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TMI Blog2023 (5) TMI 834X X X X Extracts X X X X X X X X Extracts X X X X ..... ctions defined u/s.47(vi), even though the proviso to section 56(2)(viia) does not specify the transactions defined u/s.47(vi) as exception to section 56(2)(viiia) 4. The Ld.CIT (Appeals) erred in holding that the shares purchased by the assessee company for a price lower than the FMV of the shares, does not attract provisions of section 56(2)(viia) and accordingly deleting the addition of Rs.5, 14,80,879/-. 5. Any other ground that may be urged at the time of hearing." 2. The brief facts of the case are that assessee is a public company registered under the Companies Act, 1956 and engaged in investment business. The assessee filed return of income for the AY 2014-15 on 29.09.2014, declaring income of Rs. 20,64,350/-. The case was selected for scrutiny by issuing notice u/s. 143(2) dated 28.02.2015. Subsequently, notice u/s. 142(1) and letters were issued on various dates. In response, AR appeared and furnished the details called for. After examination of the details so furnished by the assessee, the Assessing Officer had made the disallowance of expenditure u/s 14A of the Act for an amount of Rs.82,72,958/- and had further added Rs.5,59,249,590/- under section 56(2)(viia) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded back to the computation of book profit u/s. 115JB therefore, the ground no. 1 (ii) is dismissed accordingly to the extent of quantification above. The ground no. 4 relates to the claim of the appellant that the income tax refund should have been reduced while computing the book profit u/ s. 115JB. The section 115JB does not leave any room for discretion or interpretation and the items mentioned in clause (i) to (viii) to the explanation to section 115JB can only be reduce from only book profit. The income tax refund so credited does not fall in the said clause and therefore no deduction can be given as income tax refund is not either deferred tax as mentioned in clause (viii) or falling under any of the clauses. Therefore, the ground no. 4 is dismissed accordingly." 4. With respect to the addition of Rs.5,59,249,590/- and addition of Rs.5,14,80,879/- under section 56(2)(viia) of the Act, the ld.CIT(A) had held at pages 58 to 65 as under : The facts of the case are that 11 companies amalgamated with the appellant vide the order of High Court dated 10.10.2013 w.e.f 01.04.2011. The amalgamating companies had identical shareholders and shareholding. The said fact is brought ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income Tax Act. The relevant sub clause (vi) of section 47 is reproduced as under: (vi) any transfer in the scheme of amalgamation of capital asset by the amalgamating company to the amalgamated company, if that amalgamated company is an Indian company. The plain reading of the above implies that all capital assets which includes shares, property, movable assets, immovable assets etc., of the amalgamating companies becoming the property of amalgamated company is not considered a transfer within the meaning of Income Tax Act. So, as the same is not considered as a transfer, therefore neither the capital gain will arise nor any deeming charge u/s. 56 of the receipt of property / assets / shares etc., can be attributed for improper consideration. The appellant presents a scheme to the High Court along with the valuation and the method in which the same is done and once the same is approved, the amalgamation order is passed accordingly, the same has been order u/ s. 394 of the companies Act by the court and the amalgamation has been ordered w.e.f 01.04.2011 accordingly. Thus, the year of amalgamation is now deemed to be 01.04.2011 and all the properties/liabilities as spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no case for a protective addition for the year under consideration at all. Further, as already discussed above that as per provisions of section 47(vi), the amalgamation as defined u/s. 2(IB) of the Income Tax Act would not be considered a transfer [or the purpose of taxation. The definition of capital asset is as per section 2(14) of the Income Tax Act which includes any property of any kind held by the appellant, whether or not connected with his business or profession. The shares whether quoted or unquoted, equity or preference or capital assets without any ambiguity. Therefore, as section 47(vi) does not consider the transfer of capital asset on account of amalgamation, therefore the provisions of transfer cannot be attracted in such case. The AO has invoked section 56(2)(viia) [or the purpose o[ taxation. The section 56(2)(viia) reads as under: [(viia) Where a firm or a company not being a company in which the public are substantially interested, receives, in any previous years, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company In which the public are substantially interested, - i. Without con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shares and also 56(2)(viia) is not applicable for such amalgamation, therefore the invocation of the said section in the case of appellant is incorrect and therefore, the ground no. 2(ii) is allowed accordingly. The ground no.2(iii) pertaining to invocation of Rule 11 VA becomes academic as the relief has already been granted on ground no. 2(i) and 2(ii) therefore there is no need of adjudication to ground no. 2 (iii) accordingly. Further, the ground no. 3(i) and 3(ii) also becomes academic and therefore needs no adjudication in view of the relief already granted. Therefore, the addition made of Rs. 55,92,49,590/- with respect to the addition made in paragraph 3 of the assessment order and addition of Rs. 5,14,80,6791- in para 4 of the assessment order is hereby deleted accordingly. The ground no. 5 pertains to grant of TDS credit, the AO is directed to verify and allow TDS credit as per law. The above ground is allowed to that extent accordingly. The Ground nos. 6 & 7 are consequential to the grounds adjudicated above, therefore needs no separate adjudication. To sum up the appeal is partly allowed." 