MAX FINANCIAL SERVICE LIMITED , NAWANSHAHR v. PRINCIPAL COMMISSIONER OF INCOME TAX -1, JALANDHAR

ITA 121/ASR/2020 | 2015-2016
Pronouncement Date: 31-03-2021 | Result: Partly Allowed

Appeal Details

RSA Number 12120914 RSA 2020
Assessee PAN AABCM1204G
Bench Amritsar
Appeal Number ITA 121/ASR/2020
Duration Of Justice 9 month(s) 7 day(s)
Appellant MAX FINANCIAL SERVICE LIMITED , NAWANSHAHR
Respondent PRINCIPAL COMMISSIONER OF INCOME TAX -1, JALANDHAR
Appeal Type Income Tax Appeal
Pronouncement Date 31-03-2021
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted DB
Tribunal Order Date 31-03-2021
Date Of Final Hearing 24-02-2021
Next Hearing Date 24-02-2021
Last Hearing Date 10-02-2021
First Hearing Date 10-02-2021
Assessment Year 2015-2016
Appeal Filed On 23-06-2020
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH AMRITSAR (VIRTUAL COURT) BEFORE: SMT.ANNAPURNA GUPTA ACCOUNTANT MEMBER AND SHRI R.L. NEGI JUDICIAL MEMBER ITA NO. 121 (ASR)/2020 (ASSESSMENT YEAR : 2015-16 M/S MAX FINANCIAL SERVICES LTD. BHAI MOHAN SINGH NAGAR RAIL MAJRA TEHSIL BALACHAUR DISTT NAWANSHAHR. THE PR. CIT-I. C.R. BUILDING MODEL TOWN ROAD JALANDHAR. ./PAN NO: AABCM1204G /ASSESSEE BY: SHRI DEEPAK CHOPRA SHRI DEEPAK AGGARWAL SHRI ROHAN KHARE MS.PRATISHTHA SINGH / REVENUE BY: SMT.PRABHJOT KAUR CIT /DATE OF HEARING : 24.02.2021 !' /DATE OF PRONOUNCEMENT: 31 .03.2021 (HEARING THROUGH WEBEX) /ORDER PER ANNAPURNA GUPTA ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE PRINCIPAL COMMISSIONER OF INCOME TAX JALANDHAR (IN SHORT PCIT) DATED 25.02.2020 RELATING TO ASSESSMENT YEAR 2015-16 PASSED IN EXERCISE OF HIS REVISIONARY JURISDICTION U/S 263 OF THE INCOME TAX ACT 1961 (HEREINAFTER REFERR ED TO AS ACT). ITA NO.121/ASR/2020 A.Y.2015-16 2 2. BRIEFLY STATED THE LD. PR.CIT WHILE PERUSING TH E ASSESSMENT RECORD OF THE ASSESSEE PERTAINING TO THE IMPUGNED YEAR NOTICED THAT THE ASSESSING OFFICER ( AO) HAD FRAMED THE ASSESSMENT WITHOUT DULY EXAMINING THE CL AIM OF THE ASSESSEE RELATING TO CERTAIN EXPENSES AND OR INCOMES/PROFITS RETURNED . ACCORDINGLY SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE AS TO WHY REMEDIAL ACTIO N U/S 263 OF THE ACT BE NOT TAKEN WITH RESPECT TO THE ASS ESSMENT ORDER FRAMED AND SPECIFIC DISCREPANCIES NOTED BY THE LD. PR.CIT THEREIN WAS POINTED OUT. DUE AND EXHAUSTIVE REPLY WAS FILED BY THE ASSESSEE ADDRESSING THE LEGAL ASP ECT OF ASSUMPTION OF JURISDICTION U/S 263 OF THE ACT AND P OINTING OUT WHY THE SAME WERE NOT FULFILLED IN THE PRESENT CASE VIS- -VIS EACH SPECIFIC ISSUE RAISED BY THE PR. CIT. TH E LD. PR.CIT DID NOT FIND MERIT IN THE CONTENTION OF THE ASSESSEE AND DEALING WITH EACH SPECIFIC ISSUE RAISED BY HER ARRIVED AT A FINDING THAT THE ORDER OF THE AO WAS ERRONEOUS SO AS TO CAUSE PREJUDICE TO THE INTEREST OF THE REVENUE WIT H RESPECT TO EACH ISSUE. THE LD. PR.CIT HELD THAT THE AO HAD PASSED THE ORDER U/S 143(3) OF THE ACT WITHOUT MAKING REQU ISITE ENQUIRIES AND VERIFICATION IN RESPECT OF THE SPECIF IED ISSUES WHICH SHOULD HAVE BEEN MADE BEFORE PASSING OF THE O RDER U/S 143(3) OF THE ACT AND THEREFORE THE ASSESSMEN T ORDER WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF TH E ITA NO.121/ASR/2020 A.Y.2015-16 3 REVENUE. ACCORDINGLY SHE SET SIDE THE ASSESSMENT O RDER PASSED BY THE AO DIRECTING A FRESH ORDER TO BE PASS ED AFTER MAKING NECESSARY ENQUIRIES/INVESTIGATION IN THE LIG HT OF THE DISCUSSIONS MADE BY HER IN HER ORDER PASSED U/S 263 OF THE ACT. 3. THE SPECIFIC ISSUES VIS--VIS THE ASSESSMENT ORD ER WAS FOUND TO BE ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE BY THE LD. PR.CIT AS SET OUT IN THE SHOW C AUSE NOTICE ISSUED TO THE ASSESSEE ARE AS UNDER: (A) ALLOWABILITY OF DEPRECIATION AND OTHER EXPENSES AS BUSINESS EXPENDITURE AND THEIR PURPOSE FOR EARNING REVENUE FROM OPERATIONS AND OTHER INCOME; B) BASIS OF COMPUTATION OF LOSS FROM SALE OF UNQUOTED INVESTMENT OF RS.4037.19 LAKHS; (C) ALLOWABILITY OF EXPENDITURE INCURRED ON CORPORATE GUARANTEE GIVEN ON BEHALF OF A SISTER CONCERN AS BUSINESS DEDUCTION; (D) BASIS OF VALUATION OF VARIOUS ASSETS SOLD IN SLUMP SALE TO MAX SPECIALITY FILMS LTD. (E) RENT RECEIVED FROM LETTING OUT OF A PROPERTY TO THE EMPLOYEE TAXABLE AS INCOME FROM HOUSE PROPERTY VIS--VIS BUSINESS INCOME OFFERED BY TH E ASSESSEE IN THE RETURN OF INCOME AND CONSEQUENTIAL CLAIM OF DEPRECIATION THEREON. (F) BASIS OF VALUATION OF UNQUOTED CURRENT INVESTMENT SOLD DURING THE YEAR TO A SISTER CONCERN . 4. IT IS THE AFORESAID ORDER OF THE LD. PR.CIT WHIC H IS IN CHALLENGE BEFORE US AND THE GROUNDS RAISED BY THE A SSESSEE CHALLENGE BOTH THE VALIDITY OF THE ASSUMPTION OF JU RISDICTION ITA NO.121/ASR/2020 A.Y.2015-16 4 BY THE LD. PR.CIT U/S 263 OF THE ACT AS WELL AS TH E MERITS OF THE CASE. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT THE ORDER PASSED BY THE PRINCIPAL COMMISSI ONER OF INCOME TAX ('PCIT') UNDER SECTION 263 OF THE INCOME TAX ACT 1961 ('ACT') IS BAD IN LAW AND VOID AB-INITIO. 2. THAT THE ORDER OF THE PCIT IS BAD IN LAW BEING BASED ON SURMISES AND CONJECTURES WITHOUT ANY FINDING OF FAC T AS TO HOW THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT WAS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF THE REVENUE. JURISDICTIONAL GROUNDS 3. THAT THE ASSUMPTION OF JURISDICTION UNDER SECTIO N 263 OF THE ACT WAS ALSO PATENTLY BAD IN LAW SINCE NEITHER OF THE CONDITIONS PRESCRIBED STOOD SATISFIED SINCE NEITHER THE ASSESSMENT FRAMED UNDER SECTION 143(3) OF THE ACT W AS ERRONEOUS OR PREJUDICIAL TO THE INTEREST OF REVENUE . 4. THAT THE ASSUMPTION OF JURISDICTION UNDER SECTIO N 263 IS ALSO BAD IN LAW SINCE THE PCIT HAS FAILED TO DEMONSTRATE AS TO HOW ANY OF THE CONDITIONS PRESCRI BED IN EXPLANATION 2 TO SECTION ACTION 263 OF THE ACT S TOOD SATISFIED ON THE FACTS OF THE PRESENT CASE. 5. THAT THE IMPUGNED ORDER IS ALSO BAD IN LAW SINCE IT ONLY RECORDS THAT THE AO HAD FAILED TO MAKE 'ADEQUA TE ENQUIRIES DURING THE COURSE OF THE ORIGINAL ASSESSMENT WHICH DOES NOT MEET THE MANDATE OF LAW FOR INVOKING JURISDICTION UNDER EXPLANATION 2 OF SECTION 263 OF THE ACT. 6. THE PCIT FAILED TO APPRECIATE THAT THE ASSESSME NT ORDER WAS PASSED BY THE ASSESSING OFFICER AFTER DUE APPLICATION OF MIND AND AFTER MAKING DUE INVESTIGATION/ENQUIRIES WHICH FACT IS CLEARLY BORNE FROM THE ASSESSMENT RECORDS AND HENCE WAS NOT A CASE OF LACK OF ENQUIRY AS ENVISAGED IN EXPLANATION 2 TO SE CTION 263. 7. THAT THE ASSUMPTION OF JURISDICTION BY THE PCIT UNDER SECTION 263 IS CONTRARY TO THE POSITION OF LAW LAID DOWN BY THE JURISDICTIONAL HIGH COURT AND THE SUPREME CO URT AND IT IS NOT FOR THE PCIT TO DETERMINE A THRESHOLD OF ITA NO.121/ASR/2020 A.Y.2015-16 5 CONDUCTING ENQUIRY WHEN THE ISSUE HAS BEEN EXAMINED BY THE AO. ON MERITS 8. WITHOUT PREJUDICE TO THE ABOVE THE PCIT FAILED TO APPRECIATE THAT ACCEPTANCE OF THE TREATMENT AND TAXATION OF INCOME FROM LEASING OF PROPERTY BY THE APPELLANT AS PROFITS AND GAINS OF BUSINESS AS AG AINST INCOME FROM HOUSE PROPERTY AND CONSEQUENTIAL CLAI M OF DEPREDATION UNDER SECTION 32 OF THE ACT BEING SUPPORTED BY VARIOUS DECISIONS OF THE HIGH COURTS C OULD NOT HAVE BEEN TERMED AS ERRONEOUS. 9. WITHOUT PREJUDICE TO THE ABOVE THE PCIT FAILED TO APPRECIATE THAT BUSINESS EXPENDITURE AS CLAIMED BY THE APPELLANT FOR THE PURPOSES OF CARRYING ITS BUSINESS ACTIVITIES HAVING A DIRECT NEXUS WITH THE INCOME EARNED DURING THE RELEVANT PREVIOUS YEAR WAS RIGHTLY ALLOWED BY THE ASSESSING OFFICER AND SUCH CONCLUSION DID NOT MANIFEST ANY ERROR. 10. WITHOUT PREJUDICE TO THE ABOVE THE PCIT FAILED TO APPRECIATE THAT THE TAX TREATMENT OF INCOME /LOSS A RISING FROM SALE OF SHARES OF NEEMAN MEDICAL INTERNATIONAL BV AND MAX HEALTHCARE INSTITUTE LIMITED BY THE APPELLA NT AS OFFERED BY THE APPELLANT AND ACCEPTED BY THE ASSESSING OFFICER AFTER MAKING SPECIFIC ENQUIRIES AND HENCE COULD NTO BE TERMED AS ERRONEOUS. 11. WITHOUT PREJUDICE TO THE ABOVE THE PCIT FAILED TO APPRECIATE THAT THE TAXATION OF SLUMP SALE OF MSF DIVISION BY THE APPELLANT TO MAX SPECIALITY FILMS LIMITED AS OFFERED BY THE APPELLANT AND ACCEPTED B Y THE ASSESSING OFFICER AFTER MAKING SPECIFIC ENQUIRIES W AS NEITHER ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE REVENUE. 12. WITHOUT PREJUDICE TO THE ABOVE THE PCIT FAILED TO APPRECIATE THAT THE APPELLANT HAD NOT INCURRED ANY EXPENSES IN THE PROVISION OF CORPORATE GUARANTEE TO ITS SISTER CONCERNS AND HENCE THE ORDER PASSED BY THE A O WAS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTERE ST OF THE REVENUE. 13. THAT THE PR.CIT GROSSLY ERRED IN LAW IN NOT APP RECIATING THE POSITIONS TAKEN BY THE APPELLANT ON THE ISSUES RAISED ITA NO.121/ASR/2020 A.Y.2015-16 6 BY THE PCIT WERE DULY SUPPORTED BY VARIOUS DECISION S OF HIGH COURTS OF THE COUNTRY AND HENCE ACCEPTANCE OF THE SAME BY THE ASSESSMENT ORDER WHILE FRAMING THE ASSESSMENT WOULD NOT RENDER THE ASSESSMENT ERRONEOU S AND THE PCIT IS NOT PERMITTED TO SUPPLANT HIS OPINI ON WITH THAT OF THE AO. 5. BEFORE US THE PRIMARY CONTENTION OF THE LD.COUNS EL FOR THE ASSESSEE ADDRESSING EACH ISSUE RAISED WAS THA T DUE DISCLOSURE REGARDING THE ISSUE HAD BEEN MADE BY THE ASSESSEE BEFORE THE AO DURING THE ASSESSMENT PROCEE DINGS DUE INQUIRY HAD BEEN CONDUCTED BY THE AO ON THE ISS UE WHO HAD APPLIED HIS MIND TO THE SAME AND THEREAFTER MAD E NO ADDITION/DISALLOWANCE WITH REGARD TO THE SAME FIND ING THE CLAIM TO BE IN ACCORDANCE WITH LAW. IT WAS CONTENDE D BY THE LD.COUNSEL FOR THE ASSESSEE THAT DESPITE BRINGING O UT THE ABOVE ASPECT BEFORE THE LD.PR.CIT AND ADDRESSING EA CH QUERY RAISED BY HER DURING THE REVISIONARY PROCEEDINGS SATISFACTORILY THE LD. PR.CIT HAD MERELY STATED TH AT THE ISSUES REQUIRED FURTHER VERIFICATION WITHOUT POINT ING OUT ANY FALLACY SUSTAINABLE IN LAW IN THE EXPLANATION OF THE ASSESSEE. THAT THERE WAS NO FINDING BY THE LD.PR C IT OF ANY ERROR CAUSING PREJUDICE TO THE REVENUE AND THEREFOR E THE REVISIONARY JURISDICTION ASSUMED BY HER U/S 263 OF THE ACT WAS NOT IN ACCORDANCE WITH LAW. 6. THE LD. DR ON THE OTHER HAND SUPPORTED THE ORD ER OF THE LD. PR.CIT WITH HER PRIMARY CONTENTION BEING T HAT THE ITA NO.121/ASR/2020 A.Y.2015-16 7 AO HAD FAILED TO EXAMINE THE SPECIFIC ISSUES RAISED BY THE LD. PR.CIT AND HAS SIMPLY ACCEPTED THE CLAIM OF THE ASSESSEE AS SUCH. IN THIS REGARD SHE HEAVILY RELIED ON THE O RDER OF THE LD.PR.CIT. 7. TO ADJUDICATE THE PRESENT APPEAL WE SHALL BE TA KING UP AND DEALING WITH EACH ISSUE VIS A VIS WHICH THE LD. PR.CIT HAD FOUND THE ORDER PASSED BY THE AO TO BE ERRONEOU S. 8. BEFORE ADVERTING TO THE SAME IT WOULD BE RELEVA NT TO DISCUSS THE JURISPRUDENCE ON THE EXERCISE OF REVIS IONARY POWER AS PER THE PROVISIONS OF SECTION 263 OF THE A CT MORE PARTICULARLY WITH REGARD TO ORDER BEING FOUND ERRON EOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOU NT OF LACK OF INQUIRY/INADEQUATE INQUIRY BY THE AO WHICH IS T HE PRIMARY GROUND FOR EXERCISING REVISIONARY JURISDICT ION IN THE PRESENT CASE. 9. IT WOULD BE PERTINENT TO BEGIN WITH REPRODUCING THE RELEVANT PROVISIONS OF THE SECTION FOR THE AFORESTA TED PURPOSES. REVISION OF ORDERS PREJUDICIAL TO REVENUE . 