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TMI Blog2024 (12) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... . CIT(A) has erred in allowing the exemption u/s 10(34A) of Rs. 2,34,91,510/- to the assessee on the mere fact that the provisions of section 115QA was introduced w.e.f 01.06.2013 and Section 10(34A) was introduced w.e.f. 01.04.2014 in the Income Tax Act, whereas, the transaction under investigation was completed in F.Y. -2010-11. Whereas, AO has rightly disallowed the exempt income u/s 10(34A) as the transaction of buy back of shares of the unlisted companies i.e. MAG Associates Pvt. Ltd., SAM India Infrastructure Pvt. Ltd., S C Industries Pvt. Ltd., SAM India Builtwell Pvt. Ltd. and Space India Realtech Pvt. Ltd. was completed in the F.Y. 2015-16 and the Company buying back its shares has not paid distribution Tax u/s 115QA, and for claiming exemption u/s 10(34A) it is necessary that distribution tax u/s 115QA should be paid. 2. Ld. CIT(A) has ignored the facts that the partners of Magical Enterprises LLP i.e Sh. Arvind Goel and Nutan Goel and the firm Magical enterprises LLP were the major shareholders of MAG Associates Pvt. Ltd., SAM India Infrastructure Pvt. Ltd., S C Industries Pvt. Ltd., SAM India Builtwell Pvt. Ltd. and Space India Realtech Pvt. Ltd. and the disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allotted to erstwhile entity of the assessee i.e. M/s. Magical Enterprises P. Ltd. and the entity to be assessed could be erstwhile entity M/s. Magical Enterprises P.Ltd. and not the present L.L.P. The assessee also questioned the disallowance of claim of special rate of tax under s. 112 of the Act on LTCG of INR 1,63,92,653/-. It was contended that the AO has wrongly assessed such LTCG taxable under the head 'income from other sources' rather than 'capital gains as claimed'. 4.1. The assessee made oral and written submissions before the Ld.CIT(A) as reproduced in para 4 of the first appellate order. Based on the analysis of the detailed submissions of the assessee recorded in the first appellate order, the Ld.CIT(A) found the contentions of the assessee to be quite tenable in law. 4.2. The relevant part of the order of the Ld.CIT(A) is extracted hereunder for the ready-reference:- Ground No. 3: "Vide this ground of appeal, the appellant has challenged the addition of Rs. 2,34,91,510/- by disallowing the exemption claimed u/s. 10(34) of the Act. In the assessment order, it is noted by the AO that appellant has earned distributed profits of Rs. 2,34,91,510/- on account of bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riginal allottees' for which it has been argued that the '3' companies, M/s. MAG Associates Pvt. Ltd. SAM India Infrastructure Pvt. Ltd. and SAM India Buildwell Pvt. Ltd. were subject to assessment u/s. 153A, wherein no adverse inference was drawn on the issue of shares and receipt of amounts from "original allottees". For the other two companies, S.C Industries Pvt. Ltd. and M/s. Space India Realtech Pvt. Ltd., the appellant contended that the share capital issue were accepted in respective assessment years. Copies of assessment orders were also furnished. 2. The appellant has referred to the decision of Hon'ble Supreme Court in the case of UOI Vs. Azadi Bachao Andolan, 263 ITR 706, whereby the tax planning by legitimate means have been upheld. It was contended that there was no violation of any provisions of the Companies Act or the Income-tax Act in the process of buyback of shares by the related parties as per 115QA and claim of exemption u/s. 10(34A) by the appellant. The appellant has also referred to several other decisions to support its contention. After going through the findings of the AO in the assessment order and appellant's contention, followi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terprises Pvt. Ltd. from original allottees and any question of unreasonable purchase price or some kind of cash payments on purchase of such shares at face value to compensate original allottees could have been considered only in A.Y. 2011-12 and not in the current assessment year. Furthermore, the provisions of Section 115QA was introduced w.e.f. 01.06.2013 and Section 10(34A) was introduced w.e.f. 01.04.2014 in the Income-tax Act. Hence, the appellant could not have known in F.Y. 2010-11 about such provisions to plan sham transactions pertaining to these shares. In view of these facts, the AO's conclusions to disallow Section 10(34A) exemption is not sustainable. Based on the above discussion, I hold the appellant's claim of deduction u/s. 10(34A) is allowable and addition on this issue by the AO is hereby deleted." 4.3. The Ld.CIT(A) also found merit in the plea of the assessee for wrongful denial of special rate of tax available under s. 112 of the Act towards LTCG arising to the assessee. The relevant operative para is extracted hereunder for ready-reference:- Ground No. 4 Vide this ground, the appellant has challenged taxation of Rs. 1,63,92,653/- long term ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te order. 9. We have carefully considered the rival submissions and perused the material available on record. The first issue involves challenge to the additions of INR 2,34,91,510/- by denying exemption claimed by the assessee under s. 10(34A) of the Act. The facts, as emerging from record, shows that the assessee has earned distributed profits of INR 2,34,91,510/- by virtue of offering shares of unlisted companies in buyback scheme floated by such cluster of companies. Prior to buyback, these five companies had issued shares to original allottees in FYs 2007-08, 2008-09 & 2009-10 at face value ranging from INR 5/- per share to INR 17.50/- per share together with premium of varied amounts as noted by the Ld.CIT(A). The original allottees sold these shares of these five companies to the entity namely, M/s. Magical Enterprises P.Ltd. which was later converted into M/s. Magical Enterprises LLP i.e. assessee hereunder. In the current FY 2015-16 relevant to AY 2016-17 in question, in consequent of the conversion from Private Limited to LLP, the assessee herein became the rightful owner of the shares of five companies, earlier held by erstwhile M/s. Magical Enterprises P. Ltd. In the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en adopted by the assessee. 11. Without repeating the facts, we hold that the Ld.CIT(A) has examined the issue threadbare and concluded in favour of the assessee after due consideration of facts and law. In order to avail benefit under s. 10(34A) of the Act, the conditions therein need to be satisfied which was found to have been met. Thus, based on alleged manipulations on issue price in some earlier concluded years, the benefit of exemption under s. 10(34A) of the Act on transaction recorded in the books and subjected to assessment process in the past, could not be denied by any stretch of imagination. We find no infirmity in the order of the Ld.CIT(A) in this regard. Hence, we decline to interfere. 12. As regards challenge to taxation of INR 1,63,92,653/- offered by the assessee as LTCG, the Ld.CIT(A) found the reasoning of the AO that some unaccounted money was converted into legitimate the money as baseless and unfounded. The assessee has not claimed any benefit of exemption under s. 10(38) of the Act on such LTCG and has merely applied special rate of tax @ 20% as prescribed under s. 112 at LTCG. The purchase transactions carried out in the earlier years could not be distur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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