TMI Blog2018 (12) TMI 281X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, we concur with the views of the learned principal Commissioner of income tax that according to the explanation (2) of section 263 of the Income 56 Tax Act, 1961, the order passed by the learned assessing officer is erroneous so far as it is prejudicial to the interest of the revenue. We confirm the finding of CIT-A in holding that the order passed by the learned assessing officer under section 143 (3) on 2/1/2016 is erroneous in so far as prejudicial to the interest of the revenue to the extent that the learned assessing officer has not examined the computation of the Book Profit under section 115 JB - decided against assessee. - ITA No. 2252/Del./2018 - - - Dated:- 29-11-2018 - Shri Bhavnesh Saini, Judicial Member And Shri L.P. Sahu, Accountant Member For the Appellant : Sh. Ajay Vohra, Sr. Advocate, Sh. Rohit Jain, Advocate, Ms. Deepashree Rao, CA And Sh. Vibhu Gupta, CA For the Respondent : Smt. Paramita Tripathi, CIT/DR ORDER PER L.P. SAHU, A.M.: This appeal has been filed by the assessee against the revisionary order passed by the CIT-9, New Delhi dated 26.02.2018 u/s. 263 of the Income-tax Act, 1961. Following grounds have been raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts before the High Court at the time of sanction of scheme of amalgamation with the malafide intention of evading taxes. 3.6 That the PCIT erred in holding that the order of High Court approving the scheme of amalgamation was not binding on the Revenue and where amalgamation was used as a facade for tax evasion, the Revenue would probe into the transaction. 3.7 That the PCIT erred in holding that the assessee adopted Purchase Method as against Pooling of Interest method for the purpose of amalgamation, which was without any justification and solely for the purpose of revaluing shares of HCLT in its financial statements. 3.8 That the PCIT failed to appreciate the observations of the statutory auditor ad further that in the absence of any qualification by the statutory auditors, it was not permissible to rewrite the accounts of the assessee for the purpose of computing Book Profit under section 115JB of the Act by treating the amount of securities premium as revaluation reserve. 3.9 That the PCIT erred in holding that the assessing officer failed to make necessary enquiries and passed the order in casual/ hurried manner, which could be subjected to revision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 491.70 crores appx. is claimed/ treated as exempt u/s 10(38) of the Act. However, the assessee company has re-valued the shares of M/s HCL Technologies Ltd. on 01.04.2012 and on the basis of valuation reports from M/s ICICI Securities, M/s SBI Capital and M/s. SSPA Company, the share was re-valued at ₹ 790 per share. In normal course the Long Term Capital Gain of ₹ 491.68 crores as per the proviso to Section 10(38) of the Act should have been offered by the assessee for MAT u/s. 115JB of the Act. However, the assessee in the books of account changed the cost of these shares to ₹ 790 per share. The assessee stated that this was done in order to restate the book (fair value) of the shares at its fair market value and accordingly shown the Long Term Capital Loss of ₹ 291.82 crores . Thus the AO has failed to consider the applicability of proviso to Section 10(38) and Section 115JB of the Act and accordingly has not questioned/inquired about the assessee s claim for not offering its LTCG for MAT purpose u/s 115JB of the Act. Further, the AO has failed to examine/verify the impact/repercussion of amalgamation scheme from the taxation angle. 2.1. From th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly from the taxation angle. (c) As Would be discussed later there was no need/ justification of the amalgamation of the three companies in this case and the entire scheme was designed by the assessee for the sole purpose of not paying the due tax on the LTCG which attracted MAT u/s. 115JB. (d) Sections 391 to 394 of the Companies Act describe the procedure to be followed in reconstruction/amalgamation of companies. It nowhere discusses the Purchase Method . As would be discussed in detail later, the SOA was designed by the assessee and the facts and the circumstances of the three companies indicate that if there was any need of amalgamation then this amalgamation should fall in the category of Pooling of Interest method. However, the assessee deliberately and without justification, considered this amalgamation in the nature of purchase. (e) It is true that the Para 12 of AS-14 permits the transferee company to record the assets and liabilities of the amalgamating companies at fair value, if the situation so requires. (f) The SOA was drafted by assessee and the same(ditto) was approved by the Hon ble Court. However, in the application before the Hon ble Court, the im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permitted for the investment. It is relevant to mention here that on the one hand the assessee takes the plea that AS-13 does not permit the assessee company to re-state the value of its long term investment at a value higher than the cost and the assessee himself was following AS-13. On the other hand in the garb of amalgamation and following AS 14, the assessee himself has re-valued this long term investment (shares of M/s HCL Tech.) at their fair market value. However instead