5. Feeling aggrieved by the order passed by the ld.CIT(A), the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Rs. 49,94,540/- and further disallowed an amount of Rs.4,30,245/-. Now the dispute before us is whether the ld.CIT(A) was right in restricting the disallowance to an amount of Rs.14,01,557/- or it should be restricted to the difference of Rs.82,72,958/- (-) Rs. 49,94,540/- (-) Rs.4,30,245/- which is equivalent to Rs.28,48,173/-. In this regard, the contention of both the parties were examined by us and we are of the opinion that the disallowance made by the revenue authority cannot be more than the expenditure incurred by the assessee for earning the exempt income. For the above said purposes, we may fruitfully rely upon the decision of the Special Bench in the case of ACIT Vs. Vireet Investment P. Ltd., reported in (2017) [165 ITD 27] (Delhi) (SB), wherein it was held as under : "11.6 In the backdrop of these facts the Tribunal's order was upheld by the Hon'ble High Court and Hon'ble Supreme Court. The Hon'ble Supreme Court, inter alia, held that it is the purpose of the expenditure that is relevant in determining the applicability of section 57(iii) and that purpose must be making or earning of income. It was further held that section 57(iii) does not requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claimed expenses amounting to Rs. 7.02 Crores as personal expenses, operating and other expenses, depreciation and financial expenses. 11.9 In both the assessment orders, the Assessing Officer held that the respondent-assessee had not commenced business activities as they had not undertaken any manufacturing activity or made downstream investments. It was observed that the respondent- assessee, after receiving approval of Foreign Investment Promotion Soard (FIPS) dated 20.12.2000 acquired shares capital of Ambuja Cement India Ltd. This, the Assessing Officer felt, was not sufficient to indicate or hold that the respondent-assessee had started their business. He, accordingly, disallowed the entire expenditure of Rs. 8.75 Crores for the Assessment Year 2007-08 and Rs. 7.02 Crores for the Assessment Year 2008-09. 11.10 Ld. CIT(A) did not agree with the findings of Assessing Officer that the business of the respondent- assessee had not been set up or commenced. The CIT(A) observed that the respondent-assessee had been set up with the business objective of making investment in cement industry after due approval given by the Government of India, Ministry of Commerce and Industry vide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f its decision observed as under: '14. On the issue whether the respondent-assessee could have earned dividend income and even if no dividend income was earned, yet Section 14A can be invoked and disallowance of expenditure can be made, there are three decisions of the different High Courts directly on the issue and against the appellant-Revenue. No contrary decision of a High Court has been shown to us. The Punjab and Haryana High Court in Commissioner of Income Tax, Faridabad v. M/s. Lakhani Marketing Incl, ITA No. 970/2008, decided on 02.04.2014, made reference to two ' earlier decisions of the same Court in CIT v. Hero Cycles Limited, [2010] 323 ITR 518 and CIT vs. Winsome Textile Industries Limited, [2009] 319 ITR 204 to hold that Section 14A cannot be invoked when no exempt income was earned. The second decision is of the Gujarat High Court in Commissioner of Income Tax-I v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj.). The third decision is Of the Allahabad High Court in Income Tax Appeal No. 88 of 2014, Commissioner of Income Tax II Kanpur, v. M/s. Shivam Motors (P) Ltd. decided on 05.05.2014. In the said decision it has been held:- "As regards the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t companies and to further expand and consolidate their business. Expenditure had to be also incurred to protect the investment made. The genuineness of the said expenditure and the fact that it was incurred for business activities was not doubted by the Assessing Officer and has also not been doubted by the CIT(A).' 11.14 Now the position of law as stands is that the decision of Hon'ble Jurisdiction High Court is directly on the point in dispute whereas the decision of Hon'ble Supreme court in the case of Rajendra Prasad Moody (supra) has been rendered in the context of section 57(iii), the applicability of which has been ruled out by Hon'ble Delhi High Court in the case of Cheminvest (supra). 10. Similarly, on the same issue, the Hon'ble Karnataka High Court in the case of J.J. Glastronics (P.) Ltd. reported in [2022] 139 taxmann.com 375 (Karnataka) has held as under : "9. Having regard to this decision, the decision cited by the revenue in the case of Sobha Developers (supra) has been considered. At this juncture, it would be beneficial to refer to the co-ordinate bench decision of this Court in the case of Karnataka State Industrial and Infrastructure Devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Tribunal has distinguished the case of Sobha Developers (supra) relied upon by the revenue with VireetInvestment (P.) Ltd. (supra) and has rightly come to the conclusion that the judgment of the VireetInvestment (P.) Ltd. (supra) rendered by the Special Bench consisting of three Hon'ble Members prevail over the Regular Bench consisting of two Hon'ble Members. Moreover, this view considered in the VireetInvestment (P.) Ltd. (supra) was the subject matter before this Court in the judgments referred to supra. Hence, no exception can be found with the orders impugned. 10.1 In the light of the above, we do not find any merit in Ground No.1 raised by the Revenue pertaining to section 14A of the Act. Accordingly, ground No.1 raised by the Revenue is dismissed. GROUNDS 2 TO 4 11. Ground nos. 2 to 4 raised by the Revenue are inter-connected and are with respect to the shares received by the assessee company on account of amalgamation, for a price lower than the Fair Market Value (F.M.V) of the shares, does not attract provisions of the section 56(2)(viia) of the Act and Ld.ClT (Appeals) erred in holding that provisions of Section 56(2)(viia) are not applicable to the transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of the assessee, that as on August, 19, 2015, the Vertex Projects Limited was converted into a limited liability partnership (LLP) under the name and style "Vertex Projects LLP". It was also the contention of the ld. DR that in the assessment year 2012-13, M/s. Vertex Projects LLP did not exist and therefore, the additions cannot be made in the hands of Vertex Projects LLP in the A.Y. 2012-13. He has drawn our attention to VII of Page 6 of the Written Submissions filed by the assessee wherein it was mentioned as under : "vii. The Respondent would like to submit that reassessment proceeding for AY 2012-13 were initiated and the reasons for reopening issued along with the approval under section 151 dated March 31, 2019, clearly states that reopening is done for AY 2012-13 on a substantive basis to bring to tax the impugned addition under section 56(2)(viia) with respect to shares received pursuant to amalgamation (Refer Pg 356 of Paperbook ). A notice under section 148 dated March 31, 2019, was issued, directing the Assessee to furnish a return within 30 days (Refer Pg 362 of Paper book), The same was duly responded by the Appellant vide letter dated April 29, 2019, statin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand rupees, the whole of the aggregate fair market value of such property; (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 : Provided that this clause shall not apply to any such property received by way of a transaction not regarded as transfer under clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47. Explanation.