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TMI Blog2025 (5) TMI 810X X X X Extracts X X X X X X X X Extracts X X X X ..... g the year under consideration. 2. That on the facts and circumstances of the case and in law the Ld. CIT(A) grossly erred in directing the Ld.AO to make the said addition failing to appreciate that the said receipt of shares of M/s. DHFL were purely loan, liable to be returned and, therefore, did not constitute any benefit arising out of a business transaction chargeable to tax u/s. 28(iv) of the Act. 3. Without prejudice to the above, that on the facts and circumstances of the case and in law the Ld. CIT(A) grossly erred in not appreciating that the FMV of shares of DHFL on the date of receipt as loan cannot be considered as benefit, since the same value was purely notional value and the benefit, if any, could be considered as the difference between the loan received against such shares on pledge and the actual value realized on subsequent sale/liquidation of said shares, which also results in loss to the assessee company. 4. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in directing the Ld. AO to recompute the book profits of the Appellant for the purposes of section 115JB after making addition of the aforesaid amount of Rs. 234,10,10,00/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8, the appellant furnished its replies and also produced certain documents in support of the grounds of appeal. The same has been considered. 29. It is seen that M/s Galaxy over the years had accumulated shares of DHFL. The shares were transferred to the appellant in his DMAT account. Such transfers were made from D-MAT account of M/s Galaxy. During the course of assessment proceedings vide letter dated 17.09.2021, the appellant had given the details of net worth of Galaxy which is as under:- F.Y. Networth of Galaxy No. of Shares of DHFL held by Galaxy Cost of DHFL investments as reflected in Balance Sheet of Galaxy Dividend Income as per P& L of Galaxy 2018-19 734919749/- 5500000 711182812/- 26088510/- 2017-18 732164504/- 10435404 1200132537/- 62612424/- 2016-17 384241083/- 10435404 1200132537/- 31306212/- 2015-16 352998827/- 10435404 1200132537/- 73047828/- 2014-15 279797838/- 5217702 1200132537/- 46959218/- 30. In support of the above contentions, the annual accounts and the balance sheet of the M/s Galaxy was also produced as the same is available in the public domain. 31. It is not a case wherein money has been transferred to the appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loan. Had it been really a transaction of loan, in that case there would have been written agreement and various terms of loan and repayment. If it was transaction of loan then the loans are repayable. In this case, there was no terms/clarity of repayment of the shares. Subsequent event establishes that the appellant has neither returned the shares nor is in a condition to repay the shares. These facts indicate that the transactions were not of loan. ............ 41. The transaction of receipt of share from Galaxy was not that of loan. However, for the sake of argument only, even if it is believed that the transaction was that of loan, even in that case, the amount is Income in the hands of the appellant. The appellant is not liable to pay back the shares to Shri Batra. During the course of statement rendered during the course of survey, the director stated that profits would be shared by the two and losses will be borne by Shri Batra only. If that was the condition/terms of contract between appellant and Shri Batra, it is not known as to why the losses has been claimed in the accounts of the appellant company. In any manner, the liability (if it really exist) is no more payabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on this ground. ..................... 51. If the entire transaction of the appellant is examined, then it is seen that the appellant connived with Shri Jalaj Batra (working on behalf of promoters of the DHFL Group) to artificially raise the price of DHFL's shares in stock exchange. The appellant was a share broker (a trading member of the exchange) but the impugned transactions were carried out in its proprietary account. The shares were transferred to the appellant in Its own D-MAT account. It is hot a case wherein the shares were traded by the appellant in the capacity of the broker on behalf of its client M/s Galaxy. As a matter of record, M/s Galaxy was not a client of the appellant and the appellant did not make any transaction in the client code of the Galaxy. As the appellant received the shares from Galaxy in its own D-MAT account and traded according to his wish/strategy, the appellant became the real owner of the shares. In other words, the appellant was the beneficiary of the shares received from Galaxy. 52. After receipt of shares of DHFL, the appellant treated these shares as its stock in trade and credited the shares to stock in trade account. It is not a ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant finally treated the receipt as loan in his books, but the facts discussed above establishes that it was not a loan transaction but in the nature of benefit of business taxable u/s 28(iv) of the Act. 62. The entire gamut of facts discussed above establishes that the transaction was not of loan but it was in the nature of business transaction involving the receipt of shares without any cost to the appellant. 