9911796707
TMI Blog2023 (9) TMI 1530X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Principal Commissioner of Income Tax failed to appreciate that there was no error or prejudice much less both to warrant the invocation of the provisions of Section 263. 3. For that the provisions of section 263 are not invocable in the facts and circumstances of the case. Chargeability of proceeds received on termination of call option agreement: 4. For that the Principal Commissioner of Income Tax erred in not appreciating that the proceeds received on termination of call option agreement were to be treated as capital gains. 5. For 'that the Principal Commissioner of Income Tax erred in considering the proceeds on termination of call option agreement as assessable under the head 'Business or Profession' 6. For that the Principal Commissioner of Income Tax erred in considering that the impugned proceeds would be chargeable to tax as income u/s.28(va) of the Act 7. For that and without prejudice, the Principal Commissioner of Income Tax erred in not appreciating that revision proceedings cannot be initiated when two views are possible and where one of the views has been adopted by the Assessing Officer. 8. For that the Principal Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee voluntarily accepted disallowance u/s 14A to the tune of Rs. 24.87 Lacs on account of expenditure incurred for investment made for earning the exempt income. However, no such disallowance has been made by Ld. AO in the assessment order. Non-consideration of the said disallowance clearly establishes that Ld. AO did not apply his mind on the submissions made by the assessee on 17.12.2019. The Ld. AO failed to make the additions based on the consent given by the assessee during the course of original assessment proceedings. 3.2 The Ld. CIT-DR further submitted that Ld. AO did not verify the genuineness of the investment activity of the assessee company since the financial statements would show that the assessee was merely acting as conduit for making investments for Kalpataru group in order to exploit 2G license of Aircel Ltd. There was no other activity carried out by the assessee. The activity of the assessee, as per Ld. CIT-DR, was not in accordance with the activity of investment company as defined in Rule 1A(g) of Wealth tax Act, 1957. The assessee was mainly incorporated for the sale and purchase of 2G license indirectly by way of aforesaid activity. The intention of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issions, controverted the arguments of revenue on the ground that it was one particular notice only on which DIN was not cited. The assessment order bears DIN and also specifically mention about assessee's reply dated 17.12.2019 in response to the said notice. Therefore, the validity of notice could not be challenged in this appeal. The fact that AO noted the assessee's reply dated 17.12.2019, would show that the same was received and considered in assessment proceedings. There is distinction between notice conferring jurisdiction and notice calling for information. If there is technical defect in notice calling for information, such a notice could not be considered as an invalid notice. It was further submitted that although the proceedings were e-proceedings and the notices were issued electronically, the scheme had just become operational and personal hearing used to take place. The reply was clearly received in TAPAL on 17.12.2019 i.e., ten days prior to passing of the assessment order which was passed on 28.12.2019. The fact that the reply of the assessee is on record has also been confirmed by the revenue during the course of hearing. Therefore, it could not be said that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Apex Court in the case of State Bank of Patiala vs CIT (259 Taxman 314) and CIT vs Chettinad Logistics P. Ltd. (257 Taxman 2). The Ld. AR took support of CBDT Circular No.14 (XL-35) dated 11.04.1955 which state that AO should not take advantage of the ignorance of the assessee. 4.6 The Ld. AR also supported the case of the assessee on merits. It has been submitted that in terms of Explanation-2 to Sec. 2(14), the term 'property' includes and shall be deemed to have always included 'any rights in or in relation to an Indian Company', including rights of management or control or any other rights whatsoever. In the present case, the right to buy shares of Aircel Ltd. has been relinquished in favour of Global Communications Service Holdings Ltd. (GCSH) against consideration of Rs. 100.50 crores. The call options being the right to purchase shares of Aircel Limited clearly fall within the purview of the term 'capital asset'. There is transfer of profit earning apparatus of the company and hence the consideration has to be treated as capital in nature. The consideration so received by the assessee pursuant to the termination of the call option agreement resulting in relinquishme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Finally, Ld. AR submitted that the aforesaid transactions resulted into giving up a source of income itself in favor of another company and therefore, the same should be treated as transfer of capital asset resulting in capital gains. 4.10 On the issue of disallowance u/s 14A, it has been submitted that there is no exempt income in this year and this disallowance is unwarranted. On the issue of bank interest not offered to tax, Ld. AR demonstrated that the same has been reckoned as business income and treatment of interest as business income is tax neutral and does not prejudice the revenue in any manner. On the issue of set off of business losses, Ld. AR submitted that there was no bar against setting-off of business losses against Long Term Capital Gains in terms of Sec.71(2). 4.11 The Ld. AR summarized its arguments, inter-alia, by submitting that the impugned issue of head of income was already examined by Ld. AO during the course of original assessment proceedings. Based on appreciation of facts, Ld. AO has taken a correct view that the impugned income was to be assessed as capital gains. Nevertheless, Ld. AO adjudicated the issue with due application of mind and took one ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted on page nos. 5 to 8 of the impugned order. In these submissions, the assessee submitted that the assessee was an investment company. The entire funds were invested in certain shares which were held as long-term investments. The equity shares in DDNPL were held as long-term investments under the head 'non-current investment'. The purpose of call option agreement with DDNPL was to purchases the shares of Aircel Ltd. which were held by DDNPL. Considering that the shares were supposed to vest in the assessee company and the same were to be held as investment and further that the call option was not exercised, it should be treated as capital asset. The right to purchase the share was a capital asset. The capital asset as defined in Sec. 2(14) would include property of any kind. As per Explanation as inserted vide Finance Act, 2012, 'property' include any rights in relation to an Indian Company. Therefore, the call option being right to purchase shares of Aircel Ltd. clearly fall within the purview of definition of capital asset. The compensation so received on termination of call option agreement was ascribable to termination of rights in relation to proposed investment and it shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... foresaid, the assessee is in further appeal before us. Our findings and Adjudication 7. Upon perusal of assessment order, it could be seen that one of the notices u/s 142(1) was issued to the assessee on 05.10.2019 calling for certain details. The assessee filed requisite details vide replies dated 25.11.2019, 17.12.2019 and 27.12.2019. The assessment order takes note of the replies of the assessee in opening paragraph. In notice dated 05.10.2019, the assessee was, inter-alia, directed to give a detailed note on business activity carried on by it during the year along with audited financial statements and return of income. The assessee, vide detailed reply dated 17.12.2019, furnished various details and submissions. In Para-2 of the reply, the assessee explained the transaction of Termination of Call option agreement and substantiated its stand as to why the aforesaid income would be taxed as capital gains. To support the same, the assessee relied on the decision of Hon'ble Supreme Court in the case of Vodafone International Holdings BV (341 ITR 1) which triggered amendment to Sec. 2(14) and the amendment provide that property would include any rights whatsoever in relation to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... activity of the assessee company since the financial statements would show that the assessee was merely acting as conduit for making investments in order to exploit 2G license of Aircel Ltd. There was no other activity carried out by the assessee. However, the genuineness of assessee's activities has not been questioned either in assessment order or in impugned revisionary order. The Ld. Pr. CIT merely held an opinion that the income earned by the assessee was to be assessed as 'business income' instead of 'capital gains'. Therefore, this argument has no substance. 11. The argument that the payment received by the assessee was in relation to non-compete and non-solicit application is not supported by the terms of the termination agreement. In the present case, the assessee had a definite right to buy certain shares and the assessee has transferred this right to another entity for a sale consideration which has been offered to tax. The consideration was not received for not carrying out of any activity in relation to any business or profession. Neither there was a bar on the assessee to purchase further shares of Aircel Ltd. Therefore, the provisions of Sec. 28(va) would not apply. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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