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2023 (9) TMI 1530 - AT - Income TaxRevision u/s 263 - Validity of notices u/s 142(1) without DIN - Taxability of transaction of Termination of Call option agreement - addition u/s 14A - HELD THAT - The consideration received subsequently upon termination of call option agreement resulting into relinquishment of right to purchase the shares would amount to transfer u/s 2(47) exigible to tax u/s 45. The assessee also made submissions on disallowance u/s 14A and submitted that the assessee inadvertently missed to allow entire expenditure incurred during the year and submitted that the gains could be increased by that amount. Along with this reply the assessee furnished Call option agreement as well as call option termination agreement. Considering assessee s reply, AO framed the assessment accepting the returned income of the assessee. In the light of AO s query and the assessee s reply thereto, it could be said that the impugned issue of nature of sale consideration on Call Termination Agreement was very much considered by AO during the course of assessment proceedings. The view taken by AO was one of the possible views which, considering the amendment to Sec. 2(14), was one of the possible view. CIT-DR has argued that the aforesaid notice was issued without DIN and therefore, the same was to be treated as an invalid notice - This argument could not be accepted since non- mentioning of DIN was not the fault of the assessee. Secondly, assessment order has taken cognizance of the reply filed by the assessee. Thirdly, the validity of notice u/s 142(1), as rightly pointed out by Ld. AR, could not be challenged in these proceedings. Further, it is not the case of Ld. Pr. CIT in the impugned order that the assessment was framed on the basis of an invalid notice. Therefore, this argument stand rejected. Voluntary disallowance as offered by the assessee was not considered by Ld. AO. However, it is undisputed fact that the assessee has not earned any exempt income during the year and therefore, no such disallowance could otherwise have been made by Ld. AO considering the decision of State Bank of Patiala 2018 (11) TMI 1565 - SC ORDER and Chettinad Logistics P. Ltd. 2018 (7) TMI 567 - SC ORDER CIT-DR argued that AO did not verify the genuineness of the investment activity of the assessee company since the financial statements would show that the assessee was merely acting as conduit for making investments in order to exploit 2G license of Aircel Ltd. - There was no other activity carried out by the assessee. However, the genuineness of assessee s activities has not been questioned either in assessment order or in impugned revisionary order. Pr. CIT merely held an opinion that the income earned by the assessee was to be assessed as business income instead of capital gains . Therefore, this argument has no substance. The argument that the payment received by the assessee was in relation to non-compete and non-solicit application is not supported by the terms of the termination agreement. In the present case, the assessee had a definite right to buy certain shares and the assessee has transferred this right to another entity for a sale consideration which has been offered to tax. The consideration was not received for not carrying out of any activity in relation to any business or profession. Neither there was a bar on the assessee to purchase further shares of Aircel Ltd. Therefore, the provisions of Sec. 28(va) would not apply. The termination of the call option merely relinquishes the right of the assessee company to buy shares of Aircel Ltd. There is no element of non-compete obligation inherent in the agreement which would trigger the provisions of Sec. 28(va) as alleged in the impugned order. The case law of Hon ble High Court of Delhi in CIT vs. Jansampark Advertising Marketing Pvt. Ltd. 2015 (3) TMI 410 - DELHI HIGH COURT held that it was necessary on the part of the appellate authorities to ensure effective enquiry, if AO fails to conduct proper enquiry. The same is not the case here. The decision of Kapurchand Shrimal 1981 (8) TMI 2 - SUPREME COURT merely states that appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue. However, in the present case, the view taken by Ld. AO is one of the plausible views and the same is not contrary to any law. In the case law Usha International Ltd. 2012 (9) TMI 767 - DELHI HIGH COURT it was held that once assessment is framed u/s 143(3), a presumption can be raised that such an order has been passed with due application of mind. The same supports the case of the assessee. Bank interest has already been offered by the assessee as business income and considering the same as income from other sources would be tax neutral. The set-off of current year s business losses is allowable to the assessee against capital gains as rightly submitted by Ld. AR. Therefore, the assessment order could not be held to be erroneous or prejudicial to interest of revenue, on these scores. Assessee appeal allowed.
Issues Involved:
1. Invocation of revisionary jurisdiction under Section 263. 2. Chargeability of proceeds received on termination of call option agreement. 3. Set-off of business loss against long-term capital gain. 4. Chargeability of bank interest. 5. Disallowance under Section 14A. Detailed Analysis: 1. Invocation of Revisionary Jurisdiction Under Section 263: The assessee challenged the invocation of revisionary jurisdiction under Section 263 by the Principal Commissioner of Income Tax (Pr. CIT). The assessee argued that there was no error or prejudice to warrant the invocation of Section 263. The Pr. CIT, however, flagged four issues in the assessment order, indicating that the assessment was erroneous and prejudicial to the interest of the revenue. The tribunal found that the Assessing Officer (AO) had considered the details and submissions made by the assessee during the original assessment proceedings. The tribunal concluded that the AO's view was one of the possible views, and hence, the invocation of Section 263 was not justified. 2. Chargeability of Proceeds Received on Termination of Call Option Agreement: The Pr. CIT argued that the proceeds received on termination of the call option agreement should be treated as business income under Section 28(va) of the Act, rather than capital gains. The assessee contended that the right to purchase shares of Aircel Ltd. was a capital asset, and the proceeds from the termination of this right should be treated as capital gains. The tribunal agreed with the assessee, noting that the right to purchase shares falls within the definition of a capital asset as per Section 2(14). The tribunal also found that the termination of the call option agreement did not involve any non-compete obligation, which would trigger the provisions of Section 28(va). Therefore, the proceeds were correctly treated as capital gains. 3. Set-off of Business Loss Against Long-Term Capital Gain: The Pr. CIT noted that the assessee wrongly set off current year business losses against long-term capital gains. The assessee argued that there was no bar against setting off business losses against long-term capital gains as per Section 71(2). The tribunal agreed with the assessee, stating that the set-off was permissible and the assessment order could not be held erroneous or prejudicial to the interest of the revenue on this score. 4. Chargeability of Bank Interest: The Pr. CIT observed that the assessee failed to add back bank interest in the return of income. The assessee demonstrated that the bank interest was reckoned as business income, and the treatment of interest as business income was tax-neutral. The tribunal found that the bank interest had already been offered as business income, and considering it as income from other sources would be tax-neutral. Therefore, this issue did not render the assessment order erroneous or prejudicial to the interest of the revenue. 5. Disallowance Under Section 14A: The Pr. CIT noted that the AO failed to disallow the expenditure incurred for earning exempt income under Section 14A. The assessee argued that no exempt income was earned during the year, and hence, no disallowance under Section 14A was warranted. The tribunal agreed with the assessee, citing the decisions of the Hon'ble Apex Court in State Bank of Patiala vs. CIT and CIT vs. Chettinad Logistics P. Ltd., which held that no disallowance under Section 14A is warranted if no exempt income is earned during the year. Conclusion: The tribunal concluded that the original assessment order was neither erroneous nor prejudicial to the interest of the revenue. The invocation of revisionary jurisdiction under Section 263 was found to be unjustified. The tribunal quashed the impugned order and restored the original assessment framed by the AO. The appeal was allowed in favor of the assessee.
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