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TMI Blog2023 (4) TMI 899X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T(SS).A.No.180/Mds/2002 Shri. S.Mohanchand Dadha (Indl) [SMD] 3. By the impugned orders, the Tribunal has dismissed the respective appeals of the Income Tax Department in I.T(SS).A.No.150/Mds/2006 and in I.T(SS).A.No.180/Mds/2002 filed against the orders of the Commissioner of Income Tax (Appeals) [hereinafter referred to as "Appellate Commissioner"] allowing the respective appeals of the respondents in ITA TR No.65/04-05 vide order dated 28.03.2006 and in ITA No.CIT(A)(C).VIII/DCCC.32/1.T/ 100/2001-02 vide order dated 05.07.2002 respectively. 4. The dispute in these appeals pertains to the Block Assessment period between 01.04.1988 and 15.12.1998. At the time of admission of these appeals, the following substantial questions of law were framed for being:- i. Whether in the facts and circumstances of the case, the Tribunal was right in holding that since the amalgamation is a reality, amounts received by the assessee from the amalgamated company from even before the amalgamation cannot be brought to tax? ii. Whether in facts and circumstances of the case, the Tribunal was right in holding that interest on the amounts agreed to be paid by the amalgamated company on outstan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment of search cases. The computation of undisclosed income of the block period is contemplated under section 158BB. As per the section, the undisclosed income of the block period should be the aggregate of the total income of the previous year falling within the block period computed in accordance with the provisions of this Act, on the basis of the evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years. A mere reading of the above provision clearly indicates that the sentence "such other materials or information as are available with the Assessing Officer" cannot be bisected or taken in isolation for, the purpose of computation. Such other materials or information as are available with the Assessing Officer, should as per the section relatable to such evidence. The word "such" used as a prefix to the word "evidence" assumes much significance, in this provision, as it indicates only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court above, have not been followed. This is therefore a case where section 158BD was required to be invoked. Such requirement cannot be obviated merely because a search was also conducted in the case of the Assessee, admittedly yielding no undisclosed income. Section 158BB(1) only provides for computation of undisclosed income during the block period. It does not override or negate the provisions of section 158BD. Irrespective of whether the assessment is made under section 158BC or under section 158BD read with section 158BC, the undisclosed income of the block period has to be computed under section 158BB of the Act. Since in the instant case the undisclosed income of the Assessee was found from the material seized from search of other persons, such income could not be assessed under Chapter XIVB without invoking the provisions of section 158BD. In the prevailing facts and circumstances the block assessment made under section 158BC without invoking the provisions of section 158BD is illegal. This issue is therefore decided in favour of the Assessee and against the Department. ........ 11. We have carefully considered the submissions of both sides. Identical issue has been c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the course of recording of the statement under sec.131 of the Act, stated that Rs.1,28,50,000/- was offered for taxation on account of various amounts paid to Dadhas of Chennai and the said amount after verification from the records of SPIL increased to Rs.1,33,50,000/- and the same was disclosed in the block return of SPIL. This addition is also not sustainable in view of the Hon'ble Apex Court's decision in the case of CIT v. D.P.Sandhu Bros. Chembur P. Ltd. [2005] 273 ITR 1 wherein it was held that if a particular income falling under a particular head of income cannot be so taxed, the same cannot be taxed in any other head. In the background of the aforesaid discussion and precedent, we are of the view that the C.I.T. (Appeals) was justified in deleting the addition of Rs.1,33,50,000/- made in the hands of the Assessee on protective basis. In the result, the appeal of the Revenue is dismissed. T.C.A.No.1925/2008: OPERATIVE PORTION OF THE IMPUGEND ORDER DATED 16.11.2007 IN I.T(SS).A.NO.150/MDS/2006 6. The impugned order dated 16.11.2007 of the Tribunal in I.T(SS).A.No.150/Mds/2006 refers to Paragraph No.7 of the impugned order of the Tribunal dated 16.11.2007 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o there is no reason to differ from the aforesaid findings. In the said case of Shri S.Mohandchand Dadha (HUF) cited supra in para 26, reliance had also been placed upon the Hon'ble Apex Court's decision in K.P.Varghese v. ITO (1981) 131 ITR 597, P.V.Katyanasundaram (294 ITR 49) and CIT v. D.P.Sandu Bros.Chembur P.Ltd.