263. (1) THE [PRINCIPAL COMMISSIONER OR] COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING U NDER THIS ACT AND IF HE CONSIDERS THAT ANY ORDER PASSED THER EIN BY THE ASSESSING] OFFICER IS ERRONEOUS IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE HE MAY AFTER GIV ING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTER MA KING OR ITA NO.121/ASR/2020 A.Y.2015-16 8 CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSA RY PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUSTIFY INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT OR CANCELLING THE ASSESSMENT AND DIRECT ING A FRESH ASSESSMENT. . . . . . . . .. EXPLANATION 2.- FOR THE PURPOSES OF THIS SECTION I T IS HEREBY DECLARED THAT AN ORDER PASSED Y THE ASSESSING OFFIC ER SHALL BE DEEMED TO BE ERRONEOUS IN SO FAR AS IT IS PREJUD ICIAL TO THE INTERESTS OF THE REVENUE IF IN THE OPINION OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER - (A) THE ORDER IS PASSED WITHOUT MAKING INQUIRIES OR VERIFICATION WHICH SHOULD HAVE BEEN MADE; (B) THE ORDER IS PASSED ALLOWING ANY RELIEF WITHOUT INQUIRING INTO THE CLAIM; (C) THE ORDER HAS NOT BEEN MADE IN ACCORDANCE WITH ANY ORDER DIRECTION OR INSTRUCTION ISSUED BY THE BOARD UNDER SECTION 119; OR (D) THE ORDER HAS NOT BEEN PASSED IN ACCORDANCE WITH ANY DECISION WHICH IS PREJUDICIAL TO THE ASSESSEE RENDERED BY THE JURISDICTIONAL HIGH COURT OR SUPREME COURT IN THE CASE OF THE ASSESSEE OR ANY OTHER PERSON.] 10. INTERPRETING SECTION 263(1) THE PROPOSITION TH AT TO INVOKE REVISIONARY JURISDICTION THE ASSESSING OFFI CERS ORDER MUST BE FOUND TO BE BOTH ERRONEOUS AND ALSO PREJUDI CIAL TO THE INTEREST OF THE REVENUE AND IF ONE OF THE CONDI TIONS IS ITA NO.121/ASR/2020 A.Y.2015-16 9 NOT FULFILLED RECOURSE CANNOT BE HAD TO SECTION 263 OF THE ACT IS SETTLED LAW LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF MALABAR INDUSTRIAL CO. LTD. VS. CIT (20 00) 243 ITR 83(SC). FURTHER FOR COMING TO THE CONCLUSION T HAT THE ASSESSMENT ORDER IS ERRONEOUS AND PREJUDICIAL TO TH E INTEREST OF THE REVENUE THE ASSESSEE HAS TO BE GIV EN OPPORTUNITY TO MAKE SUBMISSIONS AND AFTER CONSIDE RING THE SAME AND CONDUCTING DUE INQUIRY THE PCIT/CIT HAS TO ARRIVE AT THE CONCLUSION OF THE ORDER BEING ERRONEO US AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE FIN DING OF ERROR SHOULD GIVE THE REASONS FOR ARRIVING AT THE S AID CONCLUSION. THE MATTER CANNOT BE SIMPLY REMANDED BA CK FOR FURTHER INQUIRY WITHOUT ANY FINDING OF ERROR IN T HE ORDER OF ASSESSMENT. THE HONBLE DEHI HIGH COURT HAS SO INTE RPRETED THE PROVISIONS OF SECTION 263 IN THE FOLLOWING DECI SIONS: I) PCIT VS MODICARE LTD. ITA NO.759/2016 DECISION DATED 14.09.2017. II) PCIT VS. DELHI AIRPORT METRO EXPRESS PVT. LTD. ITA NO.705/2017 DECISION DATED 05.09.2017. III) ITO VS. DG HOUSING PROJECTS LIMITED (2012) 343 ITR 329 (DELHI) 11. EXPLANATION 2 TO THE SECTION OUTLINES SPECIFIC CIRCUMSTANCES IN WHICH ORDER OF ASSESSING OFFICER S HALL BE DEEMED TO BE ERRONEOUS AND PREJUDICIAL TO THE INTER EST OF THE REVENUE. THE SAID EXPLANATION HAS BEEN INTERPRETED IN ITA NO.121/ASR/2020 A.Y.2015-16 10 VARIOUS DECISIONS OF THE ITAT HOLDING THAT THE EXPL ANATION CANNOT BE RESORTED TO SIMPLICITER FOR GIVING A FIND ING OF ERROR AND THE SUBSTANTIVE REQUIREMENTS OF SECTION 263 AS STATED ABOVE HAVE STILL TO BE FULFILLED FOR APPLY ING THE EXPLANATION. THE CASE LAWS HOLDING SO AS POINTED O UT BY THE LD.COUNSEL FOR THE ASSESSEE ARE AS UNDER: I. TORRENT PHARMACEUTICALS LTD. VS. DCIT ITA NO.164/AHD/2018 DECISION DATED 08.08.2018. II. ASIAN HOMES PVT. LTD. VS. PCIT (2012) 78 ITR (TRIB) 240 (MUMBAI). III. CITYSTAR GANGULY PROJECTS LTD. VS. PCIT ITA NO.1103/KOL/2019 DECISION DATED 31.10.2019 KOLKATA TRIBUNAL. 12. HAVING SAID SO WE SHALL NOW TAKE UP EACH ISSUE FLAGGED BY THE LD.PR.CIT IN HER ORDER. ISSUE NO.1: CLAIM OF DEPRECIATION ON RENTED OUT BUI LDING 13. WITH RESPECT TO THE SAME THE LD. PR.CIT WE FI ND HAD NOTED THAT THE ASSESSEE HAD SHOWN INVESTMENT IN BUI LDING AT RS.2731.65 LACS ON WHICH DEPRECIATION HAD BEEN CLA IMED AMOUNTING TO RS.273.16 LACS. SHE FURTHER NOTED THAT THIS BUILDING HAD BEEN RENTED OUT ON WHICH RENTAL INCOM E OF RS.15.57 LACS HAD BEEN SHOWN BY THE ASSESSEE AND RE TURNED AS BUSINESS INCOME CLAIMING DEPRECIATION AGAINST TH E SAME. ITA NO.121/ASR/2020 A.Y.2015-16 11 THE LD. PR.CIT NOTED THAT THE AO HAD NEITHER EXAMIN ED THE CLAIM OF DEPRECIATION ON THIS BUILDING NOR AS TO W HY THE RENT FROM BUILDING WAS A BUSINESS INCOME AND NOT INCOME UNDER THE HEAD HOUSE PROPERTY AGAINST WHICH CLAIM OF DEPRECIATION WAS NOT ALLOWABLE. 14. BEFORE US THE LD.COUNSEL FOR THE ASSESSEE FIRS TLY POINTED OUT THAT ALL DUE DISCLOSURE OF ALL FACTS RE LEVANT TO THE ISSUE WERE THERE BEFORE THE AO A) WITH THE IMPUGNED PROPERTY HAVING BEEN DULY CAPITALIZED IN THE BOOKS OF ACCOUNT UNDER THE HEAD INVESTMENT PROPERTY AND REFLECTED IN SCHEDULE-XI OF THE FINANCIAL STATEMENT. B) THAT THE ASSESSEE HAD CLAIMED DEPRECIATION OF RS.2 73 16 571/- U/S 32(1) OF THE ACT AND THE RENTA L INCOME EARNED FROM THE SAID PROPERTY HAD BEEN DULY DISCLOSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AND DISCLOSED IN SCHEDULE-XXI AS OTHER INCOME IN THE FINANCIAL STATEMENT OF THE ASSESSEE COMPANY. 15. THAT THE AFORESAID DISCLOSURES WERE DULY AND THOROUGHLY EXAMINED BY THE AO WHO HAD THEREAFTER A CCEPTED THE CLAIM OF THE ASSESSEE OF RETURNING THE RENTAL I NCOME ITA NO.121/ASR/2020 A.Y.2015-16 12 UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AND CLAIMING DEPRECIATION ON THE SAID ASSET AGAINST THE SAME WHICH WAS IN ACCORDANCE WITH THE VIEW TAKEN BY VARI OUS HIGH COURTS ON IDENTICAL ISSUE BEFORE THEM. REFERRI NG TO THE FACTS OF THE CASE IT WAS POINTED OUT THAT THE IMPUG NED PROPERTY HAD BEEN LEASED OUT TO THE MANAGING DIRECT OR OF THE COMPANY FOR HIS RESIDENTIAL PURPOSE AS PART OF THE RETENTION POLICY OF THE COMPANY PERTAINING TO KEY M ANAGERIAL PERSONNEL OF THE ASSESSEE COMPANY. THE LD.COUNSEL F OR THE ASSESSEE POINTED OUT THAT VARIOUS HIGH COURTS HAVE HELD SUCH LETTING OUT TO BE IN THE COURSE OF BUSINESS OF THE ASSESSEE FOR THE PURPOSE OF BUSINESS OF THE ASSESS EE AND HENCE TO BE ASSESSED UNDER THE HEAD BUSINESS INCOM E. HE DREW OUR ATTENTION IN THIS REGARD TO THE FOLLOWING DECISIONS: 1) JAMDESHPUR ENGINEERING & MACHINE MANUFACTURING COMPANY 32 ITR 41 2. CIT VS. DELHI CLOTH & GENERAL MILLS (1966) 59 IT R 152 3. CIT VS. MCLEOD & CO. (1993) 203 ITR 290 (CAL) 4) CIT VS. MODI INDUSTRIES LIMITED (1994) 210 ITR 1 (DEL)(FB) 5) CIT VS. NEW INDIA MARITIME AGENCIES (1994) 207 ITR 392(MAD) ITA NO.121/ASR/2020 A.Y.2015-16 13 16. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT ALL THE FACTS BEING DULY DISCLOSED TO THE AO AND THE AO HAV ING TAKEN A POSSIBLE VIEW ON THE ISSUE THERE WAS NO ER ROR IN THE ORDER OF THE AO MERELY BECAUSE THE LD. PR.CIT ENTER TAINED ANOTHER VIEW ON THE ISSUE. HE REFERRED TO THE DECIS ION OF THE APEX COURT IN THE CASE OF CIT VS. MAX INDIA LTD. 2 95 ITR 282 IN THIS REGARD. 17. THE LD.COUNSEL FOR THE ASSESSEE THEREAFTER DREW OUR ATTENTION TO THE FINDING OF THE LD. PR.CIT AT PARA 5.2 OF THE ORDER POINTING OUT THEREFROM THAT HER ENTIRE CASE F OR FINDING ERROR IN THE ORDER OF THE AO RESTED ON HER HOLDING THE RENTAL INCOME TO BE CATEGORICALLY ASSESSABLE UNDER THE HEA D INCOME FROM HOUSE PROPERTY AND NOT INCOME FROM B USINESS AND PROFESSION RELYING ON THE RATIO LAID DOWN BY THE HON'BLE APEX COURT IN THE CASE OF RAJ DADARKAR & AS SOCIATES VS. ACIT CIVIL APPEAL NOS. 6455- 6460 OF 2017. THAT FOR THE AFORESAID REASON THE LD. PR.CIT HELD THAT THE AO BY NOT EXAMINING THE ISSUE OF RENTAL INCOME EARNED BY THE ASSESSEE AND ACCEPTING THE CLAIM OF THE ASSESSEE FOR THE SAM E TO BE ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION CLAIMING DEPRECIATION AGAINST THE SAME TANTAMOUNTED TO ERROR IN THE ORDER OF THE AO CAUSIN G PREJUDICE TO THE INTEREST OF THE REVENUE. THE LD.CO UNSEL FOR THE ASSESSEE POINTED OUT THAT THE DECISION REFERRED TO BY THE ITA NO.121/ASR/2020 A.Y.2015-16 14 LD. PR.CIT WAS BASED ON TOTALLY DIFFERENT FACTS AND WAS DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE. THAT IN THE SAID CASE THE ASSESSEE HAD TREATED THE RENTAL INCOM E EARNED AS BUSINESS INCOME ON ACCOUNT OF THE FACT THAT IT WAS ENGAGED IN THE BUSINESS OF RENTING OUT PROPERTY. I N THE LIGHT OF THE SAID FACT THE HON'BLE SUPREME COURT HAD HEL D THAT THE INCOME COULD NOT BE TERMED AS BUSINESS INCOME S INCE THERE WAS SPECIFIC HEAD FOR ASSESSING THE RENTAL IN COME AND HAD THEREFORE HELD THAT THE RENTAL INCOME WAS TO BE ASSESSED UNDER THE HEAD OF HOUSE PROPERTY AS PROV IDED IN THE ACT. THE LD.COUNSEL FOR THE ASSESSEE POINTED O UT THAT THE FACTS IN THE PRESENT CASE WERE TOTALLY DIFFEREN T WITH THE ASSESSEE HAVING RENTED OUT PROPERTY TO HIS KEY MANA GERIAL PERSONNEL AND CLAIMING THE SAME AS BUSINESS INCOME FOR THE REASON THAT THE ASSET WAS OWNED BY THE ASSESSEE FOR THE PURPOSE OF ITS BUSINESS AS HELD BY VARIOUS HIGH CO URTS IN THE DECISIONS CITED ABOVE IN IDENTICAL FACTS AND CIRCUMSTANCES. THAT THE DECISION OF THE HON'BLE APE X COURT WAS DISTINGUISHED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. KR OME PLANET INTERIORS (P) LTD. (2019) 265 TAXMAN 308 WHILE HOLDING THAT THE SAID DECISION COULD NOT BE APPLIED BLINDLY AND WHETHER AN INCOME IS FROM PROPERTY AS BUSINESS INCOME OR INCOME FROM HOUSE PROPERTY HAS TO BE DETERMINED KEEPING ITA NO.121/ASR/2020 A.Y.2015-16 15 IN MIND THE FACTS OF EACH CASE. THE LD.COUNSEL FOR THE ASSESSEE ACCORDINGLY PLEADED THAT THE FINDING OF TH E LD. PR.CIT WAS BASED ON INCORRECT APPLICATION OF LAW TO THE FACTS RELATING TO THE ISSUE. 18. THE LD. DR ON THE OTHER HAND HEAVILY RELIED U PON THE ORDER OF THE LD. PR.CIT. HER CONTENTION BEING THAT THE AO HAD ACCEPTED THE ASSESSEES CLAIM OF RENTAL INCOME BEING ASSESSED UNDER THE HEAD INCOME FROM BUSINESS AND PROFESSION AND DEPRECIATION BEING CLAIMED AGAINST IT WITHOUT EXAMINING THE CLAIM AS SUCH MORE PARTICUL ARLY WHEN THE HON'BLE SUPREME COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES VS. ACIT (SUPRA) HAD CATEGOR ICALLY HELD THAT THE IMPUGNED INCOME WAS TO BE ASSESSED UN DER THE HEAD INCOME FROM HOUSE PROPERTY AND NO CLAIM OF DEPRECIATION WAS TO BE ALLOWED AGAINST IT. THUS THE NON EXAMINING OF THE AFORESAID CLAIM OF THE ASSESSEE BY THE AO WAS AN ERROR WHICH HAS CAUSED PREJUDICE TO THE REVE NUE AS RIGHTLY HELD BY THE LD. PR.CIT. 19. WE HAVE HEARD BOTH THE PARTIES CAREFULLY AND HA VE ALSO GONE THROUGH THE JUDICIAL DECISIONS REFERRED TO BEF ORE US. 20. THE ENTIRE CASE OF THE LD. PR.CIT FOR HOLDING T HE ASSESSMENT ORDER ERRONEOUS CAUSING PREJUDICE TO THE REVENUE ON THE ISSUE OF RENTAL INCOME EARNED BY TH E ITA NO.121/ASR/2020 A.Y.2015-16 16 ASSESSEE AND DEPRECIATION CLAIMED AGAINST THE SAME RESTS ON THE UNDERSTANDING THAT THE RATIO LAID DOWN BY TH E HON'BLE APEX COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES VS. ACIT (SUPRA) APPLIED TO THE FACTS OF THE PRESENT CA SE AND THE RENTAL INCOME ACCORDINGLY WAS ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERTY AGAINST WHICH NO CLAIM OF DEPRECIATION WAS ALLOWABLE .THAT THE AO HAD ERRED I N ACCEPTING ASSESSEES CLAIM OF RETURNING THE INCOME U NDER THE HEAD BUSINESS AND PROFESSION AND ALLOWING DEPRECI ATION AGAINST THE SAME WITHOUT MAKING DUE INQUIRIES AND APPLYING THE CORRECT PROPOSITION OF LAW . 