M/s. Acorus Unitech Wireless Pvt. Ltd., New Delhi v. DCIT, New Delhi

ITA 2989/DEL/2017 | 2009-2010
Pronouncement Date: 08-11-2019 | Result: Allowed

Appeal Details

RSA Number 298920114 RSA 2017
Assessee PAN AABCC4864E
Bench Delhi
Appeal Number ITA 2989/DEL/2017
Duration Of Justice 2 year(s) 5 month(s) 27 day(s)
Appellant M/s. Acorus Unitech Wireless Pvt. Ltd., New Delhi
Respondent DCIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 08-11-2019
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted A
Tribunal Order Date 08-11-2019
Assessment Year 2009-2010
Appeal Filed On 12-05-2017
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G NEW DELHI BEFORE SHRI AMIT SHUKLA JUDICIAL MEMBER AND SHRI DR. B.R.R. KUMAR ACCOUNTANT MEMBER I.T.A. NO.1953/DEL/2014 ASSESSMENT YEAR: 2009-10 M/S. SIMPSON UNITECH WIRELESS (P) LTD. BASEMENT-6 COMMUNITY CENTRE SAKET NEW DELHI.. VS. ITO WARD-8(4) NEW DELHI. TAN/PAN: AABCC4864E (APPELLANT) (RESPONDENT) ITA NO.101/DEL/2014 ASSESSMENT YEAR: 2009-10 M/S. CESTOS UNITECH WIRELESS (P) LTD. BASEMENT-6 COMMUNITY CENTRE SAKET NEW DELHI.. VS. ITO WARD-8(4) NEW DELHI. TAN/PAN: AADCC 4925C (APPELLANT) (RESPONDENT) ITA NO.2075/DEL/2017 ASSESSMENT YEAR: 2009-10 DCIT CIRCLE-1(2) NEW DELHI. VS. ACORUS WIRELESS UNITECH P. LTD. BASEMENT-6 COMMUNITY CENTRE SAKET NEW DELHI. TAN/PAN: AAHCA 3335Q (APPELLANT) (RESPONDENT) I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 2 ITA NO.2989/DEL/2017 ASSESSMENT YEAR: 2009-10 ACORUS WIRELESS UNITECH P. LTD. BASEMENT-6 COMMUNITY CENTRE SAKET NEW DELHI. VS. DCIT CIRCLE-1(1) NEW DELHI. TAN/PAN: AAHCA 3335Q (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SALIL AGRAWAL ADV. SHRI SHAILESH GUPTA RESPONDENT BY: SHRI S.S. RANA CIT-DR DATE OF HEARING: 28 08 2019 DATE OF PRONOUNCEMENT: 08 11 2019 O R D E R PER AMIT SHUKLA JM: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ABOVE NAMED APPELLANT-ASSESSEES AGAINST SEPARATE IMPUGNED ORDERS; DATED 24.02.2014 PASSED BY COMMISSIONER OF INCOME TAX (APPEALS)-XI NEW DELHI IN THE CASE OF M/S. SIM PSON UNITECH WIRELESS PVT. LTD.; ORDER DATED 01.03.2017 PASSED BY LD. CIT(A)-XXII IN THE CASE OF ACORUS WIRELESS UNIT ECH P. LTD.; CROSS APPEALS FILED BY THE ASSESSEE AS WELL AS BY T HE REVENUE IN THE CASE OF M/S. CESTOS UNITECH WIRELESS P. LTD. PASSED BY CIT(A)-VI VIDE ORDER DATED 29.11.2013 FOR THE ASSE SSMENT YEAR 2009-10. SINCE ISSUES INVOLVED IN ALL THE APPE ALS ARE COMMON ARISING OUT OF IDENTICAL SET OF FACTS THERE FORE SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY WA Y OF THIS CONSOLIDATED ORDER. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 3 2. AS A LEAD CASE WE ARE TAKING UP THE APPEAL OF M/S. SIMPSON UNITECH WIRELESS P. LTD. (ITA NO.1953/DEL/2 014) AND OUR FINDING GIVEN THEREIN WILL APPLY MUTATIS MUTANDIS FOR ALL THE APPEALS. IN VARIOUS GROUNDS OF APPEAL THE ASSESSEE HAS CHALLENGED THE ADDITION OF RS.548 55 00 000/- B Y HOLDING THAT ASSESSEE HAS RECEIVED BENEFIT U/S.28(IV). 3. THE FACTS IN BRIEF ARE THAT M/S. SIMPSON UNITECH WIRELESS P. LTD. WAS INCORPORATED ON 21.10.2008 AND HENCE THIS WAS THE FIRST YEAR OF OPERATION OF ASSESSEE-CO MPANY. THE ASSESSEE HAD DECLARED LOSS OF RS.21 456/- IN THE RE TURN OF INCOME FILED ON 06.10.2010. LD. ASSESSING OFFICER N OTED THAT THE NATURE OF BUSINESS ACTIVITY WAS AS UNDER: TO PROMOTE & ESTABLISH COMPANIES FUNDS ASSOCIATI ONS OR PARTNERSHIPS FOR PROVIDING TELECOM NETWORKS AND TO RUN AND MAINTAIN TELECOM SERVICES LIKE BASIC/FIXED LINE SER VICES CELLULAR/WIRELESS/MOBILE SERVICES AND AS SPV TO MAK E INVESTMENTS BY WAY OF LOANS OR SUBSCRIPTION TO EQUI TY SHARES OR OTHER SECURITIES IN TELECOM COMPANIES CARRYING ON A ND CATERING TO BUSINESSES AS ABOVE MORE PARTICULARLY IN UNITECH W IRELESS (NORTH) PRIVATE LIMITED UNITECH WIRELESS (SOUTH) P VT. LTD. UNITECH WIRELESS (KOLKATA) PVT. LTD. UNITECH WIRELESS (DEL HI) PVT. LTD. UNITECH WIRELESS (EAST) PVT. LTD. UNITECH WIRELESS (TAMIL NADU) PRIVATE LTD. UNITECH WIRELESS (MUMBAI) PVT. LTD. UNITECH WIRELESS (WEST) PVT. LTD. AS A PART OF SPECIAL PURPOSE VEHICLE ALONG WITH AC ORUS WIRELESS UNITECH P. LTD. AND M/S. CESTOS UNITECH WI RELESS P. LTD. THE ASSESSEE COMPANY INVESTED A SUM OF RS.34 58 62 500/- BY WAY OF INVESTMENT IN THE SHARE S OF EIGHT WHOLLY SUBSIDIARY COMPANIES OF M/S. UNITECH LTD. WH ICH WERE I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 4 INCORPORATED AS REAL ESTATE COMPANIES ON AUGUST/SEP TEMBER 2007 DETAILS OF WHICH ARE AS UNDER: ORIGINAL NAME OF COMPANY DATE OF INCORPORATION ADONIS PROJECTS PVT. LTD. 28.08.20 07 A SKA PROJECT LTD. 16.08.2007 AZARE PROPERTIES LTD. 01.08.2007 HUDSON PROPERTIES LTD. 01.08.2007 NAHAN PROPERTIES PVT. LTD. 16.08.2007 UNITECH BUILDERS AND ESTATES PVT. LTD. 10.08.2007 UNITECH INFRASTRUCTURE PVT. LTD. 10.08.2007 VOLGA PROPERTIES PVT. LTD. 01.09.2007 4. THE OBJECTS OF CLAUSE OF MOA OF THE ABOVE EIGHT COMPANIES WERE ALTERED TO INCORPORATE OBJECTS RELAT ING TO TELECOM BUSINESS. THESE EIGHT COMPANIES HAD APPLIED IN THE AUCTION FOR 2G LICENCES TO UNDERTAKE BUSINESS OF TELECOMMUNICATION OPERATIONS IN INDIA AND WERE COLL ECTIVELY CALLED AS UNITECH WIRELESS COMPANIES (UW COMPANIES) . LATER ON THE NAMES OF THE ABOVE COMPANIES WERE CHANGED W ITH FOLLOWING NAMES: NAME OF THE COMPANY ORIGINAL NAME OF COMPANY UNITECH WIRELESS (NORTH) P. LTD. A DONIS PROJECTS P. LTD. UNITECH WIRELESS (SOUTH) P. LTD. ASKA PROJECTS LTD. UNITECH WIRELESS (KOLKATA) P. LTD. AZARE PROPERTIES LTD. UNITECH WIRELESS (DELHI) P. LTD. HUDSON PROPERTIES LTD. UNITECH WIRELESS (EAST) P. LTD. NAHAN PROPERTIES PVT. LTD. UNIT ECH WIRELESS (TAMILNADU) P. LTD. UNITECH BUILDERS AND ESTATES P. LTD. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 5 UNITECH WIRELESS (MUMBAI) P. LTD. UNITECH INFRASTRUCTURE P. LTD. UNITECH WIRELESS (WEST) P. LTD. VOLGA PROPERTIES PVT. LTD. 5. THUS IN TERMS OF PROVISION TO SECTION 3 OF THE COMPANIES ACT 1956 THESE WHOLLY OWNED SUBSIDIARY COMPANIES WERE DEEMED TO BE A PUBLIC LIMITED COMPAN Y OF M/S. UNITECH WIRELESS PVT. LTD. WHICH WAS THE LISTE D PUBLIC LTD. COMPANY. SOMEWHERE IN JANUARY/FEBRUARY 2008 AL L UW COMPANIES APPLIED TO THE DEPARTMENT OF TELECOMMUNIC ATION (DOT) MINISTRY OF COMMUNICATION AND INFORMATION TECHNOLOGY GOVERNMENT OF INDIA FOR GRANT OF UNITED ACCESS SERVICES LICENSES (UASL). THE DOT ISSUED LETTER OF INTENT (LOI) STATING CERTAIN CONDITIONS ON JANUARY 10 200 8 AND POST COMPLIANCE OF WHICH UASL AGREEMENT WOULD BE ASSIGNE D. AFTER COMPLYING WITH THE CONDITIONS OF LOI ALL UW COMPANIES EXECUTED UASL AGREEMENT WITH DOT ON 28 AND 29 FEBRU ARY 2008 FOR DIFFERENT SERVICE AREAS. THUS THESE EIGHT COMPANIES GOT ALLOTTED SPECTRUM BY DOT UNDER UASL OF 2G LICEN SES. 6. CONSIDERING THE SCALE OF THE PROPOSED OPERATION OF THE TELECOM BUSINESS AND ALSO THE CAPITAL INTENS IVE NATURE OF THE SAID BUSINESS THESE TELECOM COMPANIE S PROPOSED INFUSION OF FRESH FUNDS THROUGH FRESH ISSU E OF SHARE CAPITAL. IN ORDER TO MEET SUBSEQUENT CAPIT AL REQUIREMENTS OF TELECOM OPERATIONS IN ACCORDANCE WITH THE GOVERNMENT POLICY I.E. A FOREIGN INVESTO R COULD HOLD UP TO 74% STAKE IN TELECOM COMPANIES OPERATION IN INDIA THESE COMPANIES INVITED FOREIGN I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 6 TELECOM COMPANIES. INTEREST WAS EXPRESSED BY THE TELENOR GROUP (ACTING THROUGH TELENOR ASIA PTE LTD SINGAPORE AND TELENOR MOBILE COMMUNICATIONS AS NORWAY) TO MAKE THE INVESTMENT IN THE FRESH EQUITY SHARES. HOWEVER TELENOR GROUP INSISTED THAT THE IN VESTMENT PROPOSED TO BE MADE WOULD BE MADE IN THE EQUITY OF ONE OR MORE COMPANIES WHERE THE SHARE TRANSFER RESTRICTION