(2005) 273 ITR 1. In the background of the same reasoning and precedent, we decide this issue in favour of the Assessees and reverse the order of the C.I.T.(Appeals) on this issue. Since there is no sale of shares, capital gain did not arise an the C.I.T. (Appeals) was justified in deleting the capital gain in the case of Dadha Pharma P.Ltd. Hence, we allow the appeals of the Assessees on this issue and the appeal of the Revenue on this issue is dismissed. 8. As far as the supplementary issue relating to the interest on delayed payment of consideration received from M/s.Sun Pharma Industries Limited (SPIL) is concerned, the Tribunal has held that there was no sale of shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) in view of the amalgamation of two companies. Relevant portion of the order reads as under:- 14. .......... This issue is inextricabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Corporation Ltd. (TIDCO). It is submitted that the transfer of huge amounts from Sun Group to Dadha Group for this purpose is also accepted by the respondent. 12. It is submitted that though the Scheme of Amalgamation was approved by the Gujarat High Court and this Court in November, 1997, payments have been made continuously by the Sun Group to Dadha Group till the date of search in December 1998 and interest were charged on the defaulted installments. 13. It is submitted that there was absolutely no need of any payment as per the Amalgamation Scheme. Many of the correspondence between the Dadha Group and Sun Group were subsequent to the High Courts' order indicates that over and above the Scheme of Amalgamation was approved by the High Courts, the cash payments as mentioned in the agreements were made for the share transfer. 14. It is submitted that the Tribunal erred in holding that the amounts cannot be taxed as there was no sale of transfers and the Appellate Commissioner has treated the receipt of moneys only as income from other sources and not capital gains. Therefore, the learned Standing Counsel for the appellant Revenue prays for setting the aside the impugned order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the block period Rs. 47,56,638/- Addition made by way of protective assessment Rs.1,33,50,000/- Rs.1,81,06,638/- 17. It is submitted that the respondent had filed an appeal before the Appellate Commissioner in Appeal No.CIT(A)C.VIII/DCCC.32/I.T.100/ 2001-02 against the above addition. The said appeal was partly allowed by deleting the both undisclosed income and protective assessment. The protective assessment was deleted on the ground that same was disclosed in the block Rate of Interest filed by the Sun Pharma India Ltd. (SPIL) as undisclosed income. 18. It is submitted that against the said order of the Appellate Commissioner, the appellant Revenue has filed an appeal before the Tribunal in I.T.(SS) A.No.180/Mds/2002 which was dismissed vide impugned order dated 16.11.2007, against which, the present T.C.A.No.648 of 2009 has been filed. 19. It is submitted that in the present appeal, the appellant revenue had not disputed the deletion of the addition of Rs.1,33,50,000/- made by way of protective assessment as evident from the statement of facts, grounds of appeal and question of law raised in the present appeal. The dispute in the present T.C.A.No.648 of 2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Dadha Group from Sun Pharma Group through its various companies for sale of shares or the interest on delayed payments, but, only the amount of Rs.3 Crores was received from Aditya Medi Sales Ltd. (AML) which is one of the companies of the Sun Pharma Group for construction of godown which was later refunded to the Aditya Medi Sales Ltd. (AML) as the construction of godown could not be feasible owing to the new guidelines issued by the Chennai Metropolitan Development Authority (CMDA). 