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TMI Blog2018 (2) TMI 100X X X X Extracts X X X X X X X X Extracts X X X X ..... g the course of assessment proceedings about the taxability of the shares received as gift by the appellant. Further , it is apparent that assessment order was passed on 18/3/2016 and order under section 263 was passed on 1/5/2017, both after 1/6/2015, therefore explanation (2) introduced w.e.f. 1/6/2015 squarely applies. Therefore, it is apparent that AO has not made any enquiry with respect to the taxability of gift received by the assessee from the mother of the Karta of assessee. Furthermore, merely notice has been issued under section 154 on the same issue but later on, no rectification order has been passed by the Ld. assessing officer does not help the case of the assessee. The provisions of section 154 operate when there is an apparent mistake from the records. - Decided against assessee. Whether the gift of 75,000 equity shares of a private limited company received by assessee HUF from Mrs. Sneh Gupta is chargeable to tax under section 56 (2) (vii)? - Held that:- In the present case, the assessee is a HUF who received the gift from a non-relative. The ld-authorized representative also could not show us any commentary on Hindu law or any other authoritative material, which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 18-03-2016 is erroneous in so far as it is prejudicial to the interest of revenue. 2. That in any case and in any view of the matter, action of Ld. Pr. CIT in assuming jurisdiction u/s 263 and passing the impugned order under this section is bad in law and against the facts and circumstances of the case. 3. That having regard to facts & circumstances of the case, Ld. Pr. CIT has erred in law and on facts in holding that the gift received by the appellant is covered u/s 56(2)(vii) and taxable. 4. That in any case and in any view of the matter, action of Ld. Pr.CIT in bringing to tax the gift as taxable in the hands of appellant is bad in law and against the facts and circumstances of the case. 5. That having regard to facts & circumstances of the case, Ld. Pr. CIT has erred in law and on facts in taking the valuation of shares @ ₹ 2375.95/- u/s 56(2)(vii) r.w.s. 2(22B) instead of fair market value @ ₹ 234.82/- per share under rule 11UA as claimed and that too by recording incorrect facts and findings and without observing the principles of natural justice. 6. That in any case and in any view of the matter, action of Pr.CIT in adopting the fair market ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) Copy of the house tax receipt is enclosed. (iii) Shares were submitted for D mat vide letter dated 26.11.2012 to M/s RCMC share registry. The copy of the letter is enclosed. 3. In this submission you have simply submitted the mode and manner of acquisition of shares. There is no inquiry made by the AO as regards the applicability of section 56(2)(vii) therefore your case would fall u/s 263(1) explanation 2. Vide letter dated 01.12.2016 you have accepted that you have received 75,000 equity shares from Mrs. Sneh Gupta who is the mother of Karta of HUF. You have also made your further submission that your case is not covered u/s 56(2)(vii). You have attempted to say that the gift is from relative only. You have also referred to the definition of relative made by the Finance Act 2012 w.e.f. 01.10.2009. You have presumed that the amendment is only to enlarge the definition of relative in so as it relates to HUF and not to restrict its definition. You have also referred to notes of clauses of Finance Bill 2012. It has been specifically mentioned that the relative of HUF would be only the member thereof. It is admitted by you that Smt. Sneh Gupta is not the member of HUF. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember would be the relative. 6. The Hon'ble Supreme Court in the case of Tarulata Shyam vs. CIT, 108ITR 345 has referred to a decision of Brandy Syndicate vs. Inland Revenue Commissioner (1921) 1 Kb 64 wherein it was held as under:- Once it is shown that the case of the assessee comes within the letter of the law, he must be taxed, however great the hardship may appear to the judicial mind to be. " 7. Similarly the definition of relative has to be seen with reference to what has been mentioned in the Act. We have to look only fair to the language used. There is no scope of presumption of enlargement of definition as mentioned by you in your reply. 