-For the purposes of this clause, "fair market value" of a property, being shares of a company not being a company in which the public are substantially interested, shall have the meaning assigned to it in the Explanation to clause (vii);]" 13.4 The ld.DR had submitted that the order passed by the ld.CIT(A) is perfunctory and without any basis and therefore, the same is required to be set aside and the order of the Assessing Officer is required to be upheld. 14. Per contra, the ld.AR for the assessee had made oral submissions and also filed written submissions. The relevant portion of the written submissions are as under : "B. ADDITION UNDER SECTION 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same (Refer Pg 36- of Paperbook], iv. The Ld. AO contended that the Assessee (i.e. amalgamated company) received such investment in such closely held companies for inadequate consideration and the same is taxable under section 56(2)(viia) of the Act for AY 2012-13 which is the AY relevant to the date of transfer being April 01, 2011. Further the Ld. AO contended that since the order of High Court is delivered during FY 2013-14, the deemed gift is brought to tax in the impugned AY 2014-15 on protective basis and the assessment for AY 2012-13 will be reopened and addition under section 56(2)(viia) will be made on substantive basis separately for AY 2012-13 . v. On appeal before the Ld. CIT(A), the Ld. CIT(A) held that definition of section 2(lB)(iii) of the Act is satisfied in the instant case as the shareholding and shareholders were identical and even post amalgamation the shareholders were same as well as the shareholding was in the same ratio. vi. The Ld. CIT (A) further held that since merger is not treated as transfer under section 47 of the Act, neither the capital gain will arise nor any deeming charge under section 56 for the receipt of property / assets / shares etc. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment/addition." (Emphasis Supplied) iv. The mere reason that the Ld. AD provided is that, since the Hon'ble He order approving the merger is received in the FY relevant to the impugned AY, additions has been made on protective basis in the impugned AY. The Ld. AD himself did not have any doubt that the addition of the same amount should be done in AY 2012-13 and not AY under consideration. If the tax officer restores to another AY to tax certain amount, then, the provisions of reassessment proceedings, the timelines for assessment and etc. would be redundant. Therefore, the said addition made on protective basis needs to be deleted as the basic requisites for making protective assessment has not been fulfilled. v. First there must be a substantive assessment and further the same should precede the protective assessment. In the instant case, no substantive assessment has been carried out with regard to the income under question and hence no additions can be made on protective assessment. vi. Given that the Ld. AD himself has stated in the assessment order that the deemed gift on transfer of unquoted shares by the above companies to the Assessee company is brought to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration or at a price lower than the fair market value does not attract the anti-abuse provision In order to prevent the practice of transferring unlisted shares at prices much below their fair market value, it is proposed to amend section 56 to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested). Section 2(18) provides the definition of a company in which the public are substantially interested. It is also proposed to exclude the transactions undertaken for business reorganization. amalgamation and demerger which are not regarded as transfer under clauses (via), (vic), (vicb), (vid) and (vii) of section 47 of the Act. .........". ii. Thus, it can be seen that the intention of the Legislature has been very clear that the section has been introduced as an anti-abuse provision and is not intended to tax a transaction which is otherwise not taxable, because, the above clearly provides that section 56(2)(viia) does ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pg. 83 of the Case Law Compilation], which although passed in the context of section 56(2)(viib) of the Act, has upheld the view that issue of shares at face value by an amalgamated company to shareholders of the amalgamating company in pursuance to a scheme of amalgamation would not fall under the anti-abuse provisions of the Act. vi. Further, if section 56(2)(viia) of the Act are made applicable in such cases, the transaction of merger/ amalgamation satisfying the conditions of section 2(1B) would not be tax-neutral, thus, defeating the intent of the legislature not to tax such transaction. c) The charging provisions fails. since there is no transfer of shares but statutory vesting of assets pursuant to merger 1. The primary condition for invoking the provisions of section 56(2)(viia) of the Act is that there should be transfer of shares of a closely held company for a consideration at a value less than the value prescribed/ computed as per Rule 11UA of the Rules. ii. In the instant case, the receipt of shares of various group companies along with other assets and liabilities cannot be considered in isolation as merely a receipt of 'individual shares of group companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise and all other Interests in connection with or relating to the Transferor Companies shall, under the provisions of Sections 391 to 394 of the Act. and pursuant to the orders of the High Court or any other appropriate authority sanctioning this Scheme and without further act. Instrument or deed. but subject to the charges affecting the same as on the Effective Date. be transferred and / or deemed to be transferred to and vested in the Transferee Com an so as to become the properties and assets of the Transferee Company." (Emphasis supplied) iii. As it was a case of transfer of business undertaking including all assets and liabilities due to a statutory vesting by virtue of amalgamation, there was no separate consideration determined (or for that matter can be determined) for transfer of such shares individually and in absence of