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TMI Blog2019 (12) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... ll the appeals are common arising out of identical set of facts, therefore, same were heard together and are being disposed of by way of this consolidated order. 2. As a lead case, we are taking up the appeal of M/s. Simpson Unitech Wireless P. Ltd. (ITA No.1953/Del/2014) and our finding given therein will apply mutatis mutandis for all the appeals. In various grounds of appeal, the assessee has challenged the addition of Rs. 548,55,00,000/- by holding that assessee has received benefit u/s.28(iv). 3. The facts in brief are that M/s. Simpson Unitech Wireless P. Ltd. was incorporated on 21.10.2008 and hence this was the first year of operation of assessee-company. The assessee had declared loss of Rs. 21,456/- in the return of income filed on 06.10.2010. Ld. Assessing Officer noted that the nature of business activity was as under: "To promote & establish companies, funds, associations or partnerships for providing telecom networks and to run and maintain telecom services like basic/fixed line services, cellular/wireless/mobile services and as SPV to make investments by way of loans or subscription to equity shares or other securities in telecom companies carrying on and caterin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Department of Telecommunication (DOT), Ministry of Communication and Information Technology, Government of India for grant of United Access Services Licenses (UASL). The DOT issued Letter of Intent (LOI) stating certain conditions on January 10, 2008 and post compliance of which UASL Agreement would be assigned. After complying with the conditions of LOI, all UW Companies executed UASL Agreement with DOT on 28 and 29 February, 2008 for different service areas. Thus, these eight companies got allotted spectrum by DOT under UASL of 2G Licenses. 6. Considering the scale of the proposed operation of the telecom business and also the capital intensive nature of the said business, these telecom companies proposed infusion of fresh funds through fresh issue of share capital. In order to meet subsequent capital requirements of telecom operations in accordance with the Government Policy, i.e., a foreign investor could hold up to 74% stake in Telecom Companies operation in India these companies invited foreign telecom companies. Interest was expressed by the Telenor Group (acting through Telenor Asia Pte Ltd, Singapore and Telenor Mobile Communications AS, Norway) to make the investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have the option to call upon the SPVs to issue fresh share capital to convert the amount representing the debentures, into equity share capital. On 28th October, 2008, the assessee entered into a Subscription Agreement with Telenor Group for acquisition of 60% stake in UW companies. Later on, the subscription agreement was modified by another agreement dated 16th March, 2009 whereby the telecom companies made fresh allotment of shares having face value of Rs. 10/- to Telenor Group at a premium of Rs. 169.73 per share resulting in equity shareholding of Telenor Group at Rs. 67.25% in such telecom companies. The details of share allotted by the telecom companies to the Telenor Group for the sake of ready reference are tabulated as under: Name of the telecom Companies No. of Shares allotted Allotment Price Face Value Premium Total price Unitech Wireless (North) Pvt. Ltd. 1,31,03,306 179.7312 10 169.7312 235,50,72,912 Unitech Wireless (South) Pvt. Ltd. 1,25,99,333 179.7312 10 169.7312 226.44.93.240 Unitech Wireless (Kolkata) Pvt. Ltd. 50,39,733 179.7312 10 169.7312 90.57.97.260 Unitech Wireless (Delhi) Pvt. Ltd. 50,39,733 179.7312 10 169.7312 90.57. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Unitech Limited, M/s Telenor purchased the shares from the telecom companies directly. Shares were purchased by the assessee from M/s Unitech Limited at a price of Rs. 10/- per share, i.e., Face Value, However, shares were offered by the telecom companies to Telenor, Singapore at a premium of Rs. 159/- in addition to the face value of Rs. 10/-. Actual market value of such shares, as apparent from the rate at which equity was raised from Telenor comprising face value of Rs. 10/- plus share premium of Rs. 159/- per share. Such transaction is the true indicator of the market value of the shares of the Eight Telecom Companies. Thereafter, Assessing Officer held that assessee made a 'killing' by getting a chance to purchase share of telecom company at just a face value even when owing to the fact that telecom company had USAL, made their shares were worth much more and the fact that shares commanded the premium in the market and assessee has sold such shares by M/s. Unitech Ltd. at just face value and benefit in the shape of difference in the value of two prices including premium paid by the Telenor and the cost paid by the assessee for acquisition of shares, has