8. The Hon'ble ITAT, Delhi in the case of DCIT vs. Frontline Capital Services Limited, 96 TTJ 201 has also referred to the decision of the Hon 'ble Supreme Court in the case ofTarulata Shyam(supra). The portion of the para 12 is reproduced below:- "12. It is well-settled position in law that rules of interpretation can be put into service only where the language of the statute is ambiguous or capable of more than one meaning. In the case of CIT vs. Sodra Devi (1957) 32 ITR 615 (SC) the Hon'ble Supreme Court have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Development Corporation Limited vs. JCIT, 102 TTJ 936 the Hon'ble IT A T Delhi referred to a decision of apex court in the case of Suresh Lohiya vs. State of Maharashtra(l966) 10 SCO 379 wherein it held that once a word has been defined in the statute, the court cannot look elsewhere for its meaning. The Hon 'ble ITAT further referred to the judgement of the Hon'ble Supreme Court in the case of P. Kasilingam vs. PSG College of Technology (1995) Supp 2 SCC 348 and other case laws. The relevant portion of the para 12 is reproduced below:- "12. In our opinion, the word 'means' can only have one meaning, that is, it is an exclusive definition vide P. Kasilingam vs. P.S.G. College of Technology (1995) Supp 2 SCC 348. When we say that a word has a certain meaning then by implication we mean that it has no other meaning vide Punjab Land Development & Reclamation Corpn. Ltd. vs. Presiding Officer, Labour Court (1990) 77 FJR 17 (SC) : (1990) 3 SCC 682. However, when certain other categories are added then it means that only those additional categories will be included within the definition and none others, vide Mahalakshmi Oil Mills vs. State ofA.P. (1989) 1 SCC 164 : (1988) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f an HUF and therefore is not covered in the definition of 'relative' as it applies in case of assessee. 7. The assessee submitted its reply in response to the notice on 20/3/2017, which is placed at page No. 178 - 184 of the paper book. It was stated by the assessee that the above gift is from 'relative' and thus exempt receipt under section 56 of the Income Tax Act. With respect to the valuation, it was submitted that valuation is required to be made as per rule 11 UA of the Income Tax Act. 8. After considering the reply of the assessee, The Ld. PCIT passed order under section 263 of the Income Tax Act as under :- "6. I have carefully considered the submissions of the assessee. The reply of the assessee is considered point by point and not found satisfactory rather it is repetitive in nature to the extent that it reiterates the points of interpretation of the term 'relative' and applicability of section 263. These issues were already dealt with at length in the show cause notice dated 09/02/2017. 7. In para 3 of the reply dated 20.03.2017 to the notice u/s 263 of I.T. Act, AR has contended that twin conditions of the assessment order being erroneous and it being pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 263 of the Income Tax Act, 1961?" The Hon'ble Delhi High Court discussed in detail the various case laws like CTT vs. Nagesh Knitwears Pvt. Ltd., 345 ITR 135; Malabar Industrial Company Ltd vs. CTT, 243 ITR 83(SC); Nabha Investments Pvt. Ltd. vs. Union of India, 246 TTR 41(Delhi); TTO vs. DG Housing Projects Ltd., 343 TTR 329(Delhi); Rampyari Devi Saraogi vs. CIT, 67 TTR 84(SC); CIT vs. CTT vs. Sunbeam Auto Ltd., 332 ITR 167. In the case of CTT vs. Nagesh Knitwears Pvt. Ltd.(supra) the Hon'ble Delhi High held as under:- "The Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it shoidd be prejudicial to the interest of the Revenue. The expression "prejudicial to the interest of the Revenue, is of wide import and is not confined to merely loss of tax. The term 'erroneous' means a wrong/incorrect decision deviating from law. This expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;ble Jurisdictional High Court in Gee Vee Enterprise vs. Asst. CIT [1975] 99 ITR 375 has held that the Ed. Commissioner of Income Tax can regard the ITO's order as erroneous on the ground that in the circumstances of the case the ITO should have made further enquiries before accepting the statements made by the assessee in his return. We find that this case law is also applicable on the facts of this case Assessing Officer in this regard has not made any enquiry and has accepted the statements made by the assessee in his return." iv. Thomson Press (India) Ltd. vs. CTT, 94 CCH 42(DelHC): In this case also the Hon'ble Delhi High Court has discussed various case laws pronounced on section 263. The observations of the Hon'ble Delhi High Court as in para 51 are reproduced as under:- "We are also unable to accept the contention that since in the preceding year, no issue has been raised with regard to charging of interest by one unit to another, the same could not be picked up by the CIT under Section 263 of the Act. Merely because an issue remained unchecked in a preceding year does not mean that the CIT is estopped from exercising its powers under Section 263 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 263 of the Act. The doctrine of merger in such a case will have no application." 