specific consideration for each such shares received on amalgamation, the computation mechanism would also fail. iv. Based on the above, since it is case of receipt of business undertaking per se due to a statutory vesting and cannot be viewed as receipt of individual shares and also since the computation mechanism under section 56(2)(viia) would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es i. The underlying investment held by amalgamating company, Zinger Investments Pvt Ltd, was 0.001% non-convertible redeemable preference shares of GVK Projects & Technical Services Limited (refer pg. 290 of Paper Book. Therefore, pursuant to merger, the Assessee received the preference shares of GVK Projects and Technical Services Limited. However, the Ld. AD erroneously considered the same as equity shares and computed the addition under section 56(2)(viia) applying NAV method provided under Rule 11UA(l)(C)(b) of the Income Tax Rules, 1962 ("the Rules). ii. As per Rule 11UA of the Rules, the computation mechanism of equity shares is different from the computation mechanism for preference shares. For your ready reference the relevant provisions of Rule 11UA(l) of the Rules is reproduced below: "11UA. (1) . (c) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the Respondent may obtain a report from a merchant banker or an accountant in respect of such valuation." iii. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of section 56(2)(viia) is not applicable to quoted shares. Based on the above submissions, the Assessee submits that the addition under section 56(2)(viia) in respect of the underlying investment in Metro Architects & Contractors (P.) Limited, Trinity Advisors Private Limited and Vertex Infratech Private Limited does not sustain. iii. Without admitting and only for sake of argument, if provisions of section 56(2)(viia) of the Act are considered to be made applicable, it is submitted that the FMV of shares held by Vertex Infratech (P) Ltd in GVK Energy Holdings was wrongly calculated as INR 135.32 by AO instead of INR 13*53 by erroneously considering total amount of paid up equity shares as INR 5 lakhs instead of INR 50 lakhs. Consequently, the addition u/s 56(2)(viia) as computed by AO will reduce from INR 3.22 crores to INR 12.321akhs (refer handout). C. ADDITION UNDER SECTION 56(2)(viia) OF THE ACT WITH RESPECT TO INVESTMENT IN PREFERENCE SHARES (GROUND NO.4 OF REVENUE APPEAL) 1) Brief facts i. During the financial year relevant to the AY under consideration, the Assessee made investment of INR 3.39 crores by way of subscription to 7% redeemable non-cumulative prefere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hand to another i.e. a 'transfer'. In other words, there is a 'transfer' of the property impliedly envisaged in the provisions of section 56(2)(viia) of the Act. This means that if there is no 'transfer' involved in the transaction, the provisions of section 56(2)(viia) of the Act will not come in to play. iv. The legal position, as predominantly held by Courts in company law cases, is that there is 'no transfer' involved on allotment of shares by the Company. In this regard, the Assessee wishes to place reliance on the decision of Hon'ble Supreme Court in the case of Khoday Distilleries Ltd.v wherein the Hon'ble Apex Court has held that 'allotment of right shares by the Company involves no transfer'. The relevant extracts are reproduced below: "There is a vital difference between "creation" and "transfer" of shares. As stated hereinabove, the words "allotment of shares" have been used to indicate the creation of shares by appropriation out of the unappropriated share capital to a particular person. A share is a chose in action. A chose in action implies existence of some person entitled to the rights in action in contradistinctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares at prices much below their fair market value, section 56 was amended to also include within its ambit transactions undertaken in shares of a company (not being a company in which public are substantially interested) either for inadequate consideration or without consideration where the recipient is a firm or a company (not being a company in which public are substantially interested) " vii. The above clearly provides that section 56(2)(viia) seeks to apply only to cases of "transfer." Thus, the term "receive" is required to be interpreted in a narrow manner. viii. In view of the above, the provisions of section 56(2)(viia) of the Act should apply only where there is a 'transfer' of property involved from a 'giver' to a 'receiver', which feature is absent in an allotment of shares. Accordingly, the action of the Ld. AO to invoke the said provisions in the instant case is bad-in-law and the entire addition made should be deleted. b) Existence or three distinct parties i. For the applicability of section 56(2)(viia), there should exist three parties: (1) the company which is receiving the shares; (2) the person transferring the shares and (3) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... session. There is a difference between issue of a share to a subscriber and the purchase of a share from an existing shareholder. The first case is that of creation whereas the second case is that of transfer of chose in action." (Emphasis Supplied) vi. In case of fresh issue of shares, the issuing company creates or brings into existence a new asset which did not exist earlier. Clearly, therefore, the issuing company is not the donor neither does the fresh issue involve existing property. Accordingly, in the absence of a donor, section 56(2)(viia) of the Act should not apply. vii. While it is true that for a receipt, there must be two parties viz. giver and receiver, for section 56(2)(viia) to apply, the subject matter of the receipt should be 'shares'. The Hon'ble Apex Court in the case of Sri Gopal Jalan & Co vs. Calcutta Stock Exchange Association Ltd14 has clarified that a company allotting shares cannot be regarded as giving shares, since, shares come into existence for the first time in the process of allotment. The relevant extract is reproduced below: " Mr. Wynn Parry endeavoured heroically to establish the proposition that a share before issue was an e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the valuation methodology adopted by the Assessee cannot be rejected by the tax authorities. NAV method is not at all a method prescribed for shares and securities other than equity shares, in which category preference shares falls. The method applicable in the present case is as contained in Rule 11UA(c)(c). Hence the AO's adoption of the method as per Rule 11UA(l)(C)(b) [i.e. NAV method] does not have the sanction of law. Reliance