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TMI Blog2019 (8) TMI 805X X X X Extracts X X X X X X X X Extracts X X X X ..... or such low prices till the time the shares were sold for ₹ 127.35 paise. Therefore, the finding rendered by the Tribunal that the price for which the shares were agreed to be sold is a justified reasonable price is a finding not supported by any document and therefore, perverse. Validity of assessment u/s 153C - assessee contended that no incriminating material related to assessee found in search - HELD THAT:- The Tribunal had failed to note that the AO, at the first instance, while calling upon the assessee to show cause as to why non compete fee of ₹ 10 Crores should not be brought to tax, placed reliance on the seized material in file no. Ann/MP/D D/S.35. There is a specific reference to the same in paragraph 4.2 of the assessment order. Therefore, we fail to understand as to how the Tribunal came to the conclusion that there was no material to frame the assessment u/s 153C. There has been no attempt made by the Tribunal to examine the seized material which was the basis of the assessment proceedings, papers and documents were recovered from the residence of the assessee and the companies controlled by by him. Therefore, to say the least, the finding of the Tri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aggrieved by the order passed by the Commissioner of Income-tax (Appeals)-I, Chennai (for brevity, the CIT(A) ), dated 15.12.2006, the assessee as well as the Revenue filed appeals before the Tribunal and two separate orders were passed by the Tribunal accepting the case of the assessee and this being the reason, the Revenue has filed two tax case appeals. 3.A decision in T.C.(A) No.568 of 2008 would cover both cases. The appeal was admitted, on 03.07.2008, on the following substantial question of law:- Whether on the facts and circumstances of the case, the Tribunal was right in holding that the price shown @ ₹ 14.75 per share should be accepted as genuine, when the same shares were sold by the company for ₹ 127 per share? 4.The assessee is the Chairman and Managing Director of M/s.Empee Distilleries Ltd. A search was conducted in the business premises of the company and the residence of the assessee was also searched. 5.The Revenue would state that it was found that the assessee and his family members had sold their shares to M/s.McDowell Alcobev Ltd., at ₹ 14.25 per share when the remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce made by the Assessing Officer to the seized materials. 10.Further, it is contended that the finding of the Tribunal that the addition has been made on the basis of Board Resolution which was done behind the back of the assessee, is not supported by any material, nor there is any reference in the assessment order and therefore, the observation of the Tribunal is on assumptions. 11.The learned Standing Counsel placed reliance on the decisions in Lachminarayan Madan Lal vs. CIT reported in [1972] 86 ITR 439 (SC); and Mc Dowell Co. Ltd., vs. Commercial Tax Officer reported in [1985] 154 ITR 148 (SC). 12.Mr.A.S.Sriraman, learned counsel appearing for the respondent/assessee sought to sustain the order passed by the Tribunal firstly by contending that there is absolutely no seized material emanating out of the search and seizure operations warranting assessment under Section 153C of the Act. In this regard, the learned counsel placed reliance on the decision in the case of CIT vs. Sinhgad Technical Education Society reported in [2017] 397 ITR 344. 13.It is further submitted that whatever material which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recording satisfaction, a notice under Section 153C was issued on 04.01.2005. The assessee was granted 30 days' time, from the date of receipt of the notice, to file his return of income in respect of the notice under Section 153C of the Act. The assessee filed his return of income on 29.07.2005, without offering any additional income than what was admitted in his return originally filed on 20.10.2002. Pursuant to notice issued under Section 143(2) dated 23.08.2005, the authorised representative of the assessee appeared before the Assessing Officer and filed details. Subsequently, notice under Section 142(1) dated 07.12.2005, was issued along with questionnaire in which, details were called for. 20.The assessee was called upon to show cause as to why the non compete fee of ₹ 10 Crores should not be brought to tax in view of the facts brought out as a result of search. The assessee filed his reply dated 20.03.2006. The Assessing Officer, upon analysing the transaction as a whole, held that it is a device employed by the assessee to avoid tax and accordingly, the sum of ₹ 10 Crores received by the assessee has the character of capital gains on transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 7 Crores. Empee Distilleries Ltd., and the assessee claimed that the receipts were capital in nature and hence, did not offer the same to tax. 24.The Assessing Officer was of the prima facie view that the non compete fee should be taxed in the hands of the assessee considering the chain of events noted by him. The assessee, in their reply, contended that the non compete fee of ₹ 10 Crores is accounted for in the books of accounts for the year ended 31.03.2002 and the reason for effecting such payment is set out in the agreement dated 30.03.2002 and that the assessee had entered into a share purchase agreement dated 18.01.2002 with Empee Distilleries Ltd., for sale of equity shares in Empee Breweries Ltd., owned and controlled by the assessee and his family members. Further, the assessee stated that by asset purchase agreement dated 28.02.2002, Empee Breweries Ltd., purchased operating assets and licences of the Brewery unit from Empee Distilleries Ltd., and in terms of the share purchase agreement, the assessee transferred the entire shares held by him and his family members in Empee Breweries Ltd., to McDowel Alcobev Ltd. 25.The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be viewed as a singular event for judging the genuineness and if the transactions are perceived as a whole, it shows the device employed by the assessee to avoid tax, more so when the assessee and Empee Distilleries Ltd., were under no compulsion to sell their shares at very low prices after initiating the arrangement for handing over Empee Breweries Ltd. It was noted by the Assessing Officer that nothing has changed since their sales for low prices, till the time the shares were sold for ₹ 127.35 paise. Accordingly, the stand taken by the assessee was rejected and the assessment was completed. 28.On appeal before the CIT(A), it was held that non compete fee should not be disturbed, but the high amount charged to Empee Sugars Chemicals Ltd., should be treated as having been partly for the shares sold by the assessee. Accordingly, a sum of ₹ 8,79,13,221/- was treated as capital gains of the assessee and the same should be reduced from the gains in the hands of Empee Sugars Chemicals Ltd. 29.Aggrieved by the same, the assessee had preferred appeal before the Tribunal. The Tribunal pointed out that the adequacy of co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the reply given by the assessee dated 20.03.2006, to the show cause notice issued by the Assessing Officer, it is seen that no explanation was offered by the assessee as to why he sold the shares at such low price. The contention of the assessee is that the amount of ₹ 10 Crores received by him is towards non compete fee, as McDowell Alcobev Ltd., insisted upon a restricted covenant on the assessee for a period of seven years. Therefore, the finding of the Tribunal that the explanation offered by the assessee for selling the shares at ₹ 14.25 to be convincing is not substantiated by any material and therefore, perverse. The Tribunal, further, has observed that besides the search and seizure action on 25.11.2003, under Section 132, both in the case of the assessee and Empee Distilleries Ltd., there is no material relating to the said addition. 34.Further, the Tribunal states that the assessment under Section 153C read with Section 153A and Section 143(3) was framed on the sole reliance of the Board Resolution which was done behind the back of the assessee and such Board Resolution alone cannot be taken as a valid piece of evidence par ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a device employed by the assessee to evade taxes. The finding of the Assessing Officer, in this regard, is justified, as it was found that the assessee and his family members sold their shares to McDowell Alcobev Ltd., at ₹ 14.25 paise per share, when the remaining shares held by Empee Distilleries Ltd., were sold by McDowell Alcobev Ltd., at a price of 125.37 and the assessee received ₹ 10 Crores as non compete fee which he had claimed was not taxable. The price of the shares which was shown at a much higher price in the hands of Empee Sugars Chemicals Ltd., was undoubtedly to benefit the company which had huge accumulated losses and consequently, the same could be set off against capital gains. The benefit which will accrue to the assessee is by lowering and splitting up of the consideration for shares and non compete fee thereby being a device employed to evade tax. 38.The question would be as to whether merely because there was a non compete agreement, will it absolve the assessee. This issue was considered in Lachminarayan Madan Lal (supra) wherein, it was pointed out that mere existence of an agreement between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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