10. The sum received by M/S Subodh Gupta HUF from a person other than the relative would be covered u/s 56(2)(vii)(c)(i) as the assessee has not paid any consideration while receiving as gift the 75000 shares of M/s Triveni Polymers Pvt. Ltd. The AO failed to invoke the plain section i.e. 56(2)(vii)(c) read with definition of 'relative' therefore it also becomes a mistake of law. In view of this the AO omitted to add a sum of ₹ 17,81,98,500/- i.e. the fair market value of 75000 shares at the rate of ₹ 2375.95 per share. Hence, in the considered opinion of the undersigned the order passed by the AO u/ s 143(3) of income tax act was held as erroneous so far as it is prejudicial to the interest of revenue. In view of facts detailed above, the twin condition of assessment order being erroneous and prejudicial to the interest of revenue for invoking the section 263 are demonstrably met. 11. In reply dated 20.03.2017 in para 4, the assessee has reiterated that mother of karta of HUF even though not a member of HUF is within the definition of the term 'relative'. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r HUF receives, in any previous year, from any person or persons. (c) any property, other than immovable property- (i) without consideration, the aggregate fair market value of which exceeds ₹ 50,000/- , the whole of the aggregate fair market value, (ii) for a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand Rupees, the aggregate fair market value of such property as exceeds such consideration. 14. The same is chargeable to tax at the aggregate of the fair market value. Explanation to sub-clause (c) of section 56(2)(vii) states: For the purpose of this clause,- (b) fair market value of a property, other than an immovable property, means the value determined with the method as may be prescribed. 15. AR claimed the fair market value is to be determined as per rule 11U and 11UA. And in support of the assessee has quoted case law "medplus health services(P) ltd. vs ito ward 16(1) Hyderabad (2016) 68 taxmann.com 29(Hyderabad tribunal). The argument of the assessee is based on the partial and selective reading of the Income tax act. Any statute unless otherwise stated has to read in entirety. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of these shares received as per the valuation made under rule 11UA works out as ₹ 234.82 per share. Thus, fair market value of these shares as ₹ 1,76,12,038/-. 20. It is relevant here to quote a landmark judgement of Hon'ble Allahabad high court in case of Amrit Banaspati co. Ltd., 256 ITR 337. In this case the appeal was filed by the assessee against the decision of ITAT, Delhi which had upheld the wealth tax assessment order of the assessing officer. In this case, fair market value of the underlying property which was a flat in Mumbai was determined by the assessing officer at the market value of the property. The assessee, on the other hand, was using the valuation on the basis of the municipal authorities. The valuation so arrived was Rs. x,jo,aC'Q,' - icr die re^evanc assessmem yeai i 99o-9-i. uiioiesuiigiy, me assessee liiiu himself agreed to sell the property for ₹ 10.26 crores in September 1995. The finding of the Hon'ble high court were as follows: "... both the commissioner wealth tax (Appeals) as well as the Tribunal have reflected the assessee's appeal and hence it has come to this court it may be noted that where Rule 8 is a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TO zvard 16(1) Hyderabad (2016) 68 Taxman.com 29 (Hyd. Tri.) is also not applicable in the case at hand as in the appellate proceedings neither has the application of section 2(22B) being made nor has it been deliberated or adjudicated upon. Moreover, the issue is covered by the ratio of the decision of the Hon'ble Supreme Court in the case of Amrit Banaspati (supra) as no rule would be applicable as per section 2(22B)(i) of the IT Act since the market value is ascertainable. The case of the revenue is on strong footing as no rule would be applicable within the express provision of section 2(22B)(i). 