TMI Blog2023 (4) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... of shares in the Transferee Company. It is the case of the Income Tax Department that there was a capital gain arising out of transfer of shares held by the respective respondents in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). On account of amalgamation of M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) with M/s.Sun Pharma Industries Limited (SPIL), the above capital gain was not offered to tax. This transfer arising out of amalgamation was treated as capital gains in the hands of the shareholders (the respondents herein) and other members of the Dadha Group (DG) and therefore, proceedings came to be initiated under Section 158BC of the Income Tax Act, 1961 by issuing notice to both the members of the Dadha Group and M/s.Sun Pharma Industries Limited (SPIL) for the block period between 01.04.1988 and 15.12.1998. Merely because some of the cases filed by the Income Tax Department were disposed in the light of the Litigation Policy of the Income Tax Department will not impel to dismiss these T.C.As. as admittedly the amalgamation though reality was devised to create a smoke screen in the eyes of the Income Tax Department to evade tax on the amounts transferred in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Name of the Assessee/Respondent 1 1925/08 16.11.2007 I.T(SS).A.No.150/Mds/2006 M/s.Dadha Pharma Pvt. Ltd. [Dadha Group] 2 648/09 16.11.2007 I.T(SS).A.No.180/Mds/2002 Shri. S.Mohanchand Dadha (Indl) [SMD] 3. By the impugned orders, the Tribunal has dismissed the respective appeals of the Income Tax Department in I.T(SS).A.No.150/Mds/2006 and in I.T(SS).A.No.180/Mds/2002 filed against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as Appellate Commissioner ] allowing the respective appeals of the respondents in ITA TR No.65/04-05 vide order dated 28.03.2006 and in ITA No.CIT(A)(C).VIII/DCCC.32/1.T/ 100/2001-02 vide order dated 05.07.2002 respectively. 4. The dispute in these appeals pertains to the Block Assessment period between 01.04.1988 and 15.12.1998. At the time of admission of these appeals, the following substantial questions of law were framed for being:- i. Whether in the facts and circumstances of the case, the Tribunal was right in holdin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any undisclosed income belonging to him. In such a case we find that block assessment under sec.158BC of the Act is not valid in this case, on the anvil of the Hon'ble Jurisdictional High Court decision in the case of CIT v. G.K.Senniappan [2006] 284 ITR 220. The Hon'ble High Court expounded as under: Section 158BB occurs in Chapter XIV-B, which provides for special procedure for assessment of search cases. The computation of undisclosed income of the block period is contemplated under section 158BB. As per the section, the undisclosed income of the block period should be the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of this Act, on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years. A mere reading of the above provision clearly indicates that the sentence such other mater ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assets seized or requisitioned had been handed over to the assessing officer having jurisdiction over such other person; and (iii) the assessing officer has proceeded under Section 158-BC against such other person. Hence, the plea that essence of this assessment is under sec.158BD of the Act, cannot be sustained as clearly the conditions precedent to initiate sec.158BD as expounded by the Hon'ble Apex Court above, have not been followed. This is therefore a case where section 158BD was required to be invoked. Such requirement cannot be obviated merely because a search was also conducted in the case of the Assessee, admittedly yielding no undisclosed income. Section 158BB(1) only provides for computation of undisclosed income during the block period. It does not override or negate the provisions of section 158BD. Irrespective of whether the assessment is made under section 158BC or under section 158BD read with section 158BC, the undisclosed income of the block period has to be computed under section 158BB of the Act. Since in the instant case the undisclosed income of the Assessee was found from the material seized from search of other persons, such income could not be ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of whether protective addition is possible in a block assessment, we would like to reiterate that once it is accepted that there has been no sale of TDPL shares to SPIL, there is no scope of making this addition for the reasons for which it was made. The other arguments of the learned Counsel of the Assessee for the deletion of this