under Section 263, holding that the AO's order was neither erroneous nor prejudicial to the interests of revenue. The appeal of the assessee was allowed, and the Tribunal directed the AO to consider the withdrawal of the long-term capital loss claim in accordance with the law.

Order Pronounced:
The appeal of the assessee was allowed, and the order was pronounced in the open court on 04/10/2019.