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2016 (5) TMI 1015 - ITAT MUMBAI

2016 (5) TMI 1015 - ITAT MUMBAI - TMI - Revision u/s 263 - Claim of long term capital loss - Held that:- It is the responsibility of the AO to bring on record any incriminating material to support the view that fair market value is the full value of the consideration of the transferred asset. In the case of bargain transactions and in the absence of any such material, the addition made by the AO by relying on the fair market value is unsustainable in law. Thus, in our view, the AO examined this .....

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T cannot recommend such unsustainable additions as the case of revenue loss while revising the order of the AO. CIT can assume jurisdiction only when the AO assumed the law erroneously ie incorrect assumption of law. CIT has not made out any such erroneous assumption of law in this case either in matters of cost of acquisition or in matters of sale transactions. We also dismiss the CIT / CIT-DR‟s vehement argument that AO failed to apply his mind and AO failed to conduct meaningful inquiri .....

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ubject matter of scrutiny by the AO in the regular assessment proceedings. AO is also aware of the undisputed fact of the assessee calculating premium at ₹ 715/- per share from SSL. It is not clear from the record what is the revenue loss on this issue from the CIT‟s point of view? If the premium is excessive from the Department‟s point of view, it is the gain f the assessee. In our opinion, there is no revenue loss on this issue to the assessee. Further, it is obvious that cap .....

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he Ld Counsel for the assessee, this issue of premium falls in the capital field with no revenue implication on the income assessed by the AO. On these facts, we are of the opinion that the arguments of the CIT / CIT-DR is misplaced qua the provisions of section 263 of the Act.

In assessment, AO accepts various claims of the assessee made in the returns after scrutinizing or auditing the accounts of the assessee and made few additions / disallowed few claims. Not all such acceptances .....

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wrongly assumed jurisdiction u/s 263 of the Act on all these issues raised by him. Considering the inquiries done by the AO clearly made out in the records above, we are of the opinion that this is not the case of "inadequate inquiry or improper inquiry or perfunctory inquiry" - Decided in favour of assessee. - I.T.A. No.2374/M/2015 - Dated:- 20-4-2016 - SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For The Appellant by : Shri Vijay Mehta For The Respondent .....

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e order of the CIT under section 263 of the Act may kindly be quashed and the assessment order of the AO dated 19.3.2014 may be restored. 2. On the facts and in the circumstances of the case and in law, the Hon‟ble CIT erred in setting aside the appellant‟s case back to the Ld AO for making a fresh assessment by holding that the assessment order dated 19.3.2014 made by the AO is erroneous and prejudicial to the interest of the Revenue. Further, the AO erred in making various observat .....

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al income of ₹ 9.9 lakhs (rounded off) under the normal provisions and ₹ 45 lakhs under the MAT provisions. In the return of income, assessee claimed long term capital gains of ₹ 20.27 Crs (rounded off) and the short term capital gains of ₹ 18.90 lakhs (rounded off). AO scrutinized the return of income and allowed the claims of the assessee. In the assessment, AO determined the taxes of ₹ 3,05,879/- under the normal provisions and ₹ 8,34,128/- under the MAT pr .....

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the Act in the appellant‟s case. The appellant prays that the order of the CIT u/s 263 of the Act may be kindly quashed and the assessment order of the AO dated 19.3.2014 may be restored. 2. On the facts ain the circumstances of the case and in law, the Hon‟ble CIT erred in setting aside the appellant‟s case back to the Ld AO for making a fresh assessment by holding that the assessment order dated 19.3.2014 made by the AO is erroneous and prejudicial to the interest of the Rev .....

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ded in the books of accounts. These shares acquired by the assessee from the original owner of CEAT Ltd through RIFL. The acquisition of the shares by the assessee through the above said agencies was approved by the jurisdictional High Court in connection with the claim of amalgamation, as a part of the business reengineering. There are three such lots of shares involving three companies namely, CESC; SAREGAMA and PHILIPS CARBON BLACK LTD. These shares were subsequently sold to Ujala Agency P Lt .....

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nvoking the provisions of section 49(1)(iii)(e) read with section 47(iv) of the Act. Assessee noted the capital gains against the capital loss and the said loss was claimed for carry forwarding benefits. The long term capital loss reported in the return of income worked out to ₹ 20,27,13,990/-. The short term capital gains is ₹ 18,89,591/-. After examining the above facts, the Principal CIT came to the conclusion that the AO did not conduct worthwhile inquiries which he should have d .....