in this regard is placed on the decision of the Hon'ble Mumbai Tribunal in the case of Kilitch Healthcare India Ltd. iii. Without prejudice to the above, the Assessee submits that even if section 56(2)(viia) is considered to be applicable, then also addition is not warranted since the FMV of such preference share as per the valuation report obtained from an accountant is the face value of such preference shares (i.e. INR 10) which is equal to the consideration paid for acquisition of such shares. Hence there is no inadequate consideration, warranting addition under section 56(2)(viia) of the Act. ANNEXURE-1 The Hon'ble Bench during the course of the hearing held on January 11, 2023, sought certain clarifications in relation to Ground No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the transferee company (holding company) with all attendant consequences. It is equally relevant to notice that the Courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme." (Emphasis Supplied) ii. Further, the provisions of sub-section (6) of section 232 of Companies Act, 2013 provides that the scheme of amalgamation shall indicate an 'appointed date' from which the scheme shall be deemed to be effective and that the scheme will be effective from that date and not at a date subsequent to the appointed date. iii. Even under the scheme in the present case, there is a similar clause which states the following (clause 2 of Part I of the scheme) (Refer pg 121 of Paperbook) "2. EFFECTIVE DATE AND OPERATIVE DATE The scheme though operative from the Effective Date shall be effective from the Appointed Date." iv. Drawing analogy from the above decision of the Hon'ble Apex Court, the scheme of amalgamation in the present ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the scheme was to come into operation as provided in the scheme. In the present case, the sanction granted to the scheme specifically provide the date 1-4-1993 as an appointed date and, thus, the said scheme would be effective and in operation from 1-4-1993. Thus, consequently, the settler-company stood dissolved and ceased to be in existence with effect from 1-4-1993." (Emphasis Supplied) vi. The Hon'ble Gujarat High Court in the case of IRM Ltd. IS (refer Annexure-5), held that when a scheme of amalgamation had been sanctioned by High Court same would be from appointment date and therefore the claim of carried forward unabsorbed depreciation and loss of amalgamating company would be allowed from the appointed date itself. The relevant extracts are reproduced below: "13 .... However, the moment the scheme was sanctioned as per the decision of Supreme Court in case of Marshall Sons & Co. (India) Ltd. (supra), it would relate back to the appointed date as envisaged under the scheme unless of-course the High Court shifts such date while approving the scheme" (Emphasis Supplied) vii. In the case of National Organic Chemical Industries Ltd. v. State of Maharashtra'9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angement and Amalgamation, it cannot be said that there is no consideration or inadequate consideration" (Emphasis Supplied) x. Based on the above submissions, the Assessee submits that there is no separate definition of appointed date under the provisions of the Act and hence by virtue of the ratio held by the Hon'ble Apex Court in Marshall Sons (supra), the legal date of transfer under all laws is only the appointed date. Unless the Income Tax Act provides a different date for the definition of appointed date, the position is that we should go by the general law as laid down by the Hon'ble Apex Court. The Assessee further reiterates that the decisions of Dalmia (SC) and IRM Ltd (Gujarat HC) are rulings rendered in the context of Income Tax Act, where this position of appointed date as laid in Marshall Sons (supra) has been recognized and followed. 2) What is the status of reassessment proceedings for A Y 2012-13? i. The Assessee submits the status of the reassessment proceedings, which shows that the reassessment proceeding is dropped for AY 2012-13 (refer Annexure-8). 15. We have heard the rival contentions of the parties and perused the material available on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pay tax in respect of the income in question is finally determined it may not be possible to safely predicate that it is the income of one and not of the other, and the respondent's case appears to be that in such circumstances protective assessments have to be made so that the income may not escape taxation altogether. In other words, the respondent's case clearly is that the notices issued against the two brothers by their respective Income-tax Officers are intended to determine who is responsible to pay tax for the income in question; now though Mr. Nambiar wanted to argue that protective or precautionary assessment of tax is not justified by any of the provisions of the Act he did not seriously contest the position that at the initial stage it would be open to the income-tax authorities to determine by proper proceedings who is in fact responsible for the payment of tax, and that is all that is being done at the present stage. In cases where it appears to the income-tax authorities that certain income has been received during the relevant assessment year but it is not clear who has received that income and prima facie it appears that the income may have been received e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we have to examine whether protective assessment/addition is possible under section 147 in respect of the same person and for the same period. When a regular assessment is made and later on it comes to the notice of the Assessing Officer that some income chargeable to tax has escaped assessment, he can resort to these provisions for reassessment. But if, as is the case under consideration, after the passing of the regular assessment order, the Assessing Officer has passed a block assessment order under section 158BC pursuant to search and seizure proceedings under section 132 and included one income in the block assessment, is he empowered to include the same income, on protective basis, in the reassessment of the original regular assessment for the year, which is included in the block period? Before answering this question, it will be relevant to see the effect of the answer in positive or negative. If the answer is given in affirmative it will mean that the Assessing Officer is empowered to include it in the reassessment on the protective basis. Thus there will be presumption that though the Assessing Officer had included such income in the block assessment, but he still has the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dy been made