63. In view of the above, it is held that the receipt of shares is taxable as business Income u/s 28(iv) of the Act in the hands of the appellant during the year under consideration. .................. 68. The appellant had initially received 40,00,000 DHFL shares but sold 1,50,000 shares. Finally the appellant was in possession of 38,50,000 shares of DHFL. The benefit arising to the appellant is to be computed on the date of transfer of shares. The closing rate of shares as on the date of transfer is adopted in computing the value of benefit. The total value of shares as on the date of transfer is computed as under:- Sr. No. Date of Transaction No. of shares Closing per share price as per BSE as on date (Rs.) Total value of shares (Rs.) 1 02.07.2018 15,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... teep and unprecedented fall in the market price of shares of DHFL on Stock Exchange, which was purely market driven. On this date, the share-price of DHFL witnessed fall of 42.58% on a single day from the opening price of Rs. 615.15 to low of Rs. 274.75. Thereafter, there was a continuous decline in share-price of DHFL which went to a low of Rs. 149 by end of the relevant financial year. (v). As a result of steep decline in the share-price of DHFL on 21.09.2018, the lending NBFC and Brokers, in order to recover their loan amount, diluted substantial shares of the assessee as also of its clients pledged with them, including the aforementioned 38,50,000 shares, at the reduced stock price prevailing on that date. The 38,50,000 shares of DHFL pledged with Banks/Brokers were sold for an aggregate consideration of Rs. 134.13 crores as per following details, which stood credited in books of the assessee as part of sales of assessee in books of account. Details of shares sold of DHFL during FY 2018-19 Date Particulars No.of shares Average Rate Total Value (amount in Rs. ) 21.09.2018 DHFL sold by Goble Capital Market Limited(Broker) 20,00,000 349.35 69,86,93,098 21.09.2018 DH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DHFL (i.e. including the returned 1,50,000 shares), as an unexplained cash credit in the hands of the assessee within the meaning of section 68 of the Act. Moreover, the Ld. AO erroneously computed the value of impugned shares by considering the highest per share price (on the date of credit of shares), as the relevant price. Consequently, the Ld. AO made the addition of Rs. 250,28,50,000/- under section 68 of the Act, vide the assessment order passed u/s 143(3) of the Act dated 27.09.2021. (xii) On further appeal by the assessee, the Ld. CIT(A), accepted that an addition under section 68 of the Act could not be made in respect of the impugned transaction, as the assessee had provided replies and produced documents to establish the identity of GIDPL, the genuineness of the transaction, and the creditworthiness of GIDPL. (xiii) The findings of the CIT(A) to disregard the transaction as loan and compute the amount of so called 'benefit' for the purposes of taxation in the hands of appellant under the umbrella of s. 28(iv) are summarized hereunder: (i) The transaction was not a loan transaction for the following reasons: (a) there was no accounting entry of loan in the books o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... via Delivery Instruction Slips ('DIS'). The DIS clearly indicated that shares were transferred by GIDPL to the assessee as a 'loan'. The respective DISs were submitted to CDSL, NSE & BSE via online portals. The DISs explicitly stated the receipts of shares of DHFL from GIDPL as and by way of loan. The DISs placed on the online portals at the time of transfer of shares to the assessee would thus clearly establish the intent of the transferor (GIDPL) and transferee (the assessee) that the impugned transfer of shares was by way of loan to the assessee. The copy of DISs were also produced and submitted by the assessee before the Income Tax Department vide letter dated 19.02.2019 immediately after survey which was conducted on 14.02.2019. The Ld. Counsel next submits that there is no family or blood relationship of the assessee or any of its directors with GIDPL or its directors. Thus, in the absence of any relationship, the shares received from GIDPL worth around Rs. 240 crores on commercial considerations, can only plausibly be a returnable loan. Also, minutes of meeting dated 14.03.2020 between the director or assessee co. and that of lender co. clearly discerns that the shares were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee thus contends that having accepted the creditworthiness and genuineness of receipt of shares, there was no justification for the CIT(A) to modify the tenor and colour of DHFL transactions and seeking to tax under the other provisions of the Act [s. 28(iv) of the Act] merely to sustain the additions made by the AO. 9.3 The assessee thereafter adverted to the observations of the revenue that at the time of survey, the accounting entries towards receipt of shares were not made giving rise to adverse inference. In reply, the assessee submits that owing to huge losses suffered and accounting year had not closed, the books were tentative and inchoate as the assessee was stuck in the midst of settling huge financial problems cropped up such as enquiry from Stock Exchange Board of India ('SEBI') and other customers owing to unprecedented loss from