accrued to the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounting to Rs. 34,50,00,000/- to M/s Unitech Holding Ltd., a related party, Even all the 10,000 equity shares of the appellant company are held by Mr. Ramesh Chandra & Mr. Sanjay Chandra i.e 5000 each, who happened to be the promoters and majority shareholders in M/s Unitech Ltd. (67.67%). Similarly M/s Unitech Holding Ltd is also a 100% owned subsidiary of M/s Unitech Ltd. Therefore, owing to the fact that M/s Unitech Ltd., a related party with common management, held majority stake in the telecom companies and therefore, being in the privileged position, the assessee company was sold such shares by M/s Unitech Limited at just the face value, the benefit is in the shape of difference in value of two prices i.e. the price by the assessee for acquisition of shares and the price including premium by M/s Telenor, Singapore, has accrued to the assessee in the process of assessee company's stated business of making investment in telecom companies of its own group. Therefore, the contention of the appellant that such transaction is not covered 'by the provisions of section 28(iv) of the Act is found to be devoid of any merit, as the proximity between assessee and M/s Unitech Li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d., Simpson Untiech Wireless Pvt. Ltd. and Acorus Unitech Wireless Pvt. Ltd.. to fulfil the conditions precedent for investment under the subscription agreement. However the com pan \ continues to hold economic interest in Unitech Wireless through compulsory convertible debentures and options in the three associate companies Further, in order to show that sale of shares of Appellant Company and subscription of shares of telecom companies by Telenor group are not comparable; he submitted a detailed comparative chart, which is reproduced hereunder: Basis of Difference Shares of 8 Unitech Wireless Companies held by Cestos, Simpson and Acorus Shares of 8 Unitech Wireless Companies held by Telenor Date of Acquisition Shares were acquired on 30.1.2009 in accordance with the share purchase agreement signed on 25.10.2008. Shares were acquired in four tranches on 20.3.2009; 19.5.2009; 7.1.2010 and 10.2.2010 in accordance with the addendum to shares subscription agreement signed on 16.3.2009. Hence, there was a significant time-gap between acquisition of shares by 3 companies and subscription of Conditions imposed on Shares Shares acquired by 3 companies were pledged with the lender ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and Acorus Shares of 8 Unitech Wireless Companies held by Telenor Purpose Shares were acquired by 3 companies to comply with pre-condition prescribed by Telenor for investment in 8 Unitech Wireless Companies (conversion to private limited companies from public limited companies), failing which no investment would have received from Telenor and there was a significant business risk as stated above. There was no business risk for Telenor when it subscribed the shares of 8 Unitech Wireless Companies. 13. Thus, he pointed out that these are two independent transactions with distinct objectives. First transaction is the sale of 75% shareholding in 8 Wireless Companies by M/s. Unitech Ltd. to three affiliated Companies @ Rs. 10 per shares, i.e., the assessee-companies and the second transaction is allotment of fresh shares by wireless companies to the Telenor @ 179.73 per shares. He said that even though the two transactions pertained to transfer of shares of wireless companies but otherwise distinctions are quite apparent which could be classified in the following manner: Basis/ Nature of Difference Sale of shares by M/s Unitech Ltd. of 8 Wireless Companies to 3 Affiliate comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estments not as an investor but in the course of business and it holds investments as stock-in-trade, only then it can be stated that, such an assessee is carrying on any business. There is a conceptual difference between business of holding of investments and, carrying on of business. The profits and, gains, must arise or accrue in the course of business and, not in the business of holding of investments. Mere having acquired the shares as an investment when it purchased shares from a public limited company at face value, it cannot be alleged that, there arose any benefit or perquisite to the appe1lant company. * Further, mere fact that appellant company had incurred expenses of Rs. 21,180/- to fulfill its statutory obligations, out of which Rs. 16.484/- was declared as business loss cannot also be regarded any business to suggest that either there was business carried on by the appellant company or that investments were made in the course of business of the appellant company. * Lastly, he submitted that, since appellant is holding investments and there is no business as such, therefore there cannot be any benefit or perquisite in the course of business. 