9911796707
TMI Blog2025 (1) TMI 239X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 7.4.2021 accepting the returned income of the assessee. 2.1 In the back drops of above facts the assessee. The ld. PCIT called for the assessment records and examined the proceedings. The ld. CIT(A) after going through the case records and assessment records took a view that the order passed by the AO is erroneous and prejudicial to the interest of revenue. Accordingly, the ld. PCIT issued a notice u/s 263 of the Act on 13.3.2024 and called for the reply from the assessee. The assessee in response to the notice issued u/s 263 of the Act has filed its submissions on 18.3.2024. The submissions made by the assessee during the proceedings u/s 263 of the Act are reproduced hereunder for the sake of convenience: 3. Legal submission on applicability of section 263 of the Act (a) Revisionary proceedings under section 263- i can be initiated only if the order passed by learned AO is both erroneous, and prejudicial to the interest of the revenue. ii cannot be initiated on difference of opinion. iii is not permissible if issue examined by the learned AO even if order is silent. iv can be initiated only if the order passed by learned AO is both erroneous, and prejudicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion will be attracted... The phrase "prejudicial to the interests of the Revenue" has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interests of the Revenue. For example, when an Income-tax Officer adopted one of the courses permissible in law and it has resulted in loss of Revenue; or where two views are possible and the Income- tax Officer has taken one view with which the Commissioner does not agree, it cannot be treated as an erroneous order prejudicial to the interests of the Revenue, unless the view taken by the Income-tax Officer is unsustainable in law. It has been held by this court that where a sum not eamed by a person is assessed as income in his hands on his so offering, the order passed by the Assessing Officer accepting the same as such will be erroneous and prejudicial to the interests of the Revenue. 3-4. Hon'ble Supreme Court in the case of Commissioner of Income-tax (Central), Ludhiana D. Max India Ltd. [2007] 295 ITR 282 (SC), had the occasion to examine both the terms, 'erroneous' and 'prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the relevant Assessment Year. Thus, while recording the aforesaid finding. the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set the Tribunal." 3.6. Further, in the decision of Hon'ble Jurisdictional High Court in the case of CIT v. Sarvana Developers [(2016) 387 ITR 239 (Karnataka)] the proceedings under section 263 of the Act was set aside on the ground that the assessing officer had applied his mind and hence, there was no "lack of enquiry" The relevant extract of the said ruling is provided below "19. In the light of the Judgments discussed above, we are of the firm view that the twin test propounded by the Hon'ble Courts for invoking the provisions of Section 263 of the Act, are not satisfied in the present case. As discussed above, the CIT proceeded to initiate proceedings under Section 263 of the Act only on the ground that the Assessing Officer has not assigned any reasons for accepting the valuation of the work-in-progress declared by the Company. As per the materials placed before the Tribunal in the records pertaining to the assessment year in qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice under section 143(2) of the Act and sought clarification on various issues, including the receipt of INR 669,27,63,437 by the Trust from the settlor. 3.15. The Trust had furnished the relevant details and documents to the learned AO, such as the trust deed, the settlement deed, the letter from the settlor, the ledger copies of capital account, bank statement, and the financial statements, partnership deeds, financial statements of partnership firms, to explain the source, nature of the receipt, and taxability, refer section 1 of the submission. 3.16. Therefore, it cannot be said that order passed by the learned AO is erroneous and prejudicial to the interest of revenue, without making inquiries or verification or allowing any relief without inquiring into the claim. The order was based on a possible and permissible view taken by the AO in accordance with the law and facts of the case. 3.17 Based on above, it is very well evident that enquiries were conducted. Responses capturing facts and legal proposition were furnished and learned AO has taken a conscious decision of not making any addition. It is therefore humbly submitted that the very foundation of your notice to rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a v. CGT [1968] 70 ITR 1. It would be at once seen as a result of the above decision, by barely perusing the said definition in section 2(d) that the understanding of the term "consideration" cannot get confined to money alone. The term "consideration" is that which creates a contractual relationship between the promisor and promisee in regard to the performance of promise and in regard to which the parties to the agreement or contract get related to each other. It is more than elementary that the law in regard to consideration tells us that consideration may be relating to a party other than the promisor and promisee illustratively for the benefit of a minor." 