of using the word revaluation, the word restated book value is used. However the effect of both the transactions is same. (j) The assessee has further submitted that the High Court order is binding and Security Premium Account has been rightly credited : The assessee s submission is not correct as Section 391(2) of the Companies Act states that the approved amalgamation would be binding on all the creditors, all the members(shareholders), and also on the company. Thus this section nowhere suggests that the approved amalgamation is binding on all the Government Authorities. Further, the proviso to Section 391(2) of the Companies Act states that no order sanctioning any compromise/arrangements shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and no loans are taken from the banks. (m) The assessee has repeatedly emphasized the fact of due disclosure in the financial statements as required by AS 14. As stated earlier, the auditor has made dissenting comment and has highlighted the deviation from AS-14 done by the assessee as by crediting Security Premium Reserves instead of Capital Reserves. But the disclosure of wrong doing does not take away the natural consequences of attempt of the assessee to evade taxes by deviating from the mandatory AS-14. (n) The assessee has repeatedly submitted that accounting treatment approved by the Court is binding and it has complied with the accounting treatment as prescribed by ICAI/Govt. As discussed earlier, approved amalgamation scheme is binding on creditors and shareholders and it is not binding on department. Further, on the proposed SOA, no comments were either sought or received from the Department. It is again submitted that certain very important facts were hidden from the Hon ble Court. In brief the approved SOA is not binding on the Income Tax Department as the taxation angle has to be examined by the department in its proper perspective. (o) Regarding the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence in the value of shares as Security Premium while infact it is in the nature of Revaluation Reserve . (u). It is true that the Clause (j) was inserted with the intention to plug the cases where on disposal/retirement of re-valued assets, the corresponding untaxed increase in the value credited to Revaluation Reserves escaped MAT. In this case also, the assessee has first credited the difference in value to Security Premium Account instead of Capital Reserves/Revaluation Reserve and then has not offered the amount pertaining to sold shares for calculation of Book Profit. (v) The argument of the assessee claiming that amalgamation was not made with the purpose of evading MAT : The submissions of the assessee claiming that amalgamation was not made/done with the purpose of evading taxes/MAT on Capital Gains on the sale of shares are not acceptable due to following reasons : i. It is a fact that the statutory Auditor has clearly and unambiguously pointed out the assessee s deviation from ASM in the treatment of increase in the value of acquired assets due to valuation at Fair Value. So the assessee s submission that the Auditor has not qualified the Audit report o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 19-09-2012) b. 04-05-2012 1 crore shares of HCL Tech. sold by M/s Slocum for ₹ 500 crores, resulting into LTCG of ₹ 491.70 crores. At this juncture, there was no whisper of amalgamation.' However, the MAT liability on account of LTCG of ₹ 491.70 cr had already crystallized/arisen at this very juncture. c. 30-08-2012 The meeting of Board of Directors of the three companies was held. The resolutions for amalgamation of three companies passed. d. 19.09.2012 Application of amalgamation of three companies submitted in Punjab Haryana High Court. e. 31.01.2013 SOA approved by Hon ble Punjab Haryana High Court f. 12.02.2013 Letter of engagement issued for the valuation of HCL Technology share as on 01-04.2012 g. 20.03.2013 Report submitted by M/s. ICICI Capital,valuing the HCL Tech. shares at ₹ 791 per share (for valuation purpose financial s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saction carrying significant tax implication which should have been brought in the knowledge of the Hon ble Court considering the SOA proposed by the assessee company. vi. The sale of shares on 04-05-2012 not brought to the knowledge of Hon ble High Court and therefore not considered by the Hon ble High Court : As detailed above, the sale of shares took place on 04-05-2012 and SOA was submitted to the Court on 19-09-2012 and Appointed Date was then proposed as 13 for 01-04-2012. The event of sale of shares and its enormous tax implication was not submitted before the Hon ble Court, so this issue was would/could not be considered by the Hon'ble Court. Further, the scheme might have been published in the newspapers, but in those days, comments of the Income Tax Deptt. were not required to be sought by the Hon ble Court, unlike the present day scenario, when the comments of the Department are sought by the Courts before the approval of SOAs. 11. SOA approved by the Hon ble High Court not binding on the department: The assessee company, to avoid the payment of due taxes, then submitted the SOA before the Punjab Haryana High Court and got it approved from the Court. Then ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay Lal Investments 249 ITR 597 (Bom.) iii) Rain Commodities Vs. DCIT (Special Bench - B