23. The assessee HUF, itself has sold the share at price of ₹ 2,375.98/-per share within a period of less than three months of the acquisition of shares by way of gift, it being verified as to whether it is correct or not as per rule, in view of the fact that fair market value i.e. ₹ 2,090.71 per share is being taken for the purpose of computation of gift from unrelated party. More importantly, there has been no fundamental change in the economic environment at large, the business of the assessee firm, its assets base or any material factor that would result in shoot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the extent that the market value of 75000 shares received from the mother are treated as income u/s 56(2Hviib which the AO failed to bring to tax. The income of the assessee HUF is therefore, enhanced by (75000x ₹ 2375.95) ₹ 17,81,98,500/- above and over the assessed income for the present A.Y. 2013-14. The AO is directed to give effect to this order and raise demand immediately. 28. The penalty proceedings u/s 271(1) (c) r.w.s. 1 are also initiated because the assessee failed to apply section 2(22B) for the purpose of fair market value which is ascertainable and also the case of the assessee, on the plain reading of the definition of 'relative', is not covered as mother is not member of HUF. The mother has gifted 75000 shares to the HUF." 9. In nutshell, he directed the Ld. assessing officer to modify the order passed to the extent that the market value of 75,000 equity shares received from the mother of the Karta of HUF treating as income under section 56 (2) (vii) which the AO failed to bring to tax as the income of the assessee HUF. Consequently, the income of the HUF was enhanced by ₹ 17819 8500/-. 10. Contesting the orders of the ld PCIT, The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gupta) 2. Not only this, issue about the acquisition of shares of M/s Triveni Polymers P Ltd (TPPL) & taxability of capital gain resulting from the transfer of shares including the shares received from the mother was extensively examined during the course of assessment proceeding as is evident from the following:- PB 1-3 is the copy of return showing that assessee had disclosed amount of capital gain from sale of equity shares of M/s Triveni Polimers Pvt. Ltd. (TPPL). PB 4 is Assessing Officer's notice u/s 142(1) wherein he asked for statement of affairs of the assessee for 3 years. PB 5 is assessee's reply submitting statement of affairs and other details including Bank A/c of the assessee. PB 23-54 is assessee's reply dated 05.08.2015 filed to the Ld. Assessing Officer including various documents with regarding to capital gain arising on sale of shares of TPPL. P0 24 is the copy of computation sheet showing computation of long term capital gain arising on sale of shares of TPPL. PB 25-46 are copies of annual returns filed by TPPL with ROC showing list of shareholders in2011,2012&2013. PB 47-51 is the copy of form FC-TRS file under FEMA regulations with RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of following propositions of law and judgments in support of the same: 1) There is a presumption that an assessment order has been passed after application of mind. Thus, revision u/s 263 of such assessment order would be bad as held in the judgment of Oracle Systems Corporation vs. ADIT 380 ITR 232 (Delhi) (CLC Pg. 110-117) para 10-13 (a) In the following judgments, it has been held that merely because the assessment order is brief it would not be concluded by this fact alone that assessment order was passed without making requisite enquiries. CIT vs. Ashish Rajpal 320 ITR 674 (Del) at page 686 (CLC Pg. 1-13) CIT vs. Gabriel India Ltd. 203 ITR 108 (Bom) at page 114 CIT vs. Sunbeam Auto Ltd. 332 ITR 167 (Del) at page 179 (CLC Pg. 14- 27) CIT vs. Vikas Polymers 236 CTR 476 (Del) (CLC Pg. 28-36) Hari Iron Trading Co. vs. CIT 263 ITR 437 (P&H) CIT vs. V.P. Agarwal, Prop. Agarwal Scientific Glass Industry 169 Taxman 0107 (Allahabad High Court) If an Income-tax Officer acting in accordance with law makes an assessment, the same cannot be termed as erroneous by the Commissioner simply because, according to him, the Assessing Officer should have made thorough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 341 ITR 180 (Del) CIT vs. New Delhi Television Ltd. 262 CTR 604 (Del) (CLC Pg. 68-71) CIT vs. Vikas Polymers 236 CTR 476 (Del) (CLC Pg. 28-36) - CIT vs. Hero Auto Ltd. 343 ITR 342 (Del.) Lack of proper enquiry-Assessee having given complete details