in block assessment of the assessee, thereby leaving no income escaping assessment. Under these circumstances we are satisfied that having made addition of Rs. 527.85 lakhs in the block assessment, the Assessing Officer was not justified in forming the belief, either on substantive or protective basis, that the same income has escaped assessment in the instant year. In Wipro Finance Ltd.'s case (supra) there was search action on the assessee. Some income was assessed as undisclosed income for the block period. The Assessing Officer made addition for the same in regular assessment on protective basis. When the matter came up before the Hon'ble High Court, it was held that the same income which was assessed as the undisclosed income for the block period, could not have been assessed even on protective basis in regular assessments under section 143 for those years. In the instant case we are concerned with the reassessment, in which there are more restraints on the power of the Assessing Officer. We, therefore, hold that the initiation of reassessment proceedings on this count cannot be upheld." 16. The coordinate Bench in the case of Ramachandran (supra) had mentioned t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ands of the assessee. During the previous year relevant to the assessment year under consideration, the assessee got a reimbursement of Rs. 55.86 lakhs from the company. The assessee did not furnish the basis of reimbursement of expenses. The Assessing Officer compared advertisement expenses claimed by the assessee in his personal books of account and JLL. After a detailed analysis the Assessing Officer observed that the assessee had debited Rs. 583.71 lakhs as expenditure relatable to JLL whereas only reimbursement to the tune of Rs. 55.86 lakhs was made leaving a balance of Rs. 527.85 lakhs which was not reimbursed. It was held that the advertisement expenditure to this extent was not related wholly and exclusively for the business activities of the assessee. He, therefore, disallowed such expenditure and made addition of Rs. 527.85 lakhs in the order passed under section 147 on protective basis. The Assessing Officer further observed on page 12 of the assessment order that the block assessment was completed for the block period from 1-4-1990 to 3-11-2000 vide order dated 30-11-2002 in the case of the assessee in which the similar addition of Rs. 527.85 lakhs was also made. The s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... weighed in the minds of the Tribunal was that neither substantive nor protective addition can be made once the said addition was already made in the block assessment. Therefore, the decision of the Co-ordinate Bench is not applicable. 18. In our view, the decision of the Hon'ble Supreme Court had categorically held in the case of Lalji Haridas (supra) that the protective / precautionary addition can be made. Further, if the substantive additions are deleted either on law or on facts, then the protective addition would be converted into substantive addition. 19. In the present case, the return of income was filed by the assessee and during the scrutiny assessment, the Assessing Officer noticed that the order was passed by the Hon'ble High Court on 10.10.2013 which was subsequently amended on 31.12.2013. In the scheme of amalgamation approved by the Hon'ble High Court provides the date of transfer as 01.04.2011. By virtue of order of Hon'ble High Court, assessee receives shares of 11 companies which were merged with the assessee along with the other underlined properties. As per our understanding, there is a distinction between "receive of property being the shares of the amal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ings for A.Y. 2014-15 ,on the basis of protective addition, cannot be put in abeyance till the additions are made on substantive basis for A.Y. 2012-13. In view of the above, we are not in agreement with the contention of the ld.AR that the substantive addition should precede the protective addition. 21.1 We may further point out that though the assessee had made the plea on the submission that section 148 proceedings initiated against the assessee for A.Y. 2012-13 had been dropped, which were initiated on substantive basis, but the said contention was not dealt by the ld.CIT(A) while passing the impugned order. However, we may point out the submission of the assessee, at page 6 to the following effect : "vii. The Respondent would like to submit that reassessment proceeding for AY 2012-13 were initiated and the reasons for reopening issued along with the approval under section 151 dated March 31, 2019, clearly states that reopening is done for AY 2012-13 on a substantive basis to bring to tax the impugned addition under section 56(2)(viia) with respect to shares received pursuant to amalgamation (Refer Pg 356 of Paper book ). A notice under section 148 dated March 31, 2019, was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Exchange Board of India Act, 1992 (15 of 1992), but does not include- (i) any stock-in-trade [other than the securities referred to in ................................................................................... ........................ 24. Section 56(2) provides as under : 56. (1) Income of every kind which is not to be excluded from the total income under this Act shall be chargeable to income-tax under the head "Income from other sources", if it is not chargeable to income-tax under any of the heads specified in section 14, items A to E. (2) In particular, and without prejudice to the generality of the provisions of sub-section (1), the following incomes, shall be chargeable to income-tax under the head "Income from other sources", namely :- (viia) where a firm or a company not being a company in which the public are substantially interested, receives, in any previous year, from any person or persons, on or after the 1st day of June, 2010, any property, being shares of a company not being a company in which the public are substantially interested,- (i) without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides that if an income is chargeable under specific provision [56(2)(viia)] then the general provision exempting such income [47(vi)] shall not be applicable. Even otherwise, the clause (vi) of section 47 is not excluded from the purview of section 56 of the Act. 25. At this stage, it is essential to reproduce relevant portion of the Explanatory notes to the provisions of the FINANCE ACT, 2010 forming part of CIRCULAR NO.1/2011 [F.NO. 142/1/2011-SO(TPL)], DATED 6-4-2011, which reads as under : 13.Taxation of certain transactions without consideration or for inadequate consideration 13.1 Under the previously existing provisions of section 56(2)(vii), any sum of money or any property in kind which is received without consideration or for inadequate consideration (in excess of the prescribed limit of Rs. 50,000) by an individual or an HUF is chargeable to income-tax in the hands of recipient under the head 'income from other sources' . However, receipts from relatives or on the occasion of marriage or under a will are outside the scope of this provision. The existing definition of property for the purposes of section 56(2)(vii) includes immovable property being lan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to remove the stipulation regarding transactions involving cases of inadequate consideration in respect of immovable property. 