TMI Blog2022 (1) TMI 1337X X X X Extracts X X X X X X X X Extracts X X X X ..... i vs CIT, [ 1997 (9) TMI 2 - SUPREME COURT] relied upon by the learned DR. In the present case, it is to be appreciated that the conversion of preference shares into equity shares is in the hands of the shareholder, i.e. M/s Satguru Constructions. Thus, gain, if any, arising from such a conversion will only be taxable in the hands of the shareholder. Therefore, in view of the above, we find no infirmity in the findings of the learned CIT(A) on this issue. As a result, ground No. 1 raised by the Revenue is dismissed. - ITA No. 7356/Mum./2019 - - - Dated:- 24-1-2022 - SHRI G. S. PANNU , PRESIDENT AND SHRI SANDEEP SINGH KARHAIL , JUDICIAL MEMBER For the Assessee : Shri Sanjay Parikh For the Revenue : Shri K. C. Salvamani ORDER PER BENCH The captioned appeal has been filed by the Revenue challenging the impugned order dated 11/09/2019, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals) 9, Mumbai, [ learned CIT(A) ], for the assessment year 2011 12. 2. In its appeal, the assessee has raised the following grounds: 1. Whether on the facts and in the circumstances of the case and in law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... capital gains and transfer in such a case, only arise in the hands of the shareholder and not in the hands of the company. The Assessing Officer ( AO ) vide order dated 10/02/2014 passed under section 143(3) of the Act did not agree with the submissions of the assessee and by placing reliance upon the decision of Hon ble Gujarat High Court in Anarkali Sarabhai vs CIT (1982) 138 ITR 437 (Guj.) held that there was an asset which was transferred and as gain has been accrued to the assessee, therefore the same is assessed as capital gains in the hands of the assessee. The AO treated the amount of Rs.22,06,91,000 credited to the Security Premium Account as short-term capital gains and added the same to the total income of the assessee. 5. The learned CIT(A) vide impugned order allowed the appeal filed by the assessee on this issue and held that the transfer in respect of preference shares is in the hand of the shareholder i.e. M/s Satguru Constructions. The relevant findings of the learned CIT(A), vide impugned order, in respect of this issue are as under: 4.3.5 It is clear from the facts that the payment of Rs.22.799 crores was received by the appellant in F.Y. 2007-08 on acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing reliance upon the impugned order passed by the learned CIT(A) submitted that the transaction of conversion of preference shares into equity shares is in the hands of the shareholder and therefore the addition has been rightly deleted by the learned CIT(A). 8. We have considered the rival submissions and perused the material available on record. In the present case, 11,999 RCCPS were issued by the assessee at a face value of Rs.10,000, in the financial year 2006-07 and 12,000 FCCPS were issued at a face value of Rs.10,000, in the financial year 2007-08. The preference shares were issued with an inherent condition for conversion into equity shares. Both these preference shares were transferred by the original preference shareholders to M/s Satguru Construction vide transfer deed dated 28/02/2011. In the year under consideration, all the preference shares were redeemed by the company by issuing equity shares to M/s Satguru Construction without the payment of any further consideration. The AO treated the amount credited to the Reserves and Surplus under the Security Premium Account as capital gains in the hands of the company. The AO in support of its conclusion placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Revenue s appeal, is pertaining to the addition on account of unrealised foreign exchange gain. 12. The brief facts of the case pertaining to this issue are: During the year under consideration, the assessee had a gain on foreign exchange valuation amounting to Rs.1,16,64,751, on account of loan transactions with a foreign entity. During the assessment proceedings, the assessee was asked to show cause as to why the amount of such loan which was not repaid and remained as such as on 31st March of the previous year be not added back to the total income of the assessee. In reply thereto, the assessee submitted that as per Accounting Standard 11, the assessee was required to reinstate its accounts for foreign currency difference on account of pending foreign exchange liabilities and assets. Thus, the same resulted in unrealised gain or loss at the year-end at the prevailing rate on the last date of the accounting year. The assessee further submitted that in the earlier years, due to the reinstatement of accounts, there was a loss and the same was neither claimed by the assessee nor the same was allowed to it in any of the earlier years. The assessee also submitted that the unreal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which term 'loan' in foreign exchange was obtained was not fully paid during the year under consideration. In such situation as per the amended provisions of section 43A of the Act, there was no question of considering the unrealised gain on account of foreign exchange fluctuation as income of the appellant. The appellant is also following a consistent practice of not accounting for either gain or loss from foreign exchange fluctuation in respect of loans taken for assets for which the payments are not fully made by the appellant. Thus, in view of the bare provisions of the amended section 43A of the Act, instruction no.3/2010 of CBDT and the judgements of Hon'ble Supreme Court in the case of CIT vs. Woorward Governor India Pvt. Ltd., the decision of the AO to consider unrealised gain of Rs.1,16,64,751/- as income of the appellant was not justifiable. Therefore, the addition of Rs.1,16,64,751/- is deleted. The ground of appeal is allowed. Being aggrieved, the Revenue is in appeal before us. 14. During the hearing, the learned DR vehemently relied upon the order passed by the AO. On the other hand, the learned AR reiterated the submissions made before the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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