S ARE ENFORCEABLE BY LAW. (THIS CONCERN WAS HIGHLIGHTED I N VIEW OF THE PROVISIONS OF SECTION 3 OF THE COMPANIES ACT. 1 956 UNDER WHICH THE TELECOM COMPANIES WERE DEEMED TO BE PUBLI C LIMITED COMPANIES AND THEIR SHARES WERE FREELY TRAN SFERRABLE). IN ORDER TO MEET THE ABOVE CONCERN OF TELENOR GROUP THE PROMOTERS OF THE APPELLANT COMPANY I.E. UNITECH LT D. FLOATED THREE SPECIAL PURPOSE VEHICLE'S (SPVS) COMP ANIES WITH THE OBJECT OF ACQUIRING SHAREHOLDING OF ABOVE EIGHT TELECOM UW COMPANIES FROM THE AND CONSEQUENTLY CEASE TO BE DEEMED PUBLIC COMPANIES. THE DETAILS OF SAID THREE COMPANIES WHO ARE ASSESSEES BEFORE US ARE AS UNDER: SR. NO. NAME OF THE COMPANY DATE OF INCORPORATION INITIAL PAID-UP SHARE CAPITAL (IN RS.) 1 CESTOS UNITECH WIRELESS (P) LTD. 21.10.2008 1 00 000 2 SIMPSON UNITECH WIRELESS (P) LTD. 21.10.2008 1 00 000 3 ACORUS UNITECH WIRELESS P. LTD. 24.10.2008 1 00 000 I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 7 7. THEREAFTER A SHARE PURCHASE AGREEMENT WAS ENTER ED INTO WHEREBY 75% SHAREHOLDING IN THE EIGHT WIRELESS COMPANIES WAS TRANSFERRED TO SPVS (TELECOM COMPANIE S) AT FACE VALUE ON 25 TH OCTOBER 2008. THE DETAILS OF THE TRANSACTION OF ACQUISITION OF SHARES OF THE TELECOM COMPANIES BY THE SPV BY M/S. UNITECH LTD. WERE AS UNDER: S. NO. NAME OF THE TELECOM COMPANY NUMBER OF EQUITY SHARES OF 8 TELECOM COMPANIES OF RS.10 EACH CESTOS UNITECH SIMPSON UNITECH ACORUS UNITECH 1. UNITECH WIRELESS (NORTH) PVT. LTD. 44 20 000 65 00 000 85 80 000 2. UNITECH W IRELESS (SOUTH) PVT. LTD. 42 50 000 62 50 000 82 50 000 3. UNITECH WIRELESS (KOLKATA) PVT. LTD. 17 00 000 25 00 000 33 00 000 4. UNITECH WIRELESS (DELHI) PVT. LTD. 17 00 000 25 00 000 33 00 000 5. UNITECH WIRELESS (EAST) PVT. LTD. 37 40 000 55 00 000 72 60 000 6. UNITECH WIRELESS (TAMIL NADU) PVT. LTD. 17 00 000 25 00 000 33.00.000 7. UNITECH WIRELESS (MUMBAI) PVT. LTD. 17 00 000 25 00 000 33 00 000 8. UNITECH WIRELESS (WEST) PVT. LTD. 42 50 000 62 50 000 82 50 000 8. ON 30.01.2009 THE SAID SPVS RAISED A SECURED LO AN IN THE FORM OF COMPULSORY CONVERTIBLE DEBENTURES (CCD) FROM A SUBSIDIARY OF UNITECH LTD. AND IN TERMS OF THE CCD I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 8 AGREEMENT IT WAS AGREED THAT THE LENDER WOULD HAVE THE OPTION TO CALL UPON THE SPVS TO ISSUE FRESH SHARE C APITAL TO CONVERT THE AMOUNT REPRESENTING THE DEBENTURES INT O EQUITY SHARE CAPITAL. ON 28 TH OCTOBER 2008 THE ASSESSEE ENTERED INTO A SUBSCRIPTION AGREEMENT WITH TELENOR GROUP FO R ACQUISITION OF 60% STAKE IN UW COMPANIES. LATER ON THE SUBSCRIPTION AGREEMENT WAS MODIFIED BY ANOTHER AGRE EMENT DATED 16 TH MARCH 2009 WHEREBY THE TELECOM COMPANIES MADE FRESH ALLOTMENT OF SHARES HAVING FACE VALUE OF RS.1 0/- TO TELENOR GROUP AT A PREMIUM OF RS.169.73 PER SHARE R ESULTING IN EQUITY SHAREHOLDING OF TELENOR GROUP AT RS.67.25 % IN SUCH TELECOM COMPANIES. THE DETAILS OF SHARE ALLOTTED BY THE TELECOM COMPANIES TO THE TELENOR GROUP FOR THE SAKE OF READY REFERENCE ARE TABULATED AS UNDER: NAME OF THE TELECOM COMPANIES NO. OF SHARES ALLOTTED ALLOTMENT PRICE FACE VALUE PREMIUM TOTAL PRICE UNITECH WIRELESS (NORTH) PVT. LTD. 1 31 03 306 179.7312 10 169.7312 235 50 72 912 UNITECH WIRELESS (SOUTH) PVT. LTD. 1 25 99 333 179.7312 10 169.7312 226.44.93.240 UNITECH WIRELESS (KOLKATA) PVT. LTD. 50 39 733 179.7312 10 169.7312 90.57.97.260 UNITECH WIRELESS (DELHI) PVT. LTD. 50 39 733 179.7312 10 169.7312 90.57.97.260 199.27.54.044 UNITECH WIRELESS (EAST) PVT. LTD. 1 10.87.413 179.7312 10 169.7312 UNITECH WIRELESS (TAMIL NADU) PVT. LTD. 50 39 733 179.7312 10 169.7312 90 57 97 260 UNITECH WIRELESS (MUMBAI) PVT. LTD. 50 39 733 179.7312 10 169.7312 90 57 97 260 UNITECH WIRELESS (WEST) PVT. LTD. 1 25 99 333 179.7312 10 169.7312 226 44.93 240 I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 9 9. SUBSEQUENTLY TELENOR ASIA PTE LTD. SUBSCRIBED T O FRESH EQUITY SHARES OF 8 UW COMPANIES IN FOUR TRENCHES ST ARTING FROM 20.03.2009 TO 10.2.2010 AT A PRICE OF RS.179.7 3 PER SHARE. IT WAS THUS STATED THAT THE PURPOSE OF SAID TRANSACTION TO ACQUIRE INVESTMENTS FROM M/S. UNITECH LTD. WAS T O FACILITATE INVESTMENT BY TELENOR ASIA PTE LTD. IN 8 WIRELESS COMPANIES WITHOUT TRANSFERRING THE ECONOMIC INTERES T IN M/S. UNITECH LTD. 10. LD. ASSESSING OFFICER OBSERVED THAT INVESTM ENT MADE BY THE ASSESSEE IN THE SHARES OF 8 UW COMPANIES AND TR ANSFER OF STAKE OF THREE OF ITS GROUP COMPANIES WHICH WAS INC ORPORATED AND FLOATED FOR THE SPECIFIC PURPOSE OF ALLOTTING T HE SHARES OF M/S. TELENOR ASIA PVT. LTD. AND THE EIGHT TELECOM C OMPANIES ENTERING INTO AN AGREEMENT WITH M/S. TELENOR ASIA P . LTD. SINGAPORE FOR RAISING EQUITY BY CHARGING A PREMIUM OF RS.159/- PER SHARE HAPPENED ALMOST SIMULTANEOUSLY. HE CONCLUDED THAT ASSESSEE COMPANY HAD MADE A HUGE GAI N BY ACQUIRING THE SHAREHOLDING IN THE COMPANIES AT FACE VALUE AT RS.10 WHICH OTHERWISE ACQUIRED BY THE TELENOR AT RS .169/-. THUS THERE WAS A HUGE GAIN OF 159 PER SHARE WHICH HAS BEEN TAXED U/S. 28(IV). HE HELD THAT ASSESSEE COMPANY WA S INCORPORATED WITH THE OBJECTIVE OF PERMEATING AND E STABLISHED COMPANIES IN THE TELECOM SECTOR AND TO ACT ALSO AS A SPV TO MAKE INVESTMENT IN THE TELECOM COMPANIES OF ITS OWN GROUP THEREFORE IT COULD BE HELD THAT PURCHASING EQUITY SHARES OF TELECOM COMPANIES FROM M/S. UNITECH LTD. ASSESSEE H AD I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 10 STARTED ITS DESIGNATED BUSINESS ACTIVITY. THE TRANS ACTION INVOLVING SALE/PURCHASE OF SHARE BETWEEN ASSESSEE A ND M/S. UNITECH LTD. INVOLVING SHARES OF A TELECOM COMPANIE S IS A BUSINESS TRANSACTION BECAUSE THE BUSINESS OF THE AS SESSEE WAS TO MAKE INVESTMENT IN TELECOM BUSINESS. HE ALSO OBSERVED THAT BOTH TRANSACTIONS BETWEEN THE TELECOM COMPANIES AND M/S. TELENOR HAPPEN SIMULTANEOUSLY AN D THEY WERE MARKED SIMILARITIES BETWEEN THE TWO TRANSACTIO NS. HE ALSO TOOK NOTE OF THE FOLLOWING FACTS FROM TWO TRAN SACTIONS: WHILE ASSESSEE GOT THE SHARES FROM M/S UNITECH LIMITE D M/S TELENOR PURCHASED THE SHARES FROM THE TELECOM COMPANI ES DIRECTLY. SHARES WERE PURCHASED BY THE ASSESSEE FROM M/S UNITEC H LIMITED AT A PRICE OF RS.10/- PER SHARE I.E. FACE V ALUE HOWEVER SHARES WERE OFFERED BY THE TELECOM COMPANIE S TO TELENOR SINGAPORE AT A PREMIUM OF RS.159/- IN ADDITI ON TO THE FACE VALUE OF RS.10/-. ACTUAL MARKET VALUE OF SUCH SHARES AS APPARENT FROM THE RATE AT WHICH EQUITY WAS RAISED FROM TELENOR COMPRISING FAC E VALUE OF RS.10/- PLUS SHARE PREMIUM OF RS.159/- PER SHARE. S UCH TRANSACTION IS THE TRUE INDICATOR OF THE MARKET VALUE OF THE SHARES OF THE EIGHT TELECOM COMPANIES. THEREAFTER ASSESSING OFFICER HELD THAT ASSESSEE MADE A KILLING BY GETTING A CHANCE TO PURCHASE SHARE OF TELECOM COMPANY AT JUST A FACE VALUE EVEN WHEN OWING TO THE FACT THAT TELECOM COMP ANY HAD USAL MADE THEIR SHARES WERE WORTH MUCH MORE AND THE F ACT THAT SHARES COMMANDED THE PREMIUM IN THE MARKET AND ASSESSE E HAS SOLD SUCH SHARES BY M/S. UNITECH LTD. AT JUST FACE VALU E AND I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 11 BENEFIT IN THE SHAPE OF DIFFERENCE IN THE VALUE OF TW O PRICES INCLUDING PREMIUM PAID BY THE TELENOR AND THE COST PAI D BY THE ASSESSEE FOR ACQUISITION OF SHARES HAS ACCRUED TO THE ASSESSEE. IN THAT PROCESS OF ASSESSEE COMPANY STATED BUSINESS OF MA KING INVESTMENT IN TELECOM COMPANY OF ITS OWN GROUP AND THUS HE HELD THAT PROVISION OF SECTION 28(IV) IS SQUARELY APPLICABL E AND ACCORDINGLY HE PROCEEDED TO COMPUTED THE BENEFIT U/S.28 (IV) IN THE FOLLOWING MANNER: NAME OF THE COMPANY NO. OF SHARES AMOUNT OF PREMIUM PER SHARE (IN RS.) VALUE OF BENEFIT (IN RS.) UNITECH WIRELESS (TAMILNADU) (P) LTD. 25 00 000 159 39 75 00 000 UNI TECH WIRELESS (KOIKATA) (P) LTD. 25 00 000 159 39 75 00 000 UNITECH WIRELESS (MUMBAI) (P) LTD. 25 00 000 159 39 75 00 000 UNITCCH WIRELESS (DELHI) (P) LTD. 25 00 000 159 39 75 00 000 UNITECH WIRELESS (SOUTH) (P) LTD. 62 50 000 159 99 37 50 000 UNITECH WIRELESS (NORTH) (P) LTD. 65 00 000 159 103 35 00 000 UNITECH WIRELESS (WEST) (P) LTD. 62 50 000 159 99 37 50 000 UNITECH WIRELESS (EAST) (P) LTD. 55 00 000 159 87 45 00 000 TOTAL 548 55 00 000 AFTER REFERRING VARIOUS DECISIONS HE MADE THE ADDITION OF RS. 548 55 00 000/- UNDER SECTION 28(IV). 