9911796707
TMI Blog2019 (12) TMI 1179X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be of M/s. Unitech Ltd. which held the shares of 8 telecom companies from whom the three companies have purchased the shares. It would be also relevant to mention that Ld. CIT (A) in one of the assessee company which is also impugned before us, i.e., M/s Acorus Unitech Wireless Pvt. Ltd.,that the benefit if at all in these transactions actually accrued to Unitech Ltd. and to favour Sri Ramesh Chandra and Sri Sanjay Chandra the actual beneficiaries and not to the assessee company. This itself goes to support the contention of the Ld. Counsel that no benefit or perquisite arose in the hands of the assessee companies. The judgments relied upon by the ld. DR which has also been referred in the impugned order in no manner will apply on the facts of the present case because most of them pertained to waiver of a loan or unclaimed credit balance returned back to the P L account taken during the course of business. Thus, these judgments do not help the case of the Revenue at all. Accordingly, the additions made by the Assessing Officer and sustained by the Ld. CIT (A) u/s. 28(iv) are directed to be deleted. X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany invested a sum of ₹ 34,58,62,500/- by way of investment in the shares of eight wholly subsidiary companies of M/s. Unitech Ltd. which were I.T.A. No.1953, 101/DEL/2014 & 2075 & 2989/DEL/2017 4 incorporated as real estate companies on August/September 2007 details of which are as under: Original name of Company Date of Incorporation Adonis Projects Pvt. Ltd. 28.08.2007 Aska Project Ltd. 16.08.2007 Azare Properties Ltd. 01.08.2007 Hudson Properties Ltd. 01.08.2007 Nahan Properties Pvt. Ltd. 16.08.2007 Unitech Builders and Estates Pvt. Ltd. 10.08.2007 Unitech Infrastructure Pvt. Ltd. 10.08.2007 Volga Properties Pvt. Ltd. 01.09.2007 4. The objects of clause of MOA of the above eight companies were altered to incorporate objects relating to telecom business. These eight companies had applied in the auction for 2G Licences to undertake business of telecommunication operations in India and were collectively called as Unitech Wireless Companies (UW Companies). Later on, the names of the above companies were changed with following names: Name of the Company Original name of Company Unitech Wireless (North) P. Ltd. Adonis Projects P. Ltd. Unitech Wireless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the promoters of the appellant company i.e., Unitech Ltd. floated three Special Purpose Vehicle's (SPVs) Companies with the object of acquiring shareholding of above eight Telecom UW Companies from the and consequently cease to be deemed public companies. The details of said three Companies who are assessees before us are as under: Sr. No. Name of the Company Date of Incorporation Initial Paid-up share capital (in Rs.) 1 Cestos Unitech Wireless (P) Ltd. 21.10.2008 1,00,000 2 Simpson Unitech Wireless (P) Ltd. 21.10.2008 1,00,000 3 Acorus Unitech Wireless P. Ltd. 24.10.2008 1,00,000 7. Thereafter, a Share Purchase Agreement was entered into whereby 75% shareholding in the eight wireless companies was transferred to SPVs (Telecom Companies) at face value on 25th October, 2008. The details of the transaction of acquisition of shares of the telecom companies by the SPV by M/s. Unitech Ltd. were as under: S. No. Name of the Telecom Company Number of Equity Shares of 8 Telecom Companies of ₹ 10 each Cestos Unitech Simpson Unitech Acorus Unitech 1. Unitech Wireless (North) Pvt. Ltd. 44,20,000 65,00,000 85,80,000 2. Unitech Wireless (South) Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rting from 20.03.2009 to 10.2.2010 at a price of ₹ 179.73 per share. It was thus stated that the purpose of said transaction to acquire investments from M/s. Unitech Ltd. was to facilitate investment by Telenor Asia Pte Ltd. in 8 wireless companies without transferring the economic interest in M/s. Unitech Ltd. 10. Ld. Assessing Officer observed that investment made by the assessee in the shares of 8 UW companies and transfer of stake of three of its group companies which was incorporated and floated for the specific purpose of allotting the shares of M/s. Telenor Asia Pvt. Ltd. and the eight telecom companies entering into an agreement with M/s. Telenor Asia P. Ltd., Singapore for raising equity by charging a premium of ₹ 159/- per share, happened almost simultaneously. He concluded that assessee company had made a huge gain by acquiring the shareholding in the companies at face value at ₹ 10 which otherwise acquired by the Telenor at ₹ 169/-. Thus, there was a huge gain of 159 per share which has been taxed u/s. 28(iv). He held that assessee company was incorporated with the objective of permeating and established companies in the telecom sector and to ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 59 39,75,00,000 Unitech Wireless (Koikata) (P) Ltd. 25,00,000 159 39,75,00,000 Unitech Wireless (Mumbai) (P) Ltd. 25,00,000 159 39,75,00,000 Unitcch Wireless (Delhi) (P) Ltd. 25,00,000 159 39,75,00,000 Unitech Wireless (South) (P) Ltd. 62,50,000 159 99,37,50,000 Unitech Wireless (North) (P) Ltd. 65,00,000 159 103,35,00,000 Unitech Wireless (West) (P) Ltd. 62,50,000 159 99,37,50,000 Unitech Wireless (East) (P) Ltd. 55,00,000 159 87,45,00,000 Total 548,55,00,000 After referring various decisions he made the addition of ₹ 548,55,00,000/- under Section 28(iv). 