ITAT Hyderabad) iii) (2016) 76 Taxman, com 360 (Bangalore - Tribunal) 11f. The judgment of Hon Tie Apex Court in Apollo Tyres case was passed in the context of Section 115 JA and not in respect of Section 115JB 12. Analysis of the method of the Amalgamation adopted by the assessee : 12a. The amalgamations are of two types : One type is Amalgamation in the Nature Of Merger , in which all the assets liabilities of Transferor Company become the assets and liabilities of the transferee company after amalgamation. The shareholders holding 90% of the face value of the Equity Shares of the Transferor Company become equity shareholders of the Transferee Company by virtue of amalgamation. The consideration for amalgamation receivable by those equity shareholders of the transferor company is discharged by the transferee company wholly by the issue of equity shares in the transferee company. The business of the transferor company is intended to be carried on by the transferee company. No adjustment is intended to be made to the book values of the assets and liabilities of the tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tives of amalgamation quoted by the assessee : While submitting the SOA to the Court, the assessee submitted the following as objectives of amalgamation : Streamline the treasury operations by consolidating the investment companies. Reduce number of multiple entries in the group. Reduce administrative cost and regulatory compliance. Getting leverage (getting better deal) in loans to be taken. 13a. The details in respect of achievement of above objectives after amalgamation were sought from the assessee vide office letter dated 12-01-2018. In response, the assessee submitted a detailed reply vide letter dated 29-01-2018 13b. The assessee submitted that it is not open to the revenue to question the commercial wisdom of the assessee to undertake any restructuring exercise in accordance with the regulatory mechanism. The assessee s submission is not acceptable, as the assessee is supposed to state that how and how far the objectives of amalgamation have been achieved by them. Here the department has not questioned the business model of the assessee or the expenditure 16 incurred by the assessee. It is being tried to find out, whether there was any need/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it must be within the power of the party to arrange its affairs. If the party seeks assistance of the court only to reduce tax liability, the court should be the last instrument to grant such assistance or judicial process to defeat this liability, or even to avoid tax liability Thus the courts have made up its mind that it would not sanction any scheme whose only aim is to avoid/minimize tax liability. It is to be noted that the power of amalgamation is the administrative power of the Hon ble High Court. This power has been granted by the Companies Act to ensure that the interest of the creditors and share holders (minority share holders) are protected. The amalgamation order of the judiciary is therefore not in the nature of judicial order of the High Court. The judicial orders are binding on the executive within the jurisdiction of the High Court. 13f. The assessee has also submitted a few case laws to emphasize that the assessee can manage his affairs in a manner so as to avoid payment of tax, It has been further submitted that the fact that the motive for a transaction may be to avoid tax does not invalidate it unless a particular enactment so provides . It is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submitted that it has availed credit of ₹ 11.25 crores from Noida authority at 11% interest. Here the assessee did not submit how this transaction was related with the amalgamation and whether it could avail concessional/preferred credit from the Noida Authority due to amalgamation. The assessee also admitted that there were/is no employees on the payroll of the said three companies. 14. Considering the above discussed facts, it is crystal clear that the real and only motive for the whole exercise of amalgamation was to avoid the payment of due taxes on huge LTCG arising on the sale of 1 cr. Shares of M/s HCL Tech, shares. In many cases, the Apex Court (particularly in the Case of McDowell) has held that in appropriate cases, the department can lift the Corporate Veil and examine the real design/ - implications of the scheme submitted/ effected by the assessee. 15. Now coming to the legal and factual matrix of the transaction in the light of the relevant laws under the Income Tax Act. 1961 :- i. Sub-section 5 of Section 115 JB ; Sub-section. 