11. LD. CIT (A) TOO HAS CONFIRMED THE SAID REASONIN G AND FINDINGS OF THE ASSESSING OFFICER. HE OBSERVED THAT ALL THE CONDITIONS RELEVANT TO SECTION 28(IV) WERE CLEARLY SATISFIED. HIS OBSERVATION AND CONCLUSION IN THIS REGARD READS AS UNDER: I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 12 8.1.14 THE APPELLANT HAS ALSO SUBMITTED THAT THE S HARES ACQUIRED BY THE APPELLANT FROM M/S UNITECH LTD. IN TER ALIA WERE ENCUMBERED PROPERTY AS THEY HAD BEEN MORTGAGE D BY M/S UNITECH LTD WITH BANKS TO OBTAIN LOANS FROM SUC H COMPANIES. MOREOVER THE FUNDS REQUIRED TO PURCHASE THE SHARES WERE ALSO ARRANGED BY ISSUING DEBENTURES TO M/S UNITECH HOLDINGS LTD. A SUBSIDIARY OF M/S UNITECH LTD. THAT SHARES WERE PURCHASED FROM M/S UNITECH LTD AND CONT INUED TO BE HELD UNDER RESTRICTIVE CONDITIONS WITH NO ECONOM IC BENEFIT TO THE APPELLANT COMPANY AND THAT THE ENTIRE ECONOMIC BENEFIT RESTS WITH M/S UNITECH LTD. HOWEVER AS PER SCHEDUL E 6(3) I.E 'NOTES TO ACCOUNTS' FORMING PART OF THE AUDITED BAL ANCE SHEET OF THE APPELLANT COMPANY FOR THE RELEVANT ASSESSMENT Y EAR AND PARTICULARLY THE 'RELATED PARTY TRANSACTIONS' THE SHARES HAVE BEEN ACQUIRED BY THE APPELLANT COMPANY FROM M/S UNI TECH LIMITED FOR RS.34 50 00 000/- FOR WHICH THE APPELLA NT COMPANY ISSUED EQUIVALENT - 3 45 00 000 COMPULSORILY CONVER TIBLE DEBENTURES (CCDS) AT PAR CONVERTIBLE INTO FULLY PA ID EQUITY SHARES HAVING A FACE VALUE OF RS.10/- AMOUNTING TO RS.34 50 00 000/- TO M/S UNITECH HOLDING LTD. A RE LATED PARTY EVEN ALL THE 10 000 EQUITY SHARES OF THE APPELLANT COMPANY ARE HELD BY MR. RAMESH CHANDRA & MR. SANJAY CHANDRA I.E 5000 EACH WHO HAPPENED TO BE THE PROMOTERS AND MAJORITY SHAREHOLDERS IN M/S UNITECH LTD. (67.67%). SIMILARL Y M/S UNITECH HOLDING LTD IS ALSO A 100% OWNED SUBSIDIARY OF M/S UNITECH LTD. THEREFORE OWING TO THE FACT THAT M/S UNITECH LTD. A RELATED PARTY WITH COMMON MANAGEMENT HELD MAJORI TY STAKE IN THE TELECOM COMPANIES AND THEREFORE BEING IN TH E PRIVILEGED POSITION THE ASSESSEE COMPANY WAS SOLD SUCH SHARES BY M/S UNITECH LIMITED AT JUST THE FACE VALUE THE BENEFIT IS IN THE I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 13 SHAPE OF DIFFERENCE IN VALUE OF TWO PRICES I.E. THE PRICE BY THE ASSESSEE FOR ACQUISITION OF SHARES AND THE PRICE IN CLUDING PREMIUM BY M/S TELENOR SINGAPORE HAS ACCRUED TO T HE ASSESSEE IN THE PROCESS OF ASSESSEE COMPANY'S STATE D BUSINESS OF MAKING INVESTMENT IN TELECOM COMPANIES OF ITS OW N GROUP. THEREFORE THE CONTENTION OF THE APPELLANT THAT SUC H TRANSACTION IS NOT COVERED 'BY THE PROVISIONS OF SECTION 28(IV) OF THE ACT IS FOUND TO BE DEVOID OF ANY MERIT AS THE PROXIMITY B ETWEEN ASSESSEE AND M/S UNITECH LIMITED HAS THUS RESULTED IN ACCRUAL OF BENEFIT TO THE ASSESSEE AS THE ASSESSEE GOT CONT ROL OF EQUITY SHARES WHICH WERE WORTH RS.169/- IN THE MARKET FOR JUST RS.10/-. MOREOVER IT IS ALSO NECESSARY TO LIFT THE CORPORATE VEIL IN THIS CASE TO LOOK FOR THE REAL BENEFICIARIES OF SUCH BENEFIT. THE COBWEB OF SUCH TRANSACTIONS CLEARLY IS AN INDIC ATOR OF APPLICABILITY OF PROVISIONS OF SECTION 28(IV) IN TH IS CASE. 8.1.15 THEREFORE THE PLEA OF THE APPELLANT IS HERE BY REJECTED LEGALLY AND FACTUALLY TENABLE AND THE TRANSACTION I S HEREBY FOUND TO BE COVERED U/S 28(IV) OF THE I.T. ACT 1961 . IN FACT THE CASE LAWS CITED BY THE APPELLANT GO CONTRARY TO THE FACTS OF ITS CASE. 12. BEFORE US LD. COUNSEL FOR THE ASSESSEE AFTER DRAWING OUR ATTENTION TO THE FACTS AND BACKGROUND OF THE CA SE AND SEQUENCE OF EVENTS SUBMITTED THAT UNDER THE PRESENT FACTS AND THE NATURE OF TRANSACTION INVOLVED IT COULD NO T BE HELD THAT ANY BENEFIT HAS BEEN RECEIVED OR ACCRUED TO TH E ASSESSEE COMPANIES IN TERMS OF SECTION 28(IV). HE SUBMITTED THAT SHARES WERE PURCHASED BY THESE COMPANIES FROM UNITE CH LTD. AND CONTINUED TO BE HELD UNDER RESTRICTIVE CONDITIO NS WITH NO I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 14 ECONOMIC BENEFIT TO THE ASSESSEE BECAUSE THE ENTIR E ECONOMIC BENEFIT STILL RESTS WITH UNITECH LTD. IN ORDER TO C LARIFY THE NATURE OF TRANSACTION FROM THE MATERIAL ON RECORD HE HIGHLIGHTED THE FOLLOWING FACTS WITH THE EVIDENCE P LACED ON RECORD BEFORE US. SR. NO. PARTICULARS EVIDENCE 1. 4(E) THE SELLER AND THE PURCHASER SHALL HAVE AGREED TO OR ENTERED INTO AN ARRANGEMENT/AGREEMENT PURSUANT TO WHICH THE SELLER SHALL HAVE AN OPTION TO ACQUIRE EITHER DIRECTLY AND/OR THROUGH ITS SUBSIDIARIES THE DIRECT OR INDIRECT OWNERSHIP/ECONOMIC INTEREST IN THE SALE SHARES AT ANY TIME IN FUTURE. 2. CCD SUBSCRIPTION AGREEMENT BETWEEN UNITECH HOLDINGS LTD. AND CESTOS UNITECH HOLDINGS LIMITED AND CESTOS UNITECH WIRELESS PVT. LTD. DATED 30.01.2009 (PAGES 239 TO 274 OF THE PAPER BOOK-I) SCHEDULE 1 1.4) AT THE TIME OF CONVERSION OF CCDS. UNITECH SHALL AT ITS SOLE OPTION HAVE A RIGHT TO PURCHASE THE ENTIRE ISSUED AND PAID UP SHARE CAPITAL OF THE COMPANY FROM ITS EXISTING SHAREHOLDERS AT PAR VALUE. 3. ANNUAL REPORT OF UNITECH LIMITED FOR THE F.Y. 2008-09 (PAGES 14 TO 24 OF THE PAPER BOOK-I) IN JANUARY 2009 THE COMPANY TRANSFERRED 7% OF ITS STAKE IN UNITECH WIRELESS TO THREE ASSOCIATE COMPANIES NAMELY CESTOS UNITECH WIRELESS PVT. LTD. SIMPSON UNTIECH WIRELESS PVT. LTD. AND ACORUS UNITECH WIRELESS PVT. LTD.. TO FULFIL THE I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 15 CONDITIONS PRECEDENT FOR INVESTMENT UNDER THE SUBSCRIPTION AGREEMENT. HOWEVER THE COM PAN \ CONTINUES TO HOLD ECONOMIC INTEREST IN UNITECH WIRELESS THROUGH COMPULSORY CONVERTIBLE DEBENTURES AND OPTIONS IN THE THREE ASSOCIATE COMPANIES FURTHER IN ORDER TO SHOW THAT SALE OF SHARES OF AP PELLANT COMPANY AND SUBSCRIPTION OF SHARES OF TELECOM COMPA NIES BY TELENOR GROUP ARE NOT COMPARABLE; HE SUBMITTED A DE TAILED COMPARATIVE CHART WHICH IS REPRODUCED HEREUNDER: BASIS OF DIFFERENCE SHARES OF 8 UNITECH WIRELESS COMPANIES HELD BY CESTOS SIMPSON AND ACORUS SHARES OF 8 UNITECH WIRELESS COMPANIES HELD BY TELENOR DATE OF ACQUISITION SHARES WERE ACQUIRED ON 30.1.2009 IN ACCORDANCE WITH THE SHARE PURCHASE AGREEMENT SIGNED ON 25.10.2008. SHARES WERE ACQUIRED IN FOUR TRANCHES ON 20.3.2009; 19.5.2009; 7.1.2010 AND 10.2.2010 IN ACCORDANCE WITH THE ADDENDUM TO SHARES SUBSCRIPTION AGREEMENT SIGNED ON 16.3.2009. HENCE THERE WAS A SIGNIFICANT TIME- GAP BETWEEN ACQUISITION OF SHARES BY 3 COMPANIES AND SUBSCRIPTION OF I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 16 CONDITIONS IMPOSED ON SHARES SHARES ACQUIRED BY 3 COMPANIES WERE PLEDGED WITH THE LENDERS AT THE TIME OF ACQUISITION AND TILL 18.1.2010 FOR SECURING THE CREDIT FACILITY AVAILED BY 8 UNITECH WIRELESS COMPANIES. SHARES ISSUED TO TELENOR WERE FREE SHARES AND NOT PLEDGED WITH ANY LENDERS. MANAGEMENT CONTROL 3 COMPANIES DID NOT GET ANY MANAGEMENT CONTROL OF 8 UNITECH WIRELESS COMPANIES AGAINST THE SHARES ACQUIRED BY THEM TELENOR GOT MANAGEMENT CONTROL OF 8 UNITECH WIRELESS COMPANIES FROM VERY FIRST DAY OF INVESTMENT ON 20.3.2009. BENEFICIARY 3 COMPANIES HAVE NO RIGHT IN THE SHARES OF 8 UNITECH WIRELESS COMPANIES ACQUIRED BY THEM AND 100% ECONOMIC INTERESTS THEREIN IS HELD BY UNITECH THROUGH COMPULSORY CONVERTIBLE DEBENTURES AND PUT-CALL OPTION ON THE SHAREHOLDING OF 3 COMPANIES. TELENOR ITSELF IS HOLDING 100% ECONOMIC INTEREST IN THE SHARES SUBSCRIBED BY IT. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 17 TRANSFER RESTRICTION SHARES HELD BY 3 COMPANIES CANNOT BE TRANSFERRED TO ANY FOREIGN PARTY CONSIDERING FDI RESTRICTION IN THE TELECOM SECTOR. IN FACT SHARES HELD BY 3 COMPANIES CAN ONLY BE TRANSFERRED TO UNITECH AND THAT TOO ONLY AT PAR VALUE. THERE IS NO TRANSFER RESTRICTION ON THE SHARES SUBSCRIBED BY TELENOR. IN FACT. TELENOR IS FREE TO TRANSFER ITS SHAREHOLDING EVEN TO A FOREIGN PARTY. BUSINESS RISK AT THE TIME OF ACQUISITION OF SHARES BY 3 COMPANIES THERE WAS A SIGNIFICANT BUSINESS RISK OF NON- FULFILMENT OF ROLL-OUT OBLIGATIONS UNDER THE TELECOM LICENSES DUE TO FINANCIAL CRISIS WHICH COULD HAVE RESULTED IN IMPOSITION OF LIQUIDATED DAMAGES AND OTHER PENALTIES ENCASHMENT OF PERFORMANCE AND FINANCIAL BANK GUARANTEES OF RS.882 CRORES BY DOT AND EVEN CANCELLATION OF TELECOM LICENSES ISSUED TO 8 UNITECH WIRELESS COMPANIES. TELENOR WAS HAVING SUFFICIENT FUNDS AND EXPERTISE IN TELECOM SECTOR. SINCE TELENOR WAS HAVING MANAGEMENT CONTROL OF 8 UNITECH WIRELESS COMPANIES IT WAS CONTROLLING UTILIZATION OF SUBSCRIPTION AMOUNT RECEIVED BY 8 UNITECH WIRELESS COMPANIES. THERE WAS NO RISK ATTACHED TO THE SHARES HELD BY TELENOR. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 18 FURTHER PRIOR TO INVESTMENT BY TELENOR 8 UNITECH WIRELESS COMPANIES WERE NOT ABLE TO MAKE TIMELY PAYMENT OF INTEREST AND OTHER DUES TO THE LENDERS AND THERE WAS A SIGNIFICANT RISK OF TRANSFER OF THESE SHARES BY THE LENDERS IN THEIR OWN NAME BY ENFORCEMENT OF PLEDGE. SINCE THE SHARES HELD BY TELENOR WERE NOT PLEDGED WITH THE LENDERS THERE WAS NO RISK ON THE SHAREHOLDING OF TELENOR. BASIS OF DIFFERENCE SHARES OF 8 UNITECH WIRELESS COMPANIES HELD BY CESTOS SIMPSON AND ACORUS SHARES OF 8 UNITECH WIRELESS COMPANIES HELD BY TELENOR PURPOSE SHARES WERE ACQUIRED BY 3 COMPANIES TO COMPLY WITH PRE-CONDITION PRESCRIBED BY TELENOR FOR INVESTMENT IN 8 UNITECH WIRELESS COMPANIES (CONVERSION TO PRIVATE LIMITED COMPANIES FROM PUBLIC LIMITED COMPANIES) FAILING WHICH NO INVESTMENT WOULD HAVE RECEIVED FROM TELENOR AND THERE WAS A SIGNIFICANT BUSINESS RISK AS STATED ABOVE. THERE WAS NO BUSINESS RISK FOR TELENOR WHEN IT SUBSCRIBED THE SHARES OF 8 UNITECH WIRELESS COMPANIES. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 19 13. THUS HE POINTED OUT THAT THESE ARE TWO INDEPEN DENT TRANSACTIONS WITH DISTINCT OBJECTIVES. FIRST TRANSA CTION IS THE SALE OF 75% SHAREHOLDING IN 8 WIRELESS COMPANIES BY M/S. UNITECH LTD. TO THREE AFFILIATED COMPANIES @ RS.10 PER SHARES I.E. THE ASSESSEE-COMPANIES AND THE SECOND TRANSAC TION IS ALLOTMENT OF FRESH SHARES BY WIRELESS COMPANIES TO THE TELENOR @ 179.73 PER SHARES. HE SAID THAT EVEN THOUGH THE T WO TRANSACTIONS PERTAINED TO TRANSFER OF SHARES OF WIR ELESS COMPANIES BUT OTHERWISE DISTINCTIONS ARE QUITE APPA RENT WHICH COULD BE CLASSIFIED IN THE FOLLOWING MANNER: BASIS/ NATURE OF DIFFERENCE SALE OF SHARES BY M/S UNITECH LTD. OF 8 WIRELESS COMPANIES TO 3 AFFILIATE COMPANIES FRESH ISSUE/ ALLOTMENT SHARES BY 8 WIRELESS COMPANIES TO TELENOR PLEDGED SHARES YES NO FRESH ALLOTMENT BY 8 WIRELESS COMPANIES TO TELENOR. MANAGEMENT AND CONTROL (CONTROLLING STAKE) NO YES (67.25%) I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 20 PURPOSE SHARES WERE ACQUIRED BY 3 COMPANIES TO COMPLY WITH PRE- CONDITION PRESCRIBED BY TELENOR FOR INVESTMENT IN 8 UNITECH WIRELESS COMPANIES (CONVERSION TO PRIVATE LIMITED COMPANIES FROM PUBLIC LIMITED COMPANIES) FAILING WHICH NO INVESTMENT WOULD HAVE RECEIVED FROM TELENOR AND THERE WAS A SIGNIFICANT BUSINESS RISK AS STATED ABOVE. THERE WAS NO BUSINESS RISK FOR TELENOR WHEN IT SUBSCRIBED THE SHARES OF 8 UNITECH WIRELESS COMPANIES. DATES 30.10.2009 UNDER AGREEMENT DATED 25.10.2008 FRESH ALLOTMENT OF SHA RES BY 8 WIRELESS COMPANIES TO TELECOM COMPANIES IN 4 TRANCHES I.E. ON 20.03.2009 19.05.2009 07.01.2010 AND 10.02.2010 UNDER AN AGREEMENT DATED 28.10.2008 READ WITH ADDENDUM DATED 16.03.2009 AND SHAREHOLDERS AGREEMENT DATED WITHIN THE GROUP YES NO BEING AN OUTSIDER I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 21 14. THUS HE SUBMITTED THAT DESPITE THE ABOVE FAC TUAL POSITION BOTH ASSESSING OFFICER AND LD. CIT (A) HA VE ERRONEOUSLY HELD THAT ACTUAL CONSIDERATION SHOULD B E ADOPTED @169 PER SHARE AND THEREBY MAKING THE ADDITION U/S. 28(IV) ON PURCHASE OF SHARES BY 3 ASSESSEE COMPANIES OF 8 WIRELESS COMPANIES WHICH WERE HELD AS INVESTMENT OF THESE AF FILIATE COMPANIES AND INSTEAD OF ACTUAL CONSIDERATION PAID AT FACE VALUE WRONGLY MAKING ADDITION OF RS.159/- PER SHAR E IN THE HANDS ALL 3 ASSESSEE-COMPANIES ON NOTIONAL BASIS. H E FURTHER SUBMITTED THAT THE CONCLUSION DRAWN BY THE ASSESSIN G OFFICER AND LD. CIT (A) THAT THE ASSESSEE WAS CARRIED ON BU SINESS OF INVESTMENT IN THE TELECOM COMPANIES IS NOT CORRECT. HE SUBMITTED THAT PROVISION OF SECTION 28(IV) WILL NOT BE APPLICABLE ON THE FACTS OF THE CASE FOR THE FOLLOWI NG REASONS:- THE INVESTMENTS WERE MADE BY THE APPELLANT COMPANY WITH AN INTENTION TO INVEST IN TELECOM COMPANIES AS AN INVESTOR. IT DOES NOT AND CANNOT MEAN THAT THE ASS ESSEE IS CARRYING ON ANY BUSINESS EVEN AS A BUSINESS OF INVESTING IN COMPANIES. ANY GAIN ON INVESTMENT OR DISINVESTMENT MAY RESULT INTO INCOME AND IT IS ONL Y WHEN IT IS FOUND THAT SUCH INVESTMENT ARE BEING MA DE ON A REGULAR BASIS HAVING THE TRAITS OF BUSINESS IT COULD BE STATED THAT IT IS ENGAGED IN THE BUSINESS OR CAR RIES ON A BUSINESS. IT IS ONLY WHEN IT IS FOUND AND ESTABLI SHED THAT ASSESSEE IS MAKING INVESTMENTS NOT AS AN INVE STOR BUT IN THE COURSE OF BUSINESS AND IT HOLDS INVESTME NTS AS STOCK-IN-TRADE ONLY THEN IT CAN BE STATED THAT SUCH I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 22 AN ASSESSEE IS CARRYING ON ANY BUSINESS. THERE IS A CONCEPTUAL DIFFERENCE BETWEEN BUSINESS OF HOLDING O F INVESTMENTS AND CARRYING ON OF BUSINESS. THE PROFI TS AND GAINS MUST ARISE OR ACCRUE IN THE COURSE OF BUSINESS AND NOT IN THE BUSINESS OF HOLDING OF INVESTMENTS. MERE HAVING ACQUIRED THE SHARES AS AN INVESTMENT WHEN IT PURCHASED SHARES FROM A PUBLIC LIMITED COMPANY AT FACE VALUE IT CANNOT BE ALLEGED THAT THERE AROSE ANY BENEFIT OR PERQUISITE TO THE APPE1L ANT COMPANY. FURTHER MERE FACT THAT APPELLANT COMPANY HAD INCUR RED EXPENSES OF RS. 21 180/- TO FULFILL ITS STATUTORY OBLIGATIONS OUT OF WHICH RS. 16.484/- WAS DECLARED AS BUSINESS LOSS CANNOT ALSO BE REGARDED ANY BUSINESS TO SUGGEST THAT EITHER THERE WAS BUSINESS CARRIED ON B Y THE APPELLANT COMPANY OR THAT INVESTMENTS WERE MADE IN THE COURSE OF BUSINESS OF THE APPELLANT COMPANY. LASTLY HE SUBMITTED THAT SINCE APPELLANT IS HOLDI NG INVESTMENTS AND THERE IS NO BUSINESS AS SUCH THERE FORE THERE CANNOT BE ANY BENEFIT OR PERQUISITE IN THE CO URSE OF BUSINESS. 