13.6 Applicability - These amendments have been made effective retrospectively from 1st October, 2009 and will, accordingly, apply in relation to the assessment year 2010-11 and subsequent years. 13.7 The definition of 'property' as provided under section 56 has been amended to include transactions in respect of 'bullion' . This amendment has been made effective from 1st June, 2010 and will, accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 13.8 Section 142A(1) has been amended to allow the Assessing Officer to make a reference to the Valuation Officer for an estimate of the value of property for the purposes of section 56(2). This amendment has been made effective from 1st July, 2010 and accordingly, apply in relation to the assessment year 2011-12 and subsequent years. 26. From the conjoint reading of section 56(2)(via), section 47(vi) and section 2(IB) of the Act and explanatory notes reproduced above, it is abundantly clear that the transactions which are falling within the purview of sections / ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee company. Undoubtedly, the transfer of shares precedes the receive of shares. The bare reading of provisions of section 56(2)(viia) of the Act, makes it abundantly clear that the receive of any property without or inadequate consideration or a consideration less than the fair market value is sine qua non for attracting this provision. The language used in the section does not stipulate transfer of shares. In our view, the word 'receive' used in the section includes the receive by way of transfer of shares also. The meaning of the word 'receive' as per Oxford Dictionary is "to get or accept something that is sent or given to you". 28. In the light of the above, if we examine clause 4.1 of the Scheme of Amalgamation, whereby it is provided that pursuant to the order of high court or any other appropriate authority sanctioning the scheme the assets be transferred and are deemed to be transferred to and vested in the transferee company. Undoubtedly, the transfer of shares (assets) have taken place and therefore, it would be wrong to say that on the part of the assessee there were no transfer of shares. In fact, as mentioned in the scheme of amalgamation, the transfer of sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shares of Rs. 1000/- each fully paid-up 28,88,000 The present Share Capital of GVK Energy / 4th Transferor company is as under:- Particulars Amount in Rupees Authorized 2000000 Equity Shares of Rs. 10/- each 2,00,00,000 Issued, Subscribed and paid-up 5,00,000 Equity Shares of Rs. 10/- each fully paid-up 50,00,000 The present Share Capital of GVK Hydel / 5th Transferor company is as under:- Particulars Amount in Rupees Authorized 1,00,000 Equity Shares of Rs. 10/- each 10,00,000 Issued, Subscribed and paid-up 10,000 Equity Shares of Rs. 10/- each fully paid-up 1,00,000 The present Share Capital of Marwell / 6th Transferor company is as under:- Particulars Amount in Rupees Authorized 50,000 Equity Shares of Rs. 10/- each 5,00,000 Issued, Subscribed and paid-up 10,000 Equity Shares of Rs. 10/- each fully paid-up 1,00,000 The present Share Capital of Metro /7th Transferor company is as under:- Particulars Amount in Rupees Authorized 20,00,000 Equity Shares of Rs. 10/- each 2,00,00,000 Issued, Subscribed and paid-up 10,000 Equity Shares of Rs. 10/- each fully paid-up 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilities (including contingent liabilities) and all cash and bank balances appertaining or relatable to the Transferor Companies and all permits, rights, entitlements, registrations for carrying on business operations and activities and other licenses including approvals, permissions, consents from various authorities including municipal/statutory bodies(whether granted or pending), receivables, benefit of any deposits, assets, properties or other interests, financial assets including investments made by way of equity by the Transferor & Transferee Companies in other body corporates which are not party to this scheme, all kinds of funds belonging to or utilized for the Transferor companies, bank accounts privileges, all other rights and benefits including any tax, direct or indirect including advance tax paid or any tax deducted in respect of any income received, exemptions, tenancies in relation to office and/or residential properties for the employees, memberships, lease rights, powers and facilities of every kind, nature and description whatsoever, rights to use and avail of telephones, internet servers, facsimile connections and installations, utilities, electricity and other se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th in the closing balance sheet of the Transferor Companies as of the close of business hours on the date immediately preceding the Appointed Date. 4.5 Part III of the Scheme has been drawn up to comply with the conditions relating to "Amalgamation" as specified under section 2(1B) of the Income-tax Act, 1961. If any terms or provisions of the Scheme is/are inconsistent with the provisions of section 2(1B) of the Income tax Act, 1961, the provisions of section 2(1B) of the Income-tax Act, 1961 shall prevail and the Scheme shall stand modified to the extent necessary to comply with Section 2(1B) of the Income-tax Act, 1961. Modifications will however, not affect the other parts of the Scheme. 32. As per clause 5 of the Scheme of Amalgamation, the transferee company namely, Vertex Projects Limited in consideration of transfer undertaking had agreed to allot the equity shares @ Rs.10/- to the shareholders of the transferor company, in the following manner : The summary of consideration is mentioned as under : Blue Streak"/ 1st First Transferor Company M/s. Vertex Projects Limited shall allot 10000 equity shares of Rs.10/- each fully paid up in proportion to the shares held by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oss holding of investments made amongst the Transferor and Transferee Companies and further such issue of shares shall be carried out in accordance with the provisions of the Act. 5.3 Such equity shares to be issued and allotted by the transferee company to all the members of the respective transferor companies in term of clause 5 above shall rank parl passu in all respects, with the existing shares of the transferee company. 