5 of Section 115 JB provides that save as otherwise provided in this section or other provision of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unting for Investments and its violation by the assessee : Para 17 of AS-13 (Accounting for investments) provides as under 17. Long-term investments are usually carried at cost. However, when there is a decline, other than temporary, in the value of a long term investment, the carrying amount is reduced to recognise the decline. Indicators of the value of an investment are obtained by reference to its market value, the investee's assets and results and the expected cash flows from the investment. The type and extent of the investor's stake in the investee are also taken into account. Restrictions on distributions by the investee or on disposal by the investor may affect the value attributed to the investment. From the above, it is apparent that investments are to be carried at cost. If there is decline in value, the same needs to be provided. However, if the fair value/market price is higher, such higher value cannot be accounted for. The principal of conservative accountancy is followed. Fair value is different from Cost . Fair Value as defined in para 3.5 of AS-13 is as under 3.5 Fair value is the amount for which an asset could be exchanged between a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital Gain . If we go by this logic, the exemption from definition of the word transfer as provided 21 in sub-section (vi) of section 47 will also apply only in respect of computation of Capital Gain and not for the purpose of computation of Book Profit . As per this argument, the entire appreciation recorded in the books of accounts as on April 1 2012 post amalgamation, would become taxable for the purpose of computation of Book Profit* u/ s 115JB. v. Clause (j) of Explanation 1 to Section 115JB not applied by the assessee while computing Book Profit : As per Clause (j) of Explanation 1 to Section 115JB, the following is to be added to Book Profit. (j) the amount standing in revaluation reserve relating to revalued asset on the retirement or disposal of such asset. The adoption of Fair Market Value of the Investments as on April V 2012 is nothing but revaluation of the investments. Merely, the credit of increase in value to Securities Premium Account* and not to the Revaluation Reserve (as prescribed by AS-14) would not alter the true character and substance of the event. The revaluation* is not confined to only Land 8s Buildings but can be in respect of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of computing Book Profit u/s 115J of the Act. vii. The clause 2 of Part II of Schedule VI of the Companies Act makes it clear that profit from investments were required to be credited to the revenue account apart from above even as per accounting standards 13 which deals with accounting for investment recommended while para-34 reproduced as under : 34, Disposal of Investments On disposal of an investment, the difference between the carrying amount and net disposal proceeds should be charged or credited to the profit and loss statement. Thus Para 34 of the AS-13 makes it clear that profits from investment have to be credited to the profit and loss account. As observed earlier Section 115JB mandate that annual accounts must be prepared in accordance with the Accounting Policies and Accounting Standards which have been followed for preparing accounts which were laid before the company for annual general meeting. viii. In the last, it was observed by the Hon ble ITAT Mumbai in the case of Sumer Builders that in this case the assessee had earned certain profit on sale of shares and on some industrial units which have not been credited to the P L account, wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .e.f. 01-06-2015), an order passed by the AO shall be deemed to be erroneous in so far as it is prejudicial to the interest of revenue, if in the opinion of the CIT/Pr. CIT, the assessment order is passed by the AO : (i) without making enquiries or verification, which should have been made: (ii) allowing any relief without inquiring into the claim: c. Thus, w.e.f. 01-06-2015, the opinion of the CIT/Pr.CIT who is usually the Reviewing Officer of the work done by the AOs, has become more relevant/important. However, the opinion at this stage should be prima-facie reasonable and logical. If an order passed by the AO is set aside and the AO is directed to do the order afresh, then normally no prejudice /injustice is caused to the assessee, as during the fresh assessment proceedings, due opportunity of being heard and representing the case is allowed to the assessee. Further, if the order is set aside, theft the demand raised vide the original assessment order also no longer remains enforceable on the issue, which is set-aside by CIT/PCIT. d. Considering the facts discussed above, it is clearly a fit case for invoking Section 263 proceedings. 17. Applicability of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of business and in the process capital employed in the business is increased permanently. The Capital Reserves are not available for the payment of dividends, however liabilities and losses of capital nature can be met from these. The present case also falls in the category of creation of Capital Reserves. Thus the Capital Reserves are those reserves which are not created out of operating profit. In other words, these reserves are created out of Capital Profits. For example profit on sale of Capital Asset or revaluation of fixed assets is Capital Profits which are generally not available for distribution among the shareholders of the company. The Security Premium Reserves and Revaluation Reserves are also type of Capital Reserves only. Security Premium Reserve is only created when the shares are issued on premium. In broad terms the assets also include investments and the assessee s case in a real sense may broadly fall in the category of Revaluation Reserve. d) Further, logically speaking, historical cost cannot be changed in the garb of following some scheme or accounting standards. The acquisition cost remains the same and it cannot be changed for different