4.4. From the above, essential features of consideration are: i. It must move from the promisee or any other person, which means it must be given or done by the person for whose benefit the promise is made, or by any third party at the request of the promisor, with the consent of the promisee. ii. It must be at the desire of the promisor, which means it must be given or done voluntarily and not under coercion, undue influence, fraud, misrepresentation or mistake. lii. It may be past, present or future, which means it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains; 160. (1) For the purposes of this Act, "representative assessee" means (iv) in respect of income which a trustee appointed under a trust declared by a duly executed instrument in writing whether testamentary or otherwise [ including any wakf deed which is valid under the Mussalman Wakf Validating Act, 1913 (6 of 1913).] receives or is entitled to receive on behalf or for the benefit of any person, such trustee or trustees; "161. (1) Every representative assessee, as regards the income in respect of which he is a representative assessee, shall be subject to the same duties, responsibilities and liabilities as if the income were income received by or accruing to or in favour of him beneficially, and shall be liable to assessment in his own name in respect of that income; but any such assessment shall be deemed to be made upon him in his representative capaci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per clause 6. The relevant clauses of 1.6 and 6 are reproduced as under: Clause 1.6, beneficiaries means. a. The Settlor b. The spouse of the settlor c. The children and remoter issue of the settlor d. Such other objects or persons as are added under clause 6 and beneficiaries shall be construed accordingly. 6. Power to add beneficiaries 6.1 The Trustee may, at any time during the Trust Period, declare that any person or class of persons (whether or not in existence or ascertained) or Charity shall be added to the class of Beneficiaries provided that no such person or class of persons or Charity may be or include any Excluded Person. 6.1 In view of the above clause, it is clear that other than relatives also can be included in the beneficiaries. Hence, trust is not created or established solely for the benefit of the relatives of the individual. 6.2 As per the IT Act, relatives means- 1. In case of an individual- 1. Spouse of the individual: 2. Brother or sister of the individual; 3. Brother or sister of the spouse of the individual; 4. Brother of sister of either of the parents of the individual; 5. Any lineal ascendant or descendant of the individu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Bengaluru - 2 ('Ld. PCIT) has erred in passing an order of revision under section 263 of the Income-tax Act, 1961 (the Act) which suffers from legal defects such as being passed in violation of the provisions of the Act and is devoid of merits and is contrary to the facts on record and applicable law and as such liable to be quashed. 2. The Ld. PCIT has finalized the impugned order with improper conclusion without considering the information, arguments and evidence provided by the Appellant B. Validity of revisionary proceedings under section 263 of the Act 1. The impugned order passed by the Ld. PCIT is without jurisdiction as the twin conditions prescribed under section 263 of the Act ie., the order of the Ld. AO shall be 'erroneous' and prejudicial to the interest of revenue, are not satisfied. 2. The Ld. PCIT erred in concluding that the assessment order passed under section 143(3) r.w.s 143(3A) and 143(3B) of the Act for impugned AY is erroneous and prejudicial to the interest of revenue, without appreciating the material on record and submissions made by the Appellant. 3. The Ld. PCIT erred in passing the impugned order, on the allegation that the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of "property" as given in section 56(2)(x) of the Act, the interest in partnership firm are not covered in that definition. Ld. Counsel next contended that expression "shares" used in the definition of "property" as explanation (d) to section 56(2)(Vii) of the Act. 3.3 Counsel for the assessee next contended that even if it is presumed that it is covered in the definition of "property" then the amount received by the assessee cannot be said to be an amount received without consideration. Counsel for the assessee to support this contention has further contended that the trust has received an amount of Rs. 669.27 crores in Fiduciary capacity, which was overridden with an obligation to use that amount only for the benefits of the beneficiaries. Ld. Counsel for the assessee has vehemently referred to definition of "Trust" as given under Indian Trust Act and has also relied upon various judgements to buttress his arguments. 