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he same by way of floating the rights issue with the premium of ₹ 715/- per share. It is the allegation of the Principal CIT that the AO failed to examine this issue by conducting meaningful inquiries. 4. After going through the revision order of the Principal CIT and the arguments of the Ld DR for the Revenue the following are the issues and the list of allegations are as under: (1) AO did not examine any aspect with regard to the cost of acquisition; (2) AO did not make any inquiries reg .....

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20 Crs. (5) In connection with sale of shares, the AO did not apply his mind regarding the applicability of the provisions of section 47(iv) of the Act. (6) AO did not examine the substance of the transactions which involved deviation of the RPG Goenka group of companies between two brothers ie Shri Harsh Goenka and Shri Sanjiv Goenka. (7) Accepting a provision receivable from M/s. Offshore India Ltd; fair market valuation report; revaluation of distribution of shares between HML and STEL etc ar .....

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our attention to pages 68 to 76 of the said written submission, Ld Counsel for the assessee submitted that this aspect of cost of acquisition was deeply examined by the AO. To support the same, Ld Counsel for the assessee brought our attention to the assessee‟s letter dated 12.3.2014 (placed at page 68 of the PB), which is the subject matter before the DCIT-6(2), Mumbai for the AY 2011-2012 and demonstrated the fact of assessee acquiring of shares in the Scheme of Arrangement and also the .....

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es to the invoices showing the purchases of shares of CESC Ltd; SAREGAMA and PHILIPS CARBON BLACK LTD. These documents were available to the AO during the assessment proceedings. This is the case of the Ld Counsel for the assessee that AO issued questionnaire dated 6.2.2014 calling for relevant details on this specific issue. Ld Counsel for the assessee brought our attention to page 7 of the PB, which constitutes detailed submission dated 19.2.2014 and mentioned that the AO examined the issue of .....

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benefit trust, which relates to the earlier AY 2010- 2011. Bringing our attention to page 10, item no.9, Ld Counsel for the assessee demonstrated the fact about the issuing of equity shares on rights basis to SSL was informed to the AO in connection with Question No.9 of the questionnaire. Bringing our attention to page 33 of the PB, which constitutes Annexure-3 relating to the details of increase in the share capital, and submitted that the premium per share at ₹ 715/- was given in column .....

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y from the AY 2013-2014 only and not to the AY under consideration. Assessee informed the same to the AO as per the written submission dated 14.3.2014 (page 85, para D.2.1 of the PB). 7. Regarding the allegation of sale of shares at the below market price to Ujala Agency Pvt Ltd and Goodluck Dealcom Ltd, it is the argument of the Ld DR that the said shares were sold for a sum of ₹ 46.93 Crs to related concerns against the market rate of ₹ 128.96 Crs. In this regard, the argument of t .....

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ong term capital loss of ₹ 20.27 Crs on sale of the listed companies should not be disallowed. Assessing Officer is aware of the claim of the said loss of ₹ 20.27 Crs in connection with the sale of shares of listed companies ie CSES Ltd; SAREGAMA and PHILIPS CARBON BLACK LTD. Page 78 of the PB deals with the cost of the acquisition of the shares and page 79 of the PB deals with the sale price and the applicability of coordinate Bench decision in the case of Rupee Finance & Manage .....

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r cannot teach the businessman as to bow to conduct the business. Relying on the coordinate Bench decision in the case of Nariman Point Building Services and Trading Pvt Ltd (26 Taxmann.com 16), Ld Counsel for the assessee submitted that section 48 does not have any reference to the market value of the asset and it only refers to the full value consideration. The full value consideration constitutes a market value on the date of transfer. This issue suffers from debate and the CIT cannot trust h .....

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nd of what might have been received or gained by the assessee, which is improper for the CIT and the CIT-DR to argue for replacing the full value consideration with fair market value of the shares. 8. In connection with the allegation of CIT / CIT-DR regarding Assessing Officers failure to apply the provisions of section 47(iv) of the Act to the case of the assessee, who received shares through chain of transfers from earlier owners, Ld Counsel for the assessee submitted that the aspect of acqui .....