21. WE HAVE GONE THROUGH THE SAID DECISION AND WE A GREE WITH THE LD.COUNSEL FOR THE ASSESSEE THAT THE RATIO LAID DOWN THEREIN IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. IN THE CASE BEFORE THE HONBLE APEX COURT T HE ASSESSEE WAS IN THE BUSINESS OF LETTING OUT THE SHO PS/STALLS ON MONTHLY RENT COLLECTING SERVICE CHARGES SEPARAT ELY FOR REPAIRS MAINTENANCE AND OTHER SERVICES. THE ASSESS EE IN THE SAID CASE WAS NOT FOUND TO BE ENGAGED IN ANY SYSTEM ATIC ACTIVITY OF PROVIDING SERVICE TO THE OCCUPANTS BUT WAS IN FACT FOUND TO BE RECEIVING INCOME FROM LETTING OUT SHOPS ETC. SIMPLICITER AND THUS IT WAS HELD THAT ITS INCOME WA S ASSESSABLE UNDER THE HEAD INCOME FROM HOUSE PROPERT Y AND NOT AS BUSINESS INCOME. THE FACTS IN THE PRESENT CA SE WE ITA NO.121/ASR/2020 A.Y.2015-16 17 FIND ARE TOTALLY DIFFERENT. IN THE PRESENT CASE TH E RENTAL INCOME WAS EARNED ON LETTING OUT RESIDENTIAL PROPER TY TO THE KEY MANAGERIAL PERSONNEL OF THE ASSESSEE COMPANY IN LIEU OF ITS RETENTION POLICY. THIS FACT HAS REMAINED UNCONT ROVERTED BY THE LD.PR.CIT AND EVEN BEFORE US. BASED ON IDENT ICAL SET OF FACTS VARIOUS JUDICIAL DECISIONS AS REFERRED T O BY THE LD.COUNSEL FOR THE ASSESSEE HAVE HELD THE RENTAL I NCOME TO BE ASSESSABLE UNDER THE HEAD BUSINESS INCOME HOL DING THAT THE OCCUPATION OF THE RESIDENTIAL PROPERTY BY THE ASSESSEE WAS FOR THE PURPOSE OF BUSINESS AND HENCE EXEMPT FROM BEING TAXED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. THE SAID DECISIONS ARE: 1) JAMDESHPUR ENGINEERING & MACHINE MANUFACTURING COMPANY 32 ITR 41 2. CIT VS. DELHI CLOTH & GENERAL MILLS (1966) 59 IT R 152 3. CIT VS. MCLEOD & CO. (1993) 203 ITR 290 (CAL) 4) CIT VS. MODI INDUSTRIES LIMITED (1994) 210 ITR 1 (DEL)(FB) 5) CIT VS. NEW INDIA MARITIME AGENCIES (1994) 207 ITR 392(MAD) 22. IT HAS BEEN CONSISTENTLY HELD BY COURTS IN THE AFORESTATED DECISIONS THAT WHERE A HOUSE PROPERTY I S OCCUPIED AS RESIDENCE BY EMPLOYEES OR ITS DIRECTORS TO ITA NO.121/ASR/2020 A.Y.2015-16 18 ENABLE THEM TO DISCHARGE THEIR FUNCTIONS EFFECTIVEL Y AND THE LETTING OUT IS SUBSERVIENT AND INCIDENTAL TO THE MA IN BUSINESS OF THE ASSESSEE SUCH AN OCCUPATION AMOUNT S TO AN OCCUPATION AND USER OF THE PROPERTY BY THE ASSESSEE ITSELF FOR THE PURPOSES OF ITS BUSINESS. CLEARLY THE ISS UE IS SQUARELY COVERED BY VARIOUS DECISIONS OF HIGH COURT S IN FAVOUR OF THE ASSESSEES STAND AND THE HONBLE APEX COURT DECISION IS DISTINGUISHABLE ON FACTS AND THUS NOT APPLICABLE IN THE PRESENT CASE . 23. THEREFORE WE HOLD THAT THE RENTAL INCOME RET URNED BY THE ASSESSEE UNDER THE HEAD BUSINESS INCOME IS IN ACCORDANCE WITH LAW AND THE CLAIM OF DEPRECIATION A GAINST THE SAME THEREFORE ALSO IS JUSTIFIED. THERE IS THER EFORE WE FIND NO ERROR IN THE ORDER OF THE AO ACCEPTING THE RENTAL INCOME RETURNED UNDER THE HEAD BUSINESS INCOME AND DEPRECIATION CLAIMED AGAINST THE SAME. THEREFORE V IS--VIS THE ISSUE OF NON EXAMINATION OF THE CLAIM OF RENTAL INCOME AND DEPRECIATION CLAIMED AGAINST THE SAME AS RAISE D BY THE LD. PR.CIT WE HOLD THAT THE FINDINGS OF THE LD. PR .CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE REVENU E ARE NOT JUSTIFIED. THERE IS NO ERROR AND PREJUDICE CAUSED T O THE REVENUE AS HELD BY US ABOVE SINCE THE CLAIM OF THE ASSESSEE IS SUPPORTED BY VARIOUS DECISIONS OF VARIOUS HIGH C OURTS AND FINDING OF THE LD. PR.CIT TO THE CONTRARY SUPPO RTED BY ITA NO.121/ASR/2020 A.Y.2015-16 19 THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF RAJ DADARKAR & ASSOCIATES VS. ACIT (SUPRA) IS WE FIND BASED ON INCORRECT APPLICATION OF LAW TO THE FACTS OF THE CASE. 24. IN VIEW OF THE ABOVE WE SET ASIDE THE FINDINGS OF THE LD. PR.CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON EXAMINATI ON OF CLAIM OF RENTAL INCOME AND DEPRECIATION AGAINST THE SAME. ISSUE NO.2 : NON-EXAMINATION BY THE AO OF THE EXPENSES CLAIMED BY THE ASSESSEE 25. TAKING UP THE NEXT ISSUE RAISED BY THE LD. PR.C IT THE SAME RELATES TO NON-EXAMINATION BY THE AO OF THE CL AIM OF EXPENSES BY THE ASSESSEE PARTICULARLY AS PER THE L D.PR.CIT IN THE BACKDROP OF THE FACT THAT THE ASSESSEE HAD N O OTHER SOURCE OF INCOME OTHER THAN FROM INVESTMENT ACTIVIT Y. 26. BEFORE US BESIDES THE LD.COUNSEL FOR THE ASSES SEES CLAIM THAT ALL DISCLOSURES WITH REGARD TO THE SAME WERE MADE BEFORE THE AO IT WAS ALSO CONTENDED THAT JUSTIFIAB ILITY OF THE CLAIM HAD ALSO BEEN DEMONSTRATED BEFORE THE LD. PR. CIT WHO HAD FAILED TO POINT OUT ANY INFIRMITY IN THE SAME A ND THEREFORE THERE WAS NO BASIS WITH THE LD. PR.CIT F OR HOLDING THE ORDER ERRONEOUS ON THIS COUNT. ITA NO.121/ASR/2020 A.Y.2015-16 20 27. THE JUSTIFICATION FOR THE CLAIM OF EXPENSES GIV EN BY THE ASSESSEE WAS THAT : A) THAT THE ASSESSEE WAS EARNING INCOME NOT ONLY FROM INVESTMENT ACTIVITY BUT ALSO FROM RENDERING OPERATIONAL CONSULTANCY TO ITS SISTER CONCERNS AND HAD ALSO INCOME FROM OTHER SOURCES. THAT THE EXPENSES ACCORDINGLY HAD BEEN INCURRED FOR THE PURPOSES OF CARRYING OUT THE AFORESTATED ACTIVITY OF RENDERING FUNCTIONAL SUPPORT SERVICES TO GROUP COMPANIES AND MAKING HOLDING AND NURTURING INVESTMENTS IN GROUP COMPANIES. B) THAT THE ASSESSEE HAD SUO MOTO DISALLOWED 45% OF THE EXPENSES CLAIMED IN ITS PROFIT & LOSS ACCOUN T. C) THAT THE EXPENSES IN ANY CASE WERE OF THE NATURE FOR MAINTAINING THE CORPORATE ENTITY OF THE ASSESSE E AFTER HIVING OFF THE MANUFACTURING BUSINESS OF THE ASSESSEE. D) THAT THE INVESTMENT ACTIVITY UNDERTAKEN WAS THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE AND THEREFO RE THE CLAIM OF EXPENSES WAS ALLOWABLE AGAINST THE SAM E. E) THAT NO DISCREPANCY HAS BEEN OBSERVED BY THE AUDITORS IN THE BOOKS OF ACCOUNTS MAINTAINED. ITA NO.121/ASR/2020 A.Y.2015-16 21 28. LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THE LD.PR.CIT HAS SIMPLY STATED THAT THE CLAIM OF EXPEN SES WAS NOT EXAMINED BY THE AO BUT HAS NOT CONDUCTED ANY I NQUIRY AS TO HOW THEY WERE NOT ALLOWABLE. THAT NO ERROR HA S BEEN POINTED OUT BUT THE MATTER SIMPLY REMANDED TO THE A O FOR FURTHER INQUIRY. THAT THIS IN ANY CASE WAS NOT THE FIRST YEAR THAT THE SAID EXPENSES WERE CLAIMED AND HAD BEEN AL LOWED BY THE AO HIMSELF IN PRECEDING YEARS. 29. LD.DR ON THE OTHER HAND DREW OUR ATTENTION TO P ARA 6.2 OF THE ORDER WHICH IS AS UNDER: 6.2 DECISION THE PERUSAL OF THE FACTS OF THE CASE AS ACCEPTED BY THE ASSESSEE SHOW THAT THE ASSESSEE COMPANY EARNED THE FOLLOWING REVENUE/INCOME DURING THE PREVIOUS YEAR: INCOME FROM INVESTMENT ACTIVITIES (SCHEDULE 20 OF THE FINANCIAL STATEMENTS): RS.581.77 CRS. OTHER INCOME (SCHEDULE 21 OF THE FINANCIAL STATEMENTS): RS.2.87 CRS. INCOME FROM FUNCTIONAL SUPPORT SERVICES (SCHEDULE 24 & 25 OF THE FINANCIAL STATEMENTS) (RECOVERY OF EXPENSES): RS.12.47 CRS. FURTHER THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE COMPANY WAS PRIMARILY ENGAGED IN PROVIDING FUNCTIONAL SUPPORT SERVICES TO ITS SUBSIDIARIES AND IN THE ACTIVITY OF INVESTING HOLDING AND NURTURING INVESTMENTS MADE IN ITS SUBSIDIARIES AND THE COST INCURRED TO RENDER SUCH SERVICES WAS RECOVERED FROM THE OPERATING SUBSIDIARIES TO WHOM SUCH SERVICES WERE RENDERED. SINGH THE COST WAS RECOVERED FROM THE SISTER ITA NO.121/ASR/2020 A.Y.2015-16 22 CONCERN IN SUCH CASES THERE IS NOT ISSUE OF ANY LOS S ON THIS ACCOUNT. BESIDES THIS THE OTHER INCOME SHOWN BY THE ASSESSEE IS ONLY INCOME FROM INVESTING ACTIVITY WHEREIN THE ASSESSEE HAS SHOWN DIVIDEND INCOME AND INTEREST INCOME. DIVIDEND INCOME BEING EXEMPT UNDER THE INCOME TAX ACT NO EXPENSE AGAINST IT CAN BE CLAIMED BY THE ASSESSEE AS PER PROVISIONS OF SECTION 14A. INTEREST SHOWN BY THE ASSESSEE IS FROM INVESTING ACTIVITY AND NOT FROM BUSINESS ACTIVITY. THE AO HAS FAILED TO EXAMINE THE ISSUE OF ADMISSIBILITY OF EXPENSE CLAIMED BY THE ASSESSEE AGAINST SUCH INCOME AND THE REASON FOR SHOWING LOSSES ON THE BASIS OF FACTS OF THE CASE. ACCORDING TO SECTION 37(1) OF THE INCOME TAX ACT 1961 ANY EXPENDITURE (NOT BEING EXPENDITURE OF THE NATURE DESCRIBED IN SECTION 30 TO 35 AND NOT BEING IN THE NATURE OF CAPITAL EXPENDITURE OR PERSONAL EXPENSES OF THE ASSESSEE) LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF THE BUSINESS OR PROFESSION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ALSO ACCORDING TO EXPLANATION INSERTED BY THE FINANCE (NO.2) ACT 1998 W.E.F. 1-4-1962 TO SECTION 37(1) ANY EXPENDITURE INCURRED BY AN ASSESSEE FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW SHALL NOT BE DEEMED TO HAVE BEEN INCURRED FOR THE PURPOSE OF BUSINESS OR PROFESSION AND NO DEDUCTION OF ALLOWANCE SHALL BE MADE IN RESPECT OF SUCH EXPENDITURE. AN EXPENDITURE CAN BE CLAIMED AS A DEDUCTION WHILE COMPUTING INCOME FROM BUSINESS OR PROFESSION IF THE FOLLOWING CONDITION ARE FULFILLED. (I) EXPENDITURE IS NOT OF THE NATURE AS DESCRIBED IN SECTION 30 TO 35 OF THE ACT; (II) EXPENDITURE IS OF REVENUE IN NATURE NTO OF CAPITAL IN NATURE; (III) EXPENDITURE IS NOT PERSONAL EXPENSES OF THE ASSESSEE; ITA NO.121/ASR/2020 A.Y.2015-16 23 (IV) EXPENDITURE HAS BEEN LAID DOWN OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OR PROFESSION OF THE ASSESSEE; (V) EXPENDITURE HAS NOT BEEN INCURRED FOR ANY PURPOSE WHICH IS AN OFFENCE OR WHICH IS PROHIBITED BY LAW. .. .. IN THE ASSESSEE CASE THE NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME EARNED HAS NOT BEEN SHOWN. EVEN IF A LIBERAL VIEW IS TAKEN THA T THE EXPENSES WAS INCURRED FOR DEALING WITH THE RESIDUAL ASPECTS OF THE MSF DIVISION WHICH WAS SOLD AS SLUMP SALE ON 01-04-2015 THEN ALSO ONLY 10% OF THE TOTAL EXPENSES CLAIMED SHOULD HAVE BEEN ALLOWED. THE ADMINSSIBILITY OF EXPENDITURE CLAIMED BY THE ASSESSEE NEEDS TO BE EXAMINED BY THE ASSESSING OFFICER. THE ORDER OF THE AO IS THUS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 30. REFERRING TO THE ABOVE LD.DR CONTENDED THAT THE LD. PR.CIT HAD COUNTERED THE JUSTIFICATION OF THE ASSES SEE BY STATING THAT THOUGH ADMITTEDLY THE ASSESSEE WAS EAR NING INCOME FROM OPERATIONAL CONSULTANCY BUT AS PER THE ASSESSEE ITSELF IT WAS ONLY RECOVERING THE COST INCURRED ON THE SAME SO THERE WAS NO QUESTION OF ANY LOSS BEING INCURRED BY THE ASSESSEE ON ACCOUNT OF ALL SUCH ACTIVITIES. THAT OT HER INCOME EARNED BY THE ASSESSEE INCLUDED DIVIDEND INCOME AND INTEREST INCOME AND THAT NO CLAIM OF EXPENSES ATTRI BUTABLE TO THE EARNING OF DIVIDEND INCOME WERE ALLOWABLE UN DER THE ACT. THAT THE INTEREST INCOME EARNED WAS ON ACCOUNT OF THE ITA NO.121/ASR/2020 A.Y.2015-16 24 INVESTMENT ACTIVITY CARRIED OUT BY THE ASSESSEE AND COULD NOT BE CATEGORIZED AS THE BUSINESS INCOME OF THE AS SESSEE. THEREFORE THE LD. PR.CIT HELD THAT THE JUSTIFICATI ON OF THE CLAIM OF THE EXPENSES STOOD NEGATED AND THE NON- EXAMINATION OF THE CLAIM OF EXPENSES BY THE AO HAD RENDERED THE ASSESSMENT ORDER ERRONEOUS SO AS TO CA USE PREJUDICE TO THE REVENUE. 