4. The ld. D.R. appearing on behalf of the revenue strongly argued that it is a case where an amount of Rs. 669.27 crores has been received by the assessee without any consideration and this contention of the assessee that the same was received in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 28th January 2018 and diverse other good causes and consideration and in consideration of the love and affection which Anand has towards the beneficiaries of the Trust, Anand hereby grants, transfers, conveys, assigns and assures unto the Trustee (acting on behalf of and in its capacity as trustee of the Trust) his entire Partnership Interest and the Unlisted Shares along with all attendant benefits and entitlements, including all amounts standing to the credit of Anand in the capital account, and all profits that are due or payable to Anand (including profits arising or relating to the period prior to execution of this Deed)." "Annexure-1 Details of Unlisted shares Sl.No. Name of the Company No. of equity shares 1. Silver Needle Hospitality (India) Pvt. Ltd. 175,490 preference shares 2. SilverNeedle Hospitality (India) Pvt. Ltd. 5,000 equity shares" b) Trust was settled on 23.01.2018 with an amount of Rs 10000/- (Settlement deed is at Page Number-31 of the Paper Book) In this deed the definition of securities has been mentioned at Page Number- 36 Clause 1.32. The same is reproduced hereunder for the sake of reference- "Clause 1.32 Securities means: a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2021 and asked the assessee to justify the nontaxability interest/property/shares received by the Trust. h) In pursuance to the above notice the assessee filed part reply dated 02.02.2021(Page No-159- 164) and then filed one more reply dated 08.02.2021. In this reply the assessee has submitted that the assessee has received interest in partnership firms, which is not taxable under the provisions of income tax. Assessee referred to explanation (d) of section 56(2)(vii) for contending that interest in partnership is not covered under the definition of "property". Assessee also referred to the provisions of section 56(2)(x) for arguing that even if the amount of Rs 669.27 Crore is covered in the definition of "property" the amount cannot be taxed as the same has been received from the benefit of relative of individual. This reply of the assessee is silent vis-à-vis transfer of equity and preference shares of the Company (name mentioned somewhere above) i) The above facts are being mentioned to judge whether the AO has conducted adequate enquiries with respect to the issues on which the PCIT has declared the order as erroneous and prejudicial to the interest of revenue. (thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was the abundant duty of the AO to examine the valuation of shares of partnership firms, adopted by the settlor for crediting the capital account of assessee in those firms and the taxability of the same in the hands of the firms and vice versa, which the AO has not done in this case. Therefore, it is a complete case of lack of enquiry. It is settled position of law that tax planning is permissible if it is done within the four corners of law but tax evasion is not permissible. Further if apparent is not real then the courts have power to lift the veil and to see through the transaction as held by the Hon'ble Apex Court in Vodafone case. In this case arrangement of affairs have been done in such a manner that one partner has been made retired and the retirement benefits have been devolved in the favor of third parties and family members. The ought to have examined the issue thread barely. 7. It is settled position of law ITAT has no power to enhance the income of an assessee, or to withdraw the benefit that has been granted by the AO. However, the ITAT has all the powers to examine the applicability of correct provisions before the matters coming to it for adjudication particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y received the interest in partnership firm rather has also received preferential shares and equity of M/s SilverNiddel. Now we examine whether interest in partnership firm is covered in the meaning of expression "property". 10 Expression "property" has two ingredients i.e "shares and securities". In our understanding these terms are not similar in view of the following differences. Shares:- Shares can be used more broadly to mean a part or portion of something. For instance, "sharing" refers to dividing or giving out portions of something among several people. Here it is pertinent to that legislature has not used the words of a company after the term "shares", which means the expression shares as in explanation-2 of section 56(2)(vii) does not mean that the word share is only related to shares of corporate entities only. Securities a. Encompasses a broader range of financial instruments. b. Includes shares, bonds, debentures, mutual funds, and other investment products. c. Can be traded on various financial markets, including stock exchanges, bond markets, and over-the-counter (OTC) markets. Key differences- Between shares and Securities are as under:- Shares Security ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate; (ii) Government securities; and (iii) rights or interests in securities". 