TMI Blog2022 (1) TMI 684X X X X Extracts X X X X X X X X Extracts X X X X ..... y in which the public are substantially interested. We find that the provisions of section 263 gives power to the revisionary authority to revise the order after giving the assessee an opportunity of being heard and after making or causing to be made such enquiries as he deems necessary. Therefore, the law clearly mandates that the issue of revision could only be decided after the assessee is heard on the matter. In the present case, we do not find that the issue of taxability of above gift u/s 68 of the act was at any time put to the notice of the assessee - provisions of section 68 applies where any sum is found credited in the books of the assessee. In the present case, these are the shares, which are received by the assessee - PCIT in whole of his order did not mention and deal with the applicability of section 68, but in the finding mentioned merely a line without giving assessee an opportunity for putting its case before him, directed the assessing officer to apply the provisions of section 68 of the Act. Ld PCIT has also not held that how the provision of section 68 applies in the facts of the case. This is not correct in view of several judicial precedents cited before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed by the learned principal Commissioner of income tax 90, Mumbai (principal CIT) u/s 263 of the contract act, 1961 (the act) on the following grounds of appeal On the facts and in circumstances of the case and in law, the learned principal CIT:- Revision U/S 263 of the Act 1) erred in holding that the assessment order dated 6 December 2017 passed u/s 143 (3) of the act by the learned assessing officer is erroneous as well as prejudicial to the interest of the revenue in passing the order u/s 263 of the act. 2) erred in holding that the learned AO failed to carry out necessary enquiries is warranted by the facts and circumstances of the case during the course of assessment proceedings u/s 143 (3) of the act and therefore the assessment order is erroneous insofar as it is prejudicial to the interest of revenue. 3) erred in not appreciating that the learned AO has adopted one of the possible views regarding taxability of the receipt of shares and therefore the assessment order of the learned AO cannot be regarded as erroneous insofar as it is prejudicial to the interest of the revenue 4) erred in setting aside the assessment order and directing the lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of natural love and affection are prime requirement of the the transaction is dubious at that avoid tax and colourable device lacking any commercial substance the transaction is not a legitimate transaction and is a credit in the books of accounts of the appellant without matters of the same being established 11) erred in observing that since the instant case the shares were transferred in the name of Themisto trustee Co private limited, the same should be offered to tax by Themisto , without appreciating that the same is no implication on the taxability of receipt of shares in the hence of the appellant as same is not taxable u/s 56 (2 )(viia) of the act. 03. Brief facts of the case shows that assessee is a partnership firm engaged in the business of investment, consultant and acquired shares and other securities. For AY 2015-16, it filed return of income on 31-08-2015 declaring total income of ₹ 1,15,06,850/-. Ld AO picked up case of the assessee for scrutiny. After examination of the details and considering the submissions of the assessee, the total income of the assessee was assessed at returned income of ₹ 1,15,06,850/- by order under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the above companies. (iv) Proof of dividend received and name of the trustee company in whose name the shares were held as the assessee being a partnership firm, it cannot be registered as shareholder in shareholder register of Wokhardt Ltd. It was, therefore, stated that during assessment proceedings learned assessing officer has raised specific queries on these issues and assessment order has been passed after considering arguments of the assessee, and therefore, it cannot be held to be erroneous. Assessee further stated that where two views are possible, the adoption of one view by the assessing officer does not make the order erroneous. Assessee further submitted that the company can give gift and assessee being a partnership firm can receive the gift. It also referred to the provisions of section 122 of the Transfer of Property Act and relied upon several judicial precedents wherein the gift of shares by a company has been held to be a valid gift and transactions are held to be non taxable. Assessee further referred the provisions of section 56(2) (viia) of the Act and submitted that Wokhardt Ltd whose shares are received as a gift is a company in which public i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e further held that the distribution of assets by the company by way of gift is in the nature of distribution through dividend and, therefore, these transactions are clearly colourable device for avoidance of tax. He thereafter referred to the