31. ON CAREFUL CONSIDERATION OF THE CONTENTIONS MA DE BY BOTH THE PARTIES WE ARE IN AGREEMENT WITH THE LD.C OUNSEL FOR THE ASSESSEE THAT THERE IS NO FINDING OF ERROR AS SUCH BY THE LD.PR.CIT ON THE ISSUE OF NON EXAMINATION OF C LAIM OF EXPENSES BY THE AO. 32. IT IS NOT DISPUTED THAT ALL RELEVANT DISCLOSURE VIS A VIS THE CLAIM OF EXPENSES WAS THERE BEFORE THE AO. IDEN TICAL CLAIMS WERE MADE IN THE PRECEDING YEARS ALSO AND AL LOWED BY THE AO. FURTHER ADMITTEDLY IT IS NOT THE CASE THAT THE ASSESSEE WAS EARNING ONLY FROM INVESTMENT ACTIVITY AS MADE OUT BY THE LD.PR.CIT IN HER SHOW CAUSE NOTICE BUT ADMITTEDLY AS PER HER FINDINGS AT PARA 6.2 OF THE ORDER THE ASSESSEE HAD EARNED INCOME FROM VARIOUS ACTIVITIES INCLUDING INVESTMENT ACTIVITY RENDERING FUNCTIONAL SUPPORT SERVICES AND OTHER INCOME WHICH INCLUDED INTEREST A ND DIVIDEND INCOME. THE JUSTIFICATION OF THE CLAIM OF EXPENSES ITA NO.121/ASR/2020 A.Y.2015-16 25 BY THE ASSESSEE IS THAT EXPENSES CLAIMED RELATE O NLY TO THOSE INCURRED IN RELATION TO ITS BUSINESS ACTIVITY OF RENDERING FUNCTIONAL SUPPORT SERVICES ITS INCOME E ARNED BY WAY OF INTEREST FROM INVESTMENTS MADE IN THE COURSE OF ITS BUSINESS AND EXPENSES INCURRED FOR MAINTAINING ITS CORPORATE ENTITY AND THAT THE ASSESSEE HAD SUO MOT O DISALLOWED 45% OF THE TOTAL EXPENSES DEBITED TO THE PROFIT AND LOSS ACCOUNT. 33. THE AFORESAID JUSTIFICATION HAS NOT BEEN CONTRO VERTED BEFORE US NOR ANY INFIRMITY WORTH ITS NAME POINTE D OUT BY THE LD.PR.CIT. ON THE CONTRARY WE FIND THE LD.PR. CIT HAS TRIED TO NEGATE THE CLAIM OF EXPENSES AGAINST THE A FORESTATED INCOMES BY STATING THAT: A) SINCE THE ASSESSEE WAS RECOVERING COST ON ACCOUNT OF OPERATIONAL CONSULTANCY GIVEN AND THEREFORE THERE WAS NO REASON FOR INCURRING LOSSES. B) INTEREST INCOME IS FROM INVESTMENT ACTIVITY WHICH THEREFORE IS NOT THE BUSINESS INCOME OF THE ASSESSEE. C) THAT SINCE DIVIDEND INCOME IS EXEMPT NO CLAIM OF EXPENSES IS ALLOWED AGAINST THE SAME UNDER THE ACT. ITA NO.121/ASR/2020 A.Y.2015-16 26 34. THE ABOVE REASONING WE FIND IS NEITHER HERE N OR THERE. LD. PR.CITS FINDING THAT NO LOSS COULD POSSIBLY HA VE BEEN INCURRED IN OPERATIONAL CONSULTANCY WE FAIL TO UND ERSTAND. IT IS NOT THE CASE OF THE LD. PR.CIT THAT THE ASSES SEE HAD CLAIMED LOSSES UNDER THE HEAD BUSINESS AND PROFESS ION INCOME ON THE CONTRARY THE ONLY CONTENTION OF THE LD. PR.CIT IS THAT THE ASSESSEE HAD CLAIMED EXPENSES WH EN NO BUSINESS ACTIVITY/INCOME HAS BEEN EARNED BY IT. THE RE IS NO REFERENCE TO ANY FACT VIS A VIS THE CLAIM OF LOSSE S IN OPERATIONAL CONSULTANCY ACTIVITY IN THE ORDER AND WE FAIL TO UNDERSTAND HOW THIS REASONING /FINDING HAS BEEN ARR IVED AT. FURTHER WE FIND NO BASIS FOR THE FINDING OF THE LD. PR.CIT THAT THE INTEREST INCOME FROM INVESTMENT ACTIVITY WAS NO T BUSINESS INCOME OF THE ASSESSEE DESPITE THE REPEAT ED ASSERTIONS BY THE ASSESSEE BEFORE HER THAT INVESTME NT ACTIVITY AND OPERATIONAL CONSULTANCY WERE IN THE NA TURE OF BUSINESS ACTIVITY OF THE ASSESSEE WHICH HAS NOT BE EN CONTROVERTED BY THE LD.PR.CIT. ALL IN ALL WE FIND THAT THE LD. PR.CIT HAS NOT GIVEN ANY BASIS OR REASONING AT ALL FOR REJECTING THE JUSTIFICATION OF THE CLAIM OF EXPENSE S MADE BY THE ASSESSEE. 35. IN SUCH CIRCUMSTANCES WITH ALL DUE DISCLOSURE OF EXPENSES ADMITTEDLY MADE DURING ASSESSMENT PROCEEDI NGS THE CLAIM OF SIMILAR EXPENSES HAVING BEEN ALLOWED I N EARLIER ITA NO.121/ASR/2020 A.Y.2015-16 27 YEARS THE ASSESSEE ALSO HAVING JUSTIFIED ITS CLAIM OF EXPENSES AND THE LD.PR.CIT WE FIND BEING UNABLE T O CONTROVERT THE AFORESAID NOR BEING ABLE TO POINT AN Y FALLACY IN THE SAME THERE CANNOT BE SAID TO ANY FINDING OF ERROR IN THE ORDER OF THE AO CAUSING PREJUDICE TO THE REVENU E ON ACCOUNT OF NON-EXAMINATION OF THE CLAIM OF EXPENSES INCURRED BY THE ASSESSEE WHILE COMPUTING ITS INCOME . THEREFORE WE SET ASIDE THE FINDINGS OF THE LD. PR. CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTERE ST OF THE REVENUE ON ACCOUNT OF NON EXAMINATION OF EXPENSES C LAIMED BY THE ASSESSEE. ISSUE : NON EXAMINATION OF THE LIABILITY OF EXPENDITURE INCURRED BY THE ASSESSEE ON GUARANTEE GIVEN TO SISTER CONCERNS WHICH STOOD DISCHARGED DURING THE YEAR. 36. WITH REGARD TO THE SAID ISSUE THE LD.COUNSEL FO R THE ASSESSEE STATED THAT IT HAD BEEN POINTED OUT TO THE LD. PR.CIT THAT THE ASSESSEE HAD INCURRED NO EXPENDITUR E ON ACCOUNT OF CORPORATE GUARANTEE GIVEN TO THE SISTER CONCERNS NOR CLAIMED ANY IN THE RETURN OF INCOME THAT THE C OMPLETE DISCLOSURES WERE MADE TO THE AO THROUGH FINANCIAL STATEMENTS WHICH ARE A MATTER OF RECORD AND SINCE N O EXPENDITURE WAS INCURRED NO ENQUIRY WAS REQUIRED T O BE CONDUCTED IN THIS REGARD AND FOR THE SAME REASON TH ERE ITA NO.121/ASR/2020 A.Y.2015-16 28 COULD BE NO PREJUDICE CAUSED TO THE REVENUE. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT DESPITE THE ABOVE CATEGORICAL STATEMENT THE LD. PR.CIT WENT ON TO REI TERATE IN HER FINDINGS THAT THE AO HAD FAILED TO EXAMINE THE EXPENDITURE INCURRED ON GIVEN CORPORATE GUARANTEE A ND THAT HE HAD ALSO FAILED TO EXAMINE WHETHER THE INTEREST FREE FUNDS OR INTEREST BEARING FUNDS WERE USED FOR GIVING SAID GUARANTEE. HE DREW OUR ATTENTION TO THE FINDINGS OF THE LD. PR.CIT AT PARA 10.2 OF HER ORDER AS UNDER: 10.2 DECISION THE AO HAS FAILED TO EXAMINE THE EXPENSES INCURRED ON GIVING CORPORATE GUARANTEE. THE AO HAS ALSO FAILED TO EXAMINE WHETHER INTEREST FREE FUNDS OR INTEREST BEARING FUNDS WERE USED FOR GIVING ANY SUCH GUARANTEE. THE LOSS TO THE ASSESSEE ON ACCOUNT OF GUARANTEE HAS ALSO NOT BEEN EXAMINED BY THE AO. THE ORDER OF THE ASSESSING OFFICER IS THUS PREJUDICIAL AND ERRONEOUS. 37. THE LD.COUNSEL FOR THE ASSESSEE STATED THAT IN VIEW OF THE CATEGORICAL STATEMENT OF FACT THAT NO EXPENDITU RE HAD BEEN INCURRED BY THE ASSESSEE ON THIS ACCOUNT WHICH HAS NOT BEEN CONTROVERTED BY THE LD. PR.CIT THERE IS NO ER ROR I THE ORDER OF THE AO. 38. THE LD. DR ON THE OTHER HAND RELIED UPON THE FINDINGS OF THE LD. PR.CIT. ITA NO.121/ASR/2020 A.Y.2015-16 29 39. WE HAVE HEARD BOTH THE PARTIES AND HAVE ALSO CA REFULLY GONE THROUGH THE ORDER OF THE LD. PR.CIT ON THIS IS SUE. CLEARLY THE CONSISTENT AND CATEGORICAL STAND OF TH E ASSESSEE HAS BEEN THAT IT HAD NOT INCURRED ANY EXPENDITURE O N ACCOUNT OF CORPORATE GUARANTEE GIVEN TO ITS SISTER CONCERNS AND THE SAID FACT HAD ALSO BEEN POINTED OUT FROM I TS FINANCIAL STATEMENTS. THE LD. PR.CIT HAS NOT CONTRO VERTED THIS FACT. THEREFORE WITHOUT CONTROVERTING THIS BA SIC FACT THAT THE ASSESSEE HAD INCURRED NO EXPENDITURE AT AL L ON CORPORATE GUARANTEE GIVEN WE FAIL TO UNDERSTAND HO W THERE COULD POSSIBLY BE AN ERROR OF THE AO FOR NOT EXAMIN ING THE ALLOWABILITY OF SUCH EXPENDITURE WHICH ADMITTEDLY WERE NON EXISTENT. 40. THE FINDINGS OF THE LD. PR.CIT THAT THE AO HAS FAILED TO EXAMINE WHETHER THE INTEREST FREE FUNDS OR INTERES T BEARING FUNDS HAD BEEN USED FOR GIVING SUCH GUARANTEE MAKE S NO SENSE BECAUSE AS IS COMMON KNOWLEDGE THERE IS NO TRANSFER OF FUNDS INVOLVED WHEN AN ENTITY STANDS AS A GUARAN TOR FOR ANOTHER ENTITY WITH A FINANCIAL INSTITUTION WHO HAS EXTENDED FINANCIAL SUPPORT TO THE OTHER ENTITY. THE ENTITY G IVING CORPORATE GUARANTEE UNDERTAKES TO MAKE GOOD THE LIABILITY TO THE BANK IN CASE THE LOANEE FAILS TO PAY BACK IT S LIABILITY OR LOAN TO THE BANK. THEREFORE THERE IS NO QUESTIO N OF ANY FINANCIAL TRANSACTION BEING INVOLVED ON GIVING CORP ORATE ITA NO.121/ASR/2020 A.Y.2015-16 30 GUARANTEE TO THE EXTENT OF THE GUARANTEE GIVEN ATLE AST AND THEREFORE THE ISSUE OF WHETHER WHAT FUNDS WERE USE D FOR GIVING THE SAME DOES NOT ARISE. AS FAR AS THE FINDI NG OF THE LD. PR.CIT THAT THE AO HAD FAILED TO EXAMINE THE LO SS INCURRED ON CORPORATE GUARANTEE WE FAIL TO UNDERST AND HOW THE LD. PR.CIT HAS ARRIVED AT THIS FINDING AS NOTHI NG HAS BEEN BROUGHT OUT IN THE ORDER OR EVEN BEFORE US SO AS TO DEMONSTRATE WHAT LOSS IS BEING REFERRED TO BY THE L D.PR.CIT. IT IS CLEAR THEREFORE VIS--VIS THE IMPUGNED ISS UE THERE IS NO FINDING OF ANY ERROR IN THE ORDER OF THE AO BY T HE LD. PR.CIT. 41. IN VIEW OF THE ABOVE WE SET ASIDE THE FINDINGS OF THE LD. PR.CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON EXAMINATI ON OF EXPENSES CLAIMED ON ACCOUNT OF GUARANTEES GIVEN BY THE ASSESSEE. ISSUE : NON EXAM INATION OF THE TRANSACTION OF SLUMP SALE DURING THE YEAR. 42. THE LD.COUNSEL FOR THE ASSESSEE DREW OUR ATTEN TION TO THE FACTS RELATING TO THE ISSUE POINTING OUT THAT T HE LD.PR.CIT NOTED THAT THE ASSESSEE HAD SHOWN SLUMP S ALE ON ONGOING CONCERN BASIS OF ITS SPECIALITY FILMS DI VISION ITA NO.121/ASR/2020 A.Y.2015-16 31 ENGAGED IN THE BUSINESS OF MANUFACTURING AND SALE O F BIAXIALLY ORIENTED POLYPROPYLENES (BOPP) FILMS I.E MSF DIVISION TO MAX SPECIALITY FILMS LTD. (MSFL) RES ULTING IN PROFIT DISCLOSED IN THE RETURN OF INCOME OF RS.163. 72 LACS. THAT AS PER THE LD.PR.CIT THE MANNER OF COMPUTATIO N OF PROFITS EARNED ON THE SAME AND VALUATION OF VARIOUS ASSETS INCLUDING THE STOCK AND BUILDING TRANSFERRED HAD NO T BEEN EXAMINED BY THE AO AS ALSO THE BUSINESS TRANSFER AGREEMENT UNDER WHICH THE TRANSFER TOOK PLACE. AS PER THE LD.PR.CIT THERE WAS A DIFFERENCE IN RATE AT WHICH T HE CONCERN HAD BEEN TRANSFERRED AND THE RATE AS PER TH E BUSINESS TRANSFER AGREEMENT SHOWING A DOWNWARD REV ISION AND THE SAME HAD NEITHER BEING QUESTIONED NOR REC ONCILED DURING THE ASSESSMENT PROCEEDINGS. THAT THE SALE HA VING BEEN MADE TO A SISTER CONCERN THE BASIS OF VALUATI ON AND ITS CORRECTNESS HAD NOT BEEN EXAMINED BY THE AO. FOR TH E AFORESAID DISCREPANCIES THE LD.PR.CIT WAS OF THE V IEW THAT THE ORDER OF THE AO WARRANTED REVISION AND ACCORDI NGLY SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE. 43. THE LD.COUNSEL FOR THE ASSESSEE THEREAFTER CONT ENDED THAT IT WAS SUBMITTED BEFORE THE LD. PR.CIT THAT DU RING ASSESSMENT PROCEEDINGS SPECIFIC QUERY HAD BEEN RAI SED BY THE AO AND THE ASSESSEE HAD EXPLAINED IN DETAIL THE COMPLETE MODALITIES OF THE SLUMP SALE TRANSACTION ITA NO.121/ASR/2020 A.Y.2015-16 32 UNDERTAKEN AND ALSO SUBMITTED REQUISITE DOCUMENTS I N SUPPORT. HE FURTHER CONTENDED THAT DUE REPLY WAS AL SO FILED TO THE LD. PR.CIT TO EVERY POINT RAISED BY HER EXP LAINING HOW THE TRANSACTION QUALIFIED AS SLUMP SALE AS PER THE PROVISIONS OF THE ACT EVIDENCED WITH THE BUSINESS T RANSFER AGREEMENT (IN SHORT BTA) THE VALUATION OF THE SA LE CONSIDERATION AS ORIGINALLY SHOWN IN THE BTA AND IT S DOWNWARD REVISION VIDE A LETTER EXCHANGED BETWEEN T HE ASSESSEE AND MFSL THE BASIS OF CALCULATION OF THE CAPITAL GAIN EARNED AS PER THE BOOKS OF ACCOUNT AND AS PER THE INCOME TAX ACT. IT WAS POINTED OUT THAT IN ASSESSME NT PROCEEDINGS THE BTA BOTH ORIGINAL AND AMENDED EX PLAINING THE ENTIRE TRANSACTION OF SLUMP SALE HAD BEEN FILE D BEFORE THE AO COPY OF CERTIFICATE OF ACCOUNTANT REGARDING COMPUTATION OF NET WORTH OF THE UNDERTAKING SO TRAN SFERRED FOR THE PURPOSE OF SLUMP SALE IN FORM NO.3CEA WAS A LSO FILED AND SPECIFIC DISCLOSURE REGARDING THE IMPUGNE D TRANSACTION WAS MADE IN THE NOTES FORMING THE PART OF THE FINANCIAL TRANSACTION. FURTHER A NO OBJECTION CERTI FICATE OF THE AO U/S 281(1) OF THE ACT OBTAINED BY THE ASSES SEE WAS ALSO FILED BEFORE THE AO AND THE ENTIRE COMPUTATION OF CAPITAL GAINS ALONGWITH THE TAX COMPUTATION ON THE SAME WAS ALSO FURNISHED. THAT THE AO HAD APPLIED HIS MI ND TO THE SAME AND HAD MADE NO ADDITION. THAT CLEARLY THE ISSUE ITA NO.121/ASR/2020 A.Y.2015-16 33 HAD BEEN EXAMINED BY THE AO DURING ASSESSMENT PROCEEDINGS. HE CONTENDED THAT THE ENTIRE TRANSACTI ON AND THE MODE OF COMPUTATION AND EVERY ASPECT AND QUERY RAISED BY THE LD. PR.CIT WAS REPLIED TO AND IT WAS DULY DEMONSTRATED TO THE LD. PR.CIT THAT THE INCOME THE REFROM HAD BEEN RIGHTLY REFLECTED AS PER THE PROVISIONS OF LAW APPLICABLE. HE DREW OUR ATTENTION TO THE DETAILED SUBMISSIONS IN THIS REGARD MADE BEFORE THE LD.PR. C IT AND REPRODUCED IN HER ORDER AT PARA 7.1 & 7.2. 44. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THA T IN THE FINDINGS OF THE LD. PR.CIT POINTING OUT THE ERROR IN THE ASSESSMENT SO FRAMED ON THE ISSUE THE LD. PR.CIT H AD FAILED TO POINT OUT ANY ANOMALY IN THE EXPLANATION AND DET AILS SO FILED BY THE ASSESSEE. TAKING US TO THE FINDINGS OF THE LD. PR.CIT AT PARA 7.3 OF THE ORDER THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT THE ISSUES RELATING TO TH E TRANSACTION WHICH THE LD. PR.CIT FOUND THE AO HAD F AILED TO EXAMINE WERE; I) WHETHER THE SALE FALLS WITHIN THE DEFINITION OF SLU MP SALE AS DEFINED U/S 2(42C) OF THE ACT. HE DREW OUR ATTENTION TO POINT NO.I OF PARA 7.3 WHEREIN THE FINDINGS OF THE LD. PR.CIT IN THIS REGARD FIND MENT ION AS UNDER: ITA NO.121/ASR/2020 A.Y.2015-16 34 1. WHETHER THE SALE EFFECTED FEEL WITHIN THE DEFINITION OF SLUMP SALE AS DEFINED UNDER SECTION 2(42C). AS PER SECTION 2(42C) OF INCOME TAX ACT 1961 SLUMP SALE MEANS THE TRANSFER OF ONE OR MORE UNDERTAKINGS AS A RESULT OF THE SALE FOR A LUMP SUM CONSIDERATION WITHOUT VALUES BEING ASSIGNED TO THE INDIVIDUAL ASSETS AND LIABILITIES IN SUCH SALES. SLUMP SALE IS TRANSFER OF A WHOLE OR PART OF BUSINESS CONCERN AS A GOING CONCERN LOCK STOCK AND BARREL. UNDERTAKING HAS THE SAME MEANING AS IN EXPLANATION 1 TO SECTION 2(19AA) DEFINING DEMERGER. AS PER EXPLANATION 3 TO SECTION 2(19AA) UNDERTAKING SHALL INCLUDE ANY PART OF AN UNDERTAKING OR A UNIT OR DIVISION OF AN UNDERTAKING OR A BUSINESS ACTIVITY TAKEN AS A WHOLE BUT DOES NOT INCLUDE INDIVIDUAL ASSETS OR LIABILITIES OR ANY COMBINATION THEREOF NT CONSTITUTING A BUSINESS ACTIVITY. EXPLANATION 2 TO SECTION 2(42C) CLARIFIES THAT THE DETERMINATION OF VALUE OF AN ASSET OR LIABILITY FOR THE PAYMENT OF STAMP DUTY REGISTRATION FEES SIMILAR TAXES ETC. SHALL NOT BE REGARDED AS ASSIGNMENT OF VALUES TO INDIVIDUAL ASSETS AND LIABILITIES. THUS IF VALUE IS ASSIGNED TO LAND FOR STAMP DUTY PURPOSE THE TRANSACTION WILL BE A QUALIFYING SLUMP SALE UNDER SECTION 2(42)C). A SALE IN ORDER TO CONSTITUTE A STAMP SALE MUST SATISFY THE FOLLOWING QUICK TEST: (A) THE SUBJECT MATTER OF SLUMP SALE SHALL BE AN UNDERTAKING OF AN ASSESSEE. (B) AN UNDERTAKING MAY BE OWNED BY A CORPORATE ENTITY OR A NON-CORPORATE ENTITY INCLUDING A PROFESSIONAL FIRM. (C) SLUMP SALE MAY BE OF A SINGLE UNDERTAKING OR EVEN MORE THAN ONE UNDERTAKING. (D) THE UNDERTAKING HAS TO BE TRANSFERRED AS A RESULT OF SALE. (E) THE CONSIDERATION FOR TRANSFER IS A LUMP SUM CONSIDERATION. THIS CONSIDERATION SHOULD BE ARRIVED AT WITHOUT ASSIGNING VALUES TO INDIVIDUAL ASSETS AND LIABILITIES. ITA NO.121/ASR/2020 A.Y.2015-16 35 THE CONSIDERATION MAY BE DISCHARGED IN CASH OR BY ISSUING SHARES OF TRANSFEROR COMPANY. (F) POSSIBILITY OF IDENTIFICATION OF PRICE ATTRIBUTABLE TO INDIVIDUAL ITEMS (PLANT MACHINERY AND DEAD STOCK) WHICH ARE SOLD AS PART OF SLUMP SALE MAY NOT ENTITLE A TRANSACTION TO BE QUALIFIED AS SLUMP SALE CIT VS. ARTEX MANUFACTURING CO. [227 ITR 260 (SC)]. HOWEVER IN CASE OF SLUMP SALE WHICH INCLUDES LAND/BUILDING WHERE SEPARATE VALUE IS ASSIGNED TO IT UNDER THE RELEVANT STAMP DUTY LEGISLATION THE SLUMP SALE WILL NOT BE ADVERSELY AFFECTED IN THE LIGHT OF EXPLANATION 2 TO SECTION 2(42C). (G) TRANSFER OF ASSETS WITHOUT TRANSFER OF LIABILITIES IS NOT A SLUMP SALE. 45. REFERRING TO THE SAME HE STATED THAT EXCEPT FOR STATING THAT THE AO HAD NOT EXAMINED WHETHER THE TRANSACTIO N QUALIFIED AS SLUMP SALE AS DEFINED UNDER THE ACT T HE LD. PR.CIT HAS NOT POINTED OUT AS TO HOW THE DETAILED EXPLANATION FURNISHED BY THE ASSESSEE IN THIS REGAR D BOTH TO THE AO AND THE LD. PR.CIT FELL SHORT OF EXPLAINING THIS QUALIFICATION OF THE TRANSACTION AS SLUMP SALE. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT DESPIT E THE DETAILED EXPLANATION FURNISHED BY THE ASSESSEE EVID ENCED WITH THE BTA THE LD. PR.CIT HAD EVEN FAILED TO REF ER TO THE EXPLANATION FURNISHED BY THE ASSESSEE AND SIMPLY ST ATED THAT THE AO HAD FAILED TO EXAMINE WHETHER THE TRANS ACTION QUALIFIED AS SLUMP SALE. THE LD.COUNSEL FOR THE ASS ESSEE STATED THAT IN VIEW OF THE DETAILED EXPLANATION FUR NISHED BY ITA NO.121/ASR/2020 A.Y.2015-16 36 THE ASSESSEE AND THE LD. PR.CIT HAVING NOT POINTIN G OUT ANY ANOMALY IN THE SAME THE AFORE MENTIONED FINDINGS C ANNOT BE SAID TO BE ANY FINDINGS OF ERROR IN THIS REGARD. 46. HE THEREAFTER TOOK US TO PARA 2 OF THE FINDINGS OF THE LD. PR.CIT WHICH ARE REPRODUCED HEREUNDER: 2. THE PERUSAL OF THE ASSESSEES TRANSFER AGREEMENT IN RESPECT OF THE MSF DIVISION SHOWS THAT THE ASSESSEE HAS TRANSFERRED THE UNDERTAKING AROUND THE BOOK VALUE OF THE ASSETS AND LIABILITIES . AS PER THE COMPUTATION SUBMITTED BY THE ASSESSEE THE NET WORTH OF THE UNDERTAKING AS ON 01-04-2014 WORKS OUT TO 275.36 CRORES AND ASSESSEE HAS TRANSFERRED IT AT RS.277 CRORES. THE ASSESSEE WAS ASKED TO SPECIFY THE BASIS OF ARRIVING AT THE SALE CONSIDERATION FOR THE SALE EFFECTED BY THE ASSESSEE . THE ASSESSEE HAS CLAIMED THAT ITS AS PER THE BTA. THE BTA IN CLAUSE 4.1 MENTIONS THE BUSINESS TRANSFER CONSIDERATION TO BE 305 CRORES AS AGAINST WHICH THE FINAL SALE CONSIDERATION HAS TAKEN PLACE AT RS.277 CRORES. THE BASIS OF THIS VARIATION HAS NOT BEEN SPECIFIED BY THE ASSESSEE AND HAS NOT BEEN EXAMINED BY THE AO. IT HAS BEEN CLAIMED THAT THE SAME IS AS PER LETTER DATED 01-04-2014. THE PERUSAL OF THE COPY OF THE LETTER DATED 01-04-2014 DOESNOT GIVE ANY REASON FOR THE REVISION OR BASIS O F COMPUTATION OF THE SAME IT JUST SAYS THAT THE BUSINESS TRANSFER CONSIDERATION HAS BEEN REVISED TO 277 CRORES. DURING THE COURSE OF THE 263 PROCEEDINGS AMPLE OPPORTUNITY WERE GIVEN TO THE ASSESSEE TO EXPLAIN THE REASON FOR CHANGE IN VALUE FROM RS.305 TO 277 CRORES. NO VALID EXPLANATION COULD BE GIVEN BY THE ASSESSEE. HE WAS UNABLE TO EXPLAIN THROUGH A VALID ACCEPTABLE ARGUMENT AS TO HOW THE VALUE OF MSF HAS FALLEN FROM 305 CRORE TO 277 CRORES. IT IS NOT OUT OF CONTEXT TO MENTION THA T THE ENTIRE TRANSACTION IS A RELATED PARTY TRANSACTION. A SIMPLE LETTER HAS BEEN ISSUED REVISING THE TRANSACTION VALUE TO 277 CRORES WITHOU T ANY ACCEPTABLE COMPUTATION OR REVISED VALUATION. KEEPING IN VIEW THESE FACTS THE CLAIM OF THE ASSESSEE THAT THE VALUE OF SALE CONSIDERATION IS ITA NO.121/ASR/2020 A.Y.2015-16 37 277 CRORES CANNOT BE ACCEPTED WHEN THE BTA SPECIFIES THE TRANSACTION TO BE AT RS.305 CRORES. 47. REFERRING TO THE SAME HE CONTENDED THAT THE LD. PR.CIT HAD NOTED THAT DESPITE REPEATED QUERIES RAISED IN T HIS REGARD THE ASSESSEE HAD NOT SPECIFIED THE BASIS FO R ARRIVING AT THE ORIGINAL SALE CONSIDERATION AS MENTIONED IN THE BTA AND REVISED SALE CONSIDERATION AND ALSO THE REASON FOR DOWNWARD REVISION IN THE SAME. THAT THE ASSESSEE WA S UNABLE TO EXPLAIN HOW THE VALUE HAD FALLEN FROM RS. 305 CRORES TO RS.277 CRORES MORE PARTICULARLY WHEN TH E TRANSACTION WAS WITH THE RELATED PARTY THAT SINCE THE BTA SPECIFIED THE TRANSACTION AT RS.305 CRORES ITS DOWN WARD REVISION TO RS.277 CRORES BY WAY OF A LETTER DATED 01.04.2014 COULD NOT BE ACCEPTED. 48. IN THIS REGARD THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT THERE IS NO REQUIREMENT UNDER THE ST ATUTE FOR JUSTIFYING THE SALE CONSIDERATION/ PRICE OF TRA NSACTION SEVEN IF EFFECTED WITH THE SISTER CONCERN NOR HAS ANY SUCH PROVISIONS BEING POINTED OUT BY THE LD. PR.CIT. IN ANY CASE IT WAS CONTENDED THE VALUE OF TRANSACTION STOOD JU STIFIED WITH THE BTA BOTH ORIGINAL AND REVISED ENTERED INTO BETWEEN BOTH THE PARTIES AGREEING TO A PARTICULAR OF CONSID ERATION. THAT THE ONLY REQUIREMENT UNDER LAW WAS VIS--VIS T HE CALCULATION OF NET WORTH AS PER SECTION 50B OF THE ACT WHICH ITA NO.121/ASR/2020 A.Y.2015-16 38 HAD BEEN JUSTIFIED TO THE LD. PR.CIT AND NO ANOMALY IN THE SAME HAS BEEN POINTED OUT. HE THEREFORE CONTENDED THAT EVEN THE AFORESAID FINDINGS OF THE LD. PR.CIT AT PA RA 2 DID NOT CONTAIN ANY FINDING REGARDING ANY ERROR OF THE AO. 49. HE THEREAFTER TOOK US TO POINT NO.(3) OF PARA 7 .3 OF THE ORDER OF THE LD. PR.CIT WHICH READS AS UNDER: 3. FURTHER THE ASSESSEE HAS CLAIMED THAT THE CONSIDERATION WAS DISCHARGED BY MSFL PARTLY THROUGH ISSUE OF EQUITY SHARES 3 84 00 000/- AT RS.10 EACH (ISSUED AT A PREMIUM OF RS.40 PER EQUITY SHARES) OF RS.167 CIRCUMSTANCES. AND BALANCE BY WAY OF INTEREST BEARING LOAN OF RS.110 CIRCUMSTANCES. IT HAS NOT BEEN EXAMINED BY THE AO WHERE THE AMOUNT OF RS.110 CRORES IS APPEARING IN ASSESSEES BALANCE SHEET AND WHETHER THE INTEREST ON THE LOAN HAS BEEN ACCOUNTED FOR BY THE ASSESSEE AND IF SO WHAT IS THE RATE OF INTEREST AND WHETHER THE INTEREST CHARGED IS AT ARMS LENGTH. DURING 263 PROCEEDINGS IT WAS CLAIMED BY THE ASSESSEE THAT THE INTEREST AT 13% HAS BEEN RECEIVED FROM MFSL HOWEVER THE PROFIT AND LOSS ACCOUNT DOES NOT SEEM TO REFLECT THAT INTEREST. IT HAS ALSO NOT BEEN EXAMINED AS TO HOW THE PREMIUM OF RS.40/- HAS BEEN ARRIVED AT AS THE SHARES OF MSFL WERE ISSUED TO THE ASSESSEE AT A PREMIUM. THUS THE AO HAS FAILED TO EXAMINE WHETHER THE ENTIRE TRANSACTION OF SLUMP SALE HAS OCCURRED AT ARMS LENGTH OR NOT. THE ORDER OF THE AO IS THUS ERRONEOUS AND PREJUDICIAL. AND REFERRING TO THE SAME HE POINTED OUT THAT THE L D. PR.CIT MENTIONS THEREIN THAT THE AO HAD NOT EXAMINED WHETH ER THE ASSESSEE HAD ACTUALLY RECEIVED CONSIDERATION IN THE FORM OF INTEREST BEARING LOANS OF RS.110 CRORES AND WHETHER IT HAD CHARGED INTEREST ON THE SAME DURING THE YEAR OR NOT . THAT THE PROFIT & LOSS ACCOUNT DID NOT SEEM TO REFLECT THE ITA NO.121/ASR/2020 A.Y.2015-16 39 INTEREST AND THE AO HAS ALSO NOT EXAMINED HOW THE P REMIUM OF RS.40/- HAS BEEN ARRIVED AT ON THE SHARES OF MSF L ISSUED TO THE ASSESSEE IN LIEU OF CONSIDERATION FOR SLUMP SALE. 50. IN THIS REGARD THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT AS FAR THE REFLECTION OF INTEREST BEARING LOAN OF RS.110 CRORES THE SAME WAS CLEARLY REFLECTED IN THE BALANCE SHEET AND SINCE NO QUERY HAS BEEN RAISED BY THE LD. PR.CIT DURING 263 PROCEEDINGS THERE WAS NO OCCASION TO DEMONSTRATE THE SAME TO HER. THAT EVEN VIS--VIS TH E ISSUE OF INTEREST THE ONLY FINDING OF THE LD. PR.CIT IS T HAT IT SEEMS THAT THE INTEREST HAS NOT BEEN ACCOUNTED FOR. THE L D. PR.CIT HAS NEITHER CARED TO EXAMINE THIS ISSUE DURING REVI SIONARY PROCEEDINGS NOR INVESTIGATED THE SAME HERSELF AND WITHOUT DOING SO HAS JUMPED TO CONCLUSION. FURTHER IT IS NO T COMPREHENSIBLE AS TO HOW THE PREMIUM OF RS.40/- ON THE SHARES OF MSFL ISSUED TO THE ASSESSEE IN ANY WAY CAUSES PREJUDICE TO THE REVENUE SINCE THE SHARES HAVE BEEN RECEIVED AS CONSIDERATION FOR THE SLUMP SALE AND TH E VALUATION OF THE SHARES IS A MATTER OF CONCERN FOR MSFL AND NOT THE ASSESSEE. 51. THE LD. DR ON THE OTHER HAND HEAVILY RELIED U PON THE ORDER OF THE LD. PR.CIT REFERRING TO THE DISCREPANC Y NOTED IN THE TRANSACTION ON SLUMP SALE AFFECTED BY THE ASSES SEE AND ITA NO.121/ASR/2020 A.Y.2015-16 40 THE ISSUES WHICH NEEDED FURTHER EXAMINATION AS POIN TED OUT BY THE PR. CIT BEFORE US AT PARA 7.3 OF HER ORDE R AS REPRODUCED ABOVE. SHE STATED THAT THE AO HAVING ACC EPTED THE SUBMISSIONS MADE BY THE ASSESSEE IN THIS REGARD DURING ASSESSMENT PROCEEDINGS AND CONSIDERING THAT HE FAIL ED TO EXAMINE THE ISSUES FLAGGED BY THE PR. CIT AS TO WHE THER THE TRANSACTION DID QUALIFY AS SLUMP SALE AS PER THE PR OVISIONS OF THE JUSTIFICATION FOR THE SALE CONSIDERATION RE CEIVED AND ITS DOWNWARD REVISION EXPLAINED BY A LETTER EXCHANG ED BETWEEN TWO PARTIES AND FURTHER THE NON EXAMINATION OF THE MANNER OF RECEIPT OF CONSIDERATION FOR THE SLUMP SA LE THE FINDINGS OF THE LD. PR.CIT OF ERROR IN THE ORDER OF THE AO IN THIS REGARD WERE THEREFORE JUSTIFIED. 