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t is the argument of the Ld Counsel for the assessee that in the light of the details already available to the Assessing Officer at the relevant point of time, CIT has no jurisdiction on the ground of non-application of mind by the AO‟. 9. Regarding the arguments relating to the firm v/s substance, in the context of deviation of RPG Group of companies between two brothers, Ld Counsel for the assessee submitted that the deviation of business empire between Shri Harsh Goenka and Shri Sanjeev .....

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ncipal CIT touched the issues and concluded without quantifying the revenue loss amounts to hit and run‟ case. In this regard, Ld Counsel for the assessee submitted that the CIT is bound by law to quantify the revenue loss in his allegations. 10. Referring to a provision of ₹ 2.42 Crs in the context of sale of beneficial interest of RIFL benefit trust to M/s. Offshore India Ltd, Ld Counsel for the assessee submitted that the assessee explained the same vide his letter dated 19.2.2014 .....

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sheet, as raised by the Ld DR for the Revenue, Ld Counsel for the assessee brought our attention to the written submission and calculation of cost of ₹ 6,07,57,222/- was arrived at based on the FIFO method and not the weighted average cost by the assessee. In this regard, Ld Counsel for the assessee brought our attention to the working shown in the Annexure-B, which was available before the Assessing Officer at the relevant point of time. 12. Regarding all the miscellaneous issues pointed .....

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ibunal 13. We have heard both the parties and perused the orders of the Revenue Authorities and the voluminous paper book filed before us. We have also gone through the written submissions made by both the parties giving summary of their points of view. On examining the various arguments and counter arguments, it is noticed that the said arguments can be categorized in two types namely (i) revenue loss quantified issues and (ii) others. The allegation of non-application of mind by the AO on both .....

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sition of shares, applicability of the provisions of sections 47, 49 and 56 of the Act and completed the regular assessment after examining the various aspect of this long term capital loss of ₹ 20.23 Crs. In this regard, Ld Counsel for the assessee brought our attention to pages 52, 53, 55, 57, 58, 62, 63, 65 and 66 etc. He also brought our attention to the written submission at pages 68-76 and 78 of the paper book. These pages deals with the evidence about the purchases, principle merger .....

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es about the agencies of the shares, claim of amalgamation, applicability of the provisions of section 49(1) and 47(iv) of the Act etc. After considering the above divergent stands of both the parties and after considering the voluminous paper books available before us, we find it relevant to discuss this issue in the following paras. 15. To start with, we have perused the assessee‟s letter dated 12.3.2014 (page 68 of the PB) and the same refers to the assessee for the AY under considerati .....

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ngly and offered to tax in the return of income. Based on the above submission, facts and circumstances of our client‟s case the settled legal provisions referred to above and also the objects and intent of the legislature, your Goodself‟s proposal to exclude the period of holding of the impugned shares for which amalgamating company has held the same is not justified and as such ought to be deleted. We hope the above replies to your queries and request you to kindly treat the same a .....

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long term capital loss of ₹ 20. 23 Crs and the submissions in para 2 of page 78 above are directly on the issue of cost of acquisition of shares. Para C‟ of page 79 is directly on the sale price qua the substituting the fair market value to the full value of the consideration. It is relevant to mention here the case of the CIT. The revision order deals with the documents relating to the requirement of considering the fair market value of the shares in place of full value of the consi .....

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rred asset. In the case of bargain transactions and in the absence of any such material, the addition made by the AO by relying on the fair market value is unsustainable in law. Thus, in our view, the AO examined this issue of claim of loss of ₹ 20.23 Crs in the regular assessment proceedings made u/s 143(3) of the Act. Further, we have no confusion in our mind to mention here that AO has gone through the specific issues relating to the cost of acquisition of shares of CESC; SAREGAMA and P .....

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case either in matters of cost of acquisition or in matters of sale transactions. We also dismiss the CIT / CIT-DR‟s vehement argument that AO failed to apply his mind and AO failed to conduct meaningful inquiries into these aspects. There is an evidence for raising this issue in the regular assessment proceedings, there is a volume of letters between the AO and the assessee on this issue and the above extracts are heavily relied. Therefore, in our opinion, it is not a case of non-applica .....