15. LD. COUNSEL ALSO PLACED RELIANCE UPON THE JUDGME NT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF ELSCOPE P VT. LTD. VS. CIT 313 ITR 293 WHEREIN IT HAS BEEN HELD THAT THE INCOME FROM CAPITAL ACCOUNT TRANSACTION WILL NOT BE HIT BY SECTION 28(IV). HE FURTHER SUBMITTED THAT INVESTMENT PURSUA NT TO I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 23 OBJECT IN MOA DOES NOT IPSO FACTO LEAD TO INFERENCE THAT THERE IS A BUSINESS ACTIVITY OTHERWISE. ALSO SECTION 28( IV) WILL NOT APPLY WHERE THE TRANSACTION HAS BEEN MADE IN CASH O R MONEY. HERE IN THIS CASE ASSESSEE HAS ACQUIRED THE SHARES OF PAYMENT OF MONEY. IN SUPPORT HE STRONGLY REFERRED AND RELIED UPON THE JUDGMENT OF HONBLE SUPREME COURT IN THE CA SE OF CIT VS. MAHINDRA & MAHINDRA LTD. REPORTED IN 404 IT R 1 (SC) AND FOLLOWING OTHER DECISIONS. I) CIT VS. JINDAL EQUIPMENTS LEASING & CONSULTANCY SERVICES LTD. REPORTED IN 325 ITR 87 (DEL.) AFFIR MED BY THE HONBLE SUPREME COURT IN 404 ITR 1 (SC) II) MAHINDRA AND MAHINDRA LTD. REPORTED IN 261 ITR 501 (BOM.) AFFIRED BY HONBLE SUPREME COURT IN 404 ITR 1 (SC) IIII) 324 ITR 154 (BOM) PRASHANT S. JOSHI VS. ITO IV) CIT VS. ASIAN HOTELS LTD. 323 ITR 490 (DEL) VI) RAVINDER SINGH AND ANOTHER VS. CIT 253 ITR 353 (DEL) V) UNITECH HOLDINGS LTD. VS. DCIT REPORTED IN 290 CTR 201 (HC) 16. FURTHER THE DECISION OF THE ASSESSING OFFICER AND CIT (A) IS CONTRARY TO THE DECISION OF HONBLE APEX COURT I N THE CASE OF EXCEL INDUSTRIES 358 ITR 259 AND MADE FOLLOWING SUBMISSIONS. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 24 I) IT IS SUBMITTED THAT THE THREE JUDGES BENCH OF THE HONBLE SUPREME COURT OF INDIA IN ITS RECENT JUDGMENT DELIVERED ON 08.10.2013 IN THE CASE OF CIT VS. EXCEL INDUSTRIES LTD. REPORTED IN 3 58 ITR 295 HAS HELD IN THE CONTEXT OF SECTION 28(IV) OF THE ACT TH AT ADVANCE LICENSE BENEFIT AND DEPB BENEFITS ARE NOT TAXABLE IN THE YEAR OF RECEIPT. IT HELD IN PARA 21 THAT THE BENEFITS REPRESENTS AT T HE BEST A HYPOTHETICAL INCOME WHICH MAY OR MAY NOT MATERIALIZ E AND ITS MONEY VALUE IS THEREFORE NOT THE INCOME OF THE ASSE SSEE. IN ARRIVING THE AFORESAID CONCLUSION THEIR LORDSHIPS RELIED ON THE FOLLOWING JUDGMENTS OF THE HONBLE SUPREME COURT: II) 46 ITR 144 (SC) CIT VS. SHOORJI VALLABHDAS AND COMP ANY III) 82 ITR 835 (SC) MORVI INDUSTRIES LTD. VS. CIT IV) 158 ITR 102 (SC) STATE BANK OF TRAVANCORE VS. CIT V) IN THE ABOVE JUDGMENT IT IS CLEARLY STATED THAT IN COME TAX CANNOT BE LEVIED ON HYPOTHETICAL INCOME. THE INCOME TAX IS A TAX ON REAL INCOME AND THERE CANNOT BE A TAX IF INCOME DOE S NOT RESULT AT ALL. IN THE SAID CASE THE COURT TOOK THE VIEW THAT THE PROBABILITY OR IMPROBABILITY OF REALIZATION HAS TO BE CONSIDERED I N A REALISTIC MANNER AND IT WAS HELD THAT THERE WAS NO REAL ACCRU AL OF INCOME. VI) IT IS SUBMITTED THAT IN THE INSTANT CASE ALL THAT HAD HAPPENED WAS THAT THE ASSESSEE HAD PURCHASED SHARES @ RS. 1 0/- PER SHARE OF EIGHT UNITECH WIRELESS COMPANIES TOR TELECOM COM PANIES) THAT IS AT THE SAME RATE AT WHICH THESE SHARES HAD BEEN ACQ UIRED BY M/S UNITECH LTD. THE AFORESAID SHARES AS PURCHASED BY THE ASSESSEE. WAS THUS NOT THE VALUE OF ANY BENEFIT OR AMENITY AR ISING TO IT EITHER FROM ITS BUSINESS OR FROM THE EXERCISE OF HIS PROFE SSION AND THUS NO SUCH SUM PER SE ALONE COULD BE HELD TO BE AN INCOME WHICH IS STATED TO HAVE ESCAPED ASSESSMENT. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 25 VII) IT IS SUBMITTED THAT MERE PURPORTED BENEFIT DOES NO T RESULT INTO ACCRUAL OF INCOME U/S 28(IV) OF THE ACT. IT IS SUBMITTED THAT ANY ILLUSORY HYPOTHETICAL AND NON-EXISTING SUM CANNOT BE REGARDED AS INCOME. THE BENEFIT MUST BE TANGIBLE AND EXISTING A ND MUST RESULT FROM BUSINESS. THE FRESH ALLOTMENT OF SHARES BY TEL ECOM COMPANIES CANNOT BE A BASIS TO SUGGEST ANY BENEFIT ACCRUED TO THE ASSESSEE COMPANY ON PURCHASE OF SHARES FROM M/S UNITECH LTD. IT IS ALSO WELL SETTLED LAW. AS HELD BY THE APEX COURT IN THE CASE OF SIR KIKABHAI PREMCHAND VS. CIT REPORTED IN 24 ITR 506 T HAT STATE HAS NO POWER TO TAX ANY POTENTIAL FUTURE ADVANTAGE AND AS SUCH ADDITION MADE OF UNCERTAIN FUTURE BENEFIT THAT THE APPELLANT COMPANY MAY OBTAIN ON THE SALE OF SHARES IS HIGHLY FARFETCHED MISCONCEIVED AND UNTENABLE. 17. LASTLY HE SUBMITTED THAT SUBSEQUENTLY FAIR M ARKET VALUE OF SHARE HAVE BEEN REDUCED TO NIL ON THE CA NCELLATION OF LICENSES AND STATED THAT IT MAY ALSO BE MENTIONED T HAT THE TELECOM LICENCES WHICH HAD BEEN ISSUED BY THE DOT I N FAVOUR OF TELECOM COMPANIES HAVE SINCE BEEN CANCELLED BY T HE JUDGMENT OF HON'BLE SUPREME COURT AND FINAL ORDER DA TED 02.02.2012 AS A RESULT OF THE AFORESAID JUDGMENT IT HAS BEEN HELD THAT THE GRANT OF THE SAID LICENCES WAS CONTRA RY TO LAW AND CONSEQUENTLY THE LICENCES SO GRANTED WERE NULL AND VOID. INASMUCH AS THE INTRINSIC WORTH OF THE TELECOM COMPANIES WHICH WAS ULTIMATELY BASED ON THE TELECOM LICENCE(S ) ITSELF WERE HELD TO BE NULL AND VOID THE NET ASSET VALUE GOT IN ANY CASE ERODED. AS PER THE LD. AO SINCE THE TELECOM COMPANIES HAD ALLOTTED SHARES AT A HIGHER RATE THE SHARES SO LD BY ASSESSEE HAD A HIGHER VALUE PER SHARE AS A RESULT O F LICENSES ALLOTTED TO TELECOM COMPANIES. BY THE SAME LOGIC I T IS I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 26 SUBMITTED WHEN THE RATE BECAME ZERO ON ACCOUNT OF CANCELLATION OF LICENSES THE REDUCED VALUE OF SHAR ES ON ACCOUNT OF CANCELLATION OF LICENSES SHOULD BE EQUAL LY WEIGH WITH YOU AS NO REAL INCOME HAD ACCRUED AND NOR WAS RECEIVED. THE SHARES PURCHASED AT FAIR MARKET VALUE UNDER SECTION 56(2)(VIIA) OF THE ACT. IN ADDITION TO THE ABOVE IT WILL BE IMPORTANT TO MENTION HERE THAT THERE IS A SPECIFIC PROVISION IN THE ACT HAS BEEN INTRODUCED I.E. SECTION 56(2)(VIIA ) TO TAX TRANSACTIONS AFTER JUNE 1 2010 WHICH IS LESS THAN FAIR MARKET VALUE. IT IS EVIDENTLY CLEAR THAT THIS PROVISION IS NOT APPLICABLE IN THE PRESENT CASE AS THE INSTANT TRANSACTION HAPP ENED PRIOR TO JUNE 2010 AND EVEN OTHERWISE AS PER THIS PROVISI ON THE TAX CAN ONLY BE LEVIED IN THE HANDS OF RECIPIENT COMPAN Y. ACCORDINGLY IT IS SUBMITTED THAT THE LD. AO HAS COM PLETELY ERRED IN REPLACING THE ACTUAL CONSIDERATION RECEIVE D BY THE COMPANY WITH THE NOTIONAL VALUE WHICH ACCORDING TO THE LD. AO OUGHT TO BE RECEIVED. BOTH THE AO AND CIT (A) HA VE NOT REBUTTED ANY OF THE BASIC AND FUNDAMENTAL SUBMISSIO NS DULY SUPPORTED BY CASE LAWS. HE THUS SUBMITTED THAT NO B ENEFIT AROSE TO THE APPELLANT COMPANY BY PURCHASING THE SH ARES WHAT TO SAY OF ANY BENEFIT OR PERQUISITE UNDER SECT ION 28(IV) OF THE ACT. IT IS SUBMITTED THAT THE APPELLANT COMPANY HAD PURCHASED 3.45 CRORES SHARES AT RS. 10 PER SHARE FR OM M/S UNITECH LTD. OF 8 TELECOM COMPANIES FOR AN AGGREGAT E CONSIDERATION OF RS. 34.50 CRORES UNDER SHARE PURCH ASE AGREEMENT DATED 25.10.2008 AND THEREFORE BOTH LOGI CALLY AND LEGALLY ANY SUBSEQUENT ALLOTMENT BY SUCH 8 TELECOM I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 27 COMPANIES INDEPENDENTLY TO M/S TELENOR ASIA PTE LTD . AT RS. 169 PER SHARE UNDER SHARE SUBSCRIPTION AGREEMENT DA TED 28.10.2008 CANNOT BE A BASIS TO ALLEGE ASSUME OR C ONCLUDE THAT THERE IS ANY BENEFIT OR PERQUISITE ARISING FRO M BUSINESS CARRIED ON BY THE APPELLANT COMPANY. THAT FURTHER SINCE THE ADDITIONS IN THE CASES OF M/S. CESTOS UNITECH WIREL ESS PVT. LTD. (ITA NO. 101 /DEL/2014) AND M/S. ACORUS UNITEC H WIRELESS PVT. LTD. (ITA NO. 2075/DEL/2017 AND 2989/DEL/2017) ARE IDENTICAL TO THE CAPTIONED APPEA L THUS THE AFORESAID SUBMISSIONS MAY BE MADE APPLICABLE TO THE APPEALS MENTIONED ABOVE. 