of the provisions of warranty in response to the query raised by the AO during the course of assessment proceedings and regarding claim of deduction under s. 35DDA. AO accepted the assessee's claim after examining the same, order under s. 263 passed by the CIT cannot be sustained - CIT vs. Bharat Aluminum Co. Ltd. 303 ITR 256 (Del) Revision - Erroneous and prejudicial order - Lack of proper enquiry CIT having not found the assessment order erroneous in which the AO allowed the legitimate business expenditure to accepting corrections in the original return made through a letter, he had no power to revise the same. 4) Where two views are possible, and one of the possible views has been taken by the AO in the order passed u/s 143(3), then provisions of section 263 cannot be invoked: Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) (CLC Pg. 72-77) CIT vs. Arvind Jewellers 259 ITR 502 (Guj) CIT vs. Sunbeam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would clearly fall within the definition of term 'relative' as provided in clause 'e' to Explanation provided in Section 56(2)(vii) which has been inserted to enable the HUF assessees to claim exemption of the gifts as would be clear from the notes on clauses to the amendment made by Finance Bill, 2012 (CLC Pg. 194) as is reproduced hereunder: "Clause (e) of Explanation to second proviso of the said clause provides that the definition of "relative" shall have the same meaning assigned to it in the Explanation to clause (vi) of sub-section (2) of the said section. It is proposed to substitute the aforesaid clause (e) so as to provide that the definition of "relative" shall also include any sum or property received by a Hindu undivided family from its members apart from the persons referred to in the Explanations clause (vi) of sub-section (2) of the said section. This amendment will take effect retrospectively from 1st October, 2009. " Thus, it does not over shadow the other definition of the term 'relative' as has been given in the case of individuals. Amendment in fact is actually an enabling provision which enables ITUF assessee to claim benefit of exemption on the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatives 'from the HUF not exempt from taxation. To better appreciate and understand the situation, it would be appropriate to illustrate an example, thus an employee amongst the staff members of an office retires and in token of their affection and affinity towards him, the secretary of the staff club on behalf of the members of the club presents the retiring employee with a gift could that gift presented by the secretary of the staff club on behalf of the staff club be termed as a gift from the secretary of the staff club alone and not from all the members of the club, as such? In our opinion answer to this quoted example would be that the gift presented by the secretary of the club represents the gift given by him on behalf of the members of the staff club and it is the collective gift from all the members of the club and not the secretary in his individual capacity. And if it is held otherwise, it will lead to an absurdity of interpretation which is not acceptable in interpretation of statutes as has been held by the Hon'ble Apex Court in the case ofK. Govindan & Sons (supra). 2. CIT vs. C.P. Appanna 202 ITR 0678 (Karnataka) (CLC Pg. 127-129) In this case, it has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii). Reliance is placed on following judgments of Hon'ble Kolkata Bench of ITAT: Subhadra Devi Nevatia vs. Department of Income Tax (Dt. 10th February, 2012, ITA NO. 1298/K/2011, ITAT Kolkata) (CLC Pg. 167-175) In this judgment, Hon'ble bench analyzed the provisions of Hindu Law as contained in Hindu Succession Act and their interplay with the provision of Sec 56(2)(v) of Income Tax Act, 1961. It has been held in this judgment that entity of HUF as described under the Income Tax Act must be construed in the sense in which it is understood under the Hindu Law. It was also held that a HUF constitute all persons lineally ascended or descended from a common ancestor and included their mother, wives or widow and unmarried daughter and all those persons who fall under the definition of relatives as used under Sec 56(2)(v). Relevant portion of the judgment is reproduced hereunder from page 5: "It is a fact that the assessee has received this sum being a member of HUF, even we can say that after amendment w.ef 01/4/2003 in the Hindu Succession Act, the females are entered as coparceners. In view of above clause (v) of explanation to sec. 56(2) of