11. Ld. CIT (A) too has confirmed the said reasoning and findings of the Assessing Officer. He observed that all the conditions relevant to Section 28(iv) were clearly satisfied. His observation and conclusion in this regard reads as under: "8.1.14 The appellant has also submitted that the shares acquired by the appellant from M/s Unitech Ltd., inter alia, were encumbered property, as they had been mortgaged by M/s Unitech Ltd with banks to obtain loans from such companies. Moreover, the funds required to purchase the shares were also arranged by issuing debentures to M/s Unitech Holdings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.1.15 Therefore, the plea of the appellant is hereby rejected legally and factually tenable and the transaction is hereby found to be covered u/s 28(iv) of the I.T. Act 1961. In fact, the case laws cited by the appellant go contrary to the facts of its case." 12. Before us, ld. counsel for the assessee after drawing our attention to the facts and background of the case and sequence of events submitted that under the present facts and the nature of transaction involved, it could not be held that any benefit has been received or accrued to the assessee companies in terms of Section 28(iv). He submitted that shares were purchased by these companies from Unitech Ltd. and continued to be held under restrictive conditions with no economic benefit to the assessee, because the entire economic benefit still rests with Unitech Ltd. In order to clarify the nature of transaction from the material on record, he highlighted the following facts with the evidence placed on record before us. Sr. No. Particulars Evidence 1. 4(e) The seller and the purchaser shall have agreed to or entered into an arrangement/agreement pursuant to which the seller shall have an option to acquire, either d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of investment on 20.3.2009. Beneficiary 3 companies have no right in the shares of 8 Unitech Wireless Companies acquired by them and 100% economic interests therein is held by Unitech, through compulsory convertible debentures and put-call option on the shareholding of 3 companies. Telenor itself is holding 100% economic interest in the shares subscribed by it. Transfer Restriction Shares held by 3 companies cannot be transferred to any foreign party considering FDI restriction in the telecom sector. In fact, shares held by 3 companies can only be transferred to Unitech and that too, only at par value. There is no transfer restriction on the shares subscribed by Telenor. In fact. Telenor is free to transfer its shareholding even to a foreign party. Business Risk At the time of acquisition of shares by 3 companies, there was a significant business risk of nonfulfilment of roll-out obligations under the telecom licenses due to financial crisis, which could have resulted in imposition of liquidated damages and other penalties, encashment of performance and financial bank guarantees of ₹ 882 crores by DoT and even cancellation of telecom licenses issued to 8 Unitech Wir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited companies), failing which no investment would have received from Telenor and there was a significant business risk as stated above. There was no business risk for Telenor when it subscribed the shares of 8 Unitech Wireless Companies. Dates 30.10.2009 under agreement dated 25.10.2008 Fresh allotment of shares by 8 wireless companies to telecom companies in 4 tranches i.e. on 20.03.2009, 19.05.2009, 07.01.2010 and 10.02.2010 under an agreement dated 28.10.2008 read with addendum dated 16.03.2009 and shareholders agreement dated Within the group Yes No, being an outsider 14. Thus, he submitted that despite the above factual position, both Assessing Officer and Ld. CIT (A) have erroneously held that actual consideration should be adopted @169 per share and thereby making the addition u/s. 28(iv) on purchase of shares by 3 assessee companies of 8 wireless companies which were held as investment of these affiliate companies and instead of actual consideration paid at face value, wrongly making addition of ₹ 159/- per share in the hands all 3 assessee-companies on notional basis. He further submitted that the conclusion drawn by the Assessing Officer and Ld. CIT (A) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not apply where the transaction