52. WE HAVE HEARD BOTH THE PARTIES. ON CAREFUL CONSIDERATION OF THE SUBMISSIONS MADE BY BOTH THE P ARTIES AND ON GOING THROUGH VARIOUS LETTERS COMMUNICATION S AND DOCUMENTS WHICH WERE REFERRED TO BEFORE US WE ARE OF THE VIEW THAT THERE IS NO FINDING OF ERROR IN THE ORDER OF THE LD. PR.CIT ON THE ISSUE OF SLUMP SALE TRANSACTION ENTER ED INTO BY THE ASSESSEE DURING THE YEAR. ADMITTEDLY A QUER Y HAD BEEN RAISED DURING ASSESSMENT PROCEEDINGS FOR JUSTI FYING THE CAPITAL GAINS EARNED BY THE ASSESSEE DURING THE YEA R IN RESPONSE TO WHICH THE ASSESSEE HAD FILED DETAILED SUBMISSIONS REGARDING THE SLUMP SALE TRANSACTION OF ITS MSF ITA NO.121/ASR/2020 A.Y.2015-16 41 DIVISION UNDERTAKEN DURING THE YEAR. VIDE LETTER DA TED 28.11.2017 THE ASSESSEE HAD EXPLAINED IN DETAIL THE COMPLETE MODALITIES OF THE SLUMP SALE TRANSACTION UNDERTAKEN DURING THE YEAR AND ALSO SUBMITTED THE R ELEVANT DOCUMENTS. PERUSAL OF THE COPY OF THE SAID LETTER PLACED BEFORE US REVEALS THAT THE ASSESSEE HAD EXPLAINED IN DETAIL THE TRANSACTION OF SLUMP SALE UNDERTAKEN AND EVIDEN CED THE SAME WITH THE BUSINESS TRANSFER AGREEMENT ENTERED I NTO IN THE SAID TRANSACTION. THE ASSESSEE HAD FURTHER EXPL AINED HOW THE IMPUGNED TRANSACTION QUALIFIED AS A SLUMP S ALE AS PER THE PROVISIONS OF SECTION 2(42C) OF THE ACT AND HAD ALSO FURNISHED COMPUTATION OF THE CAPITAL GAIN EARNED ON THE SAME AS PER THE RELEVANT PROVISIONS OF SECTION 50B OF THE ACT. COPY OF NO OBJECTION CERTIFICATE OF THE AO WIT H REGARD TO THE AFORESAID TRANSACTION OBTAINED U/S 281(1) OF TH E ACT WAS ALSO FILED. EVEN BEFORE THE LD. PR.CIT WE FIND THE ASSESSEE HAD REITERATED HIS SUBMISSIONS MADE BEFORE THE AO JUSTIFYING ITS TRANSACTION WHICH STAND REPRODUCED A T PARAS 7.2 AND 7.3 OF THE ORDER BEFORE US. WE HAVE NOTED F ROM THE PERUSAL OF THE LETTERS FILED BEFORE THE LD. PR.CIT THAT EVERY QUERY RAISED BY THE LD. PR.CIT QUA THE MANNER OF COMPUTATION OF PROFIT GENERATED FROM THE SAID TRANS ACTION THE VALUATION OF ASSETS INCLUDING STOCK AND BUILDIN G TRANSFER JUSTIFICATION OF THE TRANSFER QUALIFYING AS A SLUMP ITA NO.121/ASR/2020 A.Y.2015-16 42 SALE AND VARIANCE IN THE VALUE OF BUILDING AS REPOR TED IN THE FINANCIAL STATEMENTS AND IN THE INCOME TAX ACT ALL WERE DULY REPLIED TO. THE ASSESSEE HAD THEREFORE JUSTI FIED THE TRANSACTION QUALIFYING AS SLUMP SALE AS PER THE PRO VISIONS OF THE ACT BY THE BUSINESS TRANSFER AGREEMENT ENTERED INTO SO ALSO THE SALE CONSIDERATION RECEIVED FOR THE SAME A ND ITS DOWNWARD REVISION IN THE SALE CONSIDERATION THROUGH A LETTER EXCHANGED BETWEEN TWO PARTIES HE HAD JUSTIFIED THE CAPITAL GAIN EARNED THEREON AS PER THE PROVISIONS OF THE AC T AND BESIDES FURNISHING THE COMPUTATION OF THE SAME HAD FURNISHED A CERTIFICATE OF AN ACCOUNTANT IN THIS RE GARD IN FORM NO.3CEA. THE ASSESSEE HAD ALSO OBTAINED A NO OBJECTION CERTIFICATE FROM THE AO FOR THE IMPUGNED TRANSACTION. ALL THE AFORESAID FACTS ARE NOT DISPUT ED NOR CONTROVERTED BEFORE US. THEREFORE THE FINDINGS OF THE LD. PR.CIT THAT THE AO HAD NOT EXAMINED WHETHER THE TRANSACTION QUALIFIED AS SLUMP SALE WE FIND IS NOT JUSTIFIED BASED ON THE FACTS BEFORE US WHEREIN WE FIND THAT R EPEATEDLY DETAILED JUSTIFICATION HAD BEEN FILED BY THE ASSESS EE. THE FINDINGS OF THE LD. PR.CIT THAT THE SALE CONSIDERAT ION REQUIRED TO BE EXAMINED FURTHER SINCE THERE WAS A D OWNWARD REVISION IN THE SAME AND TRANSACTION HAD BEEN UNDER TAKEN BETWEEN SISTER CONCERN WE ARE OF THE VIEW MERITS NO CONSIDERATION. ADMITTEDLY THERE WAS A DOWNWARD REV ISION IN ITA NO.121/ASR/2020 A.Y.2015-16 43 THE SALE CONSIDERATION AND THE TRANSACTION DID TAKE PLACE WITH SISTER CONCERN. BUT WE FIND THE ASSESSEE HAD EVIDENCED THE SALE CONSIDERATION THROUGH BUSINESS T RANSFER AGREEMENT AND THE SUBSEQUENT LETTER EXCHANGED BETWE EN THE TWO PARTIES VIS--VIS WHICH NO DISCREPANCY HAD BEEN POINTED OUT BY THE LD. PR.CIT. IN SUCH CIRCUMSTANCES WHAT OCCASIONED FURTHER EXAMINATION OF THE ISSUE WE FIN D HAS NOT BEEN SPELT OUT BY THE LD. PR.CIT. MERELY BECAUSE TH E TRANSACTION TOOK PLACE WITH THE SISTER CONCERN THE SALE CONSIDERATION NEEDED TO BE EXAMINED SEEMS ILLOGICA L SPECIALLY WHEN THE ASSESSEE HAD EVIDENCED THE SAME WITH BUSINESS TRANSFER AGREEMENT. NOT EVERY TRANSACTION WITH A SISTER CONCERN NEEDS TO BE LOOKED AT WITH SUSPECT A ND THERE HAD TO BE MORE REASONS FOR CONDUCTING FURTHER ENQUI RY. FURTHER AS RIGHTLY POINTED OUT BY THE LD.COUNSEL FO R THE ASSESSEE THE LD. PR.CIT HAS ALSO NOT POINTED OUT AN Y PROVISIONS IN LAW WARRANTING THE JUSTIFICATION OF T HE SALE CONSIDERATION IN A TRANSACTION ENTERED INTO WITH TH E SISTER CONCERN. THEREFORE FINDING OF ERROR BY THE LD. PR. CIT ON ACCOUNT OF NON EXAMINATION OF THE SALE CONSIDERATIO N ALSO IS NOT JUSTIFIED. FURTHER AS REGARDS THE NON EXAMINATI ON OF THE MANNER OF RECEIPT OF SALE CONSIDERATION IN THE FORM OF UNSECURED LOANS AND SHARES BEING NOT EXAMINED WHET HER DULY ACCOUNTED FOR AND THE PREMIUM AT WHICH THE SHA RES ITA NO.121/ASR/2020 A.Y.2015-16 44 WERE ACQUIRED BY THE ASSESSEE NOT BEING EXAMINED FO R JUSTIFICATION WE FIND DO NOT POINT TO ANY ERROR I N THE ORDER OF THE AO CAUSING PREJUDICE TO THE REVENUE. IT IS N OT THE CASE OF THE LD. PR.CIT THAT THE SAID CONSIDERATION HAS NOT BEEN ACCOUNTED FOR BY THE ASSESSEE. FURTHER HOW THE PREMIUM ON THE SHARES GIVEN TO THE ASSESSEE AS CONSIDERATION FOR THE SLUMP SALE HAS CAUSED ANY PRE JUDICE TO THE REVENUE IS NOT CLEAR FROM THE ORDER OF THE LD. PR.CIT. AS LONG AS THE CONSIDERATION HAS BEEN PAID TO THE ASSE SSEE IN THE FORM OF UNSECURED LOANS AND SHARES BEING GIVEN TO THE ASSESSEE OF EQUIVALENT VALUE HOW THE PREMIUM ON WH ICH THE SHARES WERE ISSUED WOULD IN ANY WAY AFFECT THE COMPUTATION OF CAPITAL GAIN OR RAISE ANY DOUBT ON T HE TRANSACTION HAS NOT BEEN SPELT OUT BY THE LD. PR.C IT. THEREFORE WE HOLD THAT VIS--VIS THE TRANSACTION O F SLUMP SALE ALSO THERE IS NO FINDING OF ANY ERROR IN THE ORDER OF THE AO. 53. IN VIEW OF THE ABOVE WE SET ASIDE THE FINDINGS OF THE LD. PR.CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON EXAMINATI ON OF SLUMP SALE UNDERTAKEN BY THE ASSESSEE DURING THE YE AR AND THE ORDER OF THE LD. PR.CIT HOLDING SO IS THEREFOR E SET ASIDE. ITA NO.121/ASR/2020 A.Y.2015-16 45 ISSUE: NON EXAMINATION OF VALUATON OF SHARES OF MAX HEALTHCARE INSTITUTE LIMITED SOLD BY THE ASSESSEE DURING THE YEAR. 54. THE LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE IMPUGNED YEAR THE ASSESSEE HAD SOLD SHARES OF M /S MAX HEALTHCARE INSTITUTE LIMITED WHICH THE LD.PR.CIT F OUND THAT THE AO HAD NOT EXAMINED VIS A VIS THE VALUATION AT WHICH IT WAS SOLD. 55. LD.COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURI NG THE ASSESSMENT PROCEEDINGS ALL NECESSARY DOCUMENTS EVID ENCING THE GENUINENESS OF THE TRANSACTION WERE FILED TO TH E AO. HE DREW OUR ATTENTION TO THE FOLLOWING IN THIS REGARD: - FOR SALE OF INVESTMENT IN MAX HEALTHCARE INSTITUTE LIMITED (MHIL) FORM FC-TRS DATED 10.11.2014 FILED BY THE ASSESSEE COMPANY WITH THE AUTHORIZED DEALER BANK IN CONNECTION WITH SALE OF SHARES EVIDENCING RECEIPT OF CONSIDERATION IN THE B ANK ACCOUNT OF THE COMPANY; 392 VOL 2. VALUATION REPORT AS ON MARCH 31 2015; 393 TO 404 V OL. 2 COPY OF SHARE PURCHASE AGREEMENT BETWEEN THE ASSESS EE COMPANY. LIFE HEALTHCARE INTERNATIONAL (LHI) AND M HIL; 405 TO 443 VOL. 2. COPY OF INVESTMENT SCHEDULE ALONG WITH RELEVANT DEMAT STATEMENTS/ EXTRACTS OF FINANCIAL STATEMENTS EVIDEN CING INVESTMENT IN SHARES; 444 TO 449 VOL 2 ADDITIONALLY ALL DISCLOSURES VIS-A-VIS THE GAIN/LO SS WERE DULY RECORDED AND REPORTED IN AUDITED FINANCIALS AS SUBMITTED BEFORE THE AO. 56. REFERRING TO THE ABOVE THE LD.COUNSEL FOR THE A SSESSEE POINTED OUT THAT EVEN THE VALUATION REPORT OF A IND EPENDENT ITA NO.121/ASR/2020 A.Y.2015-16 46 VALUER DETERMINING THE VALUE OF THE SHARES SOLD AS ON 31.03.2015 WAS FILED TO THE AO REFLECTING THE VALUE OF THE SHARES THEREIN AT RS.45.17 PER SHARE. HE THEREAFTER POINTED OUT THAT THE LD. PR.CIT POINTED OUT THAT SINCE THE SHARES WERE SOLD MUCH BEFORE 31.03.2015 I.E. ON 31.08.2014 THEREFORE THE AFORESAID VALUATION REPORT WAS OF NO RELEVANCE AND A FRESH VALUATION AS ON 31.03.2014 BASIS DCF METHODOLOGY WAS ASKED FOR. THE LD.COUNSEL FOR T HE ASSESSEE SUBMITTED THAT THE SAID REPORT WAS ALSO FILED REFLECTING VALUATION THEREIN OF THE SHARES AT RS.66 .33 PER SHARE WHICH WAS LESS THAN THE CONSIDERATION FOR WHI CH THE SHARES WERE SOLD AT RS.67.50 PER SHARE. THE LD.COUN SEL FOR THE ASSESSEE CONTENDED THAT THE ASSESSEE THEREFORE HAD UNEQUIVOCALLY ESTABLISHED THE GENUINENESS OF THE TRANSACTION BOTH BEFORE THE AO AND HAD EVEN ADDRESS ED THE QUERIES RAISED BY THE LD. PR.CIT. HE THEREAFTER STA TED THAT THE ERROR POINTED OUT BY THE LD. PR.CIT WAS IN FACT NO ERROR AT ALL. REFERRING TO THE FINDINGS OF THE LD. PR.CIT AT PARA 9.2 OF HER ORDER AS UNDER: 9.2 DECISION THE REVISED VALUATION CERTIFICATE BY THE ASSESSEE SHOWS THAT THE RATE AT WHICH THE UNQUOTED SHARES HAVE BEEN TRANSFERRED IS SUBJECT TO FURTHER VERIFICATION. THE VALUATION REPORT OF TH E SHARES NEEDS TO BE EXAMINED FURTHER AND THE COMPUTATION MADE BY THE VALUER NEEDS TO BE CROSS- VERIFIED WITH THE BALANCE SHEET. THE ASSESSING ITA NO.121/ASR/2020 A.Y.2015-16 47 OFFICER HAS FAILED TO EXAMINE THE COMPUTATION OF SHARE VALUATION AS DISCUSSED ABOVE. THE ORDER OF THE ASSESSING OFFICER IS THUS PREJUDICIAL AND ERRONEOUS. THE LD.COUNSEL FOR THE ASSESSEE POINTED OUT THAT T HE LD. PR.CIT HAS ONLY STATED THAT THE REVISED VALUATION REPORT FILED BY THE ASSESSEE NEEDED VERIFICATION THE V ALUATION OF THE SHARES SOLD NEEDED TO BE EXAMINED FURTHER AND HAD TO BE CROSSCHECKED WITH THE BALANCE SHEET AND THE AO H AVING FAILED TO DO SO THIS EXERCISE THE ORDER WAS ERRONE OUS CAUSING PREJUDICE TO THE REVENUE. THE LD.COUNSEL FO R THE ASSESSEE CONTENDED THAT THE SHARES WERE SOLD TO AN INDEPENDENT THIRD PARTY THE VALUATION OF THE SAME BEING DULY EVIDENCED BY AGREEMENT ENTERED INTO BY THE SAI D PARTIES AND FURTHER CEMENTED AS BEING ABOVE BOARD BY THE VA LUATION REPORT BASIS THE DCF METHOD REFLECTING THE FACT THA T THE SHARES WERE SOLD AT ABOVE THE FAIR MARKET VALUE OF THE SAID SHARES. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED T HAT THERE WAS NO REQUIREMENT UNDER LAW NOR ANY SUCH REQUIREMENT POINTED OUT BY THE LD. PR.CIT IN THE S HARES SO SOLD TO AN INDEPENDENT PARTY TO BE SOLD AT ITS FAIR MARKET VALUE NOR WAS THERE ANY REQUIREMENT UNDER LAW IN T HE VALUATION OF SUCH SHARES TO BE DONE AT DCF METHOD. THAT SUCH REQUIREMENT WAS THERE UNDER STATUTE IN SECTION 56(2)(VIIA) & (VIIB) WHICH WAS APPLICABLE IN DIFFER ENT CIRCUMSTANCES THAT TOO IN THE CASE OF PURCHASER OF SHARES ITA NO.121/ASR/2020 A.Y.2015-16 48 AND NOT THE SELLER OF THE SHARES WHICH THE ASSESSEE WAS IN THE PRESENT CASE. THEREFORE THERE WAS NO ERROR AS SUCH AS POINTED OUT BY THE LD. PR.CIT IN THE ASSESSMENT ORD ER PASSED BY THE AO ACCEPTING THE TRANSACTION OF SALE OF SHARES OF MAX HEALTHCARE INSTITUTE BY THE ASSESSEE. 