the Act, Explanation defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns who are united by the tie of sapindaship arising by birth, marriage or adoption. If this is the situation, we can easily hold that HUF entity falls within the definition of relative as defined in explanation to section 56(2) of the Act. Once it is held that HUF falls in this dejinition, no receipt from HUF to its coparceners or members can be assessed by invoking the provisions of section 56(2)(v) of the Act. Accordingly, we allow the claim of assessee and uphold the order of CIT(A) on this issue. " Surjit Lai Chliabda vs. CIT 101 ITR 776 (SC) (CLC Pg. 133-147) In this case, it has been held that income tax act does not define expression HUF whereas it is well defined area under Hindu law. Therefore, the expression HUF must be construed under the Income Tax law in the sense in which it is understood under the Hindu law. Thus, in view of the above, it is clear that gift given by Mrs. Sneh Gupta as a member of IIUF to its relatives and collectively given to all the members of son's HUF would clearly be the gift from the 'relative' as envisaged u/s 56(2)(vii) and thus exempt. III) (a) T he definition of "relative' given in Explanation to section 56(2)(vii) defines relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "an interpretation clause which extends the meaning of a word does not take away its ordinary meaning. An interpretation clause is not meant to prevent the word receiving its ordinary, popular and natural sense whenever that would be properly applicable, but to enable the word as used in the Act, when there is nothing in the context or the subject-matter to the contrary, to applied to something to which it would not ordinarily be applicable." It further observe that even if both the interpretations-one put by the learned counsel for the company a d the other by the learned counsel for the Department-are taken to be correct, it is 1 h principle of interpretation that the interpretation which is favourable to the subject should e adopted and that which is favourable to the Department should be discarded. In c 'e that principle is applied to the present case, the interpretation which supports the assessee has to be accepted. We need not go that far as in our opinion , on a plain reading of the agreements and the provisions of law, the assessee is entitled to the deduction clearly. Anupam Tele Services vs. ITO 366 ITR 122 (Guj) holding that exception in Rule 6DD has to be inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he face of it. d) In this regard, reliance is placed on the judgment of Medplus Health Services (P) Ltd. vs. 1TO in 48 ITR(T) 396 (Hyderabad - Trib.)/ 158 ITD 105 (Hyderabad) (CLC Pg. 176-185) which says that there cannot be any other method when sped lie method has been prescribed under the law. e) Ld. CIT has relied upon the decision of Amrit Banaspati 256 ITR 337(A11) and 365 ITR 515(SC). But, facts of that case and law applicable in that case were entirely different. Under Wealth tax Rules, Rule 3 was made subject to Rule 8 and that being so, valuation was to be done as per Rule 8 only. f) in section 5 I (vii), only rule prescribed for valuation is Rule 11UA and thus no assistance any other provision can be taken. When there is special provision made, special provision would prevail on the general provision as held in the following judicial decisions:- Hindustan Graphites Ltd. vs. CIT 96 Taman 163 (MP) CIT vs. Safya Narnl Munjal 256 ITR 516(P&H) CIT vs. Oni Prakash Munjal 325 ITR 605 (P&H) Ratan Lai vs. ITO 98 ITR 681 (Del) Thus, without prejudice to our submission made in Ground No. 1 to 4 above, the order of Ld. CIT is prima facie illegal on the fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a small amount of authorised share capital, raised a huge sum on account of premium and chose not to go in for increase of authorised share capital merely to avoid payment of statutory fees and Assessing Officer passed assessment order without carrying out requisite enquiry into increase of share capital including premium received by assessee, Commissioner was justified in treating assessment order as erroneous and prejudicial to interest of revenue 3. Raimandir Estates (P.) Ltd. Vs PCIT f2017] 77 taxmann.com 285 (SC)/2017 245 Taxman 127 (SC) Hon'ble Supreme Court has dismissed SLP against High Court's ruling that where assessee with a small amount of authorised share capital, raised huge sum on account of premium, exercise of revisionary powers by Commissioner opining that this could be a case of money laundering was justified." 