5.4 Upon this scheme becoming effective, the authorized share capital of Transferee company shall automatically stand increased without any further act, instrument or deed, by the authorised equity share capital of Transferor companies amounting to Rs.74,67,00,000 comprising of equity shares of Rs.10/-(Rupees Ten only) each. 5.5 The memorandum and articles of association of Transferee Company (relating to authorised share capital) shall without any further act, instrument or deed, be and stand altered, modified and amended, and the consent of the shareholders to the Scheme shall be deemed to be sufficient for the purpose of effecting this amendment, and no further resolution(s) under section 16, and section 94 and section 31 or any other applicable provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of tax paid as deduction or collection at source or as advance tax payment as reduced by the amount of tax claimed as refund under the Income-tax Act, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v)any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PE=total amount of paid up equity share capital as shown in the balance sheet; PV= the paid up value of such equity shares; (C) the fair market value of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.] 3.10 Accordingly, the fair market value of un-quoted shares held by Casurina Capital and Finance(P) Ltd is worked out as under:- S.No. Name of the company FMV of shares (A-L)/PEXP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9682) Total amount of paid up equity shares(PE) 3040,00,000 Paid up value of shares(PV) 10.00 FMV of shares=(A+L/PE X PV 10.75 Share price fixed No. 155,04,000 Amount 1547,29,920 Value 9.98 Difference in value 0.77 Difference in amount 119,16,791 Amount to be considered 119,16,791 3.12 The fair market value of un-quoted shares held by Trinity Advisors(P) Ltd., is as under:- Name of the company Vertex Infratech (P) Ltd. GVK Energy Holdings Ltd. As on 31-03-2013 As on 31-03-2013 Book Value of assets in the balance sheet reduced by TDS/tax paid(A) 13247,55,484 5138,43,899 1324766909-11425 5138,43,899 Book value of liabilities excl capital/reserves/provision/contingent liabilities(L) 9979,97,227 5070,78,075 1324766909- (304000000+22769682) 513843899-(5000000+1765824) Total amount of paid up equity shares(PE) 3040,00,000 50,00,000 Paid up value of shares(PV) 10.00 10.00 FMV of shares=(A+L/PE X PV 10.75 13.53 Share price fixed No. 138,82,500 2,35,000 Amount 1388,25,000 23,50,000 Value 10.00 10.00 Difference in value 0.75 3.53 Difference in amount 103, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies, were allotted shares of the amalgamated company at face value of Rs. 10. The shares of the amalgamating companies along with the underlying assets (including quoted and unquoted shares, preferential shares etc.,) have been received as per the transfer scheme by the amalgamated company. The amalgamated company had not paid any fair market value of the assets received by it in the form of shares to the amalgamating companies. 35. In the present case, due to the scheme of amalgamation, the assessee received the shares of 11 amalgamating companies along with underline properties including the shares of various companies and in consideration thereof, had allotted the number of shares at face value of Rs.10/- to various shareholders of the said 11 amalgamating companies. In this way / practice, not only, the transfer of 11 amalgamating companies have taken place but also the transfer of unlisted / listed shares / preferential shares below the market rate have taken place. The argument of the ld.AR is that there is no transfer of shares in the eyes of law, as there is absence of transferor and transferee and there is no receive of shares, whatever transfer of receive of shares h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purview. The intention of the legislature was manifest when it had only excluded clause (via) or clause (vic) or clause (vicb) or clause (vid) or clause (vii) of section 47 of the Act. The legislature had deliberately not excluded section 47(vi) from the applicability of section 56(2)(viia) of the Act. 41. The ld.CIT(A) without applying his mind had come to the conclusion that the shareholding and shareholders were identical and even post amalgamation, the holders were the same and the shareholding was in the same ratio. The ld.CIT(A) has lost his sight to the provision of section 56(2)(vii) which contemplates that the receipt of any property being shares of an unlisted company in which public are not substantially interested by a company in which public are not substantially interested. It has nothing to do with the shareholding patterns by the shareholding companies and amalgamated companies. The ld.CIT(A) should have examined the applicability of section 56(2)(viia), in the light of the criteria laid down therein. In the present case, the assessee received the property being the shares of the "amalgamating companies" along with the shares held by these amalgamating companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of section 56(2)(viia) by virtue of explanation and proviso to it. Lastly, the decision in the case of Marshall and Company (supra) is also not applicable as it was not rendered in the context of section 56(2)(viia) of the Act. In view of the above the finding of the ld.CIT(A) are set aside and the order of Assessing Officer invoking the provision of section 56(2)(viia) of the Act is restored. Thus, ground No.2 of Revenue's appeal is allowed. GROUND NOS.3 AND 4 43. Having held that the Assessing Officer was right in invoking the provision of Section 56(2)(viia), we have to determine whether the amount charged by the Assessing Officer on account of receive of shares, was in accordance with law or not ? In this regard, the ld.DR had submitted that the ld.CIT(A) had granted the relief to the assessee on the technical grounds and has not given any finding as to the basis for making the deduction of Rs.55,92,49,590/- and Rs.5,14,80,679/- as the ld.CIT(A) refrained from deciding ground Nos.2(i), 2(ii), 3(i) and 3(ii) of the assessee's grounds of appeal before him. It was submitted that the ld.CIT(A) was duty bound to decide the grounds raised by the assessee. 44. Per contra, the ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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