12. There are so many other judgments wherein it has been held that shares are a spices of security. 13. In fact the assessee in its trust deed vide clause 1.32 has also defined the term "securities" as under: - "securities" means a) any stock or shares issued by any company........ 13. The above discussion would prove beyond doubt that expression shares and securities as used in explanation(d) of section 56(2)(vii) denotes two different type of properties these properties are distinct and hence the term "and" used between them carries a meaning of "or". There are so many judicial pronouncements wherein it has been held that "and" can be read as "or" when the interpretation requires so. The and/or doctrine is applied in following situations. a) Literal interpretation leads to absurdity: - If reading "and" literally leads to an absurd or un reasonable results, courts may interpret it as "or". b) Contextual analysis supports it :-I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under :- "Applying the said principle to the instant case that the word 'and' used before the 'water sold in sealed container' in the Sl. No. 99 of Notification No. 2/2017-Central Tax (Rate), dated 28-6-2017 is disjunctive nature and lays down that 'water sold in a sealed container' is the another type of water excluded from the said entry along with the aerated water, mineral water, purified water, distilled water, medicinal water, ionic water, battery water, de-mineralized water. Therefore, supply of purified water whether in sealed container or unsealed container not entitled for GST exemption as the purified water excluded from the Sl. No. 99 of Notification No. 2/2017-Central Tax (Rate), dated 28-6-2017. Thus supplying of purified drinking water to the general public in an unsealed container is not exempt from GST. [Para 19]" g) In Ishwar Singh Bindra v. State of UP AIR 1968 SC 1450 the central question before a three judge Bench of this Court was the interpretation of Section 3(b)(i) of the 1940 Act. This Court held: - "11. Now if the expression "substances" is to be taken to mean something other than "medicine" as has been held in ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Apex Court in the case of CIT Vs Raman Chettiar 57 ITR 232(SC). b) K. Rukmani Ammal v. K. Balakrishnan (1973) 91 ITR 631 (Madras High Court) The court observed that a partner's interest in a partnership firm is a species of movable property and can be transferred. c) S. Gurunarayana v. S. Narasimhulu (2004) 7 SCC 472 (Supreme Court of India) The Supreme Court held that a partner's interest in a partnership firm is not merely a financial interest but also includes their right to participate in the management of the firm. d) Sudhir Gopi v. Usha Gopi (2018) 14 SCC 452 (Supreme Court of India) The Supreme Court held that a partner's interest in a partnership firm is a valuable right and can be the subject matter of a partition suit. 14 Above judicial views clearly provide that "interest in partnership firm" falls in the category of "shares" and the same is covered by the provisions of explanation (d) of section 56(2)(vii). Therefore, we reject the contentions of the counsel for the assessee that interest in partnership firm is out of the purview of section 56(2)(X). 15. The next contention raised by the counsel for the assessee is that amount was not rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 45, which deals with the chargeability of capital gains under various circumstances, the assessee has adopted a route of transferring the assets of Partnership firm thorough layers of companies and juristic entities. Therefore, we are not convenience with the arguments of the assessee. 18. Explanation -2 of section 263 has been inserted with effect from 01.06.2015 and applicable to the present case clearly provides as under: - a) The order is passed without making inquiries which should have been made.......... d) the Order has been passed ignoring the decision of Supreme Court which is prejudicial to the interest of assessee 19. The position of facts and law as discussed above would prove beyond doubt that the present case the order of the AO is erroneous in so far as prejudicial to the interest of revenue. The AO has passed the order without making enquiries which should have been made by him. It is equally true that in final stage of assessment, the assessee has not disclosed the transferee of shares of private limited company along with interest in partnership firm in categorical terms. 20. Here we would like to make a reference to the decision of Hon'ble Rajasthan Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