15. Ld. Counsel also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not be a tax if income does not result at all. In the said case the court took the view that, the probability or improbability of realization has to be considered in a realistic manner and it was held that there was no real accrual of income. vi) It is submitted that in the instant case, all that had happened was that, the assessee had purchased shares @ Rs. 10/- per share of eight Unitech Wireless Companies tor telecom companies), that is, at the same rate at which these shares had been acquired by M/s Unitech Ltd. The aforesaid shares, as purchased by the assessee. was thus not the value of any benefit or amenity arising to it either from its business or from the exercise of his profession and thus no such sum per se alone could be held to be an income which is stated to have escaped assessment. vii) It is submitted that mere purported benefit does not result into accrual of income u/s 28(iv) of the Act. It is submitted that any illusory, hypothetical and non-existing sum cannot be regarded as income. The benefit must be tangible and existing and must result from business. The fresh allotment of shares by telecom companies cannot be a basis to suggest any benefit accrued to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d any of the basic and fundamental submissions duly supported by case laws. He thus submitted that no benefit arose to the appellant company by purchasing the shares, what to say of any benefit or perquisite under section 28(iv) of the Act. It is submitted that the appellant company had purchased 3.45 crores shares at Rs. 10 per share from M/s Unitech Ltd. of 8 telecom companies for an aggregate consideration of Rs. 34.50 crores under share purchase agreement dated 25.10.2008 and therefore, both logically and legally, any subsequent allotment by such 8 telecom companies independently to M/s Telenor Asia Pte Ltd. at Rs. 169 per share under share subscription agreement dated 28.10.2008 cannot be a basis to allege, assume or conclude that there is any benefit or perquisite arising from business carried on by the appellant company. That further, since the additions in the cases of M/s. Cestos Unitech Wireless Pvt. Ltd. (ITA No. 101 /Del/2014) and M/s. Acorus Unitech Wireless Pvt. Ltd. (ITA No. 2075/Del/2017 and 2989/Del/2017) are identical to the captioned appeal, thus, the aforesaid submissions may be made applicable to the appeals mentioned above. 18. Ld. DR on the other hand relied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled writ petition W.P. (C) No. 1954 of 2013 challenging I.T.A. No.1953, 101/DEL/2014 & 2075 & 2989/DEL/2017 29 reopening u/s 147 of I.T.Act. Hon'ble Delhi High Court held as follows: "20. Therefore, primary fuels in this ease - that lead to the AO's satisfaction - have been spell-out in this case in the reasons recorded by the AO. These fads are. at the very' least, capable of supporting the inference that the sale of shares to the petitioner in this case from Unitech ltd. was undervalued, and that such undervaluation (compared to the Telenor transact ion) was not disclosed by the assessee. Indeed, this is where the Court's inquiry terminates. The adequacy of the reasons provided by the AO fall outside the Court's review powers, and within the domain of the AO. at this stage of the proceedings where only a preliminary finding under Section 147/148 has been made. 21. Acorus advanced arguments as to the incorrectness of the AO's views. Here, various aspects of this transaction have been canvassed before the Court, i.e. the lack of comparability between the Unitech- Telenor transaction and the present case, the difference between the nature of the shares itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the IT Act does not apply since waiver of loan docs not amount to cessation of trading liability. It is a matter of record that the Respondent has not claimed any deduction under Section 36 (1) (iii) of the IT Act qua the payment of interest in any previous year. " 20. He further submitted that in the case of assessees, benefit has been received in form other than money. Moreover, it is not a case of cessation of liability. The decision in CIT Vs Elscope (Pvt.) Ltd. (313 ITR 293) is not applicable to the above cases in view of the following reasons: (i) The above judgment was in context of Additional Income Tax on Undistributed Profit of Certain Companies which is not the issue in appeal. It was held that where on reference in quantum proceedings High Cour had held that there was no distributable income, the assessee could not be held liable for additional tax under section 104. The assessee has wrongly stated that it pertained to section 28(iv). The decision of CIT Vs Excel Industries Ltd. (358 ITR 295) also is not applicable to the above cases in view of the following reasons: (i) The above judgement was in context of advance licence and duty entitlement pass book. It w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd liable to be taxed. v. Solid Containers Ltd. Vs DCIT f20091 178 Taxman 192 (Bombay)/r20091 308 ITR 417 (Bombay)/r20091 222 CTR 455 (Bombay), where Hon'ble Bombay High Court upheld addition where assessee had taken a loan from 'P' during previous year for business purposes which was written back in relevant assessment year as a result of consent terms arrived at between 'P' and assessee. Assessee claimed that said loan was a capital receipt and, therefore, did not come under section 41(1). Assessing Officer rejected assessee's contention and held that credit balance written back was income of assessee in view of fact that it was directly arising out of business activity of assessee and, thus, was liable to tax under section 28. 