57. THE LD. DR ON THE OTHER HAND VEHEMENTLY SUPPO RTED THE ORDER OF THE LD. PR.CIT. 58. WE HAVE HEARD BOTH THE PARTIES CAREFULLY AND WE FIND MERIT IN THE CONTENTION OF THE LD.COUNSEL FOR THE A SSESSEE. IT IS NOT DISPUTED THAT THE IMPUGNED TRANSACTION OF SA LE OF SHARES OF MAX HEALTHCARE INSTITUTE LIMITED WAS UNDE RTAKEN BY THE ASSESSEE WITH AN INDEPENDENT THIRD PARTY LI FE HEALTHCARE INTERNATIONAL AND ALL DOCUMENTS EVIDENC ING THE SAID TRANSACTION WERE FILED BEFORE THE AO INCLUDING THE SHARE PURCHASE AGREEMENT BETWEEN THE ASSESSEE COMPANY AND LIFE HEALTHCARE INTERNATIONAL TO WHOM THE SAID SHARES WE RE SOLD. IT IS NOT DISPUTED ALSO THAT THE SHARES WERE SOLD A T THE PRICE AGREED TO BETWEEN THE TWO PARTIES. NO ANOMALY VIS- -VIS THE ABOVE HAS BEEN POINTED OUT BY THE LD. PR.CIT. THE O NLY REASON FOR HOLDING THE ORDER OF THE AO ERRONEOUS WA S THAT THE AO NEEDED TO VERIFY THE VALUATION OF SHARES SOL D THAT TOO FOR THE REASON THAT THE ASSESSEE HAD SUBMITTED TWO VALUATION REPORTS ONE AS ON 31.03.2015 REFLECTING THE VALUE ITA NO.121/ASR/2020 A.Y.2015-16 49 OF SHARES AT RS.45.17 PER SHARE AND THE OTHER AS ON 31.03.2014 REFLECTING THE VALUE OF SHARES AT RS.67. 33 PER SHARE. 59. CONSIDERING THE FACT THAT IT IS A TRANSACTION B ETWEEN THE TWO INDEPENDENT PARTIES THE CONSIDERATION EVID ENCED BY THE PURCHASE AGREEMENT ENTERED INTO BETWEEN THEM H OW AND WHY THE ISSUE OF VALUATION OF SHARES ARISES HAS NO T BEEN POINTED OUT BY THE LD. PR.CIT. NO PROVISION UNDER L AW HAS BEEN BROUGHT TO OUR NOTICE WHICH REQUIRES THE ASSE SSEE TO SELL SHARES AT ITS FAIR MARKET VALUE. IN ANY CASE THE VALUATION OF SHARES AS PER DCF METHOD AS ON 31.03.2 014 AS ASKED FOR BY THE LD. PR.CIT HERSELF AND RELATING TO THE YEAR ENDING JUST PRIOR TO THE DATE ON WHICH THE SAID SHA RES WERE SOLD BEING 31-08-2014 SHOWS THE FAIR MARKET VALUE TO BE LESS THAN THAT AT WHICH THE ASSESSEE HAD SOLD THE S HARES. THE VALUE AT WHICH THE SHARES WERE SOLD THEREFORE APPEARS TO BE FULLY JUSTIFIED EXCEEDING THE FAIR MARKET VA LUE OF THE SHARES. 60. WE THEREFORE AGREE WITH THE LD.COUNSEL FOR THE ASSESSEE THAT THE ASSESSEE HAVING EVIDENCED THE TRA NSACTION OF SALE OF SHARES OF MAX HEALTHCARE INSTITUTE LIMIT ED WITH NECESSARY DOCUMENTARY EVIDENCES AND EVEN SUBMITTED VALUATION SHOWING THE ACTUAL SALE PRICE EXCEEDING T HE FAIR ITA NO.121/ASR/2020 A.Y.2015-16 50 MARKET VALUE OF SHARES AND NO INFIRMITY BEING POIN TED OUT BY THE LD.PR CIT IN THE SAME THE LD.PR.CIT WAS NOT JUSTIFIED IN HOLDING THE ORDER ERRONEOUS FOR WANT OF FURTHER INQUIRY VIS A VIS THE VALUATION. THE LD.PR.CIT OUGHT TO HAV E POINTED OUT DISCREPANCY OR INFIRMITY IN THE VALUATION REPOR T SUBMITTED TO HER BEFORE PROCEEDING TO HOLD NON INQU IRY OF THE SAME AS RENDERING THE ORDER ERRONEOUS. 61. IN VIEW OF THE ABOVE WE SET ASIDE THE FINDINGS OF THE LD. PR.CIT OF THE ORDER BEING ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON EXAMINATI ON OF SALE OF SHARES OF MAX HEALTHCARE LIMITED AND THE OR DER OF THE LD. PR.CIT HOLDING SO IS THEREFORE SET ASIDE. ISSUE: LOSS OF SALE OF UNQUOTED INVESTMENT AMOUNTIN G TO RS.4037.19 LACS 62. POINTING OUT THE FACTS RELATING TO THE ISSUE T HE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT DURING T HE IMPUGNED YEAR THE ASSESSEE HAD SOLD ITS ENTIRE STAK E IN NEEMAN MEDICAL INTERNATIONAL BV (HEREINAFTER REFERR ED TO AS NEEMAN BV) ITS WHOLLY OWNED SUBSIDIARY REPRESEN TING 2361 EQUITY SHARES TO MAPRIME MANAGEMENT B.V. FOR A SALE CONSIDERATION OF RS.20.74 LACS. THE ASSESSEE COMPAN Y HAD MADE INVESTMENTS IN THESE SHARES OVER THE YEARS AMO UNTING ITA NO.121/ASR/2020 A.Y.2015-16 51 TO RS.4057.93 LACS AND HAD MADE PROVISION FOR DIMU NITION IN THE VALUE OF THESE INVESTMENTS IN ITS BOOKS OF A CCOUNT. THE SAID PROVISION AMOUNT WAS REVERSED DURING THE IMPUGNED YEAR PURSUANT TO SALE OF SHARES OF NEEMAN BV. AND ACCORDINGLY BOOK LOSS OF RS.4037.19 LACS (RS.2 0.74 LACS RS.4057.93 LACS) WAS RECORDED IN THE BOOKS. 63. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT; 1) A COMPLETE DISCLOSURE OF THE AFORESAID BOOK LOS S OF RS.4037.19 LACS HAD BEEN MADE AND REPORTED IN THE FINANCIAL STATEMENTS AND THE CAPITAL LOSS GENERATED UNDER THE PROVISIONS OF THE ACT HAD ALSO BEEN DULY DISCLOSED. THE TRANSACTION HAD BEEN EVIDENCED BY COPY OF SALE DEED PERTAINING TO THE TRANSFER OF SHARES. 2) COPY OF VALUATION REPORT DETERMINING THE EQUITY VALUE OF THE SHARES AS ON 28.03.2015 HAD ALSO BEEN FILED. 3) THE LOSS SUFFERED ON ACCOUNT OF THE SALE OF SAID SHARES HAD BEEN DULY DISCLOSED IN THE AUDITED FINANCIAL STATEMENTS AS ALSO THE ENTIRE TRANSACTION HAD ALSO BEEN REPORTED IN THE AUDITED FINANCIAL STATEMENTS. 64. THE LD.COUNSEL FOR THE ASSESSEE CONTENDED THAT ACCORDINGLY COMPLETE DISCLOSURES WERE MADE BY THE A SSESSEE DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND THE ISSUE WAS DULY EXAMINED BY THE AO SINCE A DETAILED REPLY WAS FILED ITA NO.121/ASR/2020 A.Y.2015-16 52 BY THE ASSESSEE IN RESPONSE TO NOTICE DATED 26.10.2 017. THEREFORE THERE WAS NO ERROR IN THE ORDER OF THE A O HAVING DULY EXAMINED THE SAID TRANSACTION AND ALLOWED THE CLAIM TO THE ASSESSEE. HE FURTHER CONTENDED THAT THERE WAS N O LOSS TO THE REVENUE ALSO SINCE THE PROVISION FOR THE DIMINU TION IN THE VALUE OF INVESTMENT PROVIDED FOR IN THE BOOKS O F ACCOUNT HAD NOT BEEN ALLOWED IN THE COMPUTATION OF INCOME F ILED FOR ASSESSMENT YEAR 2013-14 AND THE SAID AMOUNT WAS RED UCED IN ACCORDANCE WITH CLAUSE(I) TO EXPLANATION-1 TO SE CTION 115JB OF THE ACT WHILE COMPUTING THE BOOK PROFITS F OR ASSESSMENT YEAR 2015-16. THE LD.COUNSEL FOR THE ASS ESSEE FURTHER CONTENDED THAT EVEN BEFORE THE LD. PR.CIT A LL THE ABOVE FACTS WERE DULY BROUGHT OUT AND THE MODE OF COMPUTATION OF LOSS ON THE SALE OF THE SAID SHARES BOTH AS PER THE BOOKS AND AS PER THE ACT WERE DULY FILED. H E DREW OUR ATTENTION TO THE SAME AS REPRODUCED IN THE ORDE R IN PARA 8.1 SUB-PARA 4.1.8. HE FURTHER STATED THAT ALL QUER IES RAISED BY THE LD. PR.CIT HAD ALSO BEEN ADDRESSED AND IT HA D BEEN POINTED OUT THAT THE PROVISIONS OF SECTION 56(2) (V IIA) AND 56(2)(VIIB) OF THE ACT WERE APPLICABLE TO THE FACTS OF THE CASE. THE LD.COUNSEL FOR THE ASSESSEE THEREFORE CONTEND ED THAT IT HAD BEEN CLEARLY DEMONSTRATED TO THE LD. PR.CIT THA T THERE WAS NO ERROR SO AS TO CAUSE PREJUDICE TO THE REVENU E IN THE ORDER OF THE AO. ITA NO.121/ASR/2020 A.Y.2015-16 53 65. THE LD. DR ON THE OTHER HAND RELIED UPON THE FINDINGS OF THE LD. PR.CIT AT PARA 8.2 OF HER ORDER AS UNDER : 8.2 THE PERUSAL OF THE DETAILS FILED BY THE ASSESS EE SHOW THAT IT HAS SHOWN INVESTMENT IN SHARES OF NEEMAN MEDIAL INTERNATIONAL BV (NEEMAN BV)- A NETHERLAND BASED WHOLLY OWNED SUBSIDIARY OF MAX INDIA LTD. AS UNDER YEAR OF ACQUISITION NUMBER OF SHARES COST OF ACQUISITION FACE VALUE SALE PRICE PER SHARE DURING THE YEAR SALE PRICE 1-12-2005 36 7 21 290 500 EUROS 878.64 33 388 31-08-2006 2 33 27 46 972 500 EUROS 31-03-2014 2323 7 23 24 900 500 EUROS 878.64 20 41 087 2361 THE ABOVE TABLE SHOWS THE ADJUSTMENTS MADE BY THE A SSESSES TO BOOK BOTH SHORT TERM AND LONG TERM CAPITAL LOSS IN ITS BOOKS. THE AO HAS FAILED TO EXAMINE FROM WHOM 2323 SHARES WITH FACE VALUE OF 500 EUROS WERE PURCHASED ON LAST DAY OF THE PRECEDING YEAR PREVIOUS YEAR FOR RS.7 23 24 900/- A ND WERE THEN SOLD FOR RS.20.41.087/- ON THE BASIS OF VALUEA TION ON THE SAME DAY. FURTHER AS PER THE BALANCE SHEET FOR FINA NCIAL YEAR 2013-14 THE ASSESSEE MADE PROVISION FOR DIMINUTION IN THE VALUE OF THE SHARES PURCHASED OF ITS SUBSIDIARY FOR RS.7 23 24 900/- ON THE SAME DAY THUS SHOWING THAT THE TRANSACTION HAD BEEN ENTERED INTO JUST FOR THE PURP OSE OF DEFRAUDING THE REVENUE AND FOR ADJUSTMENT OF CAPITA L LOSS AGAINST CAPITAL GAINS. IT'S ALSO SURPRISING HOW WER E TWO SHARES OF NEEMAN PURCHASED FOR 33 CRORES DURING 20 06. THE ASSESSING OFFICER HAS FAILED TO VERIFY THE AUTHENTI CITY OF THIS TRANSACTION BY CALLING FOR VALUATION SUBMITTED TO T HE RBI ON THE BASIS OF WHICH FOREIGN REMITTANCE WAS MADE FOR TRANSFER OF FUND ABROAD THE ASSESSING OFFICER HAS ALSO FAILED T O EXAMINE THE AUTHENTICITY OF PURCHASE OF 2323 SHARES ON 31-03-2014 FOR RS. 7 23 34 900/- WHICH HAVE BEEN SOLD FOR RS.20 41 087/- AFTER A VERY SHORT PERIOD. IT IS OF IMPORTANCE THA T THE SHARES ARE UNQUOTED SHARES AND THE BASIS OF VALUATION OF U NQUOTED SHARE AS PER RULE 11U IS TO BE ON THE BASIS OF FMV COMPUTED ON THE BASIS OF VALUE ON THE VALUATION DATE AS DETE RMINED IN THE FOLLOWING MANNER (A-L)/(PE) X (PV). RULE 11U D EFINES VALUATION DATE AS THE DATE ON WHICH THE PROPERTY O R THE CONSIDERATION AS THE CASE MAY BE IS RECEIVED BY T HE ASSESSEE. IT ALSO DEFINES BALANCE SHEET AS THE AUD ITED BALANCE SHEET ON THE VALUATION DATE. THE INCOME TAX RULES ITA NO.121/ASR/2020 A.Y.2015-16 54 1962 DOES NOT PROVIDES FOR METHOD OF VALUATION IN T HE ASSESSEE WHERE THE AUDITED BALANCE SHEET IS NOT AVA ILABLE ON THE VALUATION DATE. IN SUCH CASES THE LAST AUDIT ED BALANCE SHEET IS TO FORM THE BASIS OF VALUATION. THUS IN T HE INSTANT CASE THE LAST AUDITED BALANCE SHEETS FOR PURCHASE AND SALE OF SHARES WOULD BE SAME I.E. 31-03-2014. NO EVIDENC E HAS BEEN FILED BY THE ASSESSEE TO SHOW THAT VALUATION O F THE SHARES OF NEEMAN MEDICAL INTERNATIONAL BV (NEEMAN B V) WAS DONE ON THE BASIS OF ANY OTHER DATE BY DRAWING UP AND AUDITING THE BALANCE SHEET ON THAT DATE. THE VIEW THAT THE VALUATION NEEDS TO BE DONE ON THE DATE PRESCRIBED BY THE RELEVANT PROVISIONS IS UPHELD BY THE HON'BLE MADRAS HIGH COURT IN THE CASE OF CWT VS S RAM 147 ITR 278. ONE OTHER QUESTION WHICH ARISES IN A FEW OF THE GIF T-TAX REFERENCES IS THIS GROUP RELATES TO THE CHOICE OF T HE BALANCE SHEET WHICH HAS GOT TO BE TAKEN AS THE BASIS FOR CO MPUTATION OF THE COMPANYS NET WEALTH AS A FIRST STEP IN ARRI VING AT THE VALUE OF UNQUOTED SHARES. WE MAY VISUALIZE THE GIFT OF UNQUOTED SHARES AS HAVING OCCURRED ON THE DATE OF T HE COMPANYS BALANCE SHEET. IN SUCH A CASE NO PROBLEM IS PRESENTED BECAUSE THE BALANCE SHEET FIGURES OF ASSE TS AND LIABILITIES CAN BE TAKEN AS THEY ARE FOR THE PURPO SE OF COMPUTING THE BREAK-UP VALUE OF THE COMPANYS ASSET S AS ON THE DATE OF THE GIFT. WHERE HOWEVER A GIFT OF UNQU OTED SHARES TAKES PLACE IN BETWEEN THE DATES OF TWO BALA NCE SHEET THE QUESTION IS WHICH IS THE BALANCE SHEET WH ICH HAS GOT TO BE ADOPTED AS THE BASIS? THE TAXPAYERS VIE W HAS BEEN THAT ONLY THE LAST PUBLISHED BALANCE SHEET WHI CH PRECEDES THE DATE OF THE GIFT MUST BE TAKEN NOTE OF . THIS IS A DOGMATIC ASSERTION FOR WHICH WE FIND NO SUPPORT IN PRINCIPLE. ON THE CONTRARY THERE ARE DECISIONS OF THIS COURT WHICH SAY THAT THE TRUE RULE WOULD BE TO TAKE INTO CONSIDERAT ION NOT ONLY THE BALANCE SHEET IMMEDIATELY AFTER THE GIFT A ND FIND OUT ON SOME PRINCIPLE WHICH WOULD BE APPROPRIATE THE VALUE OF THE ASSETS AND THE VALUE OF THE LIABILITIES OF T HE COMPANY AS ON THE DATE OF THE GIFT. A SIMILAR PROBLEM HAD A RISEN BEFORE THIS COURT ON SEVERAL OCCASIONS. IN ONE OF T HE JUDGMENT ON THE SUBJECTS IN T.C.NO.863 OF 1977 DATED DECEMB ER 9 1981 CGT V. K. RAMESH (1983) 141 ITR 462 (MAD) TH IS COURT PREFERRED TO ADOPT THE FIGURE IN A BALANCE SH EET WHICH WERE DRAWN UP TWO OR THREE DAYS SUBSEQUENT TO THE D ATE