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TMI Blog2019 (1) TMI 395X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre, Chandigarh (in short 'EHIRC') and the alleged intrinsic value of said shares, which was calculated on the basis of the book value of the assets of EHIRC ( Rs. 110,14,12,937/-), was added in the hands of the assessee under section 2(24)(iv) of the Act. Since the assessee was allotted 16 Lacs shares in EHIRC, an addition of Rs. 88,11,30,349 /- ( 80% of the book value of assets of EHIRC at Rs. 110,14,12,937/-) was made in the hands of the assessee for the year under consideration. The Assessing Officer mentioned in the assessment order that the market value of the assets was not in his possession and therefore value of the assets of EHIRC was made on the basis of book value of the assets. 2.1 The assessment was reopened by way of issue notice under section 148 of the Act on 10/01/2006. In the reasons recorded the Assessing Officer noted that in the case of EHIRC, the value of the assets was determined by the valuation cell of the Department on 29/05/2000 at Rs. 149,08,97,151/-, which would result in total addition to Rs. 119,27,17,721/-. Accordingly, in view of the Assessing Officer, income of Rs. 31,15,87,372/-escaped assessment. 2.2 In reassessment proceeding, the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the book value of the assets of EHIRC and the face value paid by the assessee. The Ld. counsel pointed out that the addition made in the original assessment proceeding has already been deleted by the Tribunal, then the enhancement made to the addition by way of adopting market value of the assets of EHIRC cannot be sustained. The Ld. counsel also relied on the decision of the Ld. CIT(A) holding that report of the Valuation Officer on its own without any other material is a mere opinion and cannot constitute reason to believe justifying the reopening of the assessment. 5. We have heard the rival submissions and perused the relevant material on record including the impugned order passed by the Ld. CIT(A). The facts of the case have already been reproduced above. The Escorts Heart Institute and Research Centre Delhi, a charitable society was merged within noncharitable society having identical name at Chandigarh and later the Chandigarh society got converted into a limited company. In the original assessment proceeding, addition has been made for shares of EHIRC allotted to the assessee. In view of the Assessing Officer due to its substantial shareholding, the assessee was allotted s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... money and effort to achieve its end of obtaining control over the assets of the charitable society at Delhi. It can therefore, be said that the assessee was engaged in a vocation which ultimately gave huge returns to the assessee Since only Rs. 60 lakhs were originally invested in the Delhi Society and subsequently the assessee subscribed to 16,00,000 shares at the rate of only Rs. 10/- per share of the Chandigarh society whereas looking at the net assets (at book value of Rs. 110,14,12,937/-) the value per share of the Society and later on the company Escorts Heart Institute & Research Centre Ltd, works out to Rs. 550/- per share. In this way, the assessee has gained tremendously. The Hon'ble Madras High Court in the case of CIT Vs. Vardarajan [224 ITR 9] has held that the benefit of capital nature is also taxable as income under clause (iv) of section 2(24) of the I.T. Act. Since assessee was having 80% shareholding in the society and then the company, i.e. Substantial interest in both of them, it can be said that the difference in the intrinsic value of shares (16,00,000 X 55b) and the value paid by the assessee i.e. Rs. 1,60,00,000/- was a benefit received by it within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in both of them, it can be said that the difference in the intrinsic value of shares (16,00,000 x 550) and the value paid by the assessee i.e. Rs. 1,60,00,000/- was a benefit received by it within the meaning of section 2(24)(iv) of the Act" (page 16 of the order). "since the market value of the assets was much more but is at the moment not in possession of the undersigned, addition to the tune of 80% of the assets at book value is being made in the hands of the assessee for the time being. Addition works out to Rs. 88,11,30,349/- (80% of the book value of Rs. 1,10,14,12,937/-) (page 17 of the order). The fact that the issue travelled in first appeal to the CIT(A) and cross appeals by the assessee and the department to the Hon'ble ITAT is substantiated by the grounds raised before the latter in the following terms:- By Assessee "Without prejudice to the earlier grounds, there was no basis for the valuation of Rs. 550/- per share worked out by the AO". By the Department "On the facts and in the circumstances of the case and in law, the Commissioner of Income-tax (appeals) has erred in reducing the addition made by the AO by assessing a sum of Rs. 88,11,30,349/- bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48.17 crores and compared thereto the investments in the shares of EHIRC, Chandigarh thereafter converted into EHIRC Ltd. was a miniscule amount of Rs. 1.60 crores. It is not expected and neither provided by law that an assessee should furnish the market value of the assets of the company in which it purchases shares as is the expectation of the Assessing Officer in the reassessment. Another aspect which needs to be adverted to is the effect of a valuer's report in proceedings for reassessment. In judgement after judgement, it has been held that the valuer's report on its own without any other material is a mere opinion and cannot constitute 'reason to believe' justifying the reopening of an assessment made u/s 143(3) of the Act. The report of a valuer is not treated as 'information' and the Courts have gone to the extent of terming a reference to the DVO after the assessment has been completed as incompetent in law resulting in the quashing of the reassessment order. The case of the assessee is on a much stronger footing since the report of the valuer is not in its own case but that of EHIRC, Chandigarh and not even confronted to it. Adverting at this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a International Ltd., wherein the principle of "change of opinion" was reaffirmed in the following terms : "Reassessment proceedings will be invalid in case the assessment order itself records that the issue was raised and is decided in favour of the assessee. Reassessment proceedings in the said cases will be hit by the principle of "change of opinion". In the light of the law laid down by the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court, I hold that the order impugned is wholly based on a "mere change of opinion," being without jurisdiction, therefore null and void and liable to be quashed. In the view that I have taken to quash the order of reassessment, I do not propose to deal with the grounds raised on the merits of the addition." 7. Thus, the Ld. CIT(A) has held the reassessment proceeding invalid due to following reasons: 1. The addition made under section 2(24)(iv) of the Act amounting to Rs. 88,11,30,349/- in the original assessment proceeding in respect of the intrinsic value of the shares allotted to the assessee worked out on the basis of the book value of the assets of EHIRC, has been deleted by the Tribunal holding it to be non-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om business or the exercise of a profession as contemplated under section 28(n ) of the Act. He thus wants to sustain the order of the CIT(A) by contending that in any event the benefit of acquiring shares of the Chandigarh Society at less than it's book value was income within the meaning of section 2(24)(i) read with section 28(iv) of the Act." 9. Further in para 71, the Tribunal observed that the lower authorities did not hold the assessee as engaged in the business of holding investment and the purchase of the share by it at a price less than the book value was in the course of such business giving rise to income chargeable either under section 2(24)(vi) or section 28(iv) of the Act. The relevant observations of the Tribunal are reproduced as under: "71. In our opinion, as to whether the assessee was in the business of holding investments or not is an inferential fact which his deduced merely on the basis of the Annual reports but on the basis of several surrounding circumstances and material. The fad the assessee is a predominantly manufacturing company and the fact that the purchase of shares is reflected as an investment a balance sheet is not in dispute. In the past, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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