purpose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hod the assessee was liable to pay MAT u/s. 115JB on the total amount of Long Term Capital Gain of ₹ 491.70 crores. By revaluing(restating) the historical cost and taking the revalued cost as the cost of acquisition by the amalgamated entity, the assessee has sought to extinguish the entire tax liability u/s 115JB. Neither the amalgamating entities nor the amalgamated entity has paid any tax on the amount of actual gain (difference between the historical cost and the sale price). No method of accounting can allow the non payment of taxes. Law is equitable and applies to different entities. In the present case, the assessee claims a differential treatment than the others on account of amalgamation and on account of choosing of Purchase Price Method (for amalgamation). (i) The assessee did not submit a report, which it was required to submit u/s 115JB(4) of the Act. 19. Fit case for invoking the provisions of Section 263 of the Income Tax Act. 1961 : a. Considering the facts discussed above in detail, it is found to be a fit case for invoking the provisions of Section 263 of the Act. As discussed earlier, the AO while passing the original assessment order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) Raimandir Estates (P) Ltd Vs PCIT [20171 77 taxmann.com 285 (SC)/(2017) 245 Taxman 127 (SC) Hon ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified. 20. In view of the facts discussed above, the undersigned sets aside the assessment order dated 02-01-2016 passed by the AO on the issues discussed above and directs the AO to pass the assessment order afresh after allowing the opportunity of being heard to the assessee. 5. Aggrieved from the above revision order, the assessee has come up in this appeal before us. 6. During the course of hearing, the ld. AR of the assessee, apart from making oral arguments, also filed a detailed written synopsis, which reads as under : 2. M/s. Slocum Investments (Delhi) Private Limited and M/s. Shiv Kiran Investments (Delhi) Private Limited (in short amalgamating companies ) stood merged/ amalgamated with the assessee-company, pursuant to scheme of amalgamation under sections 391-394 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the profit and loss account for the year ended 31sl March. 2013. to be read with Note No.25 forming part of the audited accounts. For the purpose of computing deemed income under section 115JB of the Act, net profit/ loss as per audited profit and loss account, which included the aforesaid book loss on sale of equity shares was considered, and the specified upward/ downward adjustments, as prescribed in Explanation 1 thereto were made. Revisionary order of Pr.CIT 8. In the impugned order, the Pr.CIT has revised the assessment order dated 02.01.2016 passed by the assessing officer under section 143(3) on the alleged ground that the same was erroneous in so far as prejudicial to the interests of the Revenue, inasmuch as the assessing officer had allowed relief under the provisions of section 115JB of the Act in respect of long-term capital gains earned on sale of shares of HCL Technologies Ltd (in short HCL Tech ) held by the appellant without making necessary/proper enquiry. 9. In the impugned order, the Pr.CIT has alleged that: i) the appellant had, in pursuance of the merger, incorrectly credited the securities premium account as against revaluation re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of HCL Tech acquired as part of amalgamation: (b) there is no error whatsoever, in the original assessment order accepting the return of income filed by the assessee, more particularly on the issue of gain/ loss on sale of shares in HCL Tech: (c) the view taken by the assessing officer accepting the return of the assessee is, in any case, plausible view' in the eyes of law. Re (a): Assessment u/s 143(3) after extensive enquiries 14. During the assessment proceedings under section 143(3) of the Act, the assessing officer, after taking note of various disclosures, conducted necessary enquiries on the issue of sale of 1 crore shares in HCL Tech at recognized stock exchange for total consideration of ₹ 498,17,63,996 after payment of STT. 15. First and foremost, it is pertinent to note that the following disclosures were made in the return and the assessment proceedings in respect of the aforesaid claim, as would be evident from the following: a) In the income-tax return for relevant assessment year in Form ITR 6, amalgamation of the two companies with the appellant was duly disclosed under the head business organization - Refer page 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in equity shares as shown in Note No.8 to the audited financial statements, which referred to investment in equity shares of HCL Tech: c) Vide question No. 12 the appellant was directed to provide details of loss on disposal of investments of ₹ 283.48 crores, particularly with reference to note No.5 of the Notes to the audited financial statements. The appellant was also directed to provide details of fair market value of investments and also to state how the same had been calculated. 