provisions of the Companies Act, 2013 and held that the requisite conditions of the transfers have not been fulfilled. He further held that the transactions clearly intended to benefit the assessee without any commercial reason and while deciding whether a transaction is genuine or a colourable device; it is open for the tax authorities to go behind the transaction and examine the substance and not the form only. He further relied upon the decision of the co-ordinate bench in case of Gagan Infraenergy Ltd 65 ITR 514 (Del)(Trib) as well as the Authority for Advance Ruling in case of Orient Power Pte Ltd. He further held that the taxpayer s articles of association do also not support the transaction. He further noted that the shares are transferred in the name of Thermisto Trustee Company Pvt Ltd on behalf of Habil Khorakiwala trust, which is a partner in the assessee firm. Therefore, why the assessee firm has taken exemption of the above gift ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the letter dated 28/09/2017 wherein the brief introductory details of the assessee and the nature of activities along with deed of partnership dated 30th day of April, 2014 were submitted. ii. He thereafter referred to letter dated 26/09/2017 wherein the details of gift of above equity shares stating the name of the donors, addresses and their permanent account numbers along with number of equity shares donated by each of them are mentioned. It is also supported by the extracts of the minutes of the meetings of the board of directors of donor companies. It was also stated that the gift received by the assessee is a capital receipt and not chargeable to tax as per the provisions of the Income-tax Act. iii. He further referred to letter dated 17/11/2017 wherein the assessee explains to the assessing officer the applicability of section 56(2)(viia) with regard to the taxability of the above gift. The assessee submitted that Wokhardt Ltd is a company listed on National Stock Exchange and Bombay Stock Exchange in which public are substantially interested and, therefore, the provisions of section 56(2)(viia) does not apply. iv. He further referred to a letter dated 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e donee, which is a valid transfer. He further referred to the letter dated 25/02/2021 wherein at pages 114 to 116, the assessee placed the disclosure before the Securities and Exchange Board of India under Regulation 10(7) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulation, 2011 dated 30/7/2014 in respect of acquisition of equity shares of Wokhardt Ltd . He further referred to the details of acquisition of the shares acquired by gift by the assessee and the share holding of the assessee before and after acquisition of the shares. He further referred to Note No.1 attached to disclosure wherein it was mentioned that in view of intra group re-structuring on 07/07/2014, assessee acquired by way of gift 6,58,97,757 equity shares of the face value of ₹ 5/- each of target company, i.e. Wokhardt Ltd constituting 59.90% of paid up equity share capital from three existing promoter companies. In that note, the details of the partners of the assessee and trustees as well as the partners of the LLP were also disclosed. It also states that as assessee being a partnership firm, the equity shares are held in the name of Thermisto Trustee Company Pvt Ltd as a first holder b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 56(2) (viia) and 56(2) (viib) where the shares are transferred as a gift of the company in which the public are not substantially interested, is not chargeable to tax. It is also stated that assessee could have received gifts from companies. It further held that Transfer of Property Act is clear on the issue that companies can receive and make gifts. It further held that the Income-tax Act itself provides that the gifts of certain kind of shares are also taxable in the hands of certain companies. Based on the above decision, he submitted that the (1) Company can give the gift (2) Transfer of Property Act does not prohibit the gift by the companies and (3) Further, the Income-tax Act itself recognizes such transactions under the provisions of section 56(2) of the Act. He, therefore, submitted that the transactions entered into by the assessee is in order and cannot be challenged. b. Further, coming to the provisions of section 263 of the Act, he referred to the decision of the Hon ble Bombay High Court in case of Gabriel India Ltd 203 ITR 110(Bom). He further submitted that in order to hold that the order is erroneous and prejudicial to the interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iries, which are relevant to the issues. He further stated that the Hon ble High Court has held that in most cases of inadequate enquiries it will be difficult to hold the order of the assessing officer, who had conducted enquiries and acted as an investigator is erroneous without PCIT conducting verification and further enquiries. He submitted that in the present case, there is no enquiry conducted by the learned PCIT and there is no finding that how the order of the Assessing Officer is erroneous. f. He thereafter referred to the decision of Hon ble Delhi High Court in DIT vs Jyoti Foundation 357 ITR 388 (Del) wherein at para 5 where the Hon ble High Court held that it is mandatory for the PCIT to have conducted further enquiries or calling of the details before holding that the order is erroneous. It was, therefore, stated that in the present case there are no enquiries conducted by the learned PCIT before holding that the order is erroneous. 