sharp fall in share price of borrowed shares. The accounts could not be kept updated in such short intervening period. However, the inward of shares in the Demat account duly emanates from record. Mere non-reconciliation of Demat holding vis-a- vis holding in the books is inconsequential and inconclusive to treat the transactions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under obligation qua GIDPL. The shares have been received with an understanding to make profits with an intent to share and divide profits. The act of pledging the shares as margin with financiers etc. shows the capacity of assessee to be an owner of such shares which gave it such right. Thus such transactions were not in the nature of loan as rightly held by the CIT(A) but a pure business arrangement which did not work out. However, the loss incurred by the assessee has given rise to a situation where the liability arising on account of receipt of shares is reduced to nullity and therefore, there is a remission of loan liability under s. 41(1) of the Act and benefit arising to the assessee under s. 28(iv) from such business arrangement. The Ld. CIT-DR also contended that since no loan could be stated to have been received by the assessee from GIDPL in the absence of any formal documentation and in view of the objectives of receipts to be a business arrangement for sharing profits with one Mr. Jalaj Batra who was working on behalf of the promoters of DHFL ( and loss to be borne by Mr. Jalaj Batra only), the assessee has obtained 'benefit' in the course of carrying on of business b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue of benefit arising from business. This was done on the premise that the assessee received shares at NIL consideration with embedded object to share business profits if any, which may arise to the assessee in future as attributable to such shares transferred. The CIT(A) observed that the assessee has not traded in the shares in the name of lender but in its own name and thus was the real owner indulging in trade. The CIT(A) held that transfer of DHFL transactions were business transactions and not in the nature of loan transactions as incorrectly claimed by the assessee and wrongly assessed by the AO and benefit has arisen to the assessee on transfer of shares in terms of s. 28(iv) of the Act having regard to absence of any obligation to repay any amount. 11.2. The DISs based on which the shares have been transferred by the lender to the assessee clearly reflects that shares are being transferred as loan. The director of the assessee in statement under s. 133A has also asserted shares to have been received by way of loan. The minutes of the board meeting of the lender company also underscores the understanding of transferring such large amount of shares. Otherwise also, it is ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards creditworthiness of the lender and genuineness of the transactions etc. the CIT(A) has resorted to s. 28(iv) to tax the unreturned shares holding such receipt of shares to be a 'benefit' accruing to assessee as contemplated under s. 28(iv) of the Act. 11.5. The action of the CIT(A) prima facie appears to be totally incomprehensible and without any tangible basis and based on colossal misunderstanding of s. provisions of s. 28(iv) of the Act. Sub-section (iv) of s. 28 brings to chargeability, the value of any benefit or perquisite, whether convertible into money or not, arising from business or the exercise of a profession. Waiver of any loan or credit or interest is also in the nature of 'benefit' for the purposes of s. 28(iv) of the Act. There is nothing on record to arrive at a conclusion that the GIDPL has waived its right in any manner to recover shares or equivalent value thereof from the recipient assessee. In contrast, the surrounding circumstances suggests to rather contrary. Neither assessee has claimed its domain over the shares received without any liability to repay the amount either in its books or by other material nor has GIDPL is shown to have curtailed its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uided by commercial wisdom and in the assessee of any commercial traits, the operation of s. 28(iv) automatically gets excluded. Element of quid pro quo is the bedrock of any business or commerce. The CIT(A) has apparently proceeded on un-dimensional assumptions and extremely peripheral considerations. The retention of additions taking shelter of s. 28(iv) of the Act thus militates against the very scheme of s. 28(iv) itself. There can be plethora of reasons for failure to execute a formal loan agreement reduced in writing. The need for written agreement should be best left to the judgment of the parties. Besides, oral contracts are also recognized in law and more so, for the purposes of income tax proceedings, neither the existence of any written agreement itself is determinative of character of transaction per se nor absence thereof prevents the AO to assess the circumstantial and surrounding circumstances to arrive at a lawful conclusion. Neither there is any material to suggest waiver from recovery of share value from the end of the lender nor can it be inferred in the light of human probabilities. Hence, no 'benefit' can be said to have accrued to the assessee for the purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X
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