17.2 In response to the aforesaid questionnaire and further enquiries/ information sought by the assessing officer from time to time during the course of assessment proceedings, the appellant submitted the following details/ information:- a) Vide letter dated 26.05.2015, the appellant submitted copy of return of income and also the computation of income for the relevant year - [Refer page 242 of paperbook ]: b) Vide letter dated 30.06.2015, the appellant submitted the details of amalgamation and furnished copies of the scheme along with copy of the order of the High Court sanctioning the scheme - [ Refer pages 243 to 244 of paperbook]: c) Vide letter dated 27.07.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) SBI Capital Markets Limited iii) SSPA Co. Chartered Accountants 18. On perusal of the aforesaid, it will be appreciated that the assessing officer made extensive/ necessary enquiries regarding issue of transfer of shares of HCL Tech acquired as part of amalgamation before accepting gains/ loss on transfer of shares in HCL Tech, as determined while computing income under the normal provisions as well as under section 115JB of the Act. 19. It is of utmost importance to note that complete details of book value and fair value of assets/investments, alongwith supporting valuation reports etc were repeatedly called for by the assessing officer during the course of assessment proceedings to undoubtedly examine/verify the impact of such valuation in the books of account of the appellant, which had resulted in loss on sale of investment for the purposes of section 115JB of the Act. It may be appreciated that the revaluation of assets/investments (especially shares in HCL Tech) had no tax implication under the normal provisions of the Act (since actual cost of shares/investment was considered for the purpose of computing capital gains) and the extensive enqui ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of the Companies Act: -Audited accounts duly approved by the Statutory Auditors, Members in the Annual General Meeting and the Registrar of Companies. b) It may be noted that the object of MAT provision is to bring out the real profits' of the companies which is available for distribution as dividend, based on the profits declared by such companies in its own books of account. The legislative intention behind introduction of section 115J of the Act [refer CBDT Circular No. 495 dated 22.09.1987: 168 ITR (St) 87 @Pg. 110], can be gauged from the speech delivered by the then Finance Minister and the Memorandum explaining provisions of the Finance Bill. 1987. relevant extracts of which is reproduced as under: Budget Speech of the Finance Minister: . 80. It is only fair and proper that the prosperous should pay at least some tax. The phenomenon of so-called zero-tax highly profitable companies deserves attention. In 1983, a new section 80VVA was inserted in the Act so that all profitable companies pay some tax. This does not seem to have helped and is being withdrawn. 1 now propose to introduce a provision whereby every company will to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - CIT vs. Rubamin (P) Ltd: 218 CTR 162 (Guj) - DCIT vs. Farmson Pharmaceuticals Gujarat Ltd: 241 CTR 568 (Guj) 24. It is further submitted that once a dedicated Guidance Note is issued by the ICAI. the same will have primacy over all other instructions applicable generally.[Refer Cairn India Ltd vs. DCIT: 87 taxmann.com 28 (Del)] 25. It is, thus, respectfully submitted that there was no error in the assessment order accepting the income-tax return filed by the appellant for the relevant assessment year in respect of the transaction of sale of shares of M/s HCL Tech, w herein income under the normal provision as well as deemed income under section 115-JB was computed strictly in accordance with the provisions of the Act. Rebuttal to findings of Pr.CIT 26. The specific allegations/ findings of the Pr.CIT in the impugned order are rebutted as under Re (i): Securities Premium is not Revaluation reserve 26.1 With regard to the allegation that in pursuance of the merger, the appellant incorrectly credited the securities premium account as against revaluation reserve for the purpose of computing Book Profit under section 115.1 B of the Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e position is well settled and duly recognized by ICAI. [refer: Hindalco Industries Limited: 151 Comp Cases 446 (Bom) and Western Alliance Power Limited: Company Petition No. 12 of 2011 passed vide order dated 22nd March, 2011 (Guj)]: g) Even if the difference arising on amalgamation was, without prejudice to the above, credited by the assessee to capital reserve instead of securities premium account, there would not have been any change in MAT liability under section 115JB of the Act since Securities Premium Reserves and Capital Reserves , being balance sheet items, are of similar nature and are fall within the classes of reserves under the Companies Act. requiring no adjustment to section 115JB of the Act, leave apart under clause (j) thereto: h) Even otherwise, for the purpose of section 115JB of the Act, treatment accorded in the books in accordance with the terms of the scheme sanctioned by the High Court and the provisions of sections 210/211 of the Companies Act read with applicable mandatory accounting Standard issued by ICAI, and also certified by the statutory auditors, the members in the Annual General Meeting and the ROC, is binding [refer: Apollo Tyres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng due process of law, it cannot be said that the sole purpose of the scheme of arrangement was only to avoid tax. Indeed, it is a settled law that the arrangement, once