22. We have heard the rival submissions, perused the relevant findings given in the impugned order as well as material referred to before us. The facts and background of the case have been discussed in detail in the foregoing paragraphs; however, certain vital facts are reiterated in a succinct manner. M/s. Unitech Ltd. through its wholly owned 8 subsidiary companies were allotted spectrum by DOT under Unified Access Services License ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ference as culled out from the fact are that, firstly, the shares which were acquired by the three assessee companies were pledged with the lenders at the time of acquisition for securing the credit facility availed by M/s. Unitech Wireless Companies; whereas share issued to Telenor were not pledged and were free from encumbrance. Secondly, the Telenor had acquired control and management of all the 8 Unitech Wireless Companies which was not the case in the case of 3 assessee companies as they did not have any right in the shares of any of 8 UW companies and 100% economic interest was held by the Unitech Ltd. through CCD and put call options on the shareholdings of three companies; whereas the Telenor was holding 100% economic interest with the shares subscribed by it. Thirdly, the share held by the three assessee companies could have been only transferred to Unitech and could be only at par value as per the agreement, whereas in the case of Telenor Group there was no transfer restriction on the shares subscribed and it was free to transfer even to a foreign party. Lastly, as pointed out by the ld. counsel, the business risk of the assessee was very high as compared to the Telenor G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were are less than the market value, then the only provision in which it could have been scrutinized or examined was under a deeming provision of Section 56(2)(vii)(a), which provision has brought in the statute w.e.f. 01.04.2013. Apart from that, assessee has not acquired the share in lieu of some benefit or perquisite albeit has made the actual payment in money for acquiring the shares, and therefore, the principle laid down by the Hon'ble Supreme Court in the case of CIT vs. Mahindra & Mahindra (supra) will also apply here. 24. During the course of hearing, our attention was drawn towards the judgment of Hon'ble Delhi High Court in the case of Unitech Holdings Ltd. vs. DCIT, reported in (2016) 240 Taxman 70, wherein Unitech Holding Ltd. had acquired the share of three joint ventures company at a cost price reflected in the books of holding company which as per the Department was lower than the book value of those shares calculated on the basis of net worth of the said company. The Hon'ble Delhi High Court held that it would be difficult to accept that the sale of shares by Unitech Ltd. at its cost price which is lower than the book value of the shares would result in income. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from whom the three companies have purchased the shares. It would be also relevant to mention that Ld. CIT (A) in one of the assessee company which is also impugned before us, i.e., M/s Acorus Unitech Wireless Pvt. Ltd., held at page 22 para 11, that the benefit if at all in these transactions actually accrued to Unitech Ltd. and to favour Sri Ramesh Chandra and Sri Sanjay Chandra the actual beneficiaries and not to the assessee company. This itself goes to support the contention of the Ld. Counsel that no benefit or perquisite arose in the hands of the assessee companies. 26. The judgments relied upon by the ld. DR which has also been referred in the impugned order in no manner will apply on the facts of the present case because most of them pertained to waiver of a loan or unclaimed credit balance returned back to the P&L account taken during the course of business. Thus, these judgments do not help the case of the Revenue at all. Accordingly, the additions made by the Assessing Officer and sustained by the Ld. CIT (A) u/s. 28(iv) are directed to be deleted. 27. Since similar facts are permeating in the case of all the assessee's as discussed above and also accepted by both t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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