12. Facts shows that assessee is a Hindu undivided family, who filed its return of income on 31/07/2013 declaring income of ₹ 579720/-. Assessment under section 143 (3) of the income tax act was passed on the returned income on 18/3/2016. Subsequently, the Ld. PCIT passed an order under section 263 on 01/05/2017. He held that the orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. PCIT, following 3 issues emerges before us:- i. whether the order passed by the Ld. assessing officer is erroneous and prejudicial to the interest of revenue as per ground No. 1 and 2 of the appeal of the assessee. ii. Whether the gift of 75000 equity shares of Triveni polymers Ltd, made by Mrs. Sneh Gupta to the assessee HUF is chargeable to tax under section 56 (2) (vii) of the act, as per ground No. 3 and 4. iii. Whether the valuation taken by the ld PCIT for the purpose of determining the income chargeable is correct applying section 2 (22B) of the act ignoring rule 11UA of The Income Tax Rules, 1962 as per Ground no 5 & 6. 13. The 1st issue that we consider is whether the order passed by the Ld. assessing officer is erroneous and prejudicial to the interest of the revenue or not. The main plank of the submission of assessee is that the assessee has disclosed the complete details before the Ld. assessing officer during assessment proceedings. Ld AO has applied his mind on the issue. Therefore, the order passed by the Ld. assessing officer is neither erroneous nor not prejudicial to the interest of the revenue as capital gain resulting from the transfer of shares inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ares submitted to the reserve bank of India is submitted to the Ld. assessing officer. In view of this, the contention of the assessee is that the Ld. assessing officer has examined the details and after that, he has accepted the return of income of the assessee without taking any adverse view. He further referred to page No. 167 of the paper book where the notice under section 154 of the income tax act, 1961 was issued on 7/11/2016 by the Ld. assessing officer is placed . In that, ld AO has asked the assessee to showcause why an amount of ₹ 17.81 crores received as a gift from person other than the member of the HUF may not be treated as income under the head income from other sources for the year assessment year 13-14. He submitted that subsequently, this notice was not acted upon which itself shows that there is no error in the order of the Ld. assessing officer. He therefore submitted that the action under section 263 of the Income Tax Act of the PCIT is not sustainable. 14. The Ld. departmental representative relied upon the amendment to the section 263 of The Income Tax Act. He submitted that w.e.f. 1/6/2015 explanation (2) has been inserted, which provides that an ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l gain in the hands of the assessee. The ld AO has not at all looked at those documents from the perspective of section 56 (2) of the Act. No other evidence was adduced before us which even remotely suggest that the ld AO has enquired about the taxability of impugned gift and its taxability in the hands of assessee. From the above facts, it is apparent that the ld assessing officer did not enquire during the course of assessment proceedings about the taxability of the shares received as gift by the appellant. Further , it is apparent that assessment order was passed on 18/3/2016 and order under section 263 of the income tax act was passed on 1/5/2017, both after 1/6/2015, therefore explanation (2) introduced w.e.f. 1/6/2015 squarely applies. Therefore, it is apparent that Ld. assessing officer has not made any enquiry with respect to the taxability of gift received by the assessee from the mother of the Karta of assessee. Furthermore, merely notice has been issued under section 154 of the Income Tax Act on the same issue but later on, no rectification order has been passed by the Ld. assessing officer does not help the case of the assessee. The provisions of section 154 operate whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lative'. Therefore, if such sum or property is received from a 'relative' it will not be chargeable to tax under that section. The explanation (e) defines 'relatives' in case of a Hindu undivided family as any member thereof. Therefore, if the above assessee, HUF, receives any sum from any member of the HUF then such sum or property received by the HUF assessee will not be chargeable to tax. Therefore, the simple issue that arises to be examined