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2024 (3) TMI 726 - AT - Income TaxAddition u/s 68 - buyback was not genuine and added back the buyback amount as unexplained income - CIT(A) deleted the addition and allowed the benefit of exemption u/s 10(34A) - HELD THAT - AO s show-cause notice was issued on 23.09.2021 and reply was sought latest by next date i.e. 24.09.2021. The assessee did respond by furnishing reply by letter dated 24.09.2021. This is not fair. Reasonable opportunity to the assessee is a must. Secondly, the facts have not been marshalled and appreciated in right perspective. Admittedly, AO incorporated in the assessment order only some contents of the reply dated 24.09.2021 furnished by the assessee to his show- cause notice dated 23.09.2021 and hastened to conclude that buyback was not genuine and added back the buyback amount as unexplained income u/s 68 of the Act. This is not correct. CIT(A) has given clear finding that the identity of UMS is established; genuineness of transaction is also proved as buyback was carried out as per the procedure prescribed under the Companies Act and approval from the Registrar of Companies was also taken; income distribution tax on buyback u/s 115QA was duly paid; the creditworthiness is established from the financials of UMS i.e. Balance Sheet at 31.03.2017, 30.11.2017 and 31.03.2018 of UMS and Knaup Management Services Pvt. Ltd. ( KMS ) which is 100% wholly owned subsidiaries of UMS and lastly, Valuation Report of UMS and KMS etc. under Rule 11UA of the Income Tax Rules, 1962. We endorse the findings of the Ld. CIT(A) that income arising to the assessee shares-holder as a result of buyback is exempt u/s 10(34A) of the Act by virtue of amendment brought on the statute book by the Finance Act, 2013 w.e.f. 01.04.2014. Accordingly, we sustain the order of the Ld. CIT(A) and reject the appeal of the Revenue.
Issues Involved:
1. Genuineness of the transaction regarding buyback of shares. 2. Applicability of \u/s 68 of the Income Tax Act, 1961. Summary: Issue 1: Genuineness of the transaction regarding buyback of shares The Revenue challenged the order of the Ld. CIT(A) who held that the genuineness of the transaction was established. The Ld. AO had observed discrepancies in the valuation report and questioned the net worth fluctuations of Uday Management Services Pvt. Ltd. (UMS). The Ld. AO concluded that the buyback amount of Rs. 2,34,48,938/- received by the assessee was not genuine and added it to the income u/s 68 of the Act. Issue 2: Applicability of \u/s 68 of the Income Tax Act, 1961 The Ld. CIT(A) deleted the addition by the Ld. AO, stating that the buyback of shares was a genuine transaction exempt from tax under \u/s 10(34A) of the Act as UMS had paid tax under \u/s 115QA. The Ld. CIT(A) noted that the buyback was conducted following the statutory procedures prescribed under the Companies Act and approved by the Registrar of Companies. The Ld. CIT(A) emphasized that the identity, genuineness of the transaction, and creditworthiness of UMS were established through financial documents and statutory compliance. Tribunal's Decision The Tribunal noted procedural unfairness in the Ld. AO's handling of the case, particularly the short notice given for the assessee's response. The Tribunal agreed with the Ld. CIT(A) that the identity of UMS, the genuineness of the transaction, and the creditworthiness were established. The Tribunal upheld that the income arising from the buyback is exempt under \u/s 10(34A) by virtue of the Finance Act, 2013. Consequently, the Tribunal dismissed the Revenue's appeal and sustained the order of the Ld. CIT(A). Conclusion The appeal of the Revenue was dismissed, and the order of the Ld. CIT(A) was upheld, confirming that the buyback transaction was genuine and exempt from tax under \u/s 10(34A) of the Income Tax Act, 1961.
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