15. He further submitted that the learned PCIT has directed the assessing officer to examine the provisions of section 68 of the Act in the case if the transactions are found to be non-genuine. His argument was that learned PCIT h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng that assessment order is erroneous and prejudicial to the interest of the revenue cannot be sustained. He further referred to the decision of the co-ordinate bench in case of Torrent Pharmaceuticals ltd vs DCIT (2018) 97 taxman.com 671 (Ahd) wherein it has been held that what enquiry should have been made by the learned assessing officer should be contested on the antecedent of reasonableness and rationality in approach. It further held that inadequacy in enquiry ought to be of cardinal nature to recognize the patent powers of review. The contention of the learned AR is that if the interpretation of Explanation 2 is made in that manner, then any enquiry, even if extensively made by the assessing officer can be found fault with by revisionary powers. He submitted that the inadequate enquiry could only be shown if the assessing officer does not make any relevant and meaningful enquiries. He submitted that in the present case, the assessing officer has made all enquiries, which could have been possibly made by any person of reasonable prudence could have been expected. He thereafter referred to the decision of the co-ordinate bench in case of Rallis India Ltd vs DCIT [ITA No. 3564/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecember 2017. He, therefore, submitted that the details submitted by the assessee vide letter dated 07/12/2017 could not have been considered by the assessing officer at the time of passing an order under section 143(3) of the Act on 06/12/2017 and therefore, the details filed by the AR could not have been before the assessing officer and, therefore, such details could not have been enquired into by the assessing officer and, therefore, the issues which were never examined by the assessing officer makes the order passed by the learned assessing officer as erroneous and prejudicial to the interest of the revenue falling into the mischief of Explanation 2 to section 263 of the Act. The learned DR further submitted that the provisions of section 263 could not have been invoked if there are two views possible on the facts of the case. He submitted that when the adequate details itself was not available before the assessing officer as demonstrated in absence of requisite details and, therefore, in absence of examination, the argument of the learned AR of existence of two possible views is devoid of merit. He further referred to para 5 of the order of the learned PCIT under section 263 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the assessing officer did not mention the facts of the gift as well as the order also did not show that the assessing officer has taken a view, he submitted that the assessee has furnished the complete details before him which were examined by the assessing officer, all possible questions were raised which were explained by the assessee and thereafter if the assessing officer agrees with the argument of the learned AR, naturally, he could not have mentioned anything on that issue. Had he disagreed with the assessee, of course, he would have mentioned it and made an addition to the income of the assessee. He also submitted that the assessee could not enforce the assessing officer to write the order in a particular manner. Further, the manner of writing of an order cannot be used against the assessee to invoke the provisions of section 263 of the Act. In view of this, he submitted that the order passed by the learned PCIT deserves to be quashed. 21. We have carefully considered the rival contentions, order passed by the learned PCIT under section 263 of the Act, order passed by the assessing officer under section 143(3) of the Act as well as the various correspondences and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur Holdings Investments Pvt Ltd 31,53,300 2. Dartmour Holdings Pvt Ltd 68,28,325 3. Khorakiwala Holdings Investments Pvt Ltd 55,91,132 6,58,97,757 Assessee also submitted that above gift is supported by the mandates of the board of directors in form of resolutions passed at their board meetings of those donor companies. The assessee claimed that the above gift of shares from three different companies as capital receipt and is not chargeable to tax as per the provisions of the Act. Assessee also submitted vide letter dated 17/11/2017 with respect to the query regarding the applicability of provision of section 2(24) (xv) Vis a Vis section 56 (2) (viia) to gift of shares. The assessee explained in detail, the provisions of section 2(24) (xv) as well as section 56(2) (viia) to the assessing