that whether Mrs. Sneh Gupta is a member of the assessee HUF. If she is, then the gift of share is not chargeable to tax in the hands of assessee as income. Assessee has provided gift deed which is placed at page no 148 of the paper book. In para no 2 of that deed , it is stated that out of natural law and affection which Mrs. Sneh have Gupta bear towards the family of her son , namely Sh. Subodh Gupta, his wife Sonal Gupta and three children, Stuti Gupta, Sachi Gupta and Shreyans Gupta jointly forming Subodh Gupta HUF, she has given 75,000 equity shares of the Triveni polymers private limited. Therefore It is apparent from the declaration that assessee HUF consist of Sri Subodh Gupta, his wife and 3 children only. Therefore, as per the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relatives' with respect to the HUF. It only talks about 'relatives' with respect to an individual. Therefore, earlier the issue was that if the gift is received by an HUF from its members, probably it was taxable. To remove that lacuna and to give benefit to the HUF, the above amendment was made. The amendment also speaks through ' notes on clauses' that now the definition of 'relative' shall also include any sum or property received by an Hindu undivided family from its members apart from the persons referred to in the explanation with respect to an individual. It does not provide that if gift is made to an HUF by any of the 'relatives' of those individuals comprising the HUF, who is not the member of the HUF, then such gift is not chargeable to tax. If such a view were accepted, then gift to HUF would never be chargeable to tax if it were received from the "relatives" of the members of such HUF. We are afraid that is not the language as well as the intention of the legislature. Even otherwise, When the language of the law is clear, support of the 'notes on clauses' to the amendment does not help the assessee. Further, the contention of the Ld. authorized representative that where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e recipient is individual or HUF then from whom it can receive property or sum without paying tax under section 56 of the act. In view of this, the reliance placed by the assessee on the decision of the Hon'ble Karnataka High Court is misplaced. Similarly, the reliance placed on CIT versus Gunvantlal Ratanchand 208 ITR 1028 (Gujarat) also deserves to be rejected because the issue before the Hon'ble court was that when the exemption is granted to individuals whether such exemption is available to an HUF or not When the such exemption was not provided by the legislature to an HUF. The Ld. authorized representative further relied upon the decision of the Hon'ble Supreme Court in case of Surjeet laL Chhabra versus CIT [101 ITR 776] (SC) and submitted that Income Tax Act does not define expression Hindu undivided family, whereas it is well-defined area under Hindu law and therefore the expression Hindu undivided family must be construed under the income tax law, in the sense in which it is understood under the Hindu law. Here it is not the issue that what constitutes Hindu undivided family, but whether the property received from a non-member is exempt when the law itself provides that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Karta of assessee HUF, is member of his HUF. Therefore, we reject the arguments of the assessee that the gift of 75,000 equity shares received by the assessee is not chargeable to tax under section 56 (2) (vii) of the act. Hence, we do not find any infirmity in the order of the Ld. PCIT in holding that gift of 75,000 equity shares received by the assessee received from Mrs. Sneh Gupta is chargeable to tax under section 56 (2) (vii) of the act. Accordingly, Ground no 3 & 4 of the appeal are dismissed. 17. The 3rd issue is with respect to the valuation of the equity shares received by the assessee as gift from Mrs. Sneh Gupta. In the present case, the assessee HUF has received this gift of 75,000 equity shares of an unlisted company. The provisions of section 56 (2) (vii) (c) provides that where an individual or Hindu undivided family receives from any person any property other than immovable property without consideration, then the aggregate fair market value of which exceeds ₹ 50,000, the whole of the aggregate fair market value of such property is chargeable to tax as income under the head income from other sources. Explanation (b) defines that 'fair market value' of a p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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