protective addition also appear to us to be quite convincing. It is observed that Sri Sudhir Valia during the course of recording of the statement under sec.131 of the Act, stated that Rs.1,28,50,000/- was offered for taxation on account of various amounts paid to Dadhas of Chennai and the said amount after verification from the records of SPIL increased to Rs.1,33,50,000/- and the same was disclosed in the block return of SPIL. This addition is also not sustainable in view of the Hon'ble Apex Court's decision in the case of CIT v. D.P.Sandhu Bros. Chembur P. Ltd. [2005] 273 ITR 1 wherein it was held that if a particular income falling under a particular head of income cannot be so taxed, the same cannot be taxed in any other head. In the background of the aforesaid discussion and precedent, we are of the view that the C.I.T. (Appeals) was just ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respective High Courts. The Tribunal in the impugned order has further held as under:- 13. .We have also found that on facts of these cases, the seized sheets of paper on the basis of which the theory of receipt of sale consideration by the Assessees is sought to be established by the Department are by themselves not adequate to prove that any such amount was received by the Assessee. The facts being identical, in these appeals also there is no reason to differ from the aforesaid findings. In the said case of Shri S.Mohandchand Dadha (HUF) cited supra in para 26, reliance had also been placed upon the Hon'ble Apex Court's decision in K.P.Varghese v. ITO (1981) 131 ITR 597, P.V.Katyanasundaram (294 ITR 49) and CIT v. D.P.Sandu Bros.Chembur P.Ltd.(2005) 273 ITR 1. In the background of the same reasoning and precedent, we decide this issue in favour of the Assessees and reverse the order of the C.I.T.(Appeals) on this issue. Since there is no sale of shares, capital gain did not arise an the C.I.T. (Appeals) was justified in deleting the capital gain in the case of Dadha Pharma P.Ltd. Hence, we allow the appeals of the Assessees on this issue and the appeal of the R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs.290/- per share, installment scheme for such payment and interest payable calculated on reducing balance method. 11. It is submitted that the funds were transferred by the Sun Group to the Dadha Group by way of interest free loans and advances, deposits and trade advances and that if the scheme of amalgamation is to be followed, then there was no need for Sun Group to advance loan to Dadha Group to acquire shares from the M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO). It is submitted that the transfer of huge amounts from Sun Group to Dadha Group for this purpose is also accepted by the respondent. 12. It is submitted that though the Scheme of Amalgamation was approved by the Gujarat High Court and this Court in November, 1997, payments have been made continuously by the Sun Group to Dadha Group till the date of search in December 1998 and interest were charged on the defaulted installments. 13. It is submitted that there was absolutely no need of any payment as per the Amalgamation Scheme. Many of the correspondence between the Dadha Group and Sun Group were subsequent to the High Courts order indicates that over and above the Scheme of Amalgamation w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion of India and others , (1997) 1 SCC 508. xxi. Pullangode Rubber Produce Co. Ltd. Vs. State of Kerala and another , (1973) 91 ITR 0018. xxii. Commissioner of Income Tax-II, Ahmedabad Vs. Mastek Ltd ., [2013] 358 ITR 252 (SC). 16. Per contra, in so far as T.C.A.No.648 of 2009, the learned counsel for the respondent [S.Mohanchand Dadha (Indl)] submits that the Assessment Order dated 19.06.2001 was passed for the block period 01.04.1988 to 15.12.1998. It is submitted that in the Assessment Order dated 19.06.2001, the following additions were made:- Undisclosed income for the block period Rs. 47,56,638/- Addition made by way of protective assessment Rs.1,33,50,000/- Rs.1,81,06,638/- 17. It is submitted that the respondent had filed an appeal before the Appellate Commissioner in Appeal No.CIT(A)C.VIII/DCCC.32/I.T.100/ 2001-02 against the above addition. The said appeal was partly allowed by deleting the both undisclosed income and protective assessment. The protective assessment was deleted on the ground that same was disclosed in the block Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition is that there should be transfer of an asset. There are no records to substantiate that there was a transfer. It is submitted that as per Section 108 of the Companies Act, 1956, there is a proper procedure laid down for registration of transfer of shares. 