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TMI Blog2024 (12) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... n the order of the CIT(A) in this regard. Hence, we decline to interfere. Taxation offered by the assessee as LTCG - CIT(A) found the reasoning of the AO that some unaccounted money was converted into legitimate the money as baseless and unfounded. The assessee has not claimed any benefit of exemption u/s 10(38) of the Act on such LTCG and has merely applied special rate of tax @ 20% as prescribed u/s 112 at LTCG. The purchase transactions carried out in the earlier years could not be disturbed in a subsequent year to deny the concessional rate of tax claimed by the assessee as available under the provisions of the Act. The findings of the Ld.CIT(A) in our view, is based on sound footing and thus, does not call for any interference. The appeal of the Revenue is thus, liable to be struck down on both counts. - Shri Pradip Kumar Kedia, Accountant Member And Shri Vimal Kumar, Judicial Member For the Appellant : Shri Amit Shukla, Sr.DR For the Respondent : Shri Suresh Gupta, CA ORDER PER PRADIP KUMAR KEDIA, AM : The captioned appeal has been filed at the instance of the Revenue seeking to assail the First Appellate order dated 16.03.2022 passed by Ld. Commissioner of Income Tax (A), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act declaring total income of INR 2,19,10,571/-. The Assessing Officer ( AO ) completed the assessment proceedings under s. 143(3) of the Act by making additions of INR 2,34,91,510/- attributable to disallowance of exemption claimed under s. 10(34A) of the Act. The AO while computing the assessed income also treated Long Term Capital Gain ( LTCG ) of INR 1,63,92,653/- as income from other sources and thus denied benefit of special rate of tax available to LTCG under s. 112 of the Act. 4. Aggrieved, the assessee preferred appeal before the Ld. CIT(A). It was contended before the Ld.CIT(A) that the AO has wrongfully denied the claim of exemption under s. 10(34A) of the Act. It was contended that the benefit of exemption under s. 10(34A) of the Act was denied on the ground that the unlisted companies have entered in buyback of its shares from the assessee. However, such unlisted companies have not fulfilled their tax payment obligations contemplated under s. 115QA of the Act. In counter, the assessee contended that non-fulfillment of tax obligation by the unlisted companies, if any cannot result in denial of exemption available under s. 10(34A) of the Act to the shareholders ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this process, original allottees incurred substantial losses to the extent of premium paid. As Magical Enterprises Pvt. Ltd. got converted into Magical Enterprises LLP, in current F.Y. 2015-16, it became owner of the shares of 5 companies bought from the original allottees. In the current A.Y., the five companies bought back the shares at their respective issue prices (inclusive of premium) leading to profits by the appellant due to difference in purchase price from original allottees at face value (without premium) and buyback by issuer companies at issue price which included face value and premium. This profit of Rs. 2,34,91,510/- was claimed by the appellant as exempt u/s. 10(34A) of the Act. The AO proceeded to conduct enquiries on the angle of infusion of appellant's own unaccounted funds through scheme of original allottees and recorded statements of directors of the five issuer companies. The AO noted that there were no details available about the original allottees and sample verification of return of income of original allottees indicated that these allottees had poor financials and no creditworthiness. Based on these findings, the AO concluded that distributed profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued to the original allottees. This led to gain of Rs. 2,34,91,510/- in the case of appellant by virtue of difference in the price paid for purchase at face value and buyback share price which included premiums also. This was claimed as deduction u/s. 10(34A) of the Act. The 5 companies did not have any income in the buyback process due to no differential in issue price and buyback price, so as to suffer tax u/s. 115QA of the Act. The AO's sole point of disallowance is non-existent original allottees and related parties buyback transactions. The facts indicate that the appellant did not receive any funds from original allottees and even original allottees who invested in shares of the 5 companies were in F.Yrs. 2007-08, 2008-09, 2009-10, which also stood concluded in the assessments of these 5 companies. Hence, I do not find any violation of provision of Section 115QA or Section 10(34A) to disallow the appellant's claim merely on some vague findings and that too of past several years like 2007-08, 2008-09 2009-10. In the current assessment year, the claim of Section 10(34A) is found to be as per the provisions of the Act. 2. The other issue for disallowance is found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings, the appellant pointed out that there was no claim of exemption u/s. 10(38) of the Act as regards LTCG of Rs. 1,63,92,653/-. It was also contended that the AO did not grant any opportunity before taking such adverse view and incorrect appreciation of facts. The appellant has submitted that out of 20000 shares of SAM India Buildwell Pvt. Ltd., 5000 shares were offered for buyback @ Rs. 400/- per share and remaining 15000 shares were sold @ Rs. 500/- per share. Similarly, out of 43500 shares of Space India Realteck Pvt. Ltd., 10874 shares were offered in buyback @ Rs. 375/- per share and balance 32626 shares were sold @ Rs. 300/- per share to Arvind Goel. The LTCG arising at Rs. 1,63,92,653/- was duly shown in the return of income and tax @ 20% as per section 112 was paid. Hence, it was contended that the AO had incorrect appreciation of facts on this issue. I have gone through the return of income and computation of total income of the appellant and found that there was no claim of exemption u/s. 10(38) of amount of Rs. 1,63,92,653/-. In fact, tax @ 20% on Rs. 1,63,92,653/- was worked out and paid. Hence, there is no case for any addition and the same is hereby deleted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs who in turn, sold these shares to erstwhile assessee company at face value or meager premium. The assessee thus sold the shares at hefty buyback price resulting in huge profits without payment of tax. 9.2. Based on these findings, the AO concluded that the exemption claimed under s. 10(34A) of the Act obtained through alleged non-traceable companies cannot be allowed. 10. The Ld.CIT(A) in first appeal, on nuanced analysis of facts, observed that original allotment of shares at premium were carried in FYs 2007-08, 2008-09 2009-10 to some original allottees. These shares were, in turn, purchased by M/s. Magical Enterprises P.Ltd. in FYs 2009-10 2010-11 at a face value without paying any premium to the original allottees. These five issuer companies however bought back the shares from the transferee company namely, M/s. Magical Enterprises P.Ltd. at premium resulting in gains of INR 2,34,91,510/- in question. The assessee has availed exemption under s. 10(34A) of the Act on such case. The Ld.CIT(A), in such facts, noted that there appears to be no violation of provisions of section 10(34A) of the Act to disallow the assessee s claim merely on some vague findings on bonafides of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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