has been made in cash or money. Here in this case, assessee has acquired the shares of payment of money. In support, he strongly referred and relied upon the judgment of Hon'ble Supreme Court in the case of CIT vs. Mahindra & Mahindra Ltd. reported in 404 ITR 1 (SC) and following other decisions. i) CIT vs. Jindal Equipments Leasing & Consultancy Services Ltd., reported in 325 ITR 87 (Del.), affirmed by the Hon'ble Supreme Court in 404 ITR 1 (SC) ii) Mahindra and Mahindra Ltd., reported in 261 ITR 501 (Bom.) affired by Hon'ble Supreme Court in 404 ITR 1 (SC) iii) 324 ITR 154 (Bom) Prashant S. Joshi vs. ITO iv) CIT vs. Asian Hotels Ltd. , 323 ITR 490 (Del) vi) Ravinder Singh And Another vs. CIT, 253 ITR 353 (Del) v) Unitech Holdings Ltd. vs. DCIT, reported in 290 CTR 201 (HC)" 16. Further, the decision of the Assessing Officer and CIT (A) is contrary to the decision of Hon'ble Apex Court in the case of Excel Industries, 358 ITR 259 and made following submissions. i) It is submitted that the three Judges Bench of the Hon'ble Supreme Court of India in its recent judgment delivered on 08.10.2013 in the case of CIT vs. Excel Industries Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isconceived and, untenable." 17. Lastly, he submitted that subsequently fair market value of share have been reduced to 'nil' on the cancellation of licenses and stated that it may also be mentioned that the telecom licences which had been issued by the DOT in favour of telecom companies have since been cancelled by the judgment of Hon'ble Supreme Court and final order dated 02.02.2012 as a result of the aforesaid judgment, it has been held that the grant of the said licences was contrary to law and consequently the licences so granted were null and void. Inasmuch as the intrinsic worth of the telecom companies, which was ultimately based on the telecom licence(s), itself were held to be null and void, the net asset value got, in any case, eroded. As per the Ld. AO, since the telecom companies had allotted shares at a higher rate, the shares sold by assessee had a higher value per share as a result of licenses allotted to telecom companies. By the same logic, it is submitted, when the rate became zero on account of cancellation of licenses, the reduced value of shares on account of cancellation of licenses should be equally weigh with you as no real income had accrued and, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in making addition u/s 28(iv) of IT Act. The objective of Assessee Company as reproduced at page 4 of the assessment order clearly states that it was to act as special purpose vehicle to make investment in Telecom companies of its own group. The AO held the transaction for sale/purchase of shares with M/s Unitech Ltd involving shares of Telecom Companies to be a business transaction as it was business of the assessee to make investments in Telecom Sector and by acquiring shares of Telecom Companies; assessee had proceeded with its business agenda. The assessee had made a "killing" by getting a chance to purchase shares of telecom companies at just the face value even when owing to the fact that telecom companies already had USAL, made their shares worth much more Due to this very fact the shares commanded a premium in the market. The AO has held that the assessee had claimed expenses of ₹ 21,180 which Shows that business of the assessee had commenced. It would be incorrect to state that since assessee was holding investments, there could not be any Business. The assessee has claimed that income is not taxable on the ground that subsequently fair market value of shares has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstance, and subsequently within the appellate regime provided by the Act itself as opposed to a disguised merits review under Article 226 at such an early stage of the proceedings. At the time of a Section 1476/148 notice, the inquiry is at a preliminary stage, and thus. conclusive legal or factual determinations are neither called for nor provided. As the Supreme Court noted in Sri Krishna (P.) Ltd. v. ITO [19961 221 ITR 53S ,S~ Taxman 315: "80...It is necessary to reiterate that we are now at the stage of the validity of the notice under Section 14H/147. The enquiry at this stage is only to see whether there are reasonable grounds for the Income Tax Officer to believe and not whether the omission/failure and the escapement of income is established, ft is necessary to keep this distinction in mind."" Thus, Hon'ble High Court was of the opinion that there is a prima facie case against the assessee and upheld reopening u/s 147 of IT Act. 19. Further in his written submissions, Ld DR submitted that the decision of CIT Vs Mahindra And Mahindra Ltd., (404 ITR 1) is not applicable to the above cases in view of the following reasons: (i) In this case, relief was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that the