26. It is submitted that any interested party or any shareholder whose rights would have been affected by such take over did not lodge any complaint before the SEBI. SEBI has also not taken any action suo moto. 27. The learned counsel for the respective respondents relied on the following decisions:- i. Sree Meenakshi Mills Ltd. Vs. Commissioner of Income Tax, [1957] 31 ITR 28 (SC) ii. K.P.Varghese Vs. Income Tax Officer, [1981] 7 Taxman 13 (SC) iii. Union of India Vs. Kaumudini Narayan Dalal, [2001] 249 ITR 219 (SC) iv. Commissioner of Income Tax Vs. Narendra Doshi, [2002] 254 ITR 606 (SC) v. Commissioner of Income Tax Vs. Shivsagar Estate, [2002] 257 ITR 59 (SC) vi. Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 16.11.2007. 36. In fact, all the members of the Dadha Group had filed similar appeals and the issue came for consideration before the Tribunal. Details of the appeals filed before Tribunal are as under:- Sl. No Appeal No. / Cross Obj.No. Name of the appellant Name of the respondent Nature of Disposal 1 I.T(SS).A.No.172/Mds/2005 Estate of late Balu Bai Dadha, by executor S.Mohanchand Dadha Deputy Commissioner of Income Tax Partly Allowed 2 I.T(SS).A.No.173/Mds/2005 Pradeep Dadha Partly Allowed 3 I.T(SS).A.No.174/Mds/2005 Kanta Kavar Partly Allowed 4 I.T(SS).A.No.177/Mds/2005 Subhagmal Mohanchand Dadha (HUF) Partly Allowed 5 I.T. (SS).A.No.178/Mds/2005 S.Mohanchand Dadha (HUF) Deputy Commissioner of Income Tax Partly Allowed 6 I.T(SS).A.No.150/Mds/2006 Assistant Commissioner of Income Tax Dadha Pharma P. Ltd. Dismissed 7 Cross Obj.No.149/Mds/2006 Dadha Pharma P. Ltd. Assistant Commissioner of Income Tax Dismissed 8 I.T(SS).A.No.176/Mds/2005 M.Meherchand Dadha Deputy Commissioner of Income Tax Allowed 9 I.T(SS).A.No.180/Mds/2005 Deputy Commissioner of Income Tax M.Meherchand Dadha Partly Allowed 10 I.T(SS).A.No.180/Mds/2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). 44. M/s.Sun Pharma Industries Limited (SPIL) was apparently interested in acquiring the shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). It appears that as per Memorandum of Understanding (MOU) between the co-promoters viz., Dadha Group, Chennai and M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO), the Dadha Group, Chennai had a peremptory right to purchase the shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL), if M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) wanted to disinvest its holdings in the latter. 45. M/s.Sun Pharma Industries Limited (SPIL) however could not directly acquire the aforesaid 26% of the shares in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO). 46. Therefore, M/s.Sun Pharma Industries Limited (SPIL) funded the Dadha Group, Chennai to acquire 26% of shares held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). 47. It is not clearly stated as to the total number of shar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment order. 52. Mohandchand Dadha Group (SMD Group), to which the respective respondents belong, held about 2,06,820 shares before the acquisition of shares of M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO). 26% of the shares held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) was about 4,29,178 shares as per the assessment order. 53. Acquisition of shares of M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) was funded by M/s.Sun Pharma Industries Limited (SPIL) Group. After acquisition of shares, the members of Dadha Group viz., S.Mohandchand Dadha Group (SMD Group), to which the respective respondents/assessees belong, M.Meherchand Dadha Group (MCD Group) Group and M.Mahendra Dadha Group (MMD Group) in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) held the following shares:- Sl. No. Name of the Group Before Acquisition Acquired from TIDCO Total No. of shares 1 S.Mohandchand Dadha Group (SMD Group) 2,06,820 2,14,593 4,21,413 2 M.Meherchand Dadha Group (MCD Group) 1,03,332 1,07,365 2,10,697 3 M.Mahendra Dadha Group (MMD Group) 1,03,480 1,07,220 2,10,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount is taxed as undisclosed income for A.Y. 1998-99 & 99-00 on account of interest not shown in the return of income. * SMD 57. While the above amounts of Rs.16,85,62,000/- and interest were being paid by the M/s.Sun Pharma Industries Limited (SPIL) and its Group of companies to the above mentioned members of Dadha Group for acquisition of shares by them in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) held by M/s.Tamil Nadu Industrial Development Corporation Ltd. (TIDCO), a mirage of amalgamation between the M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) and M/s.Sun Pharma Industries Limited (SPIL) was orchestrated before the Gujarat High Court in C.P.No.298 of 1997 and before this Court in and C.P.No.241 of 1997. 