24. The share certificates along with their distinctive numbers should be surrendered to the company along with the transfer forms duly executed by the transferor and the transferee in the office of the company. It is submitted that there were no such transfer forms duly executed by purchaser and seller were submitted to M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). 25. It is submitted that the Assessing Officer concluded that the funds were received by the Dadha Group from Sun Pharma Group through its various companies for sale of shares or the interest on delayed payments, but, only the amount of Rs.3 Crores was received from Aditya Medi Sales Ltd. (AML) which is one of the companies of the Sun Pharma Group for construction of godown which was later refunded to the Aditya Medi Sales Ltd. (AML) as the construction of godown could not be feasible owing to the new guidelines issued by the Chennai Metropolitan D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iled I.T. (S.S.) No.180/Mds/2002 before the Tribunal. The above appeal was dismissed vide impugned order dated 16.11.2007 by the Tribunal by upholding the decision of the Appellate Commissioner. T.C.A.No.1925 of 2008 33. Similarly, an Assessment Order dated 30.07.2003 was passed by the Assessing Officer against M/s.Dadha Pharma Pvt. Ltd., the respondent herein. 34. Against the said order dated 30.07.2003, M/s.Dadha Pharma Pvt. Ltd., the respondent herein filed an appeal before the Appellate Commissioner in ITA No.65/04-05. The said appeal was partly allowed by the Appellate Commissioner vide order dated 28.03.2006. 35. Challenging the same, the Assistant Commissioner of Income Tax filed I.T.(SS) A.No.150/Mds/2006 before the Tribunal. The said appeal was dismissed by the Tribunal vide impugned order dated 16.11.2007. 36. In fact, all the members of the Dadha Group had filed similar appeals and the issue came for consideration before the Tribunal. Details of the appeals filed before Tribunal are as under:- Sl. No Appeal No. / Cross Obj.No. Name of the appellant Name of the respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... As. arises out of acquisition of 26% shares of M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) by Dadha Group(DG) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) which was later merged with M/s.Sun Pharma Industries Limited (SPIL). 40. Dadha Group consisted of the following persons/entities:- i. S.Mohanchand Dadha (SMD) ii. M.Mohanchand Dadha (MCD) iii. M.Mahendra Dadha (MMD) iv. M/s.Phalodi Investment Pvt. Ltd. v. M/s.Antriksh Pharma vi. M/s.Dukan 41. In these appeals, we are concerned with two of the persons/entities of S.Mohanchand Dadha Group (SMD Group). Mohanchand Dadha Group (SMD Group) consisted of the following persons/entities who/which held about 2,06,820 shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) before the acquisition of shares from M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) as detailed below:- Table No.2 Name of the members / concerns of SMD Group Shares held in TNDPL Dadha Pharma Pvt. Ltd. * 127,500 Balu Bai 14,790 Kanta Kavar Dadha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- Sl. No. Name of the Group / Entity Number of Shares Percentage 1 Dadha Group 4,13,632 25 % 2 TIDCO 4,29,178 26 % 3 Public 8,09,758 49 % Total 16,52,568 100 % 48. 26% of the shares held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL), i.e. 4,29,178 shares were purchased by Dadha Group, Chennai, on 13.05.1997 at the rate of Rs.87.41 per share out of the funds provided by M/s.Sun Pharma Industries Limited (SPIL) and its group of companies (Sun Group), though Dadha Group were paid Rs.290/- per share by M/s.Sun Pharma Industries Limited (SPIL) for the consolidated shares held by the Dadha Group after acquisition. 49. After acquiring 26% of the shares held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceutical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ition of shares, the members of Dadha Group viz., S.Mohandchand Dadha Group (SMD Group), to which the respective respondents/assessees belong, M.Meherchand Dadha Group (MCD Group) Group and M.Mahendra Dadha Group (MMD Group) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) held the following shares:- Sl. No. Name of the Group Before Acquisition Acquired from TIDCO Total No. of shares 1 S.Mohandchand Dadha Group (SMD Group) 2,06,820 2,14,593 4,21,413 2 M.Meherchand Dadha Group (MCD Group) 1,03,332 1,07,365 2,10,697 3 M.Mahendra Dadha Group (MMD Group) 1,03,480 1,07,220 2,10,700 Total 4,13,632 4,29,178 8,42,810 54. M/s.Sun Pharma Industries Limited (SPIL) and its Group of company paid a sum of Rs.16,85,62,000 /- to the members of Dadha Group ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies. SMD Group received