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dy discussed in the above paras of this order. In brief, the assessee issued equity shares on rights basis to SSL to settle its outstanding payables. These payables include payer on account of purchase of equity shares worth ₹ 20.27 Crs in the year under consideration and outstanding payables on account of purchase of beneficial interest in RIFL benefit trust amount to ₹ 45.31 Crs in the immediately preceding assessment year. The rights were issued with the premium of ₹ 715/- p .....

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e brought our attention to Annexure-3 palced at page 33 of the PB and submitted that the assessee informed the AO about the fact of collecting of premium @ ₹ 715/- per share. The details given in table (9th column is relevant) given on the said page 33 of the PB. From column 10, the following was read out:- Receivable from instant on account of transfer of equity shares and beneficial interest in RIFL beneficial trust . 19. The said table at page 33 was given in the context of furnishing o .....

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on 56(2)(vii)(b) of the Act by the Finance Act, 2012 is operation w.e.f 1.4.2013 ie from AY 2013-14 only. 20. Per contra, the case of the Ld CIT-DR is that the AO failed to make any inquiry into the reasonableness of the premium. 21. On hearing both the parties on the application of mind by the AO into the reasonableness of the premium, we find nee to extracting certain relevant facts to this order and they are as under:- 22. Question Nos.9 and 10 of the questionnaire dated 6.2.2014 issued by th .....

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lating premium at ₹ 715/- per share from SSL. It is not clear from the record what is the revenue loss on this issue from the CIT‟s point of view? If the premium is excessive from the Department‟s point of view, it is the gain f the assessee. In our opinion, there is no revenue loss on this issue to the assessee. Further, it is obvious that capital loss cannot be the ground for the CIT to assume jurisdiction u/s 263 of the Act. The capital receipt on this kind is tax neutral so .....

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he AO. On these facts, we are of the opinion that the arguments of the CIT / CIT-DR is misplaced qua the provisions of section 263 of the Act. Decision on the relevance of Explanation-2 to section 263(1) of the Act 26. Referring to the amendment to clause (c) to section 263(1) of the Act, Ld AR mentioned the provisions of section 263 of the Act were amended by the Finance Act, 2015 w.e.f. 1.6.2015 whereby Explanation-2 to section 263(1) was inserted. The Principal CIT can validly assume jurisdic .....

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Crompton Greaves Ltd (supra). Per contra, Ld Counsel for the assessee‟s argument is that the said amendment is prospective in nature and it should be applied to the orders revised prior to the amendment. Regarding the decision of the Tribunal in the case of Crompton Greaves Ltd (supra), Ld Counsel for the assessee submitted that the said decision was passed without considering the order of the Tribunal in the case of M/s. A.V. Industries vs. ACIT in ITA No. 3469/M/2010 (AY 2005-06), dated .....

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that the decision of the Tribunal in the case of Crompton Greaves Ltd (supra) did not deal with the issue ie whether the said amendment is in retrospective or prospective in nature. Ld Counsel for the assessee also mentioned that a favourable decision should be considered when contrary / divergent decisions exist on the issue. 27. On considering the arguments of both the parties as well as the cited decisions on this issue, we find the same is relevant only if the AO passed an order without mak .....

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ries by the AO during the assessment. The documentation cited above in this order suggest the above finding. We cannot understand why the AO should travel into zone of purchase price‟ of the shares of CFC, Saregama RPGCITHL as they were acquired in the past. Any addition on the account of purchase price in this year is unsustainable in law. It is a settled legal principle. Any addition relating to investment should be made in the year of investment. Regarding sale price also, the same are .....

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iries during the regular assessment proceedings, forming an opinion in the matter with due application of his mind and not making any addition after due inquiries. With so much of evidence on records in support of the above, we cannot hold AO failed to make meaningful inquiries‟. Thus, we dismiss the arguments of Ld DR and allow the views of the Ld Counsel for the assessee. Accordingly, we hold, Principal CIT erroneously assumed jurisdiction on this issue too. 29. Before parting on the iss .....

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sed by the CIT in revision proceedings. The same should not be used in cases of some or full inquiries into such matter. Regarding inadequate inquiry‟, we are of the opinion that the expression inadequacy‟ is not defined and it is a matter of subjective and relative item. What is the deciding item between the adequacy and inadequacy , similar is the expression of improper inquiry . What is the deciding live between proper and improper inquiries? These expressions need to be understoo .....

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