approved by the Company Court, gets statutory recognition. Reliance in this regard is placed on following decisions: - Sadanand S. Varde v. State of Maharashtra: 247 ITR 609 (Bom) - Wood Polymer Ltd., in re: 109 ITR 177 (Guj HC) - Vodafone Essar Gujarat Ltd. v. DIT: 35 taxmann.com 397 (Guj HC)- afformed by SC in 66 taxmann.com 374 - ACIT v. TVS Motors Co. Ltd.: 8 taxmann.com 288 (Chn) - Purbanchal Power Co. Ltd. vs. DIT in l.T.A No.201/Kol/20100 (Kol 1TAT) d) the scheme of amalgamation was undertaken by the appellant for achieving the objectives of leveraging the balance sheet, consolidation of its investment companies so as to streamline its treasury operations and avoid multiple entities; in the process, if any tax advantage has arisen, it cannot be said that the entire arrangement was for tax evasion: e) even otherwise, the Courts have time and again accepted that an assessee is free to undertake transactions in a manner most conducive / advantageous to the assessee. It is sett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is a complete code in itself and no variation can be made from the said provisions: (b) Proviso to section 10(38) only carves out an exception to the effect that gains, if any, as per books of account on transfer of shares which are otherwise exempt under that section, shall be considered for the purposes of section 115JB of the Act: (c) Specific reliance in this regard is placed on the decision of the Mumbai Bench of the Tribunal in the case of Dharmayug Investments Ltd v ACIT: 69 SOT 433, wherein it has been held that while computing Book Profit, income credited to the profit loss account which is otherwise exempt under section 10(38) of the Act will not be reduced. (d) In the instant case, it may be appreciated that there was book loss of ₹ 291.82 crores on sale of shares of HCL Tech, which was rightly considered for the purpose of determining the Book Profit : (e) The provisions of section 115JB have an overriding effect upon other provisions of the Act and consequently, method of computation of Book Profit provided in the Explanation is mandatory and overrides normal provisions of computation of profit/ gain/ loss under any head of the income. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gulmohar Finances Limited: 170 Taxman 483 (Del.) - Fab India Overseas vs. CIT: 244 CTR 380 (Del.) - CIT vs. Vodafone Essar: 212 Taxman 184 (Del.) - CIT v. Ratlam Coal Ash Co: 171 ITR 141 (MP) - CIT vs. Ganpat Ram Bishonoi: 152 Taxman 242 (Raj.) - CIT vs. Mehrotra Brothers : 270 ITR 157 (MP) - CIT vs. Associated Food Profits (P) Ltd. : 280 ITR 377 (MP) - CIT vs. Development Credit Bank Ltd: 323 ITR 206 (Bom.) - Gail India Limited vs. CIT: ITA No.2577/Del/2004 (Del ITAT) 30. In that view of the matter, it is respectfully submitted that the assessment order passed by the assessing officer accepting gains/ loss on transfer of shares in HCL Tech vide assessment order dated 02.01.2016, being in conformity with the provisions of the Act, cannot, by any stretch of argument, be regarded as erroneous , much less prejudicial to the interests of the Revenue. Re (c ) : Plausible view in law not erroneous 31. Moreover, on perusal of the above, it is submitted apart from the fact that there was no error whatsoever, in the original assessment order, the view adopted by the appellant as accepted by the assessing officer was, in any ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... redited to Capital Reserve and not to Securities Premium . She also submitted that it is not only the lack of enquiry, but also non-consideration of relevant provisions of IT Act on the part of Assessing Officer which make the assessment erroneous in so far as prejudicial to the interest of Revenue. It is also submitted that the assessee has not complied with the directions of Hon ble High court on Amalgamation Scheme para 6.5. Apart from above, the assessee did not bring correct facts before the Hon ble High Court regarding sale of shares of HCL Tech. Ltd. The case laws relied by the assessee are not applicable as the assessee has failed to comply with the provisions of section 115JB (4) of the IT Act. She, therefore, urged for sustenance of the impugned order u/s. 263 of the IT Act. 9. After hearing both the sides and perusing the entire material available on record, we find no justification to interfere with the impugned order. The assessment order under section 143 (3) was passed on 02/1/2016 for assessment year 2013 14 by the Assessing Officer. This order is subject matter of revision by the Commissioner of Income Tax, Delhi - 9 vide his order dated 26/2/2018 under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Book Profit the assessee claimed the loss on the sale of shares is considered under section 115 JB of the Income Tax Act, 1961. 12. The learned Commissioner of Income Tax on examination of the records was of the view that the capital gain earned by the assessee on the sale of 1,00,00,000 equity shares of HCL technologies Ltd has not been offered for the Book Profit tax under section 115 JB of the Income Tax Act. 1961. Therefore, it was held that the assessment order passed under section 143 (3) dated 46 02/01/2016 by the learned assessing officer is erroneous and prejudicial to the interests of the revenue. 