a sum of Rs.94,64,606/- towards interest for the delayed payments. Out of the above, Rs.3,36,888/- was notionally apportioned to the respondent in T.C.A.No.648 of 2009. Relevant portion of the Assessment Order dated 19.06.2001 reads as under:- Interest: As regards the interest on installments due to the assessee , the details are as per page 174 175 of annexure A6 of panchanama dated 7.12.1998 as per which the interest upto 01.10.1998 works out to Rs.88,38,815/- . The corresponding interest for the period 01.10.1998 to 15.12.1998 @ 13.5 on the amount outstanding of Rs.3,67,81,600/- is Rs.6,25,791/- . Hence, the total interest due to the MMD* group in the block period works out to Rs.94,64,606/- . SMD (Ind.) holds 15,000 out of total shares held by the group of 4,21,413 i.e., 3.56% of the group holding. Hence, the interest attributable to SMD (Ind.) on prorata basis works out to Rs.3,36,888/-. This amount is taxed as undisclosed income for A.Y. 1998-99 99-00 on account of interest not shown in the return of income. * SMD 57. While the above amounts of Rs.16,85,62,000/- and interest were being paid by the M/s.Sun Pharma Industries Limited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not regarded as transfer . 47. Nothing contained in section 45 shall apply to the following transfers : (i) (vi) any transfer, in a scheme of amalgamation, of a capital asset by the amalgamating company to the amalgamated company if the amalgamated company is an Indian company; 63. As per the sanctioned Scheme of Amalgamation, for every 4 shares held by shareholders in Transferor Company, viz. M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL), the shareholders were entitled to one share in the Transferee Company, viz. M/s.Sun Pharma Industries Limited (SPIL). 64. Thus, members and entities under of SMD Group of Dadha Group (DG) who held shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) came to hold a consolidated 1,05,353 numbers of shares in the Transferee Company, viz. M/s.Sun Pharma Industries Limited (SPIL) as detailed below:- Table No.4 Name of the Members and Concerns of SMD Group Shares held in TNDPL after purchasing shares from TIDCO Shares entitled in SPIL after amalgamation Dadha Pharma Pvt. Ltd.* 2,70,893 67,723 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chand Dadha Group (SMD Group) held 2,06,820 shares before the acquisition of shares of M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). The other persons/entities of the Dadha Group would have held about 2,06,812 [4,13,632 2,06,820] before acquisition. In other words, S.Mohandchand Dadha Group (SMD Group), to which the respective respondents belong, would have held about 12.51% of the shares and others in Dadha Group would have held about 12.49% in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). 70. It is evident that M/s.Sun Pharma Industries Limited (SPIL) has paid amounts only to the Dadha Group for the shares held by them in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) and not to other shareholders. 71. Though the Amalgamation of M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) with M/s.Sun Pharma Industries Limited (SPIL), pursuant to the sanctioning of the Schemes by Gujarat High Court on 19.11.1997 in C.P.No.298 of 1997 and by this Court on 04.11.1997 in C.P.No.241 of 1997 is a reality, and was outside the purview of capital gain, the fact remains that amounts were paid for acquiring 26% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Department will not impel to dismiss these T.C.As. as admittedly the amalgamation though reality was devised to create a smoke screen in the eyes of the Income Tax Department to evade tax on the amounts transferred in cash without proper accounting. But, for the search conduced under Section 132 of the Income Tax Act, 1961 at the premises of the respective respondents and their Groups namely, Dadha Group and at the premises of M/s.Sun Pharma Industries Limited (SPIL) Group, the truth would have not came to the light. 77. The submission of the respondent in T.C.A.No.648 of 2009 that the amount involved is below the monetary policy cannot be accepted as admittedly the amount of Rs.8,42,82,600/- alone was received by the Mr.S.Mohandchand Dadha for SMD Group from the M/s.Sun Pharma Industries Limited (SPIL) and its Group of companies. There are only notional allocations based on the number of shares before and after acquisition that were held and allegedly transferred prior to the amalgamation. None of the documents relating to the allocation of shares prior to the amalgamation has been filed. Share Registers of M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) were also not produc ..... 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