officer. It was further submitted that the Wokhardt Ltd is a company listed on National Stock Exchange and Bombay Stock Exchange. Therefore, in terms of the provisions of section 2(18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ft is a capital receipt not taxable under the alleged provisions of the Act. Further, the co-ordinate bench in case of DCIT vs KDA Enterprises Pvt Ltd (supra) decided on 11th March 2015, company could give gift, also took the similar view. Above decision also examine the taxability of gift under section 56(2) (viia) of the Act. However, in that case, the gift was received not of the share, but of the sum. Even otherwise provision of section 56 (2) (viia) itself provides about taxability of receipts of assets without consideration or with inadequate consideration in the hands of certain companies. Therefore, the finding of the ld PCIT that a company cannot make gift is devoid of any merit and we are not shown that it is supported with any provisions of law. In view of overwhelming judicial precedents cited before us, we are of the view that there is no bar against the company giving its properties as Gift. 23. Now the issue comes with respect to the taxability of the above sum under section 56(2) (viia) of the Act. The provisions of section 56(2)(viia) provides as under :- (viia) where a firm or a company not being a company in which the public are substantially interested ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income-tax Act as the facts clearly shows that shares of that company are listed on NSE and BSE. Shares of such company are not the subject matter of taxability as shares of companies in which public is substantially interest is excluded. 27. Undoubtedly, as the assessee is a partnership firm, it cannot be registered as a shareholder in the shareholder register of Wokhardt Ltd and, therefore, naturally those were to be held in the name of one of the partners. Further, in case of the assessee, the structure of partnership was that it is a partnership between one trust and three LLPs. Therefore, the shares were registered in the name of trustee of Habil Khorakiwala Trust, viz. Thermisto Trustee Company Pvt Ltd. This is also in accordance with the provisions of the Companies Act. The demat account in the name of Thermisto Trustee Company Pvt Ltd having client ID no. 11769646 with the depository IL FS Securities Services ltd clearly shows that the shares were held in the name of the trustee. Further, the assessee also filed a declaration on 30/07/2014 with SEBI (Substantial Acquisition of Shares Takeovers Regulations) Act, 2011 stating complete details of the nature of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e revisionary powers. Thus Revisionary authority can exercise this power if and only if, it is demonstrated that Assessing authorities have failed to carry out meaningful, pertinent, relevant inquires in a judicious manner. There cannot be any other interpretation of the above explanation. If the above Explanation is interpreted otherwise, then each order could be found fault with and any small, futile or irrelevant enquiries which assessing officer fails to do, in the opinion of the revisionary authorities would automatically become an order passed erroneously insofar as it is prejudicial to the interest of the revenue. Therefore, the opinion of the Principal Chief Commissioner as embodied in Explanation 2 has also to be prudent, judicious and reasonable. As the provisions under section 263 of the Act are one of the lethal provisions to pluck the leakage of the revenue, it itself is saddled with utmost responsibility on the part of the revisionary authority, that only in the case of orders where claims of the assessee are accepted without an inquiry or where inquires, though made are irrelevant and not due. 29. Therefore, it is necessary to examine the inquires made by the ld ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is not shown. The breach has to be shown by the revenue with respect to the chargeability of any income in the hands of the impugned assessee and not with respect to any benefit to others, 30. Vide para no 5 , the learned PCIT has set aside the order and the assessing officer is directed to pass the fresh assessment order after examining the issue of receipt of gift and the claim of the same being exempt considering the issue raised in the notice under section 263 of the Act. We find that there is no mention in the revisionary order that what are the provisions of law other than those considered by the assessing officer and what are the further facts that the assessing officer should look into, which originally he has not looked into. Unless it is shown that, what further enquiries LD AO, which he has not made earlier, should make, the order of the learned PCIT does not hold any water. 31. The further issue that arise is that at para 5 of the order, the learned PCIT has directed the assessing officer to examine the applicability of section 68 of the Income-tax Act, if the transaction is not found to be a valid gift. The claim of the assessee is that the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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