18. LD. DR ON THE OTHER HAND RELIED UPON VARIOUS OBSERVATIONS AND FINDINGS GIVEN IN THE ORDER OF LD. ASSESSING OFFICER AND LD. CIT (A). HE POINTED OUT THAT AO HAS NOTED THAT 8 LICENSEE COMPANIES OF UNITECH GROUP RAISED FRESH EQUITY BY ISSUING SHARES TO M/S TELENOR AT A PREMIUM OF RS. 1 59 PER SHARE. HOWEVER THE ASSESSEE COMPANY ACQUIRED SAME SHARES AT FACE VALUE OF RS 10 PER SHARE. HENCE AO WAS JUST IFIED IN MAKING ADDITION U/S 28(IV) OF IT ACT. THE OBJECTIVE OF ASSESSEE COMPANY AS REPRODUCED AT PAGE 4 OF THE ASSESSMENT O RDER CLEARLY STATES THAT IT WAS TO ACT AS SPECIAL PURPOS E VEHICLE TO MAKE INVESTMENT IN TELECOM COMPANIES OF ITS OWN GRO UP. THE AO HELD THE TRANSACTION FOR SALE/PURCHASE OF SHARES WITH M/S UNITECH LTD INVOLVING SHARES OF TELECOM COMPANIES T O BE A BUSINESS TRANSACTION AS IT WAS BUSINESS OF THE ASSE SSEE TO MAKE INVESTMENTS IN TELECOM SECTOR AND BY ACQUIRING SHARES OF TELECOM COMPANIES; ASSESSEE HAD PROCEEDED WITH I TS I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 28 BUSINESS AGENDA. THE ASSESSEE HAD MADE A KILLING BY GETTING A CHANCE TO PURCHASE SHARES OF TELECOM COMPANIES AT JUST THE FACE VALUE EVEN WHEN OWING TO THE FACT THAT TELECOM COMPANIES ALREADY HAD USAL MADE THEIR SHARES WORTH MUCH MORE DUE TO THIS VERY FACT THE SHARES COMMANDED A P REMIUM IN THE MARKET. THE AO HAS HELD THAT THE ASSESSEE HAD CLAIMED EXPENSES OF RS. 21 180 WHICH SHOWS THAT BUSINESS OF THE ASSESSEE HAD COMMENCED. IT WOULD BE INCORRECT TO ST ATE THAT SINCE ASSESSEE WAS HOLDING INVESTMENTS THERE COULD NOT BE ANY BUSINESS. THE ASSESSEE HAS CLAIMED THAT INCOME IS NOT TAXABLE ON THE GROUND THAT SUBSEQUENTLY FAIR MARKET VALUE OF SHARES HAS BEEN REDUCED TO ZERO. THIS IS A SUBSEQUE NT EVENT WHICH CANNOT AFFECT TAXABILITY OF THE YEAR UNDER CO NSIDERATION. AS HELD BY LD CIT(A) IN PARA 8.1.14 OWING TO THE F ACT THAT M/S UNITECH LTD A RELATED PARTY WITH COMMON MANAGE MENT HELD MAJORITY STAKE IN THE TELECOM COMPANIES AND TH EREFORE BEING IN THE PRIVILEGED POSITION THE ASSESSEE COMP ANY WAS SOLD SUCH SHARES BY M/S UNITECH LTD AT JUST THE FACE VALUE THE BENEFIT IS IN THE SHAPE OF DIFFERENCE IN VALUE OF TWO PRICES I.E. PRICE BY THE ASSESSEE FOR ACQUISITION OF SHAR ES AND THE PRICE INCLUDING PREMIUM BY M/S TELENOR SINGAPORE H AS ACCRUED TO THE ASSESSEE IN THE PROCESS OF ASSESSEE COMPANYS STATED BUSINESS OF MAKING INVESTMENT IN TELECOM COM PANIES OF ITS OWN GROUP. HENCE PROVISIONS OF SECTION 28(I V) ARE APPLICABLE IN THIS CASE. M/S ACORUS UNITECH WIRELES S (P.) LTD. FILED WRIT PETITION W.P. (C) NO. 1954 OF 2013 CHALL ENGING I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 29 REOPENING U/S 147 OF I.T.ACT. HONBLE DELHI HIGH CO URT HELD AS FOLLOWS: '20. THEREFORE PRIMARY FUELS IN THIS EASE - THAT L EAD TO THE AO'S SATISFACTION - HAVE BEEN SPELL-OUT IN THIS CASE IN THE REASONS RECORDED BY THE AO. THESE FADS ARE. AT THE VERY' LEAST CAPA BLE OF SUPPORTING THE INFERENCE THAT THE SALE OF SHARES TO THE PETITIONER IN THIS CASE FROM UNITECH LTD. WAS UNDERVALUED AND THAT SUCH UNDERVA LUATION (COMPARED TO THE TELENOR TRANSACT ION) WAS NOT DISC LOSED BY THE ASSESSEE. INDEED THIS IS WHERE THE COURT'S INQUIRY TERMINATES. THE ADEQUACY OF THE REASONS PROVIDED BY THE AO FALL OUT SIDE THE COURT'S REVIEW POWERS AND WITHIN THE DOMAIN OF THE AO. AT THIS STAGE OF THE PROCEEDINGS WHERE ONLY A PRELIMINARY FINDING UNDER SECTION 147/148 HAS BEEN MADE. 21. ACORUS ADVANCED ARGUMENTS AS TO THE INCORRECTNE SS OF THE AO'S VIEWS. HERE VARIOUS ASPECTS OF THIS TRANSACTION HA VE BEEN CANVASSED BEFORE THE COURT I.E. THE LACK OF COMPARABILITY BE TWEEN THE UNITECH- TELENOR TRANSACTION AND THE PRESENT CASE THE DIFFE RENCE BETWEEN THE NATURE OF THE SHARES ITSELF IN THE TWO CASES THE I NAPPLICABILITY OF SECTION 28 OF THE ACT GIVEN THAT THE PURCHASE OF SH ARES WAS IN THE NATURE OF AN INVESTMENT AND NOT A BUSINESS THE LAC K OF ACCRUAL OF ANY BENEFIT TO THE PETITIONER ETC. THE COURT HOWEVER CANNOT ENTER THE MERITS OF THE SATISFACTION RECORDED BY THE AO. THES E ISSUES MAY INDEED HE RAISED BUT BEFORE THE AO IN THE FIRST IN STANCE AND SUBSEQUENTLY WITHIN THE APPELLATE REGIME PROVIDED B Y THE ACT ITSELF AS OPPOSED TO A DISGUISED MERITS REVIEW UNDER ARTICLE 226 AT SUCH AN EARLY STAGE OF THE PROCEEDINGS. AT THE TIME OF A SE CTION 1476/148 NOTICE THE INQUIRY IS AT A PRELIMINARY STAGE AND THUS. CONCLUSIVE LEGAL OR FACTUAL DETERMINATIONS ARE NEITHER CALLED FOR NO R PROVIDED. AS THE SUPREME COURT NOTED IN SRI KRISHNA (P.) LTD. V. ITO [19961 221 ITR 53S S~ TAXMAN 315: I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 30 '80...IT IS NECESSARY TO REITERATE THAT WE ARE NOW AT THE STAGE OF THE VALIDITY OF THE NOTICE UNDER SECTION 14H/147. THE E NQUIRY AT THIS STAGE IS ONLY TO SEE WHETHER THERE ARE REASONABLE G ROUNDS FOR THE INCOME TAX OFFICER TO BELIEVE AND NOT WHETHER THE O MISSION/FAILURE AND THE ESCAPEMENT OF INCOME IS ESTABLISHED FT IS NECESSARY TO KEEP THIS DISTINCTION IN MIND.'' THUS HONBLE HIGH COURT WAS OF THE OPINION THAT TH ERE IS A PRIMA FACIE CASE AGAINST THE ASSESSEE AND UPHELD RE OPENING U/S 147 OF IT ACT. 19. FURTHER IN HIS WRITTEN SUBMISSIONS LD DR S UBMITTED THAT THE DECISION OF CIT VS MAHINDRA AND MAHINDRA L TD. (404 ITR 1) IS NOT APPLICABLE TO THE ABOVE CASES IN VIEW OF THE FOLLOWING REASONS: (I) IN THIS CASE RELIEF WAS ALLOWED TO THE ASSESS EE HOLDING THAT WAIVER OF LOAN FOR ACQUIRING CAPITAL ASSETS CANNOT BE TAXE D AS PERQUISITE UNDER SECTION 28(IV) AS RECEIPT IN HANDS OF DEBTOR/ ASSESSEE ARE IN FORM OF CASH/MONEY AND IT ALSO CANNOT BE TAXED AS A REMISSION OF LIABILITY UNDER SECTION 41(1) AS WAIVER OF LOAN DOE S NOT AMOUNT TO CESSATION OF TRADING LIABILITY. IN THE CASE OF ASSE SSEES THERE IS NO ISSUE REGARDING CESSATION OF LIABILITY AS IN THE CA SE OF CIT VS MAHINDRA AND MAHINDRA LTD. (II) IN PARA 17 OF THE ORDER HONBLE SUPREME COURT HELD AS FOLLOWS: 1 7. TO SUM UP WE ARE NOT INCLINED TO INTERFERE W ITH THE JUDGMENT AND ORDER PASSED BY THE HIGH COURT IN VIEW OF THE F OLLOWING REASONS: (A) SECTION 2H(IV) OF THE IT ACT DOES NOT APPLY ON THE PRESENT CASE SINCE THE RECEIPTS OF RS 57 74 064/- ARE IN THE NATURE O F CASH OR MONEY. (B) SECTION 41(1) OF THE IT ACT DOES NOT APPLY SIN CE WAIVER OF LOAN DOCS NOT AMOUNT TO CESSATION OF TRADING LIABILITY. IT IS A MATTER OF RECORD THAT I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 31 THE RESPONDENT HAS NOT CLAIMED ANY DEDUCTION UNDER SECTION 36 (1) (III) OF THE IT ACT QUA THE PAYMENT OF INTEREST IN ANY PREVIOUS YEAR. ' 20. HE FURTHER SUBMITTED THAT IN THE CASE OF ASSESS EES BENEFIT HAS BEEN RECEIVED IN FORM OTHER THAN MONEY. MOREOVER IT IS NOT A CASE OF CESSATION OF LIABILIT Y. THE DECISION IN CIT VS ELSCOPE (PVT.) LTD. (313 ITR 293) IS NOT APPLICABLE TO THE ABOVE CASES IN VIEW OF THE FOLLOWING REASONS: (I) THE ABOVE JUDGMENT WAS IN CONTEXT OF ADDITIONAL INCOME TAX ON UNDISTRIBUTED PROFIT OF CERTAIN COMPANIES WHICH IS NOT THE ISSUE IN APPEAL. IT WAS HELD THAT WHERE ON REFERENCE IN QUANTUM PROCEEDINGS HIGH COUR HAD HELD THAT THERE WAS NO DISTRIBUTABLE INCOM E THE ASSESSEE COULD NOT BE HELD LIABLE FOR ADDITIONA L TAX UNDER SECTION 104. THE ASSESSEE HAS WRONGLY STATED THAT IT PERTAINED TO SECTION 28(IV). THE DECISION OF CIT VS EXCEL INDUSTRIES LTD. (358 I TR 295) ALSO IS NOT APPLICABLE TO THE ABOVE CASES IN VIEW O F THE FOLLOWING REASONS: (I) THE ABOVE JUDGEMENT WAS IN CONTEXT OF ADVANCE L ICENCE AND DUTY ENTITLEMENT PASS BOOK. IT WAS HELD THAT UN TIL IMPORTS ARE ACTUALLY MADE BY ASSESSEE BENEFITS UND ER ADVANCE LICENSE OR UNDER DUTY ENTITLEMENT PASS BOOK REPRESENT ONLY HYPOTHETICAL INCOME WHICH CANNOT BE BROUGHT TO TAX BY APPLYING PROVISIONS OF SECTION 28 (IV) (II) THE JUDGMENT DECIDED UPON WHICH POINT OF TIME THE ABOVE INCOME WAS TO BE ASSESSED. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 32 21. LASTLY HE SUBMITTED THAT THE FOLLOWING DECISIO NS MAY BE CONSIDERED WITH REGARD TO APPLICABILITY OF SECTION 28 IN THE PRESENT CASE; I. CIT VS RAMANIYAM HOMES (P.) LTD F20161 68 TAXMANN.COM 289 (MADRAS)/ (2016) 239 TAXMAN 486 (MADRAS) / (2016) 384 ITR 530 (MADRAS)/R20161 287 C TR 200 (MADRAS) WHERE HON'BLE MADRAS HIGH COURT HELD THAT AMOUNT REPRESENTING PRINCIPAL LOAN WAIVED BY BANK U NDER ONE TIME SETTLEMENT SCHEME WOULD CONSTITUTE INCOME FALLING UNDER SECTION 28(IV). II. CIT VS R.L. KASLIWAL M9941 77 TAXMAN 58 (RAJASTHAN)/H9941 207 ITR 208 (RA|ASTHAN)/[19941 120 CTR 56 (RAJASTHAN) WHERE HON'BLE RAJASTHAN HIGH COURT HELD AS FOLLOWS: ASSESSEE WAS A PARTNER OF A FIRM A PART OF PREMISES TAKEN BY FIRM ON LEASE WAS GIVEN TO ASSESSEE-PARTNER FREE OF RENT. ASSESSEE OFFERED RS. 4 000 TO BE ASSESSED IN HIS HANDS ON THIS ACCOUNT. ITO INCLUDED BENEFIT IN HAND S OF ASSESSEE AT RS. 9 000. AAC DELETED ENTIRE ADDITION ON GROUND THAT THERE WAS NO PROVISION IN ACT UNDER WHI CH SUCH ADVANTAGE DERIVED BY ASSESSEE WAS ASSESSABLE. TRIBUNAL UPHELD AACS VIEW. HONBLE RAJASTHAN HIGH COURT HELD THAT PROVISIONS OF SECTION 28(IV) WERE APPLICABLE AND VALUE ATTRIBUTED TO USE OF PREMISES BY ASSESSEE FREE OF RENT WAS TO BE ADDED IN INCOME OF ASSESSEE AND HENCE TRIBUNAL WAS WRONG IN UPHOLDING DELETION MADE BY AAC. I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 33 III. CIT VS NAGESH KNITWEARS (P.) LTD. F20121 22 TAXMANN.COM 309 (DELHI)/[20121 210 TAXMAN 145 (DELHI)(MAG.)(2012) 345 ITR 135 (DELHI) WHERE HON BLE DELHI HIGH COURT HELD THAT PREMIUM RECEIVED ON SALE OF EXPORT QUOTA BY EXPORTERS OF READYMADE GARMENTS IS NOT COVERED BY ANY OF CLAUSES I.E. CLAUSE (IIIA) TO (I IIC) OF SECTION 28 AND THEREFORE CANNOT BE INCLUDED WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. IV. CIT VS T.V. SUNDAIAM IYENGAR & SONS LTD. T1996 1 88 TAXMAN 429 (SC)/F19961 222 ITR 344 (SQ/PL9961 136 CTR 444 (SC) WHERE HONBLE SUPREME COURT HELD THAT AMOUNT REPRESENTING UNCLAIMED CREDIT BALANCES WRITTEN BACK TO PROFIT AND LOSS ACCOUNT BY ASSESSEE DURING ASSESSMENT YEAR UNDER CONSIDERATION COULD B E TREATED AS ASSESSEE'S INCOME AND LIABLE TO BE TAXED . V. SOLID CONTAINERS LTD. VS DCIT F20091 178 TAXMAN 192 (BOMBAY)/R20091 308 ITR 417 (BOMBAY)/R20091 222 CTR 455 (BOMBAY) WHERE HONBLE BOMBAY HIGH COURT UPHELD ADDITION WHERE ASSESSEE HAD TAKEN A LO AN FROM 'P' DURING PREVIOUS YEAR FOR BUSINESS PURPOSES WHICH WAS WRITTEN BACK IN RELEVANT ASSESSMENT YEAR AS A RESULT OF CONSENT TERMS ARRIVED AT BETWEEN 'P' AND ASSESSEE. ASSESSEE CLAIMED THAT SAID LOAN WAS A CAP ITAL RECEIPT AND THEREFORE DID NOT COME UNDER SECTION 41(1). ASSESSING OFFICER REJECTED ASSESSEE'S CONTENTION AN D HELD THAT CREDIT BALANCE WRITTEN BACK WAS INCOME OF ASSE SSEE IN VIEW OF FACT THAT IT WAS DIRECTLY ARISING OUT OF BUSINESS I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 34 ACTIVITY OF ASSESSEE AND THUS WAS LIABLE TO TAX U NDER SECTION 28. 22. WE HAVE HEARD THE RIVAL SUBMISSIONS PERUSED TH E RELEVANT FINDINGS GIVEN IN THE IMPUGNED ORDER AS WE LL AS MATERIAL REFERRED TO BEFORE US. THE FACTS AND BACKG ROUND OF THE CASE HAVE BEEN DISCUSSED IN DETAIL IN THE FOREG OING PARAGRAPHS; HOWEVER CERTAIN VITAL FACTS ARE REITER ATED IN A SUCCINCT MANNER. M/S. UNITECH LTD. THROUGH ITS WHOL LY OWNED 8 SUBSIDIARY COMPANIES WERE ALLOTTED SPECTRUM BY DO T UNDER UNIFIED ACCESS SERVICES LICENSES FOR 2G LICENSE FOR VARIOUS REGIONS OF THE COUNTRY. IN ORDER TO MEET THE CAPITA L REQUIREMENTS AND IN ACCORDANCE WITH GOVERNMENT POLI CY FOREIGN INVESTOR CAN ALSO INVEST IN TELECOM COMPANI ES OPERATING IN INDIA UP TO 74% STAKE TELENOR GROUP C AME FORWARD FOR MAKING THE INVESTMENT. HOWEVER TELENOR INSISTED THAT THE INVESTMENT PROPOSED WOULD BE MADE IN THE E QUITY OF ONE OR MORE COMPANY WHERE THE SHARE TRANSFER IS RES TRICTED ARE ENFORCEABLE BY LAW. WITH A VIEW TO MEET THE SAI D CONCERN OF THE TELENOR THE PROMOTERS COMPANIES FLOATED SPV S CONSISTING 3 COMPANIES NAMELY I) CESTOS UNITECH PV T. LTD.; II) SIMPSON UNITECH WIRELESS PVT. LTD.; AND III) ACORUS UNITECH WIRELESS PVT. LTD. WHO ARE THE APPELLANT-ASSESSEES BEFORE US. BY WAY OF SHARE PURCHASE AGREEMENT DATED 25.10.2008 75% SHAREHOLDING IN THE EIGHT UW TELECOM COMPANIES WERE TRANSFERRED TO THE SPVS (THREE ASSESSEE COMPANIES) AT A FACE VALUE OF RS.10/- EACH. THEREAFTER SPVS HAVE RAISED A SECURED LOAN IN FORM OF CCD FROM SUBSIDIARY OF THE ASSESSEE COMPANY I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 35 WHEREIN IT WAS AGREED THAT LENDER WOULD HAVE THE OP TION TO CALL UPON THE SPVS TO ISSUE FRESH CAPITAL SO AS TO CONVERT THE AMOUNT REPRESENTING THE DEBENTURES INTO EQUITY SHA RE CAPITAL. TELENOR GROUP ENTERED INTO A SHARE SUBSCRI PTION AGREEMENT TO ACQUIRE 60% STAKE IN 8 UW COMPANIES WH EREBY THE TELECOM COMPANIES MADE FRESH ALLOTMENT OF SHARE S HAVING FACE VALUE OF RS.10 AND A PREMIUM ON SHARE AT RS.16 9.73 PER SHARE RESULTING INTO EQUITY SHAREHOLDING OF TELENOR GROUP AT 67.25 % IN THE EIGHT TELECOM COMPANIES. FURTHER TEL ENOR SUBSCRIBED FOR FRESH EQUITY SHARES OF THE WIRELESS COMPANIES IN FOUR TRANCHES STARTING FROM 20.03.2009 TO 10.02. 2010 AT A PRICE OF RS.179.73 PER SHARE. THE ENTIRE TRANSACTIO N TO ACQUIRE INVESTMENTS IN 8 UW COMPANIES FROM M/S. UNI TECH LTD. WAS TO FACILITATE THE INVESTMENT BY TELENOR GR OUP IN THE EIGHT COMPANIES WITHOUT TRANSFERRING THE ECONOMIC I NTEREST IN M/S. UNITECH LTD. THE ALLEGATION OF THE ASSESSING O FFICER WAS THAT THERE IS A SIMILARITY OF TRANSACTION BETWEEN T HE ACQUISITION OF SHARES BY THE ASSESSEE COMPANIES UND ER SPVS OF 8 UNITECH WIRELESS COMPANIES; AND THE SHARES ACQ UIRED BY TELENOR OF THE SAME 8 WIRELESS COMPANIES. HOWEVER DESPITE THE FACT THAT THERE WAS TIME GAP BETWEEN THE ACQUIS ITION OF SHARE BY THREE COMPANIES AND SUBSCRIPTION OF SHARE BY THE TELENOR BUT THE MAJOR DIFFERENCE AS CULLED OUT FROM THE FACT ARE THAT FIRSTLY THE SHARES WHICH WERE ACQUIRED BY THE THREE ASSESSEE COMPANIES WERE PLEDGED WITH THE LENDERS AT THE TIME OF ACQUISITION FOR SECURING THE CREDIT FACILITY AVA ILED BY M/S. UNITECH WIRELESS COMPANIES; WHEREAS SHARE ISSUED TO TELENOR I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 36 WERE NOT PLEDGED AND WERE FREE FROM ENCUMBRANCE. SECONDLY THE TELENOR HAD ACQUIRED CONTROL AND MANAGEMENT OF ALL THE 8 UNITECH WIRELESS COMPANIES WHICH WAS NOT THE CASE I N THE CASE OF 3 ASSESSEE COMPANIES AS THEY DID NOT HAVE A NY RIGHT IN THE SHARES OF ANY OF 8 UW COMPANIES AND 100% ECO NOMIC INTEREST WAS HELD BY THE UNITECH LTD. THROUGH CCD A ND PUT CALL OPTIONS ON THE SHAREHOLDINGS OF THREE COMPANIE S; WHEREAS THE TELENOR WAS HOLDING 100% ECONOMIC INTEREST WITH THE SHARES SUBSCRIBED BY IT. THIRDLY THE SHARE HELD BY THE THREE ASSESSEE COMPANIES COULD HAVE BEEN ONLY TRANSFERRED TO UNITECH AND COULD BE ONLY AT PAR VALUE AS PER THE A GREEMENT WHEREAS IN THE CASE OF TELENOR GROUP THERE WAS NO T RANSFER RESTRICTION ON THE SHARES SUBSCRIBED AND IT WAS FRE E TO TRANSFER EVEN TO A FOREIGN PARTY. LASTLY AS POINTE D OUT BY THE LD. COUNSEL THE BUSINESS RISK OF THE ASSESSEE WAS VERY HIGH AS COMPARED TO THE TELENOR GROUP BECAUSE THE TELENOR GROUP HAS NOT PLEDGED ANY OF THE SHARES TO THE LENDERS. T HUS THESE TWO ARE INDEPENDENT TRANSACTION WITH DISTINCT OBJEC TIVES. THE FIRST IS SALE OF 75% SHAREHOLDING IN 8 WIRELESS COM PANIES BY M/S. UNITECH LTD. TO 3 AFFILIATED COMPANIES @ 10 PE R SHARE; AND THE SECOND TRANSACTION IS ALLOTMENT OF FRESH SH ARE BY WIRELESS COMPANY TO TELENOR @ 179.73 PER SHARE. 