13. We are of the opinion that there is no infirmity in the order of the learned Commissioner of income tax in holding that the assessment order passed by the learned assessing officer is erroneous and prejudicial to the interests of the revenue as:- a) During the course of assessment proceedings, form No 29B ( See Rule 40B) for computing Book Profits of the company U/s 115JB of the Income Tax Act. 1961 was not filed by the assessee before the assessing officer. No such form was filed by the assessee before the Commissioner also. According to Rule 40B of the Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as directed to provide details of investment in equity shares as shown in note No. 8 to the audited financial statements, which referred to investment in equity shares of HCL technologies. Vide questionnaire No. 12, the appellant was directed to provide details of 48 loss on disposal of investment of ₹ 283.48 crores particularly with reference to note No. 25 of the notes to the audited financial statements. This claim of the assessee, on being examined, we find that vide letter dated 26/5/2015 assessee had submitted the copy of return of income along with the computation of the total income for the relevant year. Admittedly along with this return, the assessee has not submitted form No. 29B of the Income Tax Act, 1961, for the purpose of the computation of the Book Profit. Therefore, there was no occasion with respect to this reply to verify with the computation of the Book Profit with the assessing officer. The 2nd submission was made by the assessee on 30/6/2015 when the details of the amalgamation and the copies of the scheme along with the copy of the order of the High Court sanctioning the scheme was furnished. Even in these details, there was no reference of compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laimed by the assessee company though in the Book Profit, it has reduced the loss of ₹ 2834863000/ from the Book Profit. Therefore, to that extent the assessee has definitely claimed the tax benefit. We rest that issue their 50 only but however, we state that there is no reference of any computation of Book Profit under section 115 JB of the Income Tax Act, 1961. The next claim of the assessee is that vide letter dated 20/11/2015, the appellant has furnished the copy of the order of the High Court approving the amalgamation and also the balance sheet of amalgamating entities. On careful perusal of the letter placed at page No. 252 to 299 of the paper book, we find that there is no reference in these documents with respect to the computation of the Book Profit for the year. The next claim of the assessee is that vide letter dated 26/11/2015, it has submitted the book value of assets transferred on merger vide annexure A and the fair market value of the above assets recorded in the books on amalgamation vide annexure B there to. Admittedly these details have been submitted and placed at page number 300 to 302 of the paper book. Vide page number 301, the assessee has sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation of the Book Profit under section 115 JB of the Income Tax Act. 1961. Therefore according 52 to us, it is not the case of inadequate enquiry but absence of enquiry with respect to the computation of Book Profit under section 115 JB of the Income Tax Act. 1961. In view of this we reject the argument of the learned authorised representative that there is an extensive inquiries made by the learned assessing officer under section 143 (3) of the Income Tax Act. 1961. According to us the learned assessing officer has not made any enquiry with respect to the computation of the Book Profit during the course of assessment proceedings. It is a clear case of Lack of enquiry. c) An interesting argument has also been raised by the learned authorised representative that the revaluation of assets/investment is in the shares of HCL technologies Ltd which had no tax implication under the normal provisions of the Act and the extensive inquiries undertaken by the assessing officer was purely to examine the impact of such three statements at fair value for the purpose of determining the Book Profit in terms of section 115 JB of the Act. This argument though looks attractive but straightway re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the profit and loss account prepared in compliance with the requirements of the Companies Act, 1956 and in accordance with the accounting standard issued by the ICAI, as laid down before the members in the annual general meeting that normal profit should be regarded as sacrosanct for computing the deemed income under section 115 JB of the Act and can only be subjected to the upward and downward adjustment specified in that section. There is no quarrel on this issue because these are the issues of the principles of taxation. The simple issue involved in this appeal is whether the computation of the Book Profit has been verified by the learned assessing officer or not. Whether the assessee has submitted any detail which shows that learned assessing officer has applied his mind to the computation of the Book Profit or not. For both the questions the answer is in negative. e) Though the learned principal CIT has also looked into the computation aspect of the capital gain and crediting of the excess of the fair market value of the asset over the liabilities of the amalgamated company credited to securities premium account or against the revaluation reserve for the purpose of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