58. Schemes of Amalgamation were also sanctioned by the Gujarat High Court in C.P.No.298 of 1997 vide order dated 19.11.1997 and by this Court in C.P.No.241 of 1997 vide order dated 04.11.1997. 59. On account of Schemes of Amalgamation being sanctioned by these two Courts, M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) stood merged with M/s.Sun Pharma Industries Limited (SPIL) and M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) ceased to exist. The High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL after purchasing shares from TIDCO Shares entitled in SPIL after amalgamation Dadha Pharma Pvt. Ltd.* 2,70,893 67,723 Balu Bai 28,090 7,022 Kanta Kavar Dadha 7,150 1,788 Pradeep Dadha 35,550 8,888 S.Mohanchand Dadha (HUF) 49,730 12,432 Subhagmal Mohanchand 15,000 3,750 S.Mohanchand Dadha (IND)# 15,000 3,750 Total 4,21,413 1,05,353 * The respondent in T.C.A.No.1925 of 2008 # The respondent in T.C.A.No.648 of 2009 65. It is the case of the Income Tax Department that there was a capital gain arising out of transfer of shares held by the respective respondents in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL). On account of amalgamation of M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL) with M/s.Sun Pharma Industries Limited (SPIL), the above capital gain was not offered to tax. 66. This transfer arising out of amalgamation was treated as "capital gains" in the hands of the shareholders (the respondents herein) and other members of the Dadha Group (DG) and therefore, proceedings came to be initiated under Section 158BC of the Income Tax Act, 1961 by issuing notice to both the members of the Dadha Group and M/s.Sun Pharma Industries Limited (SPIL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Dadha Group by M/s.Sun Pharma Industries Limited (SPIL) and its Group Company are undisclosed income, which is liable to be taxed. Therefore, subsequent Amalgamation is irrelevant. 72. Further merger/amalgamation can result only in the shares being allotted in the transferee Company namely, M/s.Sun Pharma Industries Limited (SPIL) Group for the shares held in M/s.Tamil Nadu Dadha Pharmaceuticals Ltd. (TNDPL), as per the share exchange ratio in the Schemes of Amalgamation sanctioned by the respective High Courts. Unless the Scheme of Amalgamation itself contemplated a cash component, there would be no question of such amounts. In this case, payment of cash was independent of the amalgamation and prior to the amalgamation though amalgamation has been used as a device to put a smoke screen to avail the benefit of Section 47 of the Income Tax Act, 1961. 73. Ordinarily, in an amalgamation, there is no question of amounts being paid when there is an amalgamation simplicitor. Though amalgamation is a reality, the fact remains that the amounts have been received by the Dadha Group between 01.07.1997 and 01.01.1999 as detailed above. These amounts are nothing but undisclosed income with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the undisclosed income for the block period 01.04.1998 to 15.12.1998 is below the litigation policy cannot be accepted. 79. We are of the view, to meet the end of justice, that a fresh assessment is required to be made by the assessing officer based on the records instead of notinal allocation of amounts received by the S.Mohandchand Dadha Group (SMD Group) without any proof of direct transfer of the amounts to the individual members of the S.Mohandchand Dadha Group (SMD Group). 80. Therefore, while answering the substantial questions of law in favour of the appellant revenue and against the respective respondents assessees, the impugned orders are set aside and cases are remitted back to the Assessing Officer to pass a fresh order on merits and in accordance with law after giving opportunity to the respective respondents to make their submissions in the denova proceedings. It is made clear that since the dispute pertains to Block Assessment Years 1988 to 1998, the assessing officer shall pass a fresh order on merits and in accordance with law as expeditiously as possible, preferably, within a period of 90 days from the date of receipt of a copy of this order after following pri ..... X X X X Extracts X X X X X X X X Extracts X X X X
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