23. HOWEVER ON THE FACTS AND BACKGROUND OF THE CAS E WE HAVE TO SEE WHETHER THE AMOUNT OF PREMIUM PAID BY T HE TELENOR GROUP FOR ACQUIRING THE SHARES OF 8 UW COMP ANIES CAN BE HELD TO BE IN THE FORM OF ANY BENEFIT OR PER QUISITE ARISING FROM THE BUSINESS OF ASSESSEE U/S 28(IV). T HE I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 37 DEPARTMENT CASE IS THAT THE SHARES WHICH HAVE BEEN ACQUIRED BY 3 ASSESSEE COMPANIES OF 8 UW COMPANIES AT RS.10 WHICH THE ACTUAL CONSIDERATION PAID SHOULD BE ADOPTED @ 179 (WRONGLY TAKEN BY ASSESSING OFFICER AS RS. 16 9) PER SHARES BECAUSE TELENOR GROUP HAS PAID THE SAID AMO UNT PER SHARE FOR ACQUIRING SAME SHARES OF UW COMPANIES. FI RST OF ALL IT IS UNFATHOMABLE THAT THE SHARES OF 8 UW COMPANIE S WHICH WERE HELD AS INVESTMENT BY THE THREE SPVS COULD LEA D TO AN INFERENCE THAT THREE COMPANIES HAD EARNED INCOME AR ISING FROM THE BUSINESS TO BE TAXED U/S. 28(IV). IT IS SINE-QUA-NON THAT INCOME WHICH IS TO BE TAXED U/S. 28(IV) FIRST LY SHOULD ARISE FROM BUSINESS OR PROFESSION; AND SECONDLY TH E BENEFIT WHICH IS RECEIVED HAS TO BE IN SOME FORM OTHER THAN ANY SHAPE OF MONEY. HONBLE SUPREME COURT IN THE CASE O F CIT VS. MAHINDRA & MAHINDRA (SUPRA) HAS REITERATED THE PRINCIPLE THAT SECTION 28(IV) WILL NOT APPLY WHERE THE RECEIPTS ARE IN THE NATURE OF CASH OR MONEY. HERE THE ASSES SEE COMPANY WAS FORMED NOT EITHER FOR CARRYING ON ANY T ELECOM BUSINESS OR BUSINESS FOR INVESTING IN COMPANIES. IT HAS HELD THE SHARES OF 8 UW COMPANIES AS AN INVESTMENT IN OR DER TO FACILITATE THE TELENOR GROUP TO ACQUIRE MAJORITY ST AKES IN THE 8 UW COMPANIES. IT IS NOT A CASE HERE THAT INVESTME NT HAS BEEN MADE ON REGULAR BASIS HAVING THE TRAIT OF BUSI NESS ALBEIT THE SHARES WERE HELD AS INVESTMENT. IF THE A SSESSEE HAS ACQUIRED THE SHARES AS AN INVESTMENT FROM A PUBLIC LIMITED COMPANY AT A FACE VALUE THEN IT CANNOT BE HELD THA T THERE AROSE ANY BENEFIT OR PERQUISITE TO THE ASSESSEE COM PANY IN I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 38 TERMS OF SECTION 28(IV). IF AT ALL THE REVENUE WAS OF THE OPINION THAT THE VALUE OF THE SHARES HELD BY THE AS SESSEE- COMPANY OF THE 8 TELECOM COMPANIES WERE ARE LESS TH AN THE MARKET VALUE THEN THE ONLY PROVISION IN WHICH IT C OULD HAVE BEEN SCRUTINIZED OR EXAMINED WAS UNDER A DEEMING PR OVISION OF SECTION 56(2)(VII)(A) WHICH PROVISION HAS BROUG HT IN THE STATUTE W.E.F. 01.04.2013. APART FROM THAT ASSESSE E HAS NOT ACQUIRED THE SHARE IN LIEU OF SOME BENEFIT OR PERQU ISITE ALBEIT HAS MADE THE ACTUAL PAYMENT IN MONEY FOR ACQUIRING THE SHARES AND THEREFORE THE PRINCIPLE LAID DOWN BY T HE HONBLE SUPREME COURT IN THE CASE OF CIT VS. MAHINDRA & MAHINDRA (SUPRA) WILL ALSO APPLY HERE. 24. DURING THE COURSE OF HEARING OUR ATTENTION W AS DRAWN TOWARDS THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF UNITECH HOLDINGS LTD. VS. DCIT REPORTED IN (2016) 240 TAXMAN 70 WHEREIN UNITECH HOLDING LTD. HAD ACQUIRED THE SHARE OF THREE JOINT VENTURES COMPANY AT A COST PRI CE REFLECTED IN THE BOOKS OF HOLDING COMPANY WHICH AS PER THE DEPARTMENT WAS LOWER THAN THE BOOK VALUE OF THOSE S HARES CALCULATED ON THE BASIS OF NET WORTH OF THE SAID CO MPANY. THE HONBLE DELHI HIGH COURT HELD THAT IT WOULD BE DIFF ICULT TO ACCEPT THAT THE SALE OF SHARES BY UNITECH LTD. AT I TS COST PRICE WHICH IS LOWER THAN THE BOOK VALUE OF THE SHARES WO ULD RESULT IN INCOME. THE HONBLE HIGH COURT HELD THAT ACQUISI TION OF INVESTMENT BY THE ASSESSEE COULD NOT LEAD TO INFERE NCE THAT THE ASSESSEE HAD EARNED INCOME U/S. 28(IV) OF THE A CT. THE RELEVANT OBSERVATION GIVEN IN PARAGRAPH 25 READS AS UNDER: I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 39 25. APPLYING THE AFORESAID PRINCIPLES IN THE FACTS OF THE PRESENT CASE IT IS DIFFICULT TO ACCEPT THAT THE SA LE OF SHARES BY UNITECH LIMITED AT ITS COST PRICE WHICH IS LOWER TH AN THE BOOK VALUE OF THE SHARES WOULD RESULT IN INCOME (EQUIVAL ENT TO THE DIFFERENCE BETWEEN THE BOOK VALUE OF THE SHARES AND THE COST PRICE AT WHICH THEY WERE SOLD) IN THE HANDS OF THE ASSESSEE. THE SHARES OF THE THREE COMPANIES IN QUESTION ARE H ELD AS INVESTMENTS BY THE ASSESSEE AND DULY REFLECTED BY T HE ASSESSEE AS SUCH. NO OBJECTION HAS BEEN RAISED BY T HE AO IN THIS REGARD. IN THE CIRCUMSTANCES WE FIND IT DIFFI CULT TO COMPREHEND AS TO HOW THE ACQUISITION OF INVESTMENTS BY THE ASSESSEE COULD LEAD TO AN INFERENCE THAT THE ASSESS EE HAD EARNED INCOME UNDER SECTION 28(IV) OF THE ACT - VAL UE OF ANY BENEFIT OR PERQUISITE ARISING FROM BUSINESS OR PROF ESSION CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSI NESS OR PROFESSION. 25. THE AFORESAID PRINCIPLE OF THE HONBLE JURISDI CTIONAL HIGH COURT SQUARELY APPLIES IN THIS CASE ALSO BECA USE ADMITTEDLY THREE ASSESSEE-COMPANIES HAD ACQUIRED T HE SHARES OF 8 UW COMPANIES AS INVESTMENT AT A PAR VAL UE. SIMPLY BECAUSE A FOREIGN COMPANY HAD ACQUIRED THE S HARES OF THE SAME 8 UW COMPANIES BY PAYING A PREMIUM THAT DO ES NOT MEAN THE PREMIUM AMOUNT BECOME TAXABLE INCOME IN TH E FORM OF BENEFIT OR PERQUISITE TO THE ASSESSEE COMPA NY. IF THERE IS ANY DISPUTE REGARDING THE VALUATION WHICH IS TO BE ADDED THE SAME WOULD BE APPLICABLE UNDER THE DEEMING PROV ISION OF SECTION 56(2)(VII)(A) WHICH PROVISION WAS NOT APPLI CABLE IN THE PRESENT ASSESSMENT YEAR. HERE THE ASSESSEE COMPANY HAD I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 40 PURCHASED 3.54 CRORE SHARES AT RS.10/- PER SHARE FR OM M/S. UNITECH LTD. OF 8 TELECOM COMPANIES FOR AN AGGREGAT E CONSIDERATION OF RS.34.50 CRORES UNDER SHARE PURCHA SE AGREEMENT DATED 25.10.2008 AND ANY SUBSEQUENT ALLOT MENT BY SUCH 8 TELECOM COMPANIES INDEPENDENTLY TO TELENO R AT RS.179 PER SHARE CANNOT BE THE BASIS TO HOLD THAT T HERE IS ANY BENEFIT OR PERQUISITE ARISING FROM BUSINESS CARRIED ON BY THE ASSESSEE COMPANY. IN A WORST CASE SCENARIO IF THERE IS ANY BENEFIT THE SAME BENEFIT WOULD BE OF M/S. UNITECH L TD. WHICH HELD THE SHARES OF 8 TELECOM COMPANIES FROM WHOM TH E THREE COMPANIES HAVE PURCHASED THE SHARES. IT WOULD BE AL SO RELEVANT TO MENTION THAT LD. CIT (A) IN ONE OF THE ASSESSEE COMPANY WHICH IS ALSO IMPUGNED BEFORE US I.E. M/S ACORUS UNITECH WIRELESS PVT. LTD. HELD AT PAGE 22 PARA 11 THAT THE BENEFIT IF AT ALL IN THESE TRANSACTIONS ACTUALLY AC CRUED TO UNITECH LTD. AND TO FAVOUR SRI RAMESH CHANDRA AND S RI SANJAY CHANDRA THE ACTUAL BENEFICIARIES AND NOT TO T HE ASSESSEE COMPANY. THIS ITSELF GOES TO SUPPORT THE C ONTENTION OF THE LD. COUNSEL THAT NO BENEFIT OR PERQUISITE AR OSE IN THE HANDS OF THE ASSESSEE COMPANIES. 26. THE JUDGMENTS RELIED UPON BY THE LD. DR WHICH HAS ALSO BEEN REFERRED IN THE IMPUGNED ORDER IN NO MANN ER WILL APPLY ON THE FACTS OF THE PRESENT CASE BECAUSE MOST OF THEM PERTAINED TO WAIVER OF A LOAN OR UNCLAIMED CREDIT B ALANCE RETURNED BACK TO THE P&L ACCOUNT TAKEN DURING THE C OURSE OF BUSINESS. THUS THESE JUDGMENTS DO NOT HELP THE CAS E OF THE REVENUE AT ALL. ACCORDINGLY THE ADDITIONS MADE BY THE I.T.A. NO.1953 101/DEL/2014 & 2075 & 2989/DEL/201 7 41 ASSESSING OFFICER AND SUSTAINED BY THE LD. CIT (A) U/S. 28(IV) ARE DIRECTED TO BE DELETED. 27. SINCE SIMILAR FACTS ARE PERMEATING IN THE CASE OF ALL THE ASSESSEES AS DISCUSSED ABOVE AND ALSO ACCEPTED BY BOTH THE PARTIES THEREFORE THE FINDINGS GIVEN ABOVE WILL A PPLY MUTATIS MUTANDIS IN THE OTHER APPEALS ALSO. 28. IN SO FAR AS THE REVENUES APPEAL IN ITA NO.20 75 IS CONCERNED THE REVENUE HAS CHALLENGED THE OBSERVATI ON AND THE FINDINGS OF THE LD. CIT (A) THAT THE AMOUNT SHO ULD BE ADDED ON PROTECTIVE BASIS IN THE HANDS OF THE ASSES SEE COMPANY AND SUBSTANTIVE BASIS IN THE HANDS OF SANJAY CHANDRA AND SHRI RAMESH CHANDRA. SINCE WE HAVE ALR EADY DELETED THE ADDITIONS ON MERITS; THEREFORE THIS GR OUND HAD BECOME INFRUCTUOUS. ACCORDINGLY SAME IS DISMISSED. 29. IN THE RESULT THE APPEALS OF THE ASSESSEES AR E ALLOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 8 TH NOVEMBER 2019. SD/- SD/- [B.R.R. KUMAR] [AMIT SHUKLA] [ACCOUNTANT MEMBER] JUDICIAL MEMBER DATED: 8 TH NOVEMBER 2019