OF THE GIFT. IT MAY BE EXPLAINED THAT THIS DECISION WA S RENDERED BY THIS COURT NOT AS A MATTER OF PRINCIPLE BUT BY WAY OF AVOIDING AS REMITTAL ORDER OR TWO SEPARATED THE DAT E OF THE GIFT FROM THE DATE OF THE BALANCE SHEET IT WOULD B E AN UNNECESSARY EXERCISE OF ONES LABOUR NOT TO TAKE NO TE OF THE NEAREST BALANCE SHEET BUT TO GO UPON SOME OTHER LAB ORED VALUATION OF THE COMPANYS ASSETS INVOLVING EFFORT AND TIME. ITA NO.121/ASR/2020 A.Y.2015-16 55 IN ALL THESE CASES OF VALUATION OF UNQUOTED SHARES HOWEVER THE TRUE PRINCIPLE IS THAT IF IT WERE POSSIBLE TO D RAW UP A PRECISE BALANCE SHEET AS ON THE DATE OF THE GIFT T HAT WOULD AFFORD QUITE AN ACCURATE BASIS AND AN IDEAL SOLUTIO N. BUT SINCE THE VALUATION QUESTION ARISES ONLY IN A SHARE HOLDERS ASSESSMENT NEITHER THE SHAREHOLDER NOR THE DEPARTM ENT CAN EXPECT THE STAFF AND ACCOUNTANTS OF THE COMPANY TO OBLIGE THEM BY METICULOUSLY DRAWING UP A BALANCE SHEET AS ON THE DATE OF THE GIFT EVEN ASSUMING THAT THE DRAWING UP OF A BALANCE SHEET ON THAT DATE WOULD BE FEASIBLE OR IS CAPABLE OF BEING DONE IN A CORRECT MANNER AFTER A PASSAGE OF T IME. IN THE ABSENCE OF THE FACILITY OF DRAWING UP A BALANCE SHEET PRECISELY ON THE DATE OF THE GIFT THE NEXT BEST TH ING BOTH FOR THE ASSESSEE WHO IS THE HOLDER OF THE UNQUOTED SHAR ES AND THE DEPARTMENT WHICH IS CHARGED WITH THE DUTY OF EV ALUATING THE MARKET VALUE OF THE SHARES NOT TO SPEAK OF THE COMPANY ITSELF IS TO TAKE TO THE BALANCE SHEET FALLING BOT H BEFORE AND AFTER THE DATE OF THE GIFT AND ARRIVE AS NEAR AS MA Y BE AT THE BREAK-UP VALUE OF THE ASSETS AND LIABILITIES OF THE COMMISSIONER AS ON THE DATE OF THE GIFT ON A TIME B ASIS OR ON SOME OTHER BASIS. THE TRIBUNAL IN THIS CASE AND HELD THAT ONLY THE EARLIER PUBLISHED BALANCE SHEET MUST BE TA KEN NOTE OF. THIS IS NOT A CORRECT DIRECTION IN LAW OF HOW T O PROCEED. WE CANNOT BE DOGMATIC ABOUT TAKING AS THE BASIS EI THER THE BALANCE SHEET WHICH FALLS BEFORE OR THE BALANCE SHE ET WHICH FALLS AFTER THE DATE OF THE GIFT. WE HAVE TO TAKE I NTO ACCOUNT BOTH. OUR ANSWERS TO THE QUESTIONS ON THIS POINT RA ISED IN SOME OF THE GIFT-TAX CASES ARE RENDERED ACCORDINGLY . WE MAY ALSO POINT OUT THAT THE DECISION IN CWT V. S . RAM (1984) 147 ITR 278 FORMED THE SUBJECT MATTER OF SPE CIAL LEAVE PETITIONS IN S.L.P. NOS.14051 TO 14287OF 19 89 AND 1116 OF 1986 AND THE SUPREME COURT ALSO UPHELD THE VIEW TAKEN BY THIS COURT IN CWT V. S. RAM (1984) 147 ITR 278 AND DISMISSED THE SPECIAL LEAVE PETITIONS ON JANUAR Y 22 1990 (VIDE[1990] 181 ITR (ST.)227) IN THE CASE UNDER CONSIDERATION THE CLOSEST BALANC E SHEET WHICH ALSO INCORPORATES THE RELEVANT TRANSACTIONS IS THE BALANCE SHEET FOR THE PERIOD ENDING 31-03-2014 THAT IS THE ONLY RELEVANT BALANCE SHEET FOR THE PURPOSE OF RULE 11U/11UA. THU S THE VALUE OF SHARES HAS TO BE THE SAME FOR SHORT TERM CAPITAL GAIN AND THE AO ALSO NEEDS TO EXAMINE THE VALUATION OF SHARES ON BASIS OF WHICH LONG TERM CAPITAL LOSS HAS BEEN COMPUTED. THE AO HAS FAILED TO EXAMINE THESE ISSUES DURING THE COURSE OF ASSESSMENT. ITA NO.121/ASR/2020 A.Y.2015-16 56 FURTHER AS PER THE SALE DEED THE ASSESSEE HAS CERT IFIED ON OATH THAT THE ISSUED CAPITAL WAS DIVIDED INTO 38 SHARES BUT THE ASSESSEE IN ITS BOOKS HAS SHOWN PURCHASE OF 36 SHAR ES IN 2005 AD 2 SHARES IN 2006. THE ASSESSEE HAS BEEN THE 100% HOLDING COMPANY OF THE UNIT M/S NEEMAN MEDIAL INTERNATIONAL BV. THE ASSESSEE HAS CLAIMED THAT PROVISIONS OF SECTIO N 56(2)(VIIA) OF THE ACT ARE APPLICABLE ON THE PURCHASER/RECIPIENT O F THE SHARES WHERE THE PURCHASE PRICE OF SHARES IS LESS THAN BOO K NET ASSET VALUE (BOOK NAV) OF THE SHARES OF THE COMPANY. IN THE INSTANT CASE THE ASSESSEE COMPANY IS NOT THE RECIPIENT OR PURCHASER OF SHARES BUT THE TRANSFEROR HENCE PROV ISIONS OF SECTION 56(2)(VIIA) ARE NOT APPLICABLE ON THE ASSES SEE COMMISSIONER WITH RESPECT TO BOTH OF THE AFOREMENTI ONED SUBJECT SALE TRANSACTIONS . HOWEVER THE ASSESSEE HAS FAILED TO CONSIDER THAT THE ASSESSEE HAS ALSO PURCHASED 2323 SHARES OF M/S NEEMAN MEDICAL INTERNATIONAL BV (NEEMAN BV) ON 31-03- 2014. THE AO HAS ALSO FAILED TO EXAMINE AS T HOW TWO SHAR ES OF THE COMPANY WITH FACE VALUE OF 500 EUROS WERE PURCHASED FOR RS.33 27 46 972/-. AS PER THE SALE AGREEMENT FILED BY THE ASSESSEE THE SHARES WERE PURCHASED IN TWO LOTS IE 3 8 SHARES ON 31-08-2006 AND 2323 SHARES ON 31-03-2014 AND NOT TH REE LOTS SHOWN BY THE ASSESSEE. FURTHER AS PER THE SALE AGR EEMENT THE ITA NO.121/ASR/2020 A.Y.2015-16 57 ISSUED CAPITAL WAS INCREASED TO 38 SHARES BY NOTARI AL DEED ON 19 TH OCTOBER 2006 AND THUS THE ASSESSEE COULD NOT HAVE PURCHASED 38 SHARES ON 31-08-2006 AS SHOWN BY THE A SSESSEE. THE AO HAS ALSO SIMILARLY FAILED TO EXAMINE THE BAS IS OF DETERMINATION OF LONG TERM AND SHORT TERM CAPITAL L OSS. THE ORDER OF THE AO IS THUS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. 66. REFERRING TO THE SAME SHE CONTENDED THAT THE LD . PR.CIT HAD POINTED OUT SEVERAL DISCREPANCIES FROM T HE DETAILS OF THE PURCHASE AND SALE OF THE IMPUGNED SH ARES OF NEEMAN BV. REFERRING TO THE SAME SHE CONTENDED THA T AS PER THE DETAILS FILED BY THE ASSESSEE IT HAD PURCHA SED 2323 SHARES WITH FACE VALUE OF 500 EUROS ON THE LAST DAY OF PRECEDING YEAR FOR RS.7 23 24 900/- AND IMMEDIATELY THEREAFTER SOLD THEM OFF FOR RS.20 41 087/-. THAT T HE ASSESSEE HAD ALSO PROVIDED FOR DIMINUTION IN THE VA LUE OF THE SHARES SO PURCHASED ON THE SAME DAY. THESE WERE VER Y UNUSUAL TRANSACTIONS SINCE IT WAS NOT POSSIBLE FOR THE SHARES PURCHASED FOR SUCH HIGH VALUE TO HAVE DIMINI SHED THEIR VALUE THE SAME DAY ITSELF AND SOLD OFF FOR VE RY SMALL CONSIDERATION WITHIN A SPAN OF FEW DAYS ITSELF AND THE MATTER THEREFORE NEEDED FURTHER ENQUIRY. SHE ALSO REFERRED TO THE FINDINGS OF THE LD. PR.CIT AS TO HOW TWO SHA RES OF NEEMAN BV WERE PURCHASED FOR RS.33 CRORES DURING 20 06. SHE ALSO REFERRED TO THE ANOMALY OBSERVED BY THE LD .PR.CIT IN THE SHARE SALE AGREEMENT WHEREIN IT WAS STATED T HAT SHARES WERE PURCHASED IN TWO LOTS WHILE THE DETAILS REFLECTED ITA NO.121/ASR/2020 A.Y.2015-16 58 PURCHASE IN THREE LOTS. ALSO THAT 38 SHARES WERE AP PARENTLY ISSUED EVEN WHEN THE COMPANY WAS NOT AUTHORIZED TO DO SO SINCE ITS CAPITAL WAS INCREASED AFTER THE SHARES W ERE ISSUED. SHE THEREFORE CONTENDED THAT CONSIDERING THE AFORES AID DISCREPANCIES NOTED IN THE IMPUGNED TRANSACTION TH E NON EXAMINATION OF THE SAME BY THE AO WAS RIGHTLY HELD BY THE LD.PR.CIT TO RENDER THE ORDER OF THE AO ERRONEOUS S O AS TO CAUSE PREJUDICE TO THE REVENUE. 67. WE HAVE HEARD BOTH THE PARTIES. WE HAVE ALSO CA REFULLY GONE THROUGH THE ORDER OF THE LD. PR.CIT AND WE FIN D MERIT IN THE SAME. THE LD. PR.CIT WE HAVE NOTED HAS POI NTED OUT GRAVE ANOMALIES IN THE IMPUGNED TRANSACTION OF PURC HASE AND SALE OF SHARES OF M/S NEEMAN BV LTD ON ACCOUNT OF WHICH THE ASSESSEE HAD RETURNED BOTH LONG TERM AND SHORT TERM CAPITAL GAINS WARRANTING FURTHER INVESTIGATIO N OF THE SAME . 68. ADMITTEDLY THE SAID COMPANY WAS FULLY OWNED BY THE ASSESSEE COMPANY. THE LD.PR.CIT HAS POINTED OUT VO LATILE FLUCTUATIONS IN THE VALUE OF THESE SHARES PURCHASED IN THREE LOTS OF 36 2 AND 2323 ON 01.12.2005 13.08.2006 AN D 31.03.2014 WITH THE PRICE RISING ALARMINGLY IN A S HORT SPAN OF 2 YEARS FROM RS.7 LACS ODD FOR 36 SHARES TO RS. 33 CRS FOR 2 SHARES ONLY AND THEN DROPPING AGAIN TO RS.7 CRS O DD FOR ITA NO.121/ASR/2020 A.Y.2015-16 59 2323 SHARES IN 2014.SHE HAS ALSO POINTED OUT THE SUDDEN DROP IN VALUE OF SHARES WHEN SOLD AS COMPARED TO IT S PURCHASE PRICE DESPITE THE TRANSACTIONS BEING EFFE CTED WITHIN A SHORT SPAN OF A YEAR. THE LD.PR.CIT HAS PO INTED OUT HOW 2323 NUMBER OF SHARES OF THE SAID COMPANY WHI CH WERE PURCHASED FOR A HIGH VALUE OF RS.7 CRORES ODD ON THE LAST DAY OF THE PRECEDING YEAR WERE SOLD OFF AT MUC H LESS VALUE OF RS.20 LACS ODD ALL WITHIN A MATTER OF A Y EAR. SHE HAS ALSO DRAWN ATTENTION TO THE FACT THAT WHILE THE SE SHARES WERE PURCHASED FOR RS.7 CRS ODD THEY WERE FOUND TO HAVE LOST THEIR VALUE IMMEDIATELY THEREAFTER AND WRITTEN OFF IN THE BOOKS ON ACCOUNT OF DIMINUTION IN THE VALUE OF SHAR ES BY THE ASSESSEE. IN FACT WE HAVE NOTICED FROM THE DET AILS SUBMITTED BY THE ASSESSEE AND REPRODUCED IN THE ORD ER OF THE LD.PR.CIT THAT THE ASSESSEE HAD FOUND THE VALU E OF THESE SHARES TO HAVE BEEN WIPED OFF ON ACCOUNT OF DIMINUTION IN VALUE AND WRITTEN THEM OFF BY MAKING PROVISION FOR THE SAME IN F.Y 2012-13 RELATING TO A .Y 2013- 14. THAT DESPITE SO FINDING THE SHARES TO BE OF NO VALUE THE SHARES OF THE VERY SAME COMPANY NUMBERING 2323 W ERE PURCHASED FURTHER IN THE NEXT F.Y. I.E 2013-14 FO R AN ASTRONOMICAL SUM OF RS.7 23 24 900/- WHICH IN TURN WERE AGAIN WRITTEN OFF IN THE SUBSEQUENT YEAR ON ACCOUN T OF DIMINUTION IN VALUE. ITA NO.121/ASR/2020 A.Y.2015-16 60 69. SUCH ALARMING FLUCTUATIONS IN THE VALUE OF THE SHARES SOME FLUCTUATIONS OCCURRING WITHIN A SHORT SPAN OF TIME CERTAINLY RAISE DOUBT REGARDING THEIR GENUINENESS MORE PARTICULARLY WHEN THE COMPANY IN WHICH THE INVESTME NTS WERE MADE WERE COMPLETELY OWNED BY THE ASSESSEE AND THEIR VALUE THUS CAPABLE OF BEING MANIPULATED. THE MATTER IN OUR VIEW DID REQUIRE TO BE INVESTIGATED FURTHER. THE S UBMISSIONS OF DOCUMENTS EVIDENCING THE GENUINENESS OF THE TRAN SACTION AS POINTED OUT BY THE LD.COUNSEL FOR THE ASSESSEE WE FIND ARE INSUFFICIENT FOR DISPELLING THE DOUBT ON THE GE NUINENESS OF THE TRANSACTION BY VIRTUE OF THE FACTS AS NOTED AND POINTED OUT BY THE LD. PR.CIT AS ABOVE. THE AO HAVI NG MADE NO ENQUIRY VIS--VIS THE SAME THE ORDER PASSED BY THE AO ACCEPTING THE LOSS RETURNED BY THE ASSESSEE ON SALE OF SHARES OF NEEMAN BV WE HOLD MAKES THE ORDER ERRON EOUS CAUSING PREJUDICE TO THE REVENUE. 70. IN VIEW OF THE ABOVE WE FIND MERIT IN THE FINDI NGS OF THE LD. PR.CIT OF THE ORDER BEING ERRONEOUS AND PREJUDI CIAL TO THE INTEREST OF THE REVENUE ON ACCOUNT OF NON EXAMI NATION OF THE SALE OF SHARES OF NEEMAN BV LTD. AND THE ORDER OF THE LD. PR.CIT HOLDING SO IS THEREFORE UPHELD. 71. THE ORDER OF THE LD.PR.CIT IN EXERCISE OF HER R EVISIONARY JURISDICTION IS ACCORDINGLY UPHELD ONLY ON THE LIM ITED ISSUE ITA NO.121/ASR/2020 A.Y.2015-16 61 RELATING TO NON EXAMINATION OF THE LOSS RETURNED O N THE SALE OF SHARES OF NEEMAN BV LTD . THE ORDER OF THE LD.PR .CIT RELATING TO THE REMAINING ISSUES IS ACCORDINGLY SET ASIDE FINDING THE EXERCISE OF REVISIONARY JURISDICTION ON THE SAME TO BE FAILING IN THE ABSENCE OF ANY FINDING OF ER ROR CAUSING PREJUDICE TO THE REVENUE ON THE SAME . 72. IN THE RESULT THE APPEAL OF THE ASSESSEE IS T HEREFORE PARTLY ALLOWED. ORDER PRONOUNCED ON 31.03.2021. SD/- SD/- (R.L. NEGI) (ANNAPURNA GUPTA) /JUDICIAL MEMBER /ACCOUNTANT MEMBER DATED: 31 ST MARCH 2021 * * # $%&'()* '! / COPY OF THE ORDER FORWARDED TO : 1. )(+ / THE APPELLANT 2. % + / THE RESPONDENT 3. ## - / CIT 4. ## - ( )( )/ THE CIT(A) 5. './%0 #)(#0' 123/4 / DR ITAT CHANDIGARH 6. /35 / GUARD FILE # $ / BY ORDER ( / ASSISTANT REGISTRAR ITA NO.121/ASR/2020 A.Y.2015-16 62 DRAFT DICTATED 09/10/12.03.2021 SR.PS DRAFT PLACED BEFORE AUTHOR 03 .20 2 1 SR.PS APPROVED DRAFT COMES TO THE SR.PS/PS 03.2021 SR.PS ORDER SIGNED AND PRONOUNCED ON FILE SENT TO THE BENCH CLERK SR.PS DATE ON WHICH FILE GOES TO THE AR DATE ON WHICH FILE GOES TO THE HEAD CLERK. DATE OF DISPATCH OF ORDER.