following decisions may be considered with regard to applicability of Section 28 in the present case; i. CIT Vs Ramaniyam Homes (P.) Ltd f20161 68 taxmann.com 289 (Madras)/ (2016) 239 Taxman 486 (Madras) / (2016) 384 ITR 530 (Madras)/r20161 287 CTR 200 (Madras), where Hon'ble Madras High Court held that amount representing principal loan waived by bank under one time settlement scheme would constitute income falling under section 28(iv). ii. CIT Vs R.L. Kasliwal M9941 77 Taxman 58 (Rajasthan)/H9941 207 ITR 208 (Ra|asthan)/[19941 120 CTR 56 (Rajasthan) where Hon'ble Rajasthan High Court held as follows: Assessee was a partner of a firm A part of premises taken by firm on lease was given to assessee-partner free of rent. Assessee offered ₹ 4,000 to be assessed in his hands on this account. ITO included benefit in hands of assessee at ₹ 9,000. AAC deleted entire addition on ground that there was no provision in Act under which such advantage derived by assessee was assessable. Tribunal upheld AACs view. Hon'ble Rajasthan High Court held that provisions of section 28(iv) were applicable and value attributed to use of premises by assessee free ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed would be made in the equity of one or more company where the share transfer is restricted are enforceable by law. With a view to meet the said concern of the Telenor, the promoters companies floated SPVs consisting 3 Companies namely, i) Cestos Unitech Pvt. Ltd.; ii) Simpson Unitech Wireless Pvt. Ltd.; and iii) Acorus Unitech Wireless Pvt. Ltd., who are the appellant-assessees before us. By way of share purchase agreement dated 25.10.2008, 75% shareholding in the eight UW Telecom companies were transferred to the SPVs (three assessee companies) at a face value of ₹ 10/- each. Thereafter, SPVs have raised a secured loan in form of CCD from subsidiary of the assessee company I.T.A. No.1953, 101/DEL/2014 & 2075 & 2989/DEL/2017 35 wherein it was agreed that lender would have the option to call upon the SPVs to issue fresh capital so as to convert the amount representing the debentures, into equity share capital. Telenor Group entered into a share subscription agreement to acquire 60% stake in 8 UW companies whereby the telecom companies made fresh allotment of shares having face value of ₹ 10 and a premium on share at ₹ 169.73 per share resulting into equity shareh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fresh share by wireless company to Telenor @ 179.73 per share. 23. However on the facts and background of the case, we have to see whether the amount of premium paid by the Telenor Group for acquiring the shares of 8 UW companies can be held to be in the form of any benefit or perquisite arising from the business of assessee u/s 28(iv). The Department case is that, the shares which have been acquired by 3 assessee companies of 8 UW companies at ₹ 10 which the actual consideration paid should be adopted @ 179 (wrongly taken by Assessing Officer as ₹ 169) per shares, because Telenor Group has paid the said amount per share for acquiring same shares of UW companies. First of all, it is unfathomable that the shares of 8 UW companies which were held as investment by the three SPVs could lead to an inference that three companies had earned income arising from the business to be taxed u/s. 28(iv). It is sine-qua-non that income which is to be taxed u/s. 28(iv), firstly, should arise from business or profession; and secondly, the benefit which is received has to be in some form other than any shape of money. Hon'ble Supreme Court in the case of CIT vs. Mahindra & Mahindra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficult to accept that the sale of shares by Unitech Limited at its cost price which is lower than the book value of the shares would result in income (equivalent to the difference between the book value of the shares and the cost price at which they were sold) in the hands of the Assessee. The shares of the three companies in question are held as investments by the Assessee and duly reflected by the Assessee as such. No objection has been raised by the AO in this regard. In the circumstances, we find it difficult to comprehend as to how the acquisition of investments by the Assessee could lead to an inference that the Assessee had earned income under Section 28(iv) of the Act - value of any benefit or perquisite arising from business or profession chargeable under the head profits and gains of business or profession. 25. The aforesaid principle of the Hon'ble Jurisdictional High Court squarely applies in this case also, because admittedly, three assessee-companies had acquired the shares of 8 UW companies as investment at a